Exhibit 2
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENTRUST TECHNOLOGIES INC.,
ENABLE ACQUISITION CORP.
AND
enCOMMERCE, INC.
April 18, 2000
Table of Contents
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Page
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ARTICLE I THE MERGER................................................................. 1
1.1 The Merger........................................................................ 1
1.2 The Closing....................................................................... 1
1.3 Actions at the Closing............................................................ 2
1.4 Additional Action................................................................. 2
1.5 Conversion of Shares.............................................................. 2
1.6 Dissenting Shares................................................................. 4
1.7 Exchange of Shares................................................................ 5
1.8 Fractional Shares................................................................. 6
1.9 Options and Warrants.............................................................. 6
1.10 Escrow............................................................................ 7
1.11 Articles of Incorporation and By-laws............................................. 7
1.12 Directors and Officers............................................................ 7
1.13 No Further Rights................................................................. 7
1.14 Closing of Transfer Books......................................................... 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. 8
2.1 Organization, Qualification and Corporate Power................................... 8
2.2 Capitalization.................................................................... 8
2.3 Authorization of Transaction...................................................... 9
2.4 Noncontravention.................................................................. 10
2.5 Subsidiaries...................................................................... 10
2.6 Financial Statements.............................................................. 11
2.7 Absence of Certain Changes........................................................ 11
2.8 Undisclosed Liabilities........................................................... 11
2.9 Tax Matters....................................................................... 12
2.10 Assets............................................................................ 13
2.11 Owned Real Property............................................................... 13
2.12 Real Property Leases.............................................................. 13
2.13 Intellectual Property............................................................. 14
2.14 Contracts......................................................................... 15
2.15 [Intentionally Omitted.].......................................................... 17
2.16 Powers of Attorney................................................................ 17
2.17 Insurance......................................................................... 17
2.18 Litigation........................................................................ 17
2.19 Warranties........................................................................ 17
2.20 Employees......................................................................... 17
2.21 Employee Benefits................................................................. 18
2.22 Environmental Matters............................................................. 20
2.23 Legal Compliance.................................................................. 21
2.24 Customers......................................................................... 21
2.25 Permits........................................................................... 21
2.26 Certain Business Relationships With Affiliates.................................... 22
2.27 Brokers' Fees..................................................................... 22
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2.28 Books and Records................................................................. 22
2.29 Financial Projections............................................................. 22
2.30 Information Statement and Proxy................................................... 22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ENTRUST AND THE TRANSITORY SUBSIDIARY.... 23
3.1 Organization, Qualification and Corporate Power................................... 23
3.2 Capitalization.................................................................... 23
3.3 Authorization of Transaction...................................................... 24
3.4 Noncontravention.................................................................. 24
3.5 Reports and Financial Statements.................................................. 24
3.6 Absence of Certain Changes........................................................ 25
3.7 Litigation........................................................................ 25
3.8 Interim Operations of the Transitory Subsidiary................................... 25
3.9 Brokers' Fees..................................................................... 25
3.10 Intellectual Property............................................................. 25
3.11 Contracts......................................................................... 26
3.12 Information Statement or Form S-4................................................. 26
ARTICLE IV COVENANTS.................................................................. 27
4.1 Closing Efforts................................................................... 27
4.2 Governmental and Third-Party Notices and Consents................................. 27
4.3 Shareholder Approval.............................................................. 27
4.4 Company Operation of Business..................................................... 28
4.5 Entrust Operation of Business..................................................... 30
4.6 Access to Information............................................................. 31
4.7 Exclusivity....................................................................... 31
4.8 Expenses.......................................................................... 31
4.9 Qualification of Merger Shares.................................................... 31
4.10 Indemnification................................................................... 32
4.11 Agreements from Certain Affiliates of the Company................................. 33
4.12 Listing of Merger Shares.......................................................... 33
4.13 Tax Matters....................................................................... 33
4.14 Director.......................................................................... 33
4.15 Employee Benefit Plans............................................................ 33
4.16 Conversion of Company Preferred Stock............................................. 34
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER....................................... 34
5.1 Conditions to Each Party's Obligations............................................ 34
5.2 Conditions to Obligations of Entrust and the Transitory Subsidiary................ 34
5.3 Conditions to Obligations of the Company.......................................... 36
ARTICLE VI INDEMNIFICATION............................................................ 37
6.1 Indemnification by the Company Shareholders....................................... 37
6.2 Indemnification Claims............................................................ 38
6.3 Survival of Representations and Warranties........................................ 41
6.4 Limitations....................................................................... 41
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6.5 Indemnification Representative.................................................... 42
ARTICLE VII TERMINATION................................................................ 43
7.1 Termination of Agreement.......................................................... 43
7.2 Effect of Termination............................................................. 43
ARTICLE VIII DEFINITIONS................................................................ 44
ARTICLE IX MISCELLANEOUS.............................................................. 46
9.1 Press Releases and Announcements.................................................. 46
9.2 No Third-Party Beneficiaries...................................................... 46
9.3 Entire Agreement.................................................................. 46
9.4 Succession and Assignment......................................................... 47
9.5 Counterparts and Facsimile Signature.............................................. 47
9.6 Headings.......................................................................... 47
9.7 Notices........................................................................... 47
9.8 Governing Law..................................................................... 48
9.9 Amendments and Waivers............................................................ 48
9.10 Severability...................................................................... 48
9.11 Construction...................................................................... 48
Exhibit A - Affiliate Agreement
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AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger ("Agreement") entered into as of April 18,
2000 by and among Entrust Technologies Inc., a Maryland corporation ("Entrust"),
Enable Acquisition Corp., a California corporation and a wholly-owned subsidiary
of Entrust (the "Transitory Subsidiary"), and enCommerce, Inc., a California
corporation (the "Company"). Entrust, the Transitory Subsidiary and the Company
are referred to collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company in a transaction that will qualify as a reorganization for federal
income tax purposes under Section 368(a) of the Code (as defined below). In
such merger, the shareholders of the Company will receive common stock of
Entrust in exchange for their capital stock of the Company.
The holders of a majority of each of the outstanding shares of Series A
Preferred Stock of the Company (the "Series A Preferred"), Series B Preferred
Stock of the Company (the "Series B Preferred") and Series C Preferred Stock of
the Company (the "Series C Preferred") have agreed to convert their shares of
Series A Preferred, Series B Preferred and Series C Preferred, respectively,
into shares of Common Stock of the Company (the "Company Common Stock") prior to
the Effective Time (as defined below). The Series D Preferred Stock of the
Company (the "Series D Preferred"), together with the Series A Preferred,
Series B Preferred and Series C Preferred are collectively referred to herein as
"Company Preferred Stock," and the Company Preferred Stock and the Company
Common Stock are collectively referred to herein as the "Company Shares."
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
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Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Surviving
Corporation files the Merger Agreement in the form required by the California
General Corporation Law (the "California Law"), together with the required
officers' certificates and the certificates of satisfaction from the California
Franchise Tax Board for the Transitory Subsidiary and the Company (collectively,
the "Merger Filings"), in accordance with Section 1103 of the California Law,
with the Secretary of State of the State of California. The Merger shall have
the effects set forth in Section 1107 of the California Law.
1.2 The Closing. The closing of the transactions contemplated by this
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Agreement (the "Closing") shall take place at the offices of Xxxxxx Xxxxxxx
Xxxxxxxx & Xxxxxx, Professional Corporation in Palo Alto, California, commencing
at 9:00 a.m. local time two days following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the
transactions contemplated hereby, or on such mutually agreeable later date;
provided, however, that the Closing shall not occur prior to May 24, 2000 (the
"Closing Date"). The Parties shall use their Reasonable Best Efforts (as defined
below) to close the transactions contemplated by this Agreement by May 31, 2000.
1.3 Actions at the Closing. At the Closing:
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(a) the Company shall deliver to Entrust and the Transitory Subsidiary
the various certificates, instruments and documents referred to in Section 5.2;
(b) Entrust and the Transitory Subsidiary shall deliver to the Company
the various certificates, instruments and documents referred to in Section 5.3;
(c) the Surviving Corporation shall file with the Secretary of State
of the State of California the Merger Filings;
(d) Entrust shall deliver a certificate for the Initial Shares (as
defined below) to a bank or trust company or other entity reasonably
satisfactory to the Company appointed by Entrust to act as the exchange agent
(the "Exchange Agent") in accordance with Section 1.7; and
(e) Entrust, J. Xxxxxxx Xxxxx (the "Indemnification Representative")
and a bank or trust company or other entity reasonably satisfactory to the
Company appointed by Entrust to act as the escrow agent (the "Escrow Agent")
shall execute and deliver an escrow agreement in a form mutually agreeable to
the Parties, and Entrust shall deliver to the Escrow Agent a certificate for the
Escrow Shares (as defined below) being placed in escrow on the Closing Date
pursuant to Section 1.10.
1.4 Additional Action. The Surviving Corporation may, at any time after
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the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares.
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(a) General. In consideration of the transactions contemplated
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hereby, Entrust has agreed to issue an aggregate of 10,250,000 shares of Entrust
Common Stock (the "Total Consideration") (i) in exchange for all of the
outstanding Company Shares immediately prior to the Effective Time and (ii) upon
exercise of all of the Options (as defined below) and Warrants (as defined
below), whether vested or unvested, outstanding immediately prior to the
Effective Time.
(b) Series D Preferred and Company Common Stock. At the Effective
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Time, each share (if any) of Series D Preferred issued and outstanding
immediately prior to the Effective Time (other than shares of Series D Preferred
owned beneficially by Entrust or the Transitory Subsidiary, Dissenting Shares
(as defined below) and shares of Series D Preferred held in the Company's
treasury) shall be converted into and represent the right to receive (subject to
the provisions of Section 1.10) such number of shares of common stock, $0.01 par
value, of Entrust ("Entrust Common Stock") as is equal to the Series D
Conversion Ratio (as
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defined below), and each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares of Company Common
Stock owned beneficially by Entrust or the Transitory Subsidiary, Dissenting
Shares and shares of Company Common Stock held in the Company's treasury) shall
be converted into and represent the right to receive (subject to the provisions
of Section 1.10) such number of shares of Entrust Common Stock as is equal to
the Common Conversion Ratio (as defined below).
(c) Conversion Ratios. Except as provided below, the "Series D
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Conversion Ratio" shall be equal to that number of shares of Entrust Common
Stock that has a value (based upon an appraisal by independent competent
appraisers engaged by the Company) equal to $11.82 (representing $9.46 per share
(the "Liquidating Amount") plus $2.36 per share (the "Participating Amount") as
set forth in Section 2 of Article IV of the Company's Articles of
Incorporation). Except as provided below, the "Common Conversion Ratio" shall
be equal to a fraction, (x) the numerator of which shall be the Total
Consideration minus that number of shares of Entrust Common Stock that is equal
to the Series D Conversion Ratio multiplied by the sum of (A) the number of
shares of Series D Preferred (if any) outstanding immediately prior to the
Effective Time and (B) the number of shares of Series D Preferred subject to the
Warrant dated April 11, 2000 issued to Xxxxxxxx Consulting (the "Series D
Warrant") (if any) outstanding immediately prior to the Effective Time and (y)
the denominator of which shall be the sum of (i) the number of shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Company Shares held in the Company's treasury) and (ii) the number
of shares of Company Common Stock issuable upon exercise of the Options (as
defined below) and Warrants (as defined below), issued and outstanding
immediately prior to the Effective Time, whether vested, unvested or subject to
repurchase by the Company following such exercise. Notwithstanding the
foregoing, in the event the Common Conversion Ratio is equal to a number of
shares of Entrust Common Stock, the value (based upon an appraisal by
independent competent appraisers engaged by the Company) per share of which is
less than the Participating Amount, then (1) the Series D Conversion Ratio shall
be equal to that number of shares of Entrust Common Stock that has a value per
share (based upon an appraisal by independent competent appraisers engaged by
the Company) equal to the Liquidating Amount (such number of shares being
referred to as the "Liquidating Portion") plus that number of shares of Entrust
Common Stock equal to the Common Conversion Ratio set forth in clause (2) of
this sentence; and (2) the Common Conversion Ratio shall be equal to a fraction,
(x) the numerator of which shall be the Total Consideration minus that number of
shares of Entrust Common Stock that is equal to the Liquidating Portion
multiplied by the sum of (A) the number of shares of Series D Preferred (if any)
outstanding immediately prior to the Effective Time and (B) the number of shares
of Series D Preferred subject to the Series D Warrant (if any) outstanding
immediately prior to the Effective Time and (y) the denominator of which shall
be the sum of (i) the number of shares of Company Common Stock and Series D
Preferred issued and outstanding immediately prior to the Effective Time (other
than Company Shares held in the Company's treasury) and (ii) the number of
shares of Company Common Stock and Series D Preferred issuable upon exercise of
the Options (as defined below) and Warrants (as defined below), issued and
outstanding immediately prior to the Effective Time, whether vested, unvested or
subject to repurchase by the Company following such exercise. The Series D
Conversion Ratio and the Common Conversion Ratio are collectively referred to
herein as the "Conversion Ratios." The Conversion Ratios shall be subject to
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split or similar event affecting Entrust Common Stock between the date
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of this Agreement and the Effective Time. Shareholders of record of the Company
immediately prior to the Effective Time ("Company Shareholders") shall be
entitled to receive immediately 90% of the shares of Entrust Common Stock into
which their Company Shares were converted pursuant to this Section 1.5(c) (the
"Initial Shares"); the remaining 10% of the shares of Entrust Common Stock into
which Company Shares were converted pursuant to this Section 1.5(c) (the "Escrow
Shares") shall be deposited into escrow pursuant to Section 1.10 and shall be
held and disposed of in accordance with the terms of the Escrow Agreement. The
Initial Shares and the Escrow Shares shall together be referred to herein as the
"Merger Shares."
(d) Each Company Share held in the Company's treasury immediately
prior to the Effective Time and each Company Share owned beneficially by Entrust
or the Transitory Subsidiary shall be cancelled and retired without payment of
any consideration therefor.
(e) Each share of common stock, $0.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and thereafter evidence one share of common stock,
$0.01 par value per share, of the Surviving Corporation.
1.6 Dissenting Shares.
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(a) For purposes of this Agreement, "Dissenting Shares" means Company
Shares held as of the Effective Time by a Company Shareholder who has not voted
such Company Shares in favor of the adoption of this Agreement and the Merger
and with respect to which appraisal shall have been duly demanded and perfected
in accordance with Chapter 13 of the California Law and not effectively
withdrawn or forfeited prior to the Effective Time. Dissenting Shares shall not
be converted into or represent the right to receive the Merger Shares, unless
such Company Shareholder's right to appraisal shall have ceased in accordance
with Section 1309 of the California Law. If such Company Shareholder has so
forfeited or withdrawn his, her or its right to appraisal of Dissenting Shares,
then, (i) as of the occurrence of such event, such holder's Dissenting Shares
shall cease to be Dissenting Shares and shall be converted into and represent
the right to receive the Merger Shares issuable in respect of such Company
Shares pursuant to Section 1.5 and (ii) promptly following the occurrence of
such event, Entrust shall deliver to the Exchange Agent a certificate
representing the Merger Shares to which such holder is entitled pursuant to
Section 1.5 (which shares shall be considered Initial Shares for all purposes of
this Agreement) and shall deliver to the Escrow Agent a certificate representing
the remaining Merger Shares to which such holder is entitled pursuant to Section
1.5 (which shares shall be considered Escrow Shares for all purposes of this
Agreement).
(b) The Company shall give Entrust (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the California Law. The Company shall not, except
with the prior written consent of Entrust or as may be required by applicable
law (in which case the Company shall provide prior written notice to Entrust),
make any payment with respect to any demands for appraisal of Company Shares or
offer to settle or settle any such demands.
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1.7 Exchange of Shares.
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(a) Prior to the Effective Time, Entrust shall appoint the Exchange
Agent to effect the exchange for the Initial Shares of certificates that,
immediately prior to the Effective Time, represented Company Shares converted
into Merger Shares pursuant to Section 1.5 (including any Company Shares
referred to in the last sentence of Section 1.6(a)) ("Certificates"). On the
Closing Date, Entrust shall deliver to the Exchange Agent, in trust for the
benefit of holders of Certificates, a stock certificate (issued in the name of
the Exchange Agent or its nominee) representing the Initial Shares, as described
in Section 1.5. As soon as practicable after the Effective Time and in any
event within five business days thereafter, Entrust shall cause the Exchange
Agent to send a notice and a transmittal form to each holder of a Certificate
advising such holder of the effectiveness of the Merger and the procedure for
surrendering to the Exchange Agent such Certificate in exchange for the Initial
Shares issuable pursuant to Section 1.5. Each holder of a Certificate, upon
proper surrender thereof to the Exchange Agent in accordance with the
instructions in such notice, shall be entitled to receive in exchange therefor
(subject to any taxes required to be withheld under the Code or any provision of
state, local or foreign tax laws) the Initial Shares issuable pursuant to
Section 1.5. Until properly surrendered, each such Certificate shall be deemed
for all purposes to evidence only the right to receive a certificate for the
Initial Shares issuable pursuant to Section 1.5. Holders of Certificates shall
not be entitled to receive certificates for the Initial Shares to which they
would otherwise be entitled until such Certificates are properly surrendered.
(b) If any Initial Shares are to be issued in the name of a person
other than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition to the issuance of such Initial
Shares that (i) the Certificate so surrendered shall be transferable, and shall
be properly assigned, endorsed or accompanied by appropriate stock powers, (ii)
such transfer shall otherwise be proper and (iii) the person requesting such
transfer shall pay to the Exchange Agent any transfer or other taxes payable by
reason of the foregoing or establish to the satisfaction of the Exchange Agent
that such taxes have been paid or are not required to be paid. Notwithstanding
the foregoing, neither the Exchange Agent nor any Party shall be liable to a
holder of Company Shares for any Initial Shares issuable to such holder pursuant
to Section 1.5 that are properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Entrust shall issue in
exchange for such lost, stolen or destroyed Certificate the Initial Shares
issuable in exchange therefor pursuant to Section 1.5. The Board of Directors
of Entrust may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
indemnify Entrust against any claim that may be made against Entrust with
respect to the Certificate alleged to have been lost, stolen or destroyed.
(d) No dividends or other distributions that are payable to the
holders of record of Entrust Common Stock as of a date on or after the Closing
Date shall be paid to former Company Shareholders entitled by reason of the
Merger to receive Initial Shares until such holders surrender their Certificates
for certificates representing the Merger Shares. Upon such surrender, Entrust
shall pay or deliver to the persons in whose name the certificates representing
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such Initial Shares are issued any dividends or other distributions that are
payable to the holders of record of Entrust Common Stock as of a date on or
after the Closing Date and which were paid or delivered between the Effective
Time and the time of such surrender; provided that no such person shall be
entitled to receive any interest on such dividends or other distributions.
1.8 Fractional Shares. No certificates or scrip representing fractional
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Initial Shares shall be issued to former Company Shareholders upon the surrender
for exchange of Certificates, and such former Company Shareholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of Entrust with respect to any fractional
Initial Shares that would have otherwise been issued to such former Company
Shareholders. In lieu of any fractional Initial Shares that would have
otherwise been issued, each former Company Shareholder that would have been
entitled to receive a fractional Initial Share shall, upon proper surrender of
such person's Certificates, receive a cash payment equal to the closing price
per share of Entrust Common Stock on the Nasdaq National Market ("Nasdaq"), as
reported by Nasdaq, on the business day immediately preceding the Closing Date,
multiplied by the fraction of a share that such Company Shareholder would
otherwise be entitled to receive.
1.9 Options and Warrants.
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(a) As of the Effective Time, all options to purchase Company Common
Stock issued by the Company pursuant to its 1997 Stock Option Plan and 1997B
Stock Option Plan ("Options") and the Warrant dated October 15, 1998 issued to
Phoenix Leasing Incorporated, the Warrant dated October 15, 1998 issued to
Xxxxxx Kingsbrook and the Series D Warrant (collectively, the "Warrants"),
whether vested or unvested, shall be assumed by Entrust. Immediately after the
Effective Time, each Option and Warrant outstanding immediately prior to the
Effective Time shall be deemed to constitute an option or warrant (as the case
may be) to acquire, on the same terms and conditions as were applicable under
such Option or Warrant at the Effective Time, such number of shares of Entrust
Common Stock as is equal to the number of Company Shares subject to the
unexercised portion of such Option or Warrant multiplied by the applicable
Conversion Ratio (with any fraction resulting from such multiplication to be
rounded down to the nearest whole number). The exercise price per share of each
such assumed Option and Warrant shall be equal to the exercise price of such
Option or Warrant immediately prior to the Effective Time, divided by the
applicable Conversion Ratio (rounded up to the nearest whole cent). The term,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), if
applicable, and all of the other terms of such Options and Warrants shall
otherwise remain unchanged.
(b) As soon as practicable after the Effective Time, Entrust or the
Surviving Corporation shall deliver to the holders of Options and Warrants
appropriate notices setting forth such holders' rights pursuant to such Options
and Warrants, as amended by this Section 1.9, and the agreements evidencing such
Options and Warrants shall continue in effect on the same terms and conditions
(subject to the amendments provided for in this Section 1.9 and contained in
such notice).
(c) Entrust shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Entrust Common Stock for delivery upon
exercise of the Options and Warrants assumed in accordance with this Section
1.9. Within fifteen days after the receipt
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by Entrust of the consolidated audited and unaudited historical financial
statements of the Company and the Subsidiaries (as defined below) required to be
filed by Entrust with the Securities and Exchange Commission (the "SEC")
pursuant to Item 7(a) of the Current Report on Form 8-K as a result of the
transactions contemplated hereby, Entrust shall file a Registration Statement on
Form S-8 (or any successor form) under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to all shares of Entrust Common Stock
subject to the Options that may be registered on a Form S-8, and shall use its
best efforts to maintain the effectiveness of such Registration Statement for so
long as such Options remain outstanding.
1.10 Escrow.
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(a) On the Closing Date, Entrust shall deliver to the Escrow Agent a
certificate (issued in the name of the Escrow Agent or its nominee) representing
the Escrow Shares, as described in Section 1.5, for the purpose of securing the
indemnification obligations set forth in Article VI of this Agreement. The
Escrow Shares shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Escrow Shares shall be held as a trust fund
and shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of the Escrow
Agreement.
(b) The adoption of this Agreement and the approval of the Merger by
the Company Shareholders shall constitute approval of the Escrow Agreement and
of all of the arrangements relating thereto, including without limitation the
placement of the Escrow Shares in escrow and the appointment of the
Indemnification Representative.
1.11 Articles of Incorporation and By-laws.
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(a) The Articles of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the Articles of
Incorporation of the Transitory Subsidiary immediately prior to the Effective
Time, except that (1) the name of the corporation set forth therein shall be
changed to the name of the Company and (2) the identity of the incorporator
shall be deleted.
(b) The By-laws of the Surviving Corporation immediately following the
Effective Time shall be the same as the By-laws of the Transitory Subsidiary
immediately prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
1.12 Directors and Officers. The directors of the Transitory Subsidiary
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shall become the directors of the Surviving Corporation as of the Effective
Time. The officers of the Company shall remain as officers of the Surviving
Corporation after the Effective Time, retaining their respective positions.
1.13 No Further Rights. From and after the Effective Time, no Company
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Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
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1.14 Closing of Transfer Books. At the Effective Time, the stock transfer
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books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
Entrust, the Surviving Corporation or the Exchange Agent, they shall be
cancelled and exchanged for Initial Shares in accordance with Section 1.5,
subject to Section 1.10 and to applicable law in the case of Dissenting Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As of the date hereof, the Company represents and warrants to Entrust that
the statements contained in this Article II are true and correct, except as set
forth in the disclosure schedule provided by the Company to Entrust on the date
hereof and accepted in writing by Entrust (the "Disclosure Schedule"). The
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article II, and the
disclosures in any paragraph of the Disclosure Schedule shall qualify the
corresponding paragraph in this Article II and such other paragraphs only to the
extent it is clear from a reading of the disclosure that such disclosure is
applicable to such other paragraphs.
2.1 Organization, Qualification and Corporate Power. The Company is a
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corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of California. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing, individually or in the
aggregate, has not had and would not reasonably be expected to have a Company
Material Adverse Effect (as defined below). The Company has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has made
available to Entrust complete and accurate copies of its Articles of
Incorporation and By-laws. The Company is not in default under or in violation
of any provision of its Articles of Incorporation or By-laws. For purposes of
this Agreement, "Company Material Adverse Effect" means a material adverse
effect on the assets, business, financial condition or results of operations of
the Company and the Subsidiaries, taken as a whole.
2.2 Capitalization. The authorized capital stock of the Company consists
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of (a) 29,263,546 shares of Company Common Stock, of which, as of April 14,
2000, 7,736,984 shares were issued and outstanding, and (b) 13,205,052 shares of
Company Preferred Stock, of which (i) 2,798,508 shares have been designated as
Series A Preferred, of which, as of April 14, 2000, 1,675,538 shares were issued
and outstanding, (ii) 2,000,000 shares have been designated as Series B
Preferred, of which, as of April 14, 2000, 1,634,020 shares were issued and
outstanding, (iii) 3,614,458 shares have been designated as Series C Preferred,
of which, as of April 14, 2000, 3,614,338 shares were issued and outstanding,
and (iv) 4,792,086 shares have been designated as Series D Preferred, of which,
as of April 14, 2000, 4,792,085 shares were issued and outstanding. Section 2.2
of the Disclosure Schedule sets forth a complete and accurate list as of the
date hereof of: (i) all shareholders of the Company, indicating the number and
class or series of Company Shares held by each shareholder and (for Company
Shares other than shares of Company Common Stock) the number of shares of
Company Common Stock (if any) into which such Company Shares are convertible;
(ii) all outstanding Options and Warrants,
8
indicating (A) the holder thereof, (B) the number and class or series of Company
Shares subject to each Option and Warrant and (for Company Shares other than
shares of Company Common Stock) the number of shares of Company Common Stock (if
any) into which such Company Shares are convertible, (C) the exercise price,
date of grant, vesting schedule and expiration date for each Option or Warrant
and (D) any terms regarding the acceleration of vesting; and (iii) all stock
option plans and other stock or equity-related plans of the Company. All of the
issued and outstanding Company Shares are, and all Company Shares that may be
issued upon exercise of Options or Warrants will be (upon issuance in accordance
with their terms), duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights. Other than the Options and Warrants listed in
Section 2.2 of the Disclosure Schedule as of the date hereof, there are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Company is a party or which are binding upon the Company providing
for the issuance or redemption of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no agreements to which the Company is a
party or by which it is bound with respect to the voting (including without
limitation voting trusts or proxies), registration under the Securities Act, or
sale or transfer (including without limitation agreements relating to pre-
emptive rights, rights of first refusal, co-sale rights or "drag-along" rights)
of any securities of the Company. To the Knowledge of the Company (as defined
below), there are no agreements among other parties, to which the Company is not
a party and by which it is not bound, with respect to the voting (including
without limitation voting trusts or proxies) or sale or transfer (including
without limitation agreements relating to rights of first refusal, co-sale
rights or "drag-along" rights) of any securities of the Company. All of the
issued and outstanding Company Shares were issued in compliance with applicable
federal and state securities laws. For the purpose of this Agreement, "Knowledge
of the Company" means the knowledge of those persons set forth in Section 2.2 of
the Disclosure Schedule.
2.3 Authorization of Transaction. The Company has all requisite power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by a
majority of the outstanding shares of the Company Common Stock and Company
Preferred Stock, each voting as a separate class (the "Requisite Shareholder
Approval"), the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company. Without limiting the generality of the foregoing,
the Board of Directors of the Company, at a meeting duly called and held, by the
unanimous vote of all directors (i) determined that the Merger is fair and in
the best interests of the Company and its shareholders, (ii) adopted this
Agreement in accordance with the provisions of California Law, and (iii)
directed that this Agreement and the Merger be submitted to the shareholders of
the Company for their adoption and approval and resolved to recommend that the
shareholders of the Company vote in favor of the adoption of this Agreement and
the approval of the Merger. This Agreement has been duly and validly executed
and delivered by the Company and constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court
9
before which any proceeding therefor may be brought, and except as
indemnification may be limited by public policy.
2.4 Noncontravention. Subject to compliance with the applicable
----------------
requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and except as set forth in Section 2.4 of the
Disclosure Schedule and except for such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, and the filings of the Merger
Filings as required by the California Law, neither the execution and delivery by
the Company of this Agreement, nor the consummation by the Company of the
transactions contemplated hereby, will (a) conflict with or violate any
provision of the Articles of Incorporation or By-laws of the Company or the
charter, by-laws or other organizational document of any Subsidiary (as defined
below), (b) require on the part of the Company or any Subsidiary any filing
with, or any permit, authorization, consent or approval of, any court,
arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (a "Governmental Entity"), (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a material default under, result in the acceleration of
obligations under, create in any party the right to terminate, modify or cancel,
or require any notice, consent or waiver under, any material contract or
instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound or to which any of their assets is subject,
(d) result in the imposition of any Security Interest (as defined below) upon
any assets of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their properties or assets. For purposes of this
Agreement: "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge or other lien (whether arising by contract or by operation
of law) that would have a Company Material Adverse Effect, other than (i)
mechanic's, materialmen's and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement and similar
legislation and (iii) liens on goods in transit incurred pursuant to documentary
letters of credit, in each case arising in the ordinary course of business of
the Company and not material to the Company.
2.5 Subsidiaries.
------------
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the name
of each corporation, partnership, limited liability company, joint venture or
other entity in which the Company has, directly or indirectly, an equity
interest representing 50% or more of the capital stock thereof or other equity
interests therein (individually, a "Subsidiary" and, collectively, the
"Subsidiaries"); (ii) the number and type of outstanding equity securities of
each Subsidiary and a list of the holders thereof; (iii) the jurisdiction of
organization of each Subsidiary; and (iv) the names of the officers and
directors of each Subsidiary.
(b) Each Subsidiary is a corporation duly organized, validly existing
and in corporate and tax good standing under the laws of the jurisdiction of its
organization. Each Subsidiary is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties require
such qualification, except where the failure to be so qualified or in good
standing, individually or in the aggregate, has not had and would not reasonably
be expected to
10
have a Company Material Adverse Effect. Each Subsidiary has all requisite power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Company has made available to
Entrust complete and accurate copies of the charter, by-laws or other
organizational documents of each Subsidiary. No Subsidiary is in default under
or in violation of any provision of its charter, by-laws or other organizational
documents. All of the issued and outstanding shares of capital stock of each
Subsidiary are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. All shares of each Subsidiary that are held of record
or owned beneficially by either the Company or any Subsidiary are held or owned
free and clear of any restrictions on transfer (other than restrictions under
the Securities Act and state securities laws), claims, Security Interest,
options, warrants, rights, contracts, calls, commitments, equities and demands.
There are no outstanding or authorized options, warrants, rights agreements or
commitments to which the Company or any Subsidiary is a party or which are
binding on any of them providing for the issuance, disposition or acquisition of
any capital stock of any Subsidiary. There are no outstanding stock
appreciation, phantom stock or similar rights with respect to any Subsidiary.
There are no voting trusts, proxies or other agreement or understandings with
respect to the voting of any capital stock of any Subsidiary. Except as set
forth in Section 2.5 of the Disclosure Schedule and other than marketable
securities for cash management purposes, the Company does not control directly
or indirectly or have any direct or indirect equity participation in any
corporation, partnership, limited liability company, joint venture, trust, or
other business association which is not a Subsidiary.
2.6 Financial Statements. The Company has provided to Entrust (a) the
--------------------
audited consolidated balance sheets and statements of income, changes in
shareholders' equity and cash flows of the Company and the Subsidiaries as of
and for each of the last three fiscal years and (b) the unaudited consolidated
balance sheet and statements of income, changes in shareholders' equity and cash
flows as of and for the nine months ended March 31, 2000 (the "Most Recent
Balance Sheet Date"). Such financial statements (collectively, the "Financial
Statements") have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby, fairly present the financial condition, results of
operations and cash flows of the Company and the Subsidiaries as of the
respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the Subsidiaries;
provided, however, that the Financial Statements referred to in clause (b) above
-------- -------
are subject to normal recurring year-end adjustments (which will not be
material) and do not include footnotes.
2.7 Absence of Certain Changes. From the Most Recent Balance Sheet Date
--------------------------
until the date hereof, (a) there has occurred no event or development which has
had, or would reasonably be expected to have in the future, a Company Material
Adverse Effect, and (b) neither the Company nor any Subsidiary has taken any
actions that would constitute a breach of the prohibitions set forth in Section
4.4.
2.8 Undisclosed Liabilities. None of the Company and its Subsidiaries has
-----------------------
any liability as of the date hereof (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities accrued or reserved against the March 31, 2000
unaudited consolidated balance sheet of the Company and its Subsidiaries (the
"Most Recent Balance Sheet"), (b) liabilities which have
11
arisen since March 31, 2000 in the ordinary course of business and (c)
contractual and other liabilities incurred in the ordinary course of business
which are not required by GAAP to be reflected on a balance sheet.
2.9 Tax Matters.
-----------
(a) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, unemployment insurance,
social security, business license, business organization, environmental, workers
compensation, payroll, profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties, franchise and other taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision 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 tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing authority in
connection with Taxes.
(b) Each of the Company and the Subsidiaries has filed on a timely
basis all Tax Returns that it was required to file, and all such Tax Returns
were complete and accurate in all material respects. Neither the Company nor
any Subsidiary is or has ever been a member of a group of corporations with
which it has filed (or been required to file) consolidated, combined or unitary
Tax Returns, other than a group of which only the Company and the Subsidiaries
are or were members. The Company and the Subsidiaries have paid on a timely
basis all Taxes that were due and payable (except for such Taxes as are disputed
in good faith and for which adequate reserves are reflected on the Most Recent
Balance Sheet). The unpaid Taxes of the Company and the Subsidiaries for tax
periods through the Most Recent Balance Sheet Date do not exceed the accruals
and reserves for Taxes (excluding accruals and reserves for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the Most Recent Balance Sheet. All Taxes that the Company or any Subsidiary
is or was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Entity.
(c) The Company has delivered to Entrust complete and accurate copies
of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company or any Subsidiary
since December 31, 1996. The federal income Tax Returns of the Company and each
Subsidiary have been audited by the Internal Revenue Service or are closed by
the applicable statute of limitations for all taxable years through the taxable
year specified in Section 2.9(c) of the Disclosure Schedule. The Company has
delivered or made available to Entrust complete and accurate copies of all other
Tax Returns of the Company and the Subsidiaries together with all related
examination reports and statements of deficiency for all periods from and after
December 31, 1996. No examination or audit of any
12
Tax Return of the Company or any Subsidiary by any Governmental Entity is
currently in progress or, to the Knowledge of the Company, threatened or
contemplated. Neither the Company nor any Subsidiary has been informed by any
jurisdiction that the jurisdiction believes that the Company or Subsidiary was
required to file any Tax Return that was not filed. Neither the Company nor any
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to an extension of time with respect to a Tax assessment or deficiency.
(d) Neither the Company nor any Subsidiary: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or the Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Company and
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Company or any Subsidiary: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(f) Neither the Company nor any Subsidiary has undergone a change in
its method of accounting resulting in a material adjustment to its taxable
income pursuant to Section 481 of the Code.
2.10 Assets. Each of the Company and the Subsidiaries owns or leases all
------
tangible assets necessary for the conduct of its businesses as presently
conducted. Each such tangible asset is free from material defects, has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear) and is suitable for the
purposes for which it presently is used. No asset of the Company or any
Subsidiary (tangible or intangible) is subject to any Security Interest, except
such as would not have a Company Material Adverse Effect.
2.11 Owned Real Property. Neither the Company nor any Subsidiary owns any
-------------------
real property.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule lists
--------------------
as of the date hereof all real property leased or subleased to or by the Company
or any Subsidiary and lists the term of such lease, any extension and expansion
options, and the rent payable thereunder. The Company has made available to
Entrust complete and accurate copies of the leases and subleases (as amended to
date) listed in Section 2.12 of the Disclosure Schedule. With respect to each
lease and sublease listed in Section 2.12 of the Disclosure Schedule as of the
date hereof:
13
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought, and except as
indemnification may be limited by public policy;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing;
(c) neither the Company nor any Subsidiary nor, to the Knowledge of
the Company, any other party, is in material breach or violation of, or default
under, any such lease or sublease, and no event has occurred, is pending or, to
the Knowledge of the Company, is threatened, which, after the giving of notice,
with lapse of time, or otherwise, would constitute a material breach or default
by the Company or any Subsidiary or, to the Knowledge of the Company, any other
party under such lease or sublease; and
(d) neither the Company nor any Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold.
2.13 Intellectual Property.
---------------------
(a) To the Knowledge of the Company, the Company and the Subsidiaries
own or have the right to use all Intellectual Property (as defined below)
necessary (i) to use, manufacture, market and distribute the products
manufactured, marketed, sold or licensed, and to provide the services provided,
by the Company to other parties (together, the "Company Customer Deliverables")
or (ii) to operate the Company's internal systems that are material to the
business or operations of the Company, including, without limitation, computer
hardware systems, software applications and embedded systems (the "Company
Internal Systems"). The Company and the Subsidiaries own or have the right to
use all copyrightable materials and trade secrets in the Company Customer
Deliverables. The Intellectual Property owned by or licensed to the Company and
incorporated in or underlying the Company Customer Deliverables is referred to
herein as the "Company Intellectual Property." Each item of Company
Intellectual Property will be owned or available for use by the Surviving
Corporation immediately following the Closing on substantially identical terms
and conditions as it was immediately prior to the Closing. The Company has
taken commercially reasonable measures to protect the proprietary nature of each
item of Company Intellectual Property. To the Knowledge of the Company, no
other person or entity is infringing, violating or misappropriating any of the
Company Intellectual Property. For purposes of this Agreement, "Intellectual
Property" means all (i) patents and patent applications, (ii) copyrights and
registrations thereof, (iii) computer software, data and documentation, (iv)
trade secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice and know-how and (v)
trademarks, service marks, trade names, domain names and applications and
registrations therefor. Section 2.13(a) of the Disclosure Schedule lists each
patent, patent application,
14
copyright registration or application therefor, and trademark, service xxxx and
domain name registration or application therefor of the Company or any
Subsidiary.
(b) To the Knowledge of the Company, none of the Company Customer
Deliverables, or the marketing, distribution, provision or use thereof,
infringes or violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity. To the Knowledge of the Company, none
of the Company Internal Systems, or the use thereof, infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any
person or entity. Section 2.13(b) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by the Company
or any Subsidiary alleging any such infringement, violation or misappropriation;
and the Company has provided to Entrust complete and accurate copies of all
written documentation in the possession of the Company or any Subsidiary
relating to any such complaint, claim, notice or threat. The Company has
provided to Entrust complete and accurate copies of all written documentation in
the Company's possession relating to claims or disputes known to the Company
concerning any Company Intellectual Property.
(c) Section 2.13(c) of the Disclosure Schedule identifies each item of
Company Intellectual Property that is owned by a party other than the Company or
a Subsidiary, and the license or agreement pursuant to which the Company or a
Subsidiary uses it (excluding off-the-shelf software programs licensed by the
Company pursuant to "shrink wrap" licenses).
(d) Neither the Company nor any Subsidiary has disclosed the source
code for any of the software owned by the Company or a Subsidiary (the
"Software") to any person or entity, except pursuant to the agreements listed in
Section 2.13(d) of the Disclosure Schedule, and the Company has taken
commercially reasonable measures to prevent disclosure of such source code.
(e) All employees and independent contractors that develop
copyrightable and patentable material for the Company have executed agreements
expressly assigning all right, title and interest in such copyrightable and
patentable materials to the Company or a Subsidiary.
2.14 Contracts.
---------
(a) Section 2.14 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Company or any Subsidiary is a party
as of the date of this Agreement:
(i) any agreement (or group of related agreements) for the lease
of personal property from or to third parties providing for lease payments in
excess of $25,000 per annum or having a remaining term longer than twelve (12)
months;
(ii) (A) any agreement (or group of related agreements) for the
purchase of products or receipt of services involving a sum in excess of
$1,000,000 per year, (B) any customer contracts (or related contracts) involving
a sum in excess of $250,000 or (C) any agreements (or related agreements) in
which the Company or any Subsidiary has granted "most favored nation" pricing
provisions or marketing or distribution rights relating to any products or
territory or has agreed to purchase a minimum quantity of goods or services or
has agreed to purchase goods or services exclusively from a certain party;
15
(iii) any agreement establishing a partnership, limited
liability company or joint venture;
(iv) any agreement (or group of related agreements) under which
it has created, incurred, assumed or guaranteed (or may create, incur, assume or
guarantee) indebtedness (including capitalized lease obligations) involving more
than $25,000 or under which it has imposed (or may impose) a Security Interest
on any of its assets, tangible or intangible;
(v) any agreement concerning noncompetition;
(vi) any employment agreement with an executive officer of the
Company;
(vii) any agreement involving any officer, director or
shareholder of the Company or any affiliate (an "Affiliate"), as defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), thereof, excluding any stock purchase, voting or registration rights or
comparable agreement;
(viii) any shareholder voting, registration rights, stock
purchase or comparable agreement;
(ix) [intentionally omitted];
(x) any agreement which contains any provisions requiring the
Company or any Subsidiary to indemnify any other party thereto (excluding
indemnities contained in agreements for (i) the purchase, sale or license of
products, (ii) the provision of services or (iii) the resale or distribution of
products, in each case entered into in the ordinary course of business); and
(xi) any other agreement (or group of related agreements)
involving more than $50,000 and not entered into in the ordinary course of
business.
(b) The Company has made available to Entrust a complete and accurate
copy of each agreement listed in Section 2.13 or Section 2.14 of the Disclosure
Schedule. With respect to each agreement so listed which by its terms remains
executory: (i) the agreement is legal, valid, binding and enforceable and in
full force and effect, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought, and except as
indemnification may be limited by public policy; (ii) the agreement will
continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect immediately prior to the Closing; and (iii) neither the Company nor
any Subsidiary nor, to the Knowledge of the Company, any other party, is in
breach or violation of, or default under, any such agreement, and no event has
occurred, is pending or, to the Knowledge of the Company, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute a
breach or
16
default by the Company or any Subsidiary or, to the Knowledge of the Company,
any other party under such contract.
2.15 [Intentionally Omitted.]
2.16 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company or any Subsidiary.
2.17 Insurance. Section 2.17 of the Disclosure Schedule lists each
---------
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party. There is no material claim pending under
any such policy as to which coverage has been questioned, denied or disputed by
the underwriter of such policy. All premiums due and payable under all such
policies have been paid, to the Knowledge of the Company neither the Company nor
any Subsidiary is liable for retroactive premiums or similar payments, and the
Company and the Subsidiaries are otherwise in compliance in all material
respects with the terms of such policies. The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any
such policy. Each such policy will continue to be enforceable and in full force
and effect immediately following the Closing in accordance with the terms hereof
as in effect immediately prior to the Closing.
2.18 Litigation. As of the date of this Agreement, there is no action,
----------
suit, proceeding, claim, arbitration or investigation before any Governmental
Entity or before any arbitrator (a "Legal Proceeding") which is pending or has
been threatened in writing against the Company or any Subsidiary which (a) seeks
either damages in excess of $50,000 or equitable relief or (b) in any manner
challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated by this Agreement.
2.19 Warranties. No product or service manufactured, sold, leased,
----------
licensed or delivered by the Company or any Subsidiary is subject to any
guaranty, warranty, right of return, right of credit to the ultimate end user
other than (i) the applicable standard terms and conditions of sale or lease of
the Company or the appropriate Subsidiary, which are set forth in Section 2.19
of the Disclosure Schedule, and (ii) manufacturers' warranties for which neither
the Company nor any Subsidiary has any liability.
2.20 Employees.
---------
(a) Section 2.20 of the Disclosure Schedule contains a list of all
employees of the Company and each Subsidiary as of the date hereof, along with
the position and the annual rate of compensation of each such person. Each such
employee has entered into a confidentiality and assignment of inventions
agreement with the Company or a Subsidiary, and forms of such agreement have
previously been made available to Entrust. Section 2.20 of the Disclosure
Schedule contains a list of all employees of the Company or any Subsidiary who
are a party to a non-competition agreement with the Company or any Subsidiary,
and forms of such agreements have previously been made available to Entrust. To
the Knowledge of the Company, no
17
employee or group of employees has any plans to terminate employment with the
Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to or bound by
any written collective bargaining agreement, nor has any of them experienced any
strikes, written grievances, written claims of unfair labor practices or other
collective bargaining disputes. To the Knowledge of the Company, no
organizational effort has been made or threatened, either currently or within
the past two years, by or on behalf of any labor union with respect to employees
of the Company or any Subsidiary.
(c) The Company has complied with all laws, rules and regulations
relating to the hiring or employment of labor, including those related to wages,
hours, collective bargaining, occupational safety, discrimination, immigration,
and the payment of social security and other payroll-related taxes, except where
non-compliance would not have a Company Material Adverse Effect, and the Company
has not received any written notice alleging that it has failed to comply with
any such laws, rules or regulations.
2.21 Employee Benefits.
-----------------
(a) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "Employee Benefit Plan" means any "employee pension benefit
plan" (as defined in Section 3(2) of ERISA), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including
without limitation insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom stock,
stock appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (1) a controlled group of corporations (as
defined in Section 414(b) of the Code), (2) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (3) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes or included
the Company or a Subsidiary.
(b) Section 2.21(b) of the Disclosure Schedule contains a complete and
accurate list of all Employee Benefit Plans maintained, or contributed to, by
the Company, any Subsidiary or any ERISA Affiliate. Complete and accurate
copies of (i) all Employee Benefit Plans which have been reduced to writing,
(ii) written summaries of all unwritten Employee Benefit Plans, (iii) all
related trust agreements, insurance contracts and summary plan descriptions, and
(iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all
funded plans) all plan financial statements for the last three plan years for
each Employee Benefit Plan, have been delivered to Entrust. Each Employee
Benefit Plan has been
18
administered in all material respects in accordance with its terms and each of
the Company, the Subsidiaries and the ERISA Affiliates has in all material
respects met its obligations with respect to such Employee Benefit Plan and has
made all required contributions thereto. The Company, each Subsidiary, each
ERISA Affiliate and each Employee Benefit Plan are in compliance in all material
respects with the currently applicable provisions of ERISA and the Code and the
regulations thereunder (including without limitation Section 4980B of the Code,
Subtitle K, Chapter 100 of the Code and Sections 601 through 608 and Section 701
et seq. of ERISA). All filings and reports as to each Employee Benefit Plan
required to have been submitted to the Internal Revenue Service or to the United
States Department of Labor have been timely submitted.
(c) There are no Legal Proceedings (except claims for benefits payable
in the normal operation of the Employee Benefit Plans and proceedings with
respect to qualified domestic relations orders) against or involving any
Employee Benefit Plan or asserting any rights or claims to benefits under any
Employee Benefit Plan that could give rise to any material liability.
(d) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code have either received a favorable determination,
opinion, notification or advisory letter from the Internal Revenue Service
("IRS") as to its qualified status under the Code, or have remaining a period of
time under applicable Treasury regulations or IRS pronouncements in which to
apply for such a letter and make any amendments necessary to obtain a favorable
determination as to the qualified status of each such Employee Benefit Plan,
respectively, of the Code, no such determination letter has been revoked and
revocation has not been threatened, and no such Employee Benefit Plan has been
amended or operated since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost. Each
Employee Benefit Plan which is required to satisfy Section 401(k)(3) or Section
401(m)(2) of the Code has been tested for compliance with, and satisfies the
requirements of, Section 401(k)(3) and Section 401(m)(2) of the Code for each
plan year ending prior to the Closing Date.
(e) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
ever maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(f) Neither the Company, any Subsidiary nor any ERISA Affiliate has
ever been obligated to contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
19
(h) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company, any Subsidiary
or any ERISA Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(i) No Employee Benefit Plan is funded by, associated with or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company or a Subsidiary at any time without material
liability to the Company or a Subsidiary as a result thereof and no Employee
Benefit Plan, plan documentation or agreement, summary plan description or other
written communication distributed generally to employees by its terms prohibits
the Company from amending or terminating any such Employee Benefit Plan.
(k) Section 2.21(k) of the Disclosure Schedule discloses each: (i)
agreement with any current shareholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(l) Section 2.21(l) of the Disclosure Schedule sets forth the policy
of the Company and any Subsidiary with respect to accrued vacation, accrued sick
time and earned time-off and the amount of such liabilities as of March 31,
2000.
2.22 Environmental Matters.
---------------------
(a) Except as would not have a Company Material Adverse Effect, each
of the Company and the Subsidiaries has complied with all applicable
Environmental Laws (as defined below). There is no pending or, to the Knowledge
of the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company or any Subsidiary. For purposes of this Agreement,
"Environmental
20
Law" means any federal, state or local law, statute, rule or regulation or the
common law relating to the environment or occupational health and safety,
including without limitation any statute, regulation, administrative decision or
order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles; (vii)
health and safety of employees and other persons; and (viii) manufacturing,
processing, using, distributing, treating, storing, disposing, transporting or
handling of materials regulated under any law as pollutants, contaminants, toxic
or hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA").
(b) Except as would not have a Company Material Adverse Effect, there
have been no releases of any Materials of Environmental Concern (as defined
below) into the environment at any parcel of real property or any facility
formerly or currently owned, operated or controlled by the Company or a
Subsidiary. With respect to any such releases of Materials of Environmental
Concern, the Company or such Subsidiary has given all required notices to
Governmental Entities (copies of which have been provided to Entrust). For
purposes of this Agreement, "Materials of Environmental Concern" means any
chemicals, pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA), solid wastes and hazardous wastes (as such terms are
defined under the Resource Conservation and Recovery Act), toxic materials, oil
or petroleum and petroleum products or any other material subject to regulation
under any Environmental Law.
2.23 Legal Compliance. Each of the Company and the Subsidiaries, and the
----------------
conduct and operations of their respective businesses, are in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for any
violations or defaults that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
2.24 Customers. Section 2.24 of the Disclosure Schedule sets forth a list
---------
of (a) the largest twenty (20) customers of the Company from the end of the last
full fiscal year through the Most Recent Balance Sheet Date and the amount of
revenues accounted for by such customer during such period. To the Knowledge of
the Company, no such customer has indicated within the past year that it will
stop, or decrease the rate of, buying products from the Company or any
Subsidiary, except as a result of the successful deployment of the product or
products.
2.25 Permits. The Company has all permits, licenses, registrations,
-------
certificates, orders or approvals from any Governmental Entity (including
without limitation those issued or required under Environmental Laws and those
relating to the occupancy or use of owned or
21
leased real property) ("Permits") that are required for the Company and the
Subsidiaries to conduct their respective businesses as presently conducted,
except for those the absence of which, individually or in the aggregate, have
not had and would not reasonably be expected to have a Company Material Adverse
Effect. Except as would not have a Company Material Adverse Effect, each such
Permit is in full force and effect and, to the Knowledge of the Company, no
suspension or cancellation of such Permit is threatened and has no knowledge
believing that such Permit will not be renewable upon expiration. Each such
Permit will continue in full force and effect immediately following the Closing.
2.26 Certain Business Relationships With Affiliates. No Affiliate of the
----------------------------------------------
Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
has asserted to the Knowledge of the Company any claim or cause of action
against the Company or any Subsidiary, or (c) has borrowed any money from the
Company or its Subsidiaries.
2.27 Brokers' Fees. Except for those fees payable to Credit Suisse First
-------------
Boston Corporation, neither the Company nor any Subsidiary has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
2.28 Books and Records. The minute books and other similar records of the
-----------------
Company and each Subsidiary contain complete and accurate records of all
corporate actions taken at any meetings of the Company's or such Subsidiary's
shareholders, Board of Directors or any committee thereof and of all written
consents executed in lieu of the holding of any such meeting. The books and
records of the Company and each Subsidiary accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company or such Subsidiary and have been maintained in
accordance with good business and bookkeeping practices.
2.29 Financial Projections. The Company has made available to Entrust
---------------------
certain financial projections with respect to the Company's business which
projections were prepared by the Company based upon the assumptions reflected
therein. The Company represents and warrants that such projections were
prepared in good faith and are based on assumptions believed by it at the time
such projections were presented to Entrust to be reasonable.
2.30 Information Statement and Proxy. The information concerning the
-------------------------------
Company supplied by the Company for inclusion in the information statement to be
reviewed by the California Department of Corporations in reliance on Section
3(a)(10) of the Securities Act and sent to the Company Shareholders (the
"Information Statement") or the prospectus prepared as part of the Registration
Statement on Form S-4 and sent to the Company Shareholders shall not, at the
time that the Information Statement (including any amendments or supplements
thereto) is approved by the California Department of Corporations, or the
Registration Statement on Form S-4 (including any amendments or supplements
thereto) is declared effective by the SEC, contain any untrue statement of
material fact or omit to state any material fact necessary in order to make the
statements included therein, in light of the circumstances under which they were
made, not misleading. The information concerning the Company supplied for
inclusion in the Information Statement or prospectus shall not, on the date that
the Information Statement or prospectus is
22
first mailed to the Company Shareholders, at the time of the Company's
Shareholders' meeting to consider this Agreement and the Merger (the "Company
Shareholders Meeting") and at the Effective Time and the Closing Date, contain
any statement which, at such time and in light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
included therein, in light of the circumstances under which they were made, not
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to the
Company or any of its affiliates, officers or directors should be discovered by
the Company which should be set forth in an amendment to the Information
Statement or a supplement to the prospectus, the Company shall promptly inform
Entrust of such event. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information concerning Entrust or
the Transitory Subsidiary contained in any of the foregoing documents which is
supplied by Entrust or the Transitory Subsidiary.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ENTRUST
AND THE TRANSITORY SUBSIDIARY
As of the date hereof, each of Entrust and the Transitory Subsidiary
represents and warrants to the Company as follows:
3.1 Organization, Qualification and Corporate Power. Each of Entrust, the
-----------------------------------------------
Transitory Subsidiary and Entrust Technologies Limited, a Canadian corporation
and majority-owned subsidiary of Entrust (the "Canadian Subsidiary"), is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation. Each of Entrust and its Canadian
Subsidiary is duly qualified to conduct business and is in corporate and tax
good standing under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified or in good standing
would not have an Entrust Material Adverse Effect (as defined below). Each of
Entrust and the Canadian Subsidiary has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. Entrust has made available to the Company
complete and accurate copies of its Articles of Incorporation and By-laws. For
purposes of this Agreement, "Entrust Material Adverse Effect" means a material
adverse effect on the assets, business, financial condition or results of
operations of Entrust and its subsidiaries, taken as a whole.
3.2 Capitalization. The authorized capital stock of Entrust consists of
--------------
(a) 100,000,000 shares of Entrust Common Stock, of which 53,536,386 shares were
issued and outstanding as of Xxxxx 00, 0000, (x) 5,000,000 shares of Preferred
Stock, $0.01 par value per share, of which no shares are issued or outstanding,
and (c) 15,000,000 shares of Special Voting Stock, $0.01 par value per share, of
which 5,157,289 shares were held in Entrust's treasury as of April 13, 2000.
All of the issued and outstanding shares of Entrust Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. All of the Merger Shares will be, when issued in accordance with this
Agreement, duly authorized, validly issued, fully paid, nonassessable and free
of all preemptive rights and issued in compliance with applicable
23
securities laws. As of April 13, 2000, Entrust had an aggregate of 12,500,000
shares of Entrust Common Stock authorized for issuance in connection with its
employee stock plans. Other than as set forth above, as of April 13, 2000, there
were no outstanding or authorized options, warrants, rights, agreements or
commitments to which Entrust was a party or which were binding upon Entrust
providing for the issuance or redemption of any of its capital stock. For the
purpose of this Agreement, "Knowledge of Entrust" means the knowledge of all
officers of Entrust who are reporting persons pursuant to Section 16 of the
Exchange Act as of the date hereof, the Vice President of Legal Affairs and Vice
President and Controller.
3.3 Authorization of Transaction. Each of Entrust and the Transitory
----------------------------
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of Entrust) the Escrow Agreement and to perform its
obligations hereunder and thereunder. The execution and delivery by Entrust and
the Transitory Subsidiary of this Agreement and (in the case of Entrust) the
Escrow Agreement and the consummation by Entrust and the Transitory Subsidiary
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Entrust and the
Transitory Subsidiary, respectively. This Agreement and the Escrow Agreement
have been duly and validly executed and delivered by Entrust and the Transitory
Subsidiary and constitute valid and binding obligations of Entrust and the
Transitory Subsidiary, enforceable against them in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought, and except as indemnification may be limited
by public policy. No vote of stockholders of Entrust is required to consummate
the transactions contemplated by this Agreement.
3.4 Noncontravention. Subject to compliance with the applicable
----------------
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act, the HSR Act and the filing of the Merger Filings as required by
the California Law, neither the execution and delivery by Entrust or the
Transitory Subsidiary of this Agreement or (in the case of Entrust) the Escrow
Agreement, nor the consummation by Entrust or the Transitory Subsidiary of the
transactions contemplated hereby or thereby, will (a) conflict with or violate
any provision of the charter or by-laws of Entrust or the Transitory Subsidiary,
(b) require on the part of Entrust or the Transitory Subsidiary any filing with,
or permit, authorization, consent or approval of, any Governmental Entity, (c)
conflict with, result in breach of, constitute (with or without due notice or
lapse of time or both) a material default under, result in the acceleration of
obligations under, create in any party any right to terminate, modify or cancel,
or require any notice, consent or waiver under, any material contract or
instrument to which Entrust or the Transitory Subsidiary is a party or by which
either is bound or to which any of their assets are subject, (d) result in the
imposition of any Security Interest upon any assets of Entrust or the Transitory
Subsidiary, or (e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Entrust or the Transitory Subsidiary or any of their
properties or assets, except for any violation which would not adversely affect
the consummation of the transaction contemplated herein.
3.5 Reports and Financial Statements. Entrust has previously furnished or
--------------------------------
made available to the Company complete and accurate copies, as amended or
supplemented, of its (a) Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, as filed with the
24
SEC, and (b) all other reports filed by Entrust under the Exchange Act with the
SEC since August 31, 1998 (such reports are collectively referred to herein as
the "Entrust Reports"). The Entrust Reports constitute all of the documents
required to be filed by Entrust since August 31, 1998 under the Exchange Act.
The Entrust Reports complied in all material respects with the requirements of
the Exchange Act and the rules and regulations thereunder when filed. As of
their respective dates, the Entrust Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements and unaudited interim financial statements of Entrust included in the
Entrust Reports (i) complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto when filed, (ii) were prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), (iii)
fairly present the consolidated financial condition, results of operations and
cash flows of Entrust as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of
Entrust.
3.6 Absence of Certain Changes. From December 31, 1999 until the date
--------------------------
hereof, there has occurred no event or development which has had, or would
reasonably be expected to have in the future, an Entrust Material Adverse
Effect.
3.7 Litigation. As of the date of this Agreement, there is no Legal
----------
Proceeding which is pending or, to the Knowledge of Entrust, threatened against
Entrust or any subsidiary of Entrust which, if determined adversely to Entrust
or such subsidiary, could in any manner challenge or seek to prevent, enjoin,
alter or delay the transactions contemplated by this Agreement or have an
Entrust Material Adverse Effect.
3.8 Interim Operations of the Transitory Subsidiary. The Transitory
-----------------------------------------------
Subsidiary was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and has engaged in no business activities other
than as contemplated by this Agreement.
3.9 Brokers' Fees. Neither Entrust nor the Transitory Subsidiary has any
-------------
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement, other
than the fees due to Bear, Xxxxxxx & Co. Inc., which are the obligations of
Entrust.
3.10 Intellectual Property. To the Knowledge of Entrust, Entrust and its
---------------------
subsidiaries own or have the right to use all Intellectual Property necessary
(i) to use, manufacture, market and distribute the products manufactured,
marketed, sold or licensed, and to provide the services provided, by Entrust to
other parties (together, the "Entrust Customer Deliverables") or (ii) to operate
Entrust's internal systems that are material to the business or operations of
Entrust, including, without limitation, computer hardware systems, software
applications and embedded systems (the "Entrust Internal Systems"). Entrust and
its subsidiaries own or have the right to use all copyrightable materials and
trade secrets in the Entrust Customer Deliverables. The Intellectual Property
owned by or licensed to Entrust and incorporated in or underlying the Entrust
Customer Deliverables is referred to herein as the "Entrust Intellectual
Property." Each
25
item of Entrust Intellectual Property will be owned or available for use by it
immediately following the Closing on substantially the identical terms and
conditions as it was immediately prior to the Closing. Entrust has taken
commercially reasonable measures to protect the proprietary nature of each item
of Entrust Intellectual Property. To the Knowledge of Entrust, no other person
or entity is infringing, violating or misappropriating any of the Entrust
Intellectual Property.
3.11 Contracts. With respect to each agreement to which Entrust or its
---------
subsidiaries is a party and which is material to the business of Entrust and its
subsidiaries taken as a whole and by its terms remains executory: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court before which any
proceeding therefor may be brought, and except as indemnification may be limited
by public policy; (ii) the agreement will continue to be legal, valid, binding
and enforceable and in full force and effect immediately following the Closing
in accordance with the terms thereof as in effect immediately prior to the
Closing; and (iii) neither Entrust nor any subsidiary nor, to the Knowledge of
Entrust, any other party, is in breach or violation of, or default under, any
such agreement, and no event has occurred, is pending or, to the Knowledge of
Entrust, is threatened, which, after the giving of notice, with lapse of time,
or otherwise, would constitute a breach or default by Entrust or any subsidiary
or, to the Knowledge of Entrust, any other party under such contract, except for
purposes of this clause (iii) any violations or breaches that would not have an
Entrust Material Adverse Effect.
3.12 Information Statement or Form S-4. The information concerning Entrust
---------------------------------
and the Transitory Subsidiary supplied by Entrust for inclusion in the
Information Statement to be reviewed by the California Department of
Corporations in reliance on Section 3(a)(10) of the Securities Act and sent to
the Company Shareholders or the prospectus prepared as part of the Registration
Statement on Form S-4 and sent to the Company Shareholders shall not, at the
time that the Information Statement (including any amendments or supplements
thereto) is approved by the California Department of Corporations, or the
Registration Statement on Form S-4 (including any amendments or supplements
thereto) is declared effective by the SEC, contain any untrue statement of
material fact or omit to state any material fact necessary in order to make the
statements included therein, in light of the circumstances under which they were
made, not misleading. The information concerning the Entrust and the Transitory
Subsidiary supplied by each such Party for inclusion in the Information
Statement or prospectus shall not, on the date that the Information Statement or
prospectus is first mailed to the Company Shareholders, at the time of the
Company Shareholders Meeting and at the Effective Time and the Closing Date,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements included therein, in light of the circumstances under which they were
made, not misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
Entrust or the Transitory Subsidiary or any of their respective affiliates,
officers or directors should be discovered by Entrust or the Transitory
Subsidiary which should be set forth in an amendment to the Information
Statement or a
26
supplement to the prospectus, Entrust shall promptly inform the Company of such
event. Notwithstanding the foregoing, Entrust makes no representation or
warranty with respect to any information concerning the Company contained in any
of the foregoing documents which is supplied by the Company.
ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its best efforts, to
---------------
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct such that the conditions set forth in Article
V will be satisfied and (ii) the conditions to the obligations of the other
Parties to consummate the Merger are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
-------------------------------------------------
(a) Each Party shall use its Reasonable Best Efforts to obtain, at its
expense, all waivers, permits, consents, approvals or other authorizations from
Governmental Entities, and to effect all registrations, filings and notices with
or to Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, each of the Parties shall promptly file any Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act, shall use its Reasonable Best Efforts
to obtain an early termination of the applicable waiting period, and shall make
any further filings or information submissions pursuant thereto that may be
necessary, proper or advisable; provided, however, that, notwithstanding
anything to the contrary in this Agreement, Entrust shall not be obligated to
sell or dispose of or hold separately (through a trust or otherwise) any assets
or businesses of Entrust or its Affiliates.
(b) The Company shall use its Reasonable Best Efforts to obtain, at
its expense, all such waivers, consents or approvals from third parties, and to
give all such notices to third parties, as are required to be listed in Section
2.4 of the Disclosure Schedule.
4.3 Shareholder Approval.
--------------------
(a) The Company shall use its Reasonable Best Efforts to obtain, as
promptly as practicable, the Requisite Shareholder Approval, either at a special
meeting of shareholders or pursuant to a written shareholder consent, all in
accordance with the applicable requirements of the California Law. In
connection with such special meeting of shareholders or written shareholder
consent, the Company shall provide the Information Statement to its
shareholders, which Information Statement shall include (A) a summary of the
Merger and this Agreement (which summary shall include a summary of the terms
relating to the indemnification obligations of the Company Shareholders, the
escrow arrangements and the authority of the Indemnification
27
Representative, and a statement that the adoption of this Agreement by the
shareholders of the Company shall constitute approval of such terms), (B) all of
the information required by Section 3(a)(10) of the Securities Act and (C) a
statement that dissenters' rights are available for the Company Shares pursuant
to Chapter 13 of the California Law and a copy of Sections 1300, 1302, 1303 and
1304 of the California Law. Entrust agrees to cooperate with the Company in the
preparation of the Information Statement. The Company agrees not to distribute
the Information Statement until Entrust has had a reasonable opportunity to
review and comment on the Information Statement and the Information Statement
has been approved by Entrust (which approval may not be unreasonably withheld or
delayed). If the Requisite Shareholder Approval is obtained without the
solicitation of all shareholders entitled to vote, the Company shall send,
pursuant to Section 603(b) of the California Law, a written notice to all
shareholders of the Company at least ten (10) days prior to the Effective Time
informing them that this Agreement and the Merger were adopted and approved by
the shareholders of the Company and that appraisal rights are available for
their Company Shares pursuant to Chapter 13 of the California Law (which notice
shall include a copy of Sections 1300, 1302, 1303 and 1304 of the California
Law), and shall promptly inform Entrust of the date on which such notice was
sent.
(b) The Company, acting through its Board of Directors, shall include
in the Information Statement the unanimous recommendation of its Board of
Directors that the shareholders of the Company vote in favor of the adoption of
this Agreement and the approval of the Merger.
(c) The Company shall ensure that the Information Statement does not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading (provided that the Company shall not
be responsible for the accuracy or completeness of any information furnished by
Entrust or the Transitory Subsidiary for inclusion in the Information
Statement).
(d) The adoption of this Agreement and the approval of the Merger by
the Company Shareholders shall constitute approval of this Agreement (including
the provisions of Article VI hereof) and the Escrow Agreement and of all of the
arrangements relating thereto, including without limitation the placement of the
Initial Shares into Escrow and the appointment of the Indemnification
Representative.
(e) Entrust and the Transitory Subsidiary shall ensure that any
information furnished by such party to the Company for inclusion in the
Information Statement does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading.
4.4 Company Operation of Business. Except as contemplated by this
-----------------------------
Agreement and Section 4.4 of the Disclosure Schedule without the prior written
consent of Entrust, during the period from the date of this Agreement to the
Effective Time, the Company shall use Reasonable Best Efforts to (and shall
cause each Subsidiary to use Reasonable Best Efforts to) conduct its operations
in the ordinary course of business and in compliance with all applicable laws
and regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve
28
intact its current business organization, keep its physical assets in good
working condition, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect. Without limiting the
generality of the foregoing, prior to the Effective Time, except as set forth in
Section 4.4 of the Disclosure Schedule, the Company shall not (and shall cause
each Subsidiary not to), without the written consent of Entrust:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities or Options or Warrants outstanding on the date hereof),
or amend any of the terms of (including without limitation the vesting of) any
such convertible securities or Options or Warrants, other than (i) option grants
in the ordinary course of business (including with respect to option size, price
and vesting) and (ii) repurchases pursuant to existing repurchase agreements;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any indebtedness for borrowed money
(including obligations in respect of capital leases other than pursuant to
capital leases existing as of the date hereof); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the indebtedness for borrowed money of any other person or
entity; or make any loans, advances or capital contributions to, or investments
in, any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.21(k) or (except for normal increases in the ordinary course of
business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay any
bonus or other benefit to its directors, officers or employees (except for (i)
existing payment obligations listed in Section 2.21 of the Disclosure Schedule,
(ii) bonuses to existing officers and employees that are consistent with the
bonus awards and programs in effect as of the date hereof, whether formal or
informal, and that are not greater than 110% of the target bonus award amounts,
(iii) signing bonuses of less than $25,000 awarded to employees commencing
employment with the Company after the date hereof and (iv) bonuses to officers
and employees of the Company and its Subsidiaries consistent with sales
commission plans as of the date hereof);
(e) acquire, sell, lease, license or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, limited liability
company, association or other business organization or division thereof), other
than acquisitions, sales, leases, licenses or dispositions of assets or property
in the ordinary course of business;
29
(f) except pursuant to capital leases existing as of the date hereof,
mortgage or pledge any of its property or assets or voluntarily subject any such
property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the ordinary course of business;
(h) amend its charter, by-laws or like organizational documents;
(i) change in any material respect its accounting methods, principles
or practices, except insofar as may be required by a generally applicable change
in GAAP;
(j) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under, any
material contract or agreement;
(k) make or commit to make any capital expenditure in excess of
$250,000 per item or $2,000,000 in the aggregate, or such additional amounts
which may be approved by Entrust, such approval not be unreasonably withheld or
delayed, other than those purchase orders to which the Company is obligated to
pay as of the date hereof;
(l) institute or settle any Legal Proceeding with a third party except
cash settlements not to exceed $25,000 individually and in the aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in any of the conditions to the Merger set forth in Article V not being
satisfied; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
4.5 Entrust Operation of Business. Except as contemplated by this
-----------------------------
Agreement, during the period from the date of this Agreement to the Effective
Time, Entrust shall use Reasonable Best Efforts (and shall cause each Subsidiary
to use Reasonable Best Efforts to) conduct its operations in the ordinary course
of business and in compliance with all applicable laws and regulations material
to its business and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect. Without limiting the
generality of the foregoing, prior to the Effective Time, Entrust shall not (and
shall cause each Subsidiary not to), without the written consent of the Company
(a) take any action or fail to take any action permitted by this Agreement with
the knowledge that such action or failure to take such action would result in
any of the conditions to the Merger set forth in Article V not being satisfied
or (b) acquire, or agree to acquire, by merging or consolidating with, or by
purchasing any assets or equity securities or, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets, (i) the value for which consideration exceeds $500,000,000 or (ii) which
requires the approval of the stockholders of Entrust.
30
4.6 Access to Information.
---------------------
(a) The Company shall (and shall cause each Subsidiary to) permit
representatives of Entrust to have full reasonable access (at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Company and the Subsidiaries) to all premises, properties,
financial and accounting records, contracts, other records and documents, and
personnel, of or pertaining to the Company and each Subsidiary.
(b) Within 20 days after the end of each month ending prior to the
Closing, beginning with the end of April 2000, the Company shall furnish to
Entrust an unaudited income statement for such month and a balance sheet as of
the end of such month, prepared on a basis consistent with the Financial
Statements. Such financial statements shall present fairly in the view of the
Company's management the financial condition and results of operations of the
Company and the Subsidiaries on a consolidated basis as of the dates thereof and
for the periods covered thereby, and shall be consistent with the books and
records of the Company and the Subsidiaries.
4.7 Exclusivity.
-----------
(a) The Company shall not, and the Company shall require each of its
officers, directors, employees, representatives and agents not to, directly or
indirectly, (i) initiate, solicit, encourage or otherwise facilitate any
inquiry, proposal, offer or discussion with any party (other than Entrust)
concerning any merger, reorganization, consolidation, recapitalization, business
combination, liquidation, dissolution, share exchange, sale of stock, sale of
material assets or similar business transaction involving the Company, any
Subsidiary or any division of the Company or any Subsidiary, (ii) furnish any
non-public information concerning the business, properties or assets of the
Company, any Subsidiary or any division of the Company or any Subsidiary to any
party (other than Entrust) except (x) as required by the Company's Shareholder
Rights Agreement or (y) in the ordinary course of business, or (iii) engage in
discussions or negotiations with any party (other than Entrust) concerning any
such transaction.
(b) The Company shall immediately notify any party with which
discussions or negotiations of the nature described in paragraph (a) above are
pending that the Company is terminating such discussions or negotiations. If
the Company receives any inquiry, proposal or offer of the nature described in
paragraph (a) above, the Company shall, within one business day after such
receipt, notify Entrust of such inquiry, proposal or offer, including the
identity of the other party and the terms of such inquiry, proposal or offer.
4.8 Expenses. Except as set forth in Article VI and the Escrow Agreement,
--------
each of the Parties shall bear its own costs and expenses (including legal,
accounting, financial advisory and broker fees and expenses) incurred in
connection with this Agreement and the transactions contemplated herein.
4.9 Qualification of Merger Shares. As promptly as practicable after the
------------------------------
date hereof, Entrust shall use its Reasonable Best Efforts to file with the
California Department of Corporations an Application for Fairness Hearing and
Qualification by Permit to issue the Merger Shares, pursuant to the exemption
from registration under the Securities Act contained in
31
Section 3(a)(10) thereof and pursuant to a permit (a "Permit") issued under
Section 25113 of the California Corporate Securities Law of 1968, as amended
(the "Section 3(a)(10) Application"). Entrust will respond to any comments from
the California Department of Corporations and use its Reasonable Best Efforts to
have the Permit granted as soon as practicable after such filing. In the event
that Entrust determines that it is unable to file the Section 3(a)(10)
Application or if the California Department of Corporations has not cleared
Entrust to mail the Information Statement and required notice within 60 days
after the initial Section 3(a)(10) Application is filed, such party shall
prepare and file with the SEC a Registration Statement on Form S-4 (or similar
form) covering the Merger Shares to register the issuance of the Merger Shares
under the Securities Act. Entrust will notify the Company promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Registration Statement or for
additional information and will supply the other with copies of all
correspondence between Entrust or any of its representatives, on the one hand,
and the SEC, or its staff or any other government officials, on the other hand,
with respect to the Registration Statement. All documents that Entrust is
responsible for filing with the SEC or other regulatory authorities under this
Section 4.9 will comply as to form in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Registration Statement, Entrust will promptly inform the
Company of such occurrence and cooperate in filing with the SEC or its staff or
any other government officials such amendment or supplement. The Company agrees
to cooperate with Entrust in the preparation of the Section 3(a)(10)
Applications and/or the Registration Statement on Form S-4. As promptly as
practical after the date of this Agreement, Entrust shall prepare and make such
filings as are required under applicable Blue Sky laws relating to the
transactions contemplated by this Agreement.
4.10 Indemnification.
---------------
(a) Entrust shall not, for a period of six years after the Effective
Time, take any action to alter or impair any exculpatory or indemnification
provisions now existing in the Articles of Incorporation or By-laws of the
Company for the benefit of any individual who served as a director or officer of
the Company at any time prior to the Effective Time, except for any changes
which may be required to conform with changes in applicable law and any changes
which do not affect the application of such provisions to acts or omissions of
such individuals prior to the Effective Time. Entrust shall (i) assume and
honor, as of the Effective Time, all obligations of the Company under the
Company's Articles of Incorporation and By-laws, as currently in effect, and
indemnification agreements of directors and executive officers of the Company
who served as such prior to the Effective Time and (ii) pay all amounts that
become due and payable under such provisions. This Section 4.10 shall survive
the consummation of the Merger, is intended to benefit Entrust, the Company and
each indemnified party, shall be binding, jointly and severally, on all
successors and assigns of the Company and Entrust, and shall be enforceable by
the indemnified parties.
(b) For a period of three years after the Effective Time, Entrust
shall use its Reasonable Best Efforts to cause the Company to maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy on terms comparable to those applicable as
of
32
the date of this Agreement to the current directors and officers of the Company;
provided, however, that in no event will Entrust or the Company be required to
-------- -------
expend in excess of 150% of the annual premium currently paid by the Company for
such coverage (or such coverage as is available for 150% of such annual
premium).
4.11 Agreements from Certain Affiliates of the Company. Upon the execution
-------------------------------------------------
of this Agreement, the Company shall provide to Entrust a list of those persons
who are, in the Company's reasonable judgment, Affiliates of the Company. The
Company shall provide Entrust such information and documents as Entrust shall
reasonably request for purposes of reviewing such list and shall notify Entrust
regarding any change in the identity of its Affiliates prior to the Closing
Date. In order to help ensure that the issuance of and any resale of the Merger
Shares will comply with the Securities Act, the Company shall use its Reasonable
Best Efforts to deliver or cause to be delivered to Entrust, as soon as
practicable and in any case prior to the mailing of the Information Statement
(or, in the case of any person who becomes an Affiliate after such date, as soon
as practicable after such person becomes an Affiliate), an Affiliate Agreement,
in the form attached hereto as Exhibit A (an "Affiliate Agreement"), executed by
---------
each of its Affiliates. Entrust shall be entitled to place appropriate legends
on the certificates evidencing any Merger Shares to be issued to Affiliates of
the Company, and to issue appropriate stop transfer instructions to the transfer
agent for Entrust Common Stock, setting forth restrictions on transfer
consistent with the terms of the Affiliate Agreement.
4.12 Listing of Merger Shares. Prior to the Closing, Entrust shall file a
------------------------
Nasdaq National Market Notification for Listing of Additional Shares (or
comparable notice) (the "Nasdaq Notice") with Nasdaq with respect to the listing
of the Merger Shares on Nasdaq.
4.13 Tax Matters. Each of the Parties shall use its Reasonable Best
-----------
Efforts to cause the Merger to qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code. Each of the Parties hereby covenants and
agrees to file all Tax Returns in a manner consistent in all respects with such
expectations and intentions. Each of the Parties agrees to make such reasonable
representations as requested by counsel for purposes of rendering the opinions
referred to in Section 5.2(i) and 5.3(h) of this Agreement.
4.14 Director. Entrust agrees to elect J. Xxxxxxx Xxxxx to an initial term
--------
as a Class II Director of Entrust, effective immediately upon the Effective
Time. Prior to the Effective Time, the boards of directors of Entrust and the
Company shall each comply as applicable with the provisions of the SEC's no-
action letter dated January 12, 1999 addressed to Skadden, Arps, Slate, Xxxxxxx
and Xxxx LLP relating to Rule 16b of the Exchange Act.
4.15 Employee Benefit Plans. As soon as practicable after the Effective
----------------------
Time (the "Benefits Date"), Entrust shall provide, or cause to be provided,
employee benefit plans, programs and arrangements to employees of the Company
that are the same as those made generally available to similarly situated
Entrust employees. From the Effective Time to the Benefits Date (which the
parties acknowledge may occur on different dates with respect to different
plans, programs or arrangements of the Company), Entrust shall provide or cause
to be provided, the employee benefit plans, programs and arrangements of the
Company provided to employees of the Company as of the date hereof. Each
Company employee who continues to be employed by Entrust or any of its
subsidiaries immediately following the Effective Time shall, to
33
the extent permitted by law and applicable tax qualification requirements, and
subject to any generally applicable break in service or similar rule, receive
credit for purposes of eligibility to participate and vesting under any
substantially similar plans of Entrust for years of service with the Company or
its Subsidiaries (or, if applicable, predecessor entities) prior to the
Effective Time.
4.16 Conversion of Company Preferred Stock. The Company shall use its
-------------------------------------
Reasonable Best Efforts to cause all of the shares of the Company Preferred
Stock to convert into Company Common Stock prior to the Effective Time.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
--------------------------------------
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Shareholder Approval;
(b) all applicable waiting periods (and any extensions thereof) under
the HSR Act shall have expired or otherwise been terminated; and
(c) the California Department of Corporations shall have approved the
Section 3(a)(10) Applications and issued a permit qualifying the Merger Shares
pursuant to Section 25113 of the California Corporate Securities Law of 1968, as
amended, or the Registration Statement on Form S-4 of Entrust shall have been
declared effective by the SEC and there shall not be in effect any stop order
suspending the effectiveness of the permits or the Registration Statement on
Form S-4 or any proceedings seeking such a stop order.
5.2 Conditions to Obligations of Entrust and the Transitory Subsidiary.
------------------------------------------------------------------
The obligation of each of Entrust and the Transitory Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by Entrust) of the
following additional conditions:
(a) the number of Dissenting Shares shall not exceed 3% of the number
of outstanding Company Shares as of the Effective Time (calculated assuming the
conversion into shares of Company Common Stock of all outstanding shares of
Company Preferred Stock);
(b) [intentionally omitted];
(c) the representations and warranties of the Company set forth in the
first sentence of Section 2.1 and in Section 2.3 shall be true and correct (i)
as of the date hereof and (ii) as of the Closing as though made on and as of the
Closing, and any other representations and warranties of the Company set forth
in this Agreement shall be true and correct (determined without regard to any
materiality qualifiers, including without limitation, "Company Material Adverse
Effect") (i) as of the date hereof and (ii) as of the Closing, as though made on
and as of the Closing, except for such inaccuracies as would not have a Company
Material Adverse Effect (other than as a result of (i) general economic
conditions, (ii) business and economic conditions generally affecting the
Internet infrastructure industry, (iii) liabilities directly incurred in
34
connection with this Agreement or the transactions contemplated hereby
(including litigation brought or threatened against the Company or any member of
its Board of Directors in respect of this Agreement) or (iv) directly
attributable to the announcement of the transactions contemplated hereby
(including loss of personnel, customers or suppliers or the delay or
cancellation of orders or products));
(d) the Company shall have performed or complied in all material
respects with its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Effective Time;
(e) no Legal Proceeding of any Governmental Entity shall be pending or
threatened, and no Legal Proceeding of any party other than a Governmental
Entity shall be pending, in either case, wherein an unfavorable judgment, order,
decree, stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement or (ii) have a Company Material
Adverse Effect, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(f) the Company shall have delivered to Entrust and the Transitory
Subsidiary a certificate (the "Company Certificate") to the effect that each of
the conditions specified in clause (a) of Section 5.1 and clauses (a) through
(e) (insofar as clause (e) relates to Legal Proceedings involving the Company or
a Subsidiary) of this Section 5.2 are satisfied in all respects;
(g) Entrust shall have received from Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation, counsel to the Company, an opinion, in form reasonably
satisfactory to Entrust, addressed to Entrust and dated as of the Closing Date;
(h) Entrust shall have received copies of the resignations, effective
as of the Effective Time, of each director of the Company and the Subsidiaries
and officers of the Company or the Subsidiaries designated by Entrust (other
than any such resignations which Entrust designates, by written notice to the
Company, as unnecessary);
(i) Entrust shall have received an opinion from Xxxx and Xxxx LLP, in
a form reasonably satisfactory to Entrust, dated the Closing Date, to the effect
that the Merger will constitute a reorganization for federal income tax purposes
within the meaning of Section 368(a) of the Code, provided, however that in the
event Xxxx and Xxxx LLP refuses to deliver such opinion at the Closing, this
condition shall be deemed satisfied if Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
Professional Corporation shall deliver an opinion dated the Closing Date;
(j) the Escrow Agreement shall have been executed and delivered by the
parties thereto;
(k) there shall have been no material adverse change in the business,
properties, operations, financial condition, assets or liabilities of the
Company and no event or events shall have occurred that would reasonably be
expected to have a Company Material Adverse Effect (other than as a result of
(i) general economic conditions, (ii) business and economic conditions generally
affecting the Internet infrastructure industry, (iii) liabilities directly
incurred in connection with this Agreement or the transactions contemplated
hereby
35
(including litigation brought or threatened against the Company or any member of
its Board of Directors in respect of this Agreement), or (iv) directly
attributable to the announcement of the transactions contemplated hereby
(including loss of personnel, customers or suppliers or the delay or
cancellation of orders or products)) on the Company, and Entrust shall have
received a certificate signed on behalf of the Company by its Chief Executive
Officer and Chief Financial Officer to such effect;
(l) the Amended and Restated Shareholder Rights Agreement and the
Agreement between Novell, Inc. and the Company dated November 12, 1998, in
connection with the Series B Preferred financing, shall have been terminated by
the parties thereto; and
(m) Entrust shall have received certificates of good standing of the
Company in its jurisdiction of organization and the various foreign
jurisdictions in which it is qualified, certified charter documents and
certificates as to the incumbency of officers and the adoption of authorizing
resolutions.
5.3 Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) Entrust shall have filed a Nasdaq Notice with Nasdaq with respect
to the listing of the Merger Shares thereon;
(b) [intentionally omitted];
(c) the representations and warranties of Entrust and the Transitory
Subsidiary set forth in the first sentence of Section 3.1 and in Section 3.3
shall be true and correct (i) as of the date hereof and (ii) as of the Closing
as though made on and as of the Closing, and any other representations and
warranties of Entrust and the Transitory Subsidiary set forth in this Agreement
shall be true and correct (determined without regard to any materiality
qualifiers, including without limitation, "Entrust Material Adverse Effect") (i)
as of the date hereof and (ii) as of the Closing, as though made on and as of
the Closing, except for such inaccuracies as would not have an Entrust Material
Adverse Effect (other than as a result of (i) general economic conditions, (ii)
business and economic conditions generally affecting the Internet infrastructure
industry, (iii) liabilities directly incurred in connection with this Agreement
or the transactions contemplated hereby (including litigation brought or
threatened against Entrust and/or the Transitory Subsidiary or any member of
either Entrust and/or the Transitory Subsidiary's Board of Directors in respect
of this Agreement) or (iv) directly attributable to the announcement of the
transactions contemplated hereby (including loss of personnel, customers or
suppliers or the delay or cancellation of orders or products));
(d) each of Entrust and the Transitory Subsidiary shall have performed
or complied with in all material respects its agreements and covenants required
to be performed or complied with under this Agreement as of or prior to the
Effective Time;
(e) no Legal Proceeding of any Governmental Entity shall be pending or
threatened, and no Legal Proceeding of any party other than a Governmental
Entity shall be pending, in either case, wherein an unfavorable judgment, order,
decree, stipulation or injunction would (i) prevent consummation of any of the
transactions contemplated by this Agreement or
36
(ii) have an Entrust Material Adverse Effect, and no such judgment, order,
decree, stipulation or injunction shall be in effect;
(f) Entrust shall have delivered to the Company a certificate (the
"Entrust Certificate") to the effect that each of the conditions specified in
clauses (a) through (e) (insofar as clause (e) relates to Legal Proceedings
involving Entrust) of this Section 5.3 is satisfied in all respects;
(g) the Company shall have received from Xxxx and Xxxx LLP, counsel to
Entrust and the Transitory Subsidiary, an opinion, in form reasonably
satisfactory to the Company, addressed to the Company and dated as of the
Closing Date;
(h) the Company shall have received an opinion from Wilson, Sonsini,
Xxxxxxxx & Xxxxxx, Professional Corporation, counsel to the Company, in a form
reasonably satisfactory to the Company, dated the Closing Date, to the effect
that the Merger will constitute a reorganization for federal income tax purposes
within the meaning of Section 368(a) of the Code, provided, however that in the
event Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, refuses to
deliver such opinion at the Closing, this condition shall be deemed satisfied if
Xxxx and Xxxx LLP shall deliver an opinion dated the Closing Date;
(i) there shall have been no material adverse change in the business,
properties, operations, financial condition, assets or liabilities of Entrust
and no event or events shall have occurred that could reasonably be expected to
have an Entrust Material Adverse Effect (other than as a result of (i) general
economic conditions, (ii) business and economic conditions generally affecting
the Internet infrastructure industry, (iii) liabilities directly incurred in
connection with this Agreement or the transactions contemplated hereby
(including litigation brought or threatened against Entrust or any member of its
Board of Directors in respect of this Agreement), or (iv) directly attributable
to the announcement of the transactions contemplated hereby (including loss of
personnel, customers or suppliers or the delay or cancellation of orders or
products)) on Entrust, and the Company shall have received a certificate signed
on behalf of Entrust by its Chief Executive Officer and Chief Financial Officer
to such effect; and
(j) the Company shall have received certificates of good standing of
Entrust and the Transitory Subsidiary in their respective jurisdictions of
organization, certified charter documents and certificates as to the incumbency
of officers and the adoption of authorizing resolutions.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Shareholders. The Company Shareholders
-------------------------------------------
receiving the Merger Shares pursuant to Section 1.5 (the "Indemnifying
Shareholders") shall indemnify Entrust in respect of, and hold it harmless
against, any claims, losses, liabilities, fines, fees, penalties, damages,
deficiencies, costs and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, reasonable fees and
expenses of attorneys, accountants, financial advisors and other experts, and
other expenses of litigation)
37
("Damages") incurred or suffered by the Surviving Corporation or Entrust or any
Affiliate thereof resulting from, relating to or constituting:
(a) any breach of a representation or warranty or failure to perform
any covenant or agreement of the Company contained in this Agreement or the
Company Certificate;
(b) any failure of any Company Shareholder to have good, valid and
marketable title to the issued and outstanding Company Shares issued in the name
of such Company Shareholder, free and clear of all Security Interests; or
(c) any claim by a shareholder or former shareholder of the Company,
or any other person or entity, seeking to assert, or based upon: (i) ownership
or rights to ownership of any shares of stock of the Company; (ii) any rights of
a shareholder (other than the right to receive the Merger Shares pursuant to
this Agreement or appraisal rights under the applicable provisions of the
California Law), including any option, preemptive rights or rights to notice or
to vote; (iii) any rights under the Articles of Incorporation or By-laws of the
Company; or (iv) any claim that his, her or its shares were wrongfully
repurchased by the Company.
6.2 Indemnification Claims.
----------------------
(a) A party entitled, or seeking to assert rights, to indemnification
under this Article VI (an "Indemnified Party") shall give written notification
to the party from whom indemnification is sought (an "Indemnifying Party") of
the commencement of any suit or proceeding relating to a third-party claim for
which indemnification pursuant to this Article VI may be sought. Such
notification shall be given within 20 business days after receipt by the
Indemnified Party of notice of such suit or proceeding, and shall describe in
reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such suit or proceeding and the amount of the claimed
damages; provided, however, that no delay on the part of the Indemnified Party
in notifying the Indemnifying Party shall relieve the Indemnifying Party of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Party may, upon written notice
thereof to the Indemnified Party, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnified Party;
provided that (i) the Indemnifying Party may only assume control of such defense
if (A) it acknowledges in writing to the Indemnified Party that any damages,
fines, costs or other liabilities that may be assessed against the Indemnified
Party in connection with such suit or proceeding constitute Damages for which
the Indemnified Party may be indemnified pursuant to this Article VI and (B) the
ad damnum is less than or equal to the amount of Damages for which the
Indemnifying Party is liable under this Article VI, provided, however, in each
case that any assumption of control of a defense by the Indemnifying Party shall
not, solely by such assumption of control, be an admission or concession of any
liability under this Article VI on the part of the Indemnifying Party, and (ii)
the Indemnifying Party may not assume control of the defense of a suit or
proceeding involving criminal liability or in which equitable relief is sought
against the Indemnified Party. If the Indemnifying Party does not so assume
control of such defense, the Indemnified Party shall control such defense. The
party not controlling such defense (the "Non-controlling Party") may participate
therein at its own expense; provided that if the Indemnifying Party assumes
control of such defense and the Indemnified Party reasonably
38
concludes that the Indemnifying Party and the Indemnified Party have conflicting
interests or different defenses available with respect to such suit or
proceeding, the reasonable fees and expenses of counsel to the Indemnified Party
shall be considered "Damages" for purposes of this Agreement. In the event it is
reasonably determined by an Indemnifying Shareholder that the Indemnifying
Shareholders require separate counsel because of conflicting interests or
different defenses available with respect to a suit or proceeding, the
Indemnifying Shareholders shall be entitled to have the reasonable legal fees
and expenses of such counsel (not to exceed $1,000,000 in the aggregate) paid by
Entrust, and Entrust shall be entitled to claim such fees and expenses as
Damages under this Article VI. The party controlling such defense (the
"Controlling Party") shall keep the Non-controlling Party advised of the status
of such suit or proceeding and the defense thereof and shall consider in good
faith recommendations made by the Non-controlling Party with respect thereto.
The Non-controlling Party shall furnish the Controlling Party with such
information as it may have with respect to such suit or proceeding (including
copies of any summons, complaint or other pleading which may have been served on
such party and any written claim, demand, invoice, billing or other document
evidencing or asserting the same) and shall otherwise cooperate with and assist
the Controlling Party in the defense of such suit or proceeding. The
Indemnifying Party shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnified Party, which shall not be unreasonably withheld or
delayed; provided that the consent of the Indemnified Party shall not be
required if the Indemnifying Party agrees in writing to pay any amounts payable
pursuant to such settlement or judgment and such settlement or judgment includes
a complete release of the Indemnified Party from further liability and has no
other adverse effect on the Indemnified Party. The Indemnified Party shall not
agree to any settlement of, or the entry of any judgment arising from, any such
suit or proceeding without the prior written consent of the Indemnifying Party,
which shall not be unreasonably withheld or delayed.
(b) In order to seek indemnification under this Article VI, an
Indemnified Party shall give written notification (a "Claim Notice") to the
Indemnifying Party which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Indemnified Party, (ii) a statement that the Indemnified Party is entitled to
indemnification under this Article VI for such Damages and a reasonable
explanation of the basis therefor, and (iii) a demand for payment (in the manner
provided in paragraph (c) below) in the amount of such Damages. If the
Indemnified Party is seeking to enforce such claim pursuant to the Escrow
Agreement, the Indemnifying Party shall deliver a copy of the Claim Notice to
the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the Indemnifying
Party shall deliver to the Indemnified Party a written response (the "Response")
in which the Indemnifying Party shall: (i) agree that the Indemnified Party is
entitled to receive all of the Claimed Amount (in which case the Response shall
be accompanied by a payment by the Indemnifying Party to the Indemnified Party
of the Claimed Amount, by check or by wire transfer; provided that if the
Indemnified Party is seeking to enforce such claim pursuant to the Escrow
Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to Entrust such number of Escrow Shares as have an aggregate Value
(as defined below) equal to the Claimed Amount),
39
(ii) agree that the Indemnified Party is entitled to receive part, but not all,
of the Claimed Amount (the "Agreed Amount") (in which case the Response shall be
accompanied by a payment by the Indemnifying Party to the Indemnified Party of
the Agreed Amount, by check or by wire transfer; provided that if the
Indemnified Party is seeking to enforce such claim pursuant to the Escrow
Agreement, the Indemnifying Party and the Indemnified Party shall deliver to the
Escrow Agent, within three days following the delivery of the Response, a
written notice executed by both parties instructing the Escrow Agent to
distribute to Entrust such number of Escrow Shares as have an aggregate Value
equal to the Agreed Amount) or (iii) dispute that the Indemnified Party is
entitled to receive any of the Claimed Amount. If the Indemnifying Party in the
Response disputes its liability for all or part of the Claimed Amount, the
Indemnifying Party and the Indemnified Party shall follow the procedures set
forth in Section 6.2(d) for the resolution of such dispute (a "Dispute"). For
purposes of this Article VI, the "Value" of any Escrow Shares delivered in
satisfaction of an indemnity claim shall be the average of the last reported
sale prices per share of Entrust Common Stock on Nasdaq over the five
consecutive trading days ending on the Closing Date (subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split
or similar event affecting Entrust Common Stock), multiplied by the number of
such Escrow Shares.
(d) During the 60-day period following the delivery of a Response that
reflects a Dispute, the Indemnifying Party and the Indemnified Party shall use
good faith efforts to resolve the Dispute. If the Dispute is not resolved within
such 60-day period, the Indemnifying Party and the Indemnified Party shall
submit the Dispute to binding arbitration (the "ADR Procedure"). In the event
the Indemnifying Party and the Indemnified Party pursue the ADR Procedure, such
parties shall, in consultation with the chosen dispute resolution service (the
"ADR Service"), promptly agree upon a format and timetable for the ADR
Procedure, agree upon the rules applicable to the ADR Procedure, and promptly
undertake the ADR Procedure. All statements, offers, opinions and disclosures
(whether written or oral) made in the course of the ADR Procedure by or on
behalf of the Indemnifying Party, the Indemnified Party or the ADR Service shall
be treated as confidential. The fees and expenses of any ADR Service used by the
Indemnifying Party and the Indemnified Party shall be shared equally by the
Indemnifying Party and the Indemnified Party. If the Indemnified Party is
seeking to enforce the claim that is the subject of the Dispute pursuant to the
Escrow Agreement, the Indemnifying Party and the Indemnified Party shall deliver
to the Escrow Agent, promptly following the resolution of the Dispute, a written
notice executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Escrow Shares shall be distributed to Entrust and/or the
Indemnifying Shareholders (which notice shall be consistent with the terms of
the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 6.2, if a
third party asserts (other than by means of a lawsuit) that an Indemnified Party
is liable to such third party for a monetary or other obligation which may
constitute or result in Damages for which such Indemnified Party may be entitled
to indemnification pursuant to this Article VI, and such Indemnified Party
reasonably determines that it has a valid business reason to fulfill such
obligation, then (i) such Indemnified Party shall be entitled to satisfy such
obligation, without prior notice to or consent from the Indemnifying Party, (ii)
such Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article VI, and (iii) such Indemnified
Party shall be reimbursed, in accordance with the provisions of this Article VI,
for any such Damages for which it is entitled to indemnification
40
pursuant to this Article VI (subject to the right of the Indemnifying Party to
dispute the Indemnified Party's entitlement to indemnification, or the amount
for which it is entitled to indemnification, under the terms of this Article
VI).
(f) For purposes of this Section 6.2 and the last two sentences of
Section 6.3, any references to the Indemnifying Party (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.2 or Section 6.3) shall be deemed to refer to the
Indemnification Representative. The Indemnification Representative shall have
full power and authority on behalf of each Indemnifying Shareholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Shareholders under this
Article VI and the Escrow Agreement. The Indemnification Representative shall
have no liability to any Indemnifying Shareholder for any action taken or
omitted on behalf of the Indemnifying Shareholders pursuant to this Article VI
or the Escrow Agreement.
6.3 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties contained in this Agreement and the Company Certificate and the
indemnification obligations set forth in Section 6.1 hereof shall (a) survive
the Closing and any investigation at any time made by or on behalf of an
Indemnified Party and (b) shall expire on the date one year following the
Closing Date. If an Indemnified Party delivers to an Indemnifying Party, before
expiration of a representation or warranty, either a Claim Notice based upon a
breach of such representation or warranty, or a notice that, as a result a legal
proceeding instituted by or written claim made by a third party, the Indemnified
Party reasonably expects to incur Damages as a result of a breach of such
representation or warranty (an "Expected Claim Notice"), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such notice. If the legal proceeding or
written claim with respect to which an Expected Claim Notice has been given is
definitively withdrawn or resolved in favor of the Indemnified Party, the
Indemnified Party shall promptly so notify the Indemnifying Party; and if the
Indemnified Party has delivered a copy of the Expected Claim Notice to the
Escrow Agent and Escrow Shares have been retained in escrow after the
Termination Date (as defined in the Escrow Agreement) with respect to such
Expected Claim Notice, the Indemnifying Party and the Indemnified Party shall
promptly deliver to the Escrow Agent a written notice executed by both parties
instructing the Escrow Agent to distribute such retained Escrow Shares to the
Indemnifying Shareholders in accordance with the terms of the Escrow Agreement.
6.4 Limitations.
-----------
(a) Notwithstanding anything to the contrary herein, (i) the aggregate
liability of the Indemnifying Shareholders for Damages under this Article VI
shall be limited to the Escrow Shares, (ii) the Indemnifying Shareholders shall
not be liable under this Article VI unless and until the aggregate Damages for
which they or it would otherwise be liable exceed $1,500,000 (at which point the
Indemnifying Shareholders shall become liable for the aggregate Damages, and not
just amounts in excess of $1,500,000), and (iii) each Indemnifying Shareholder
shall only be liable for his, her or its pro rata share of the Escrow Shares
(based on the number of Merger Shares received by such Indemnifying Shareholder
as a percentage of the total number of Merger Shares issued). For purposes of
this Article VI only, all representations and warranties of the Company in
Article II shall be construed as if the term "material" and any
41
reference to "Company Material Adverse Effect" were omitted from such
representations and warranties.
(b) The Escrow Agreement shall be the exclusive means for Entrust to
collect any Damages for which it is entitled to indemnification under this
Article VI. Notwithstanding the foregoing, with respect to claims based on
fraud, the rights of Entrust under this Article VI shall not be limited to the
Escrow Amount nor shall the Escrow Agreement be the exclusive means for Entrust
to enforce such rights.
(c) No Indemnifying Shareholder shall have any right of contribution
against the Company or the Surviving Corporation with respect to any breach by
the Company of any of its representations, warranties, covenants or agreements.
6.5 Indemnification Representative.
-------------------------------
(a) The Indemnification Representative is hereby constituted and
appointed as agent for and on behalf of the Company Shareholders with respect to
this Article VI. The Indemnification Representative shall incur no liability to
the Indemnifying Shareholders with respect to any action taken or suffered by
he, she or it in reliance upon any note, direction, instruction, consent,
statement or other documents believed by he, she or it to be genuinely and duly
authorized, nor for other action or inaction except his, her or its own willful
misconduct or gross negligence. The Indemnification Representative may, in all
questions arising under this Agreement, rely on the advice of counsel and the
Indemnification Representative shall not be liable to the Indemnifying
Shareholders for anything done, omitted or suffered in good faith by the
Indemnification Representative based on such advice.
(b) In the event of (i) the death or permanent disability of the
Indemnification Representative, (ii) his, her or its resignation as an
Indemnification Representative, or (iii) upon the majority vote of the
Indemnifying Shareholders (as provided below), a successor Indemnification
Representative shall be elected by a majority vote of the Indemnifying
Shareholders, with each such Indemnifying Shareholder (or his, her or its
successors or assigns) to be given a vote equal to the number of votes
represented by the shares of stock of the Company held by such Indemnifying
Shareholder immediately prior to the Effective Time. Each successor
Indemnification Representative shall have all of the power, authority, rights
and privileges conferred by this Agreement upon the original Indemnification
Representative, and the term "Indemnification Representative" as used herein
shall be deemed to include successor Indemnification Representative.
(c) The Indemnification Representative shall have full power and
authority to represent the Indemnifying Shareholders, and their successors, with
respect to all matters arising under this Article VI and all actions taken by
any Indemnification Representative hereunder shall be binding upon the
Indemnifying Shareholders, and their successors, as if expressly confirmed and
ratified in writing by each of them. Without limiting the generality of the
foregoing, the Indemnification Representative shall have full power and
authority to interpret all of the terms and provisions of this Article VI, to
compromise any claims asserted hereunder and to authorize any release of the
Escrow Shares to be made with respect thereto, on behalf of the Indemnifying
Shareholders and their successors.
42
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. The Parties may terminate this Agreement
------------------------
prior to the Effective Time (whether before or after Requisite Shareholder
Approval), as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) Entrust may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach of any representation,
warranty or covenant contained in this Agreement, and such breach, individually
or in combination with any other such breach, (i) would cause the conditions set
forth in clauses (c) or (d) of Section 5.2 not to be satisfied and (ii) is not
cured by September 30, 2000 (the "End Date");
(c) the Company may terminate this Agreement by giving written notice
to Entrust in the event Entrust or the Transitory Subsidiary is in breach of any
representation, warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such breach, (i) would
cause the conditions set forth in clauses (c) or (d) of Section 5.3 not to be
satisfied and (ii) is not cured by the End Date;
(d) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after the Company Shareholders have voted on
whether to approve this Agreement and the Merger in the event this Agreement and
the Merger failed to receive the Requisite Shareholder Approval;
(e) Entrust may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred by the End Date (unless the
failure to close results primarily from a breach by Entrust or the Transitory
Subsidiary of any representation, warranty or covenant contained in this
Agreement); or
(f) the Company may terminate this Agreement by giving written notice
to Entrust and the Transitory Subsidiary if the Closing shall not have occurred
by the End Date (unless the failure to close results primarily from a breach by
the Company of any representation, warranty or covenant contained in this
Agreement).
7.2 Effect of Termination. If any Party terminates this Agreement
---------------------
pursuant to Section 7.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party for willful breaches of this Agreement).
43
ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
ADR Procedure 6.2(d)
ADR Service 6.2(d)
Affiliate 2.14(a)(vii)
Affiliate Agreement 4.11
Agreed Amount 6.2(c)
Agreement Introduction
Benefits Date 4.15
California Law 1.1
Canadian Subsidiary 3.1
CERCLA 2.22(a)
Certificates 1.7(a)
Claim Notice 6.2(b)
Claimed Amount 6.2(b)
Closing 1.2
Closing Date 1.2
Code 1.9(a)
Common Conversion Ratio 1.5(c)
Company Introduction
Company Certificate 5.2(f)
Company Common Stock Introduction
Company Customer Deliverables 2.13(a)
Company Intellectual Property 2.13(a)
Company Internal Systems 2.13(a)
Company Material Adverse Effect 2.1
Company Preferred Stock Introduction
Company Shares Introduction
Company Shareholders 1.5(c)
Company Shareholders Meeting 2.30
Controlling Party 6.2(a)
Conversion Ratios 1.5(c)
Damages 6.1
Disclosure Schedule Article II
Dispute 6.2(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.21(a)(i)
End Date 7.1(b)
Entrust Introduction
Entrust Certificate 5.3(f)
44
Entrust Common Stock 1.5(b)
Entrust Customer Deliverables 3.10
Entrust Intellectual Property 3.10
Entrust Internal Systems 3.10
Entrust Material Adverse Effect 3.1
Entrust Reports 3.5
Environmental Law 2.22(a)
ERISA 2.21(a)(ii)
ERISA Affiliate 2.21(a)(iii)
Escrow Agreement 1.3(e)
Escrow Agent 1.3(e)
Escrow Shares 1.5(c)
Exchange Act 2.14(a)(vii)
Exchange Agent 1.3(d)
Expected Claim Notice 6.3
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.4
HSR Act 2.4
Indemnification Representative 1.3(e)
Indemnified Party 6.2(a)
Indemnifying Party 6.2(a)
Indemnifying Shareholders 6.1
Information Statement 2.30
Initial Shares 1.5(c)
Intellectual Property 2.13(a)
IRS 2.21(d)
Knowledge of Entrust 3.2
Knowledge of the Company 2.2
Legal Proceeding 2.18
Liquidating Amount 1.5(c)
Liquidating Portion 1.5(c)
Materials of Environmental Concern 2.22(b)
Merger 1.1
Merger Filings 1.1
Merger Shares 1.5(c)
Most Recent Balance Sheet 2.8
Most Recent Balance Sheet Date 2.6
Nasdaq 1.8
Nasdaq Notice 4.12
Non-controlling Party 6.2(a)
Options 1.9(a)
Participating Amount 1.5(c)
Parties Introduction
Permit 4.9
Permits 2.25
45
Reasonable Best Efforts 4.1
Response 6.2(c)
Requisite Shareholder Approval 2.3
SEC 1.9(c)
Section 3(a)(10) Application 4.9
Securities Act 1.9(c)
Security Interest 2.4
Series A Preferred Introduction
Series B Preferred Introduction
Series C Preferred Introduction
Series D Conversion Ratio 1.5(c)
Series D Preferred Introduction
Series D Warrant 1.5(c)
Software 2.13(d)
Subsidiaries 2.5(a)
Subsidiary 2.5(a)
Surviving Corporation 1.1
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Total Consideration 1.5(a)
Transitory Subsidiary Introduction
Value 6.2(c)
Warrants 1.9(a)
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
--------------------------------
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
-------- -------
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use Reasonable Best Efforts to advise and consult with the other
Parties and provide them with a copy of the proposed disclosure prior to making
the disclosure).
9.2 No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger Shares, and Article VI concerning
indemnification and (b) the provisions in Section 4.10 concerning
indemnification are intended for the benefit of the individuals specified
therein and their successors and assigns.
9.3 Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided, however,
-------- -------
that the Mutual Non-Disclosure Agreement dated as of December 15, 1998, as
amended as of December 15, 1999 and April 3, 2000, between Entrust and the
Company shall remain in effect in accordance with its terms.
46
9.4 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of Entrust.
9.5 Counterparts and Facsimile Signature. This Agreement may be executed
------------------------------------
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. This Agreement
may be executed by facsimile signature.
9.6 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims and other
-------
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Company: Copy to:
----------------- -------
J. Xxxxxxx Xxxxx Page Xxxxxxxxx, Esq.
enCommerce, Inc. Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx,
0000 Xxxxxxx Xxxxx Xxxxx Professional Corporation
Xxxxx Xxxxx, XX 00000 000 Xxxx Xxxx Xxxx
Telecopy: (000) 000-0000 Xxxx Xxxx, XX 00000-0000
Telecopy: (000) 000-0000
If to Entrust or
----------------
the Transitory Subsidiary: Copy to:
------------------------- -------
Xxxxx X. Kendry, Esq. Xxxxx X. Xxxxx, Esq.
Entrust Technologies Inc. Xxxx and Xxxx LLP
Xxx Xxxxxxx Xxxx Xxxxx, Xxxxx 000 00 Xxxxx Xxxxxx
0000 Xxxxxxx Xxxx Xxxxxxxxx Xxxxxx, XX 00000-0000
Xxxxx, XX 00000 Telecopy: (000) 000-0000
Telecopy: (000) 000-0000
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any Party may change
the address to
47
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Parties notice in the manner herein set
forth.
9.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of
laws of any jurisdictions other than those of the State of California.
9.9 Amendments and Waivers. The Parties may mutually amend any provision
----------------------
of this Agreement at any time prior to the Effective Time; provided, however,
-------- -------
that any amendment effected subsequent to the Requisite Shareholder Approval
shall be subject to any restrictions contained in the California Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver of any right or
remedy hereunder shall be valid unless the same shall be in writing and signed
by the Party giving such waiver. No waiver by any Party with respect to any
default, misrepresentation or breach of warranty or covenant hereunder shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
9.10 Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
9.11 Construction.
------------
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
[Remainder of this page intentionally left blank.]
48
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
ENTRUST TECHNOLOGIES INC.
By: /s/ Xxxx X. Xxxx
----------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
ENABLE ACQUISITION CORP.
By: /s/ Xxxx X. Xxxx
--------------------------------
Title: President
-----------------------------
enCOMMERCE, INC.
By: /s/ Xxxxxxx Xxxxx
-------------------------------
Title: President and Chief Executive Officer
-------------------------------------
49
