Exhibit 2.5
Form of Share Purchase Agreement
between
ENTRUST Technologies Inc., a Maryland corporation (hereinafter referred to
"ENTRUST")
on the one part
and
[Name], [Address] (hereinafter referred to as
the "SELLER"),
on the other part
(hereinafter collectively referred to as "the PARTIES")
concerning the acquisition of shares of
R/3/ Security Engineering AG
Seegraben
(the "COMPANY")
TABLE OF CONTENTS
Definitions.................................................................iii
1. Sale and Purchase.......................................................1
1.1. Object of the Sale...............................................1
1.2. Amount of Purchase Price.........................................1
1.3. Basis Price......................................................1
1.4. Price Adjustment.................................................1
1.5. Escrow...........................................................1
2. Consideration Shares....................................................2
2.1. Value of Consideration Shares....................................2
2.2. Restrictions on Transfer.........................................3
2.3. Right of First Refusal...........................................3
2.4. Put Option and Make Whole Payment................................4
3. Closing.................................................................6
3.1. Conditions Precedent.............................................6
3.2. Completion of the sale...........................................6
3.3. Transfer of Risks................................................7
4. Representations of Seller...............................................7
4.1. With Respect to US Securities Regulations........................7
4.2. With Respect to the SHARES and the COMPANY's Capital............10
4.3. With Respect to the COMPANY.....................................10
5. Warranty Claims Against Seller.........................................19
6. Representations of Entrust.............................................20
6.1. Good Standing and Authority.....................................20
6.2. Consideration Shares............................................20
6.3. Capitalization..................................................20
6.4. Governmental Consents...........................................21
6.5. Warranty Claims Against Entrust.................................21
7. Covenants..............................................................22
(i)
7.1. Management of the Company........................................22
7.2. Product Liability................................................22
7.3. Consideration Shares.............................................23
7.4. Watermark Business...............................................25
8. Miscellaneous...........................................................26
8.1. Costs............................................................26
8.2. Confidentiality..................................................26
8.3. Assignment.......................................................26
8.4. Announcements....................................................26
8.5. Notices..........................................................27
8.6. Severability.....................................................27
8.7. Construction, amendments.........................................27
8.8. Governing law....................................................28
8.9. Arbitration......................................................28
List of Exhibits.............................................................28
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Entrust Technologies Inc. has omitted the following schedules, which will be
provided supplementally to the Securities and Exchange Commission upon request:
- Exhibit DIL (List of Documents Submitted to Entrust)
- Exhibit CAP (Capital Structure of Entrust)
- Exhibit IPR (Intellectual Property)
(ii)
Definitions
"AGREEMENT"
this share purchase agreement, including
the exhibits;
"BASIS PRICE" the BASIS PRICE as defined in Sec. 1.3.;
"CLOSING" the CLOSING of this AGREEMENT
pursuant to Sec. 3;
"CO" the Swiss Code of Obligations;
"COMPANY SHARES" the common or preferred registered shares
of the COMPANY with a par value of
CHF 10 each;
"COMPANY" r/3/ Security Engineering AG, Seegraben, as
defined on the first page;
"CONSIDERATION
SHARES" Series A Common Stock of ENTRUST with
p.v. of USD 0.01 each;
"DEFECT" a DEFECT as defined in Sec. 5.1;
"DISTRIBUTION
COMPLIANCE PERIOD" the DISTRIBUTION COMPLIANCE
PERIOD defined in Sec. 7.3.;
"ENTRUST" ENTRUST Technologies Inc., a Maryland
corporation, as defined on the first page;
"ESCROW AGENT" Thouvenin Stutzer Xxxxxxxx & Partner,
Xxxxxxxxxx 0, 0000 Xxxxxx;
"ESCROW
AGREEMENT" the escrow agreement entered into between
ENTRUST, the SELLER and the ESCROW AGENT,
and signed by the SELLER on the same
date as this AGREEMENT;
(iii)
"ESCROW" the escrow established pursuant to the
ESCROW AGREEMENT and referred to in
Sec. 1.5;
"FIRST ANNIVERSARY" the FIRST ANNIVERSARY defined in Sec.
2.4.1.;
"GOVERNMENTAL
AUTHORITY" any government, state, municipality or
other political subdivision thereof and
any entity exercising executive,
legislative, judicial, regulatory or
administrative functions of or pertaining
to government
"INTELLECTUAL
PROPERTY" the INTELLECTUAL PROPERTY defined
in Sec. 4.3.5.2;
"INVISION" INVISION AG, Xxxxxxxxxxxxx 0, 0000
Xxxx;
"IPO PUT PRICE" the IPO PUT PRICE defined in Sec. 2.4.2;
"MAKE WHOLE PAYMENT" the MAKE WHOLE PAYMENT defined in
Sec. 2.4.2;
"MARKET PRICE" the MARKET PRICE defined in Sec. 2.4.3;
"NOTICE" the NOTICE defined in Sec. 2.3.3;
"OFFERED CONSIDERATION
SHARES" the OFFERED CONSIDERATION SHARES
defined in Sec. 2.3.3;
"OFFEROR" the OFFEROR defined in Sec. 2.3.3;
"outstanding" in respect of COMPANY SHARES, the
issued COMPANY SHARES less the
COMPANY SHARES held in treasury;
"PARTY" ENTRUST and/or the SELLER, as defined
on the first page;
(iv)
"PRICE ADJUSTMENT" the PRICE ADJUSTMENT, as defined in
Sec. 1.4.;
"PRINCIPAL MARKET" the PRINCIPAL MARKET defined in Sec.
2.4.3;
"PUBLIC OFFERING" the PUBLIC OFFERING defined in Sec.
2.3.6;
"PURCHASE PRICE" the total consideration paid by ENTRUST
for the SHARES, as defined in Sec. 1.2.;
"PUT RIGHT" the PUT RIGHT defined in Sec. 2.4.1;
"PUT SHARES" the PUT SHARES defined in Sec. 2.4.1;
"REGULATION S" the REGULATION S defined in Sec. 4.1.1.;
"SECURITIES ACT" the U.S. Securities Act of 1933, as
amended;
"SELLER" [Name], [Address], as defined on the first
page;
"SHARES" the COMPANY SHARES sold by the SELLER
pursuant to Sec. 1.1.;
"SIGNING" the SIGNING of this AGREEMENT;
"STANDARD PUT PRICE" the STANDARD PUT PRICE defined in
Sec. 2.4.1;
"WATERMARK COMPANY" the WATERMARK COMPANY defined in
Sec. 7.4.;
(v)
1. Sale and Purchase
1.1. Object of the Sale
ENTRUST purchases from the SELLER, and the SELLER sells to ENTRUST [___] COMPANY
SHARES ("the SHARES") pursuant to the terms and conditions of this AGREEMENT.
1.2. Amount of Purchase Price
The PURCHASE PRICE shall be composed of (i) the BASIS PRICE and, if any, the
PRICE ADJUSTMENT, provided, however, that such PRICE ADJUSTMENT shall be due
only if, within 90 days after CLOSING, ENTRUST obtains directly or through the
COMPANY 100 % of the COMPANY SHARES. The right of the SELLER to the PRICE
ADJUSTMENT expires at midnight on the 90th day after CLOSING.
1.3. Basis Price
The BASIS PRICE shall be paid to the Seller at CLOSING in (i) USD [____]-- and
(ii) [____] CONSIDERATION SHARES, valued at USD 58.30 each pursuant to Sec.
2.1.1.
1.3.1. Notwithstanding the previous Sec. 1.3.1., [____] out of the [_____]
CONSIDERATION SHARES shall be placed into ESCROW pursuant to Sec 1.5.
1.4. Price Adjustment
1.4.1. The PRICE ADJUSTMENT, if any, shall be composed of [___] CONSIDERATION
SHARES.
1.4.2. The PRICE ADJUSTMENT, if any, shall be paid to the SELLER within 10
business days after ENTRUST obtains directly or through the COMPANY 100 % of the
COMPANY SHARES. The CONSIDERATION SHARES composing the PRICE ADJUSTMENT shall be
paid to the SELLER in accordance with the SELLER's instructions. If the
conditions for the payment of the PRICE ADJUSTMENT are already fulfilled at
CLOSING, the payment of the PRICE ADJUSTMENT shall take place at the later (i)
of CLOSING or (ii) five business days following the receipt by ENTRUST of the
share purchase AGREEMENTS for all outstanding COMPANY SHARES.
1.5. Escrow
1.5.1. The [____] CONSIDERATION SHARES held in ESCROW pursuant to Section 1.3.1.
shall be delivered to, kept and/or released by the ESCROW AGENT pursuant to the
ESCROW AGREEMENT. The CONSIDERATION SHARES and any cash proceeds from the sale
of such CONSIDERATION SHARES whilst held in
ESCROW pursuant to Sec. 1.5.4 hereof shall be deposited by the ESCROW AGENT in a
Swiss bank of international standing and reputation.
1.5.2. [Intentionally omitted pursuant to waiver letter of ENTRUST]
(a) [Intentionally omitted pursuant to waiver letter of ENTRUST]
(b) during a period of 24 months after CLOSING, the number of CONSIDERATION
SHARES held in escrow shall not be reduced to less than [___]
CONSIDERATION SHARES, or to such amount as adjusted to account for a MAKE
WHOLE PAYMENT pursuant to Sec. 2.4.2 hereof.
1.5.3. The CONSIDERATION SHARES held in escrow pursuant to Sec. 1.5.2(b) shall
be kept for a period of 24 months following CLOSING as a security for claims of
ENTRUST in connection with claims based on the representations and warranties of
Sec. 4 and 5 and on the covenants of Sec. 7.1.1 and 7.1.2.
1.5.4. CONSIDERATION SHARES held in ESCROW may not be sold. Notwithstanding the
previous sentence, CONSIDERATION SHARES held in ESCROW only on the basis of Sec.
1.5.2(b) can be sold, provided, however, that during the 24-months period
following CLOSING, or thereafter if the duration of the ESCROW is extended in
connection with any warranty claim of ENTRUST, the transfer of such
CONSIDERATION SHARES to the acquirer shall be valid and shall take place only if
the cash consideration to be received by the SELLER is placed into escrow in
lieu of the CONSIDERATION SHARES.
1.5.5. Variations in the price of the CONSIDERATION SHARES shall not cause any
variation in the number of CONSIDERATION SHARES to be put in ESCROW.
1.5.6. The specific terms and conditions of the ESCROW AGREEMENT are reserved.
2. Consideration Shares
2.1. Value of Consideration Shares
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2.1.1. For the purpose of the conversion of any amount expressed in USD into a
certain number of CONSIDERATION SHARES or vice-versa, each CONSIDERATION SHARE
shall be deemed to be worth USD 58.30 (or, after CLOSING, such other amount as
adjusted for stock splits, stock dividends and other recapitalizations taking
place after CLOSING). Fractions of CONSIDERATION SHARES shall be rounded to the
nearest whole number, and the difference paid or deducted from amounts otherwise
payable in cash, as the case may be.
2.1.2. If ENTRUST calls upon the ESCROW as a security in connection with a
DEFECT, the actual market value of the CONSIDERATION SHARES, and not the value
set pursuant to the previous Sec. 2.1.1. shall determine the number of
CONSIDERATION SHARES to be attributed to ENTRUST.
2.2. Restrictions on Transfer
2.2.1. The CONSIDERATION SHARES are restricted securities. They are the object
of the representations and warranties of Sec. 4.2 and of the covenants of Sec.
6.3.
2.2.2. Notwithstanding the SELLER's ability to resell CONSIDERATION SHARES under
United States or other securities laws, any sale or other disposition of any of
the CONSIDERATION SHARES by the SELLER, other than according to the provisions
of Sections 2.2.3, 2.3 or 2.4 below, shall be void and transfer no right, title,
or interest in or to any of such CONSIDERATION SHARES to the purported
transferee.
2.2.3. The SELLER may sell, assign or transfer CONSIDERATION SHARES to his
spouse or children or to a trust established for the benefit of his spouse,
children or himself, or dispose of them under his will, without compliance with
Section 2.3, provided, however, that such transferee will be subject to the same
contractual transfer restrictions as the SELLER.
2.3. Right of First Refusal
2.3.1. If the SELLER desires to sell, transfer or otherwise dispose of any of
his CONSIDERATION SHARES, or of any interest in such CONSIDERATION SHARES,
whether voluntarily or by operation of law, in any transaction other than
pursuant to Section 2.2.3. or 2.4 of this Agreement, the SELLER shall first
deliver written notice of his desire to do so (the "NOTICE") to ENTRUST in the
manner prescribed in Section 8.5 of this Agreement. The NOTICE must specify: (i)
the name and address of the party to which the SELLER proposes to sell or
otherwise dispose of the CONSIDERATION SHARES or an interest in the
CONSIDERATION SHARES (the "OFFEROR"), (ii) the number of CONSIDERATION SHARES
the SELLER proposes to sell or otherwise dispose of (the "OFFERED CONSIDERATION
SHARES"), (iii) the
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consideration per SHARE to be delivered to the SELLER for the proposed sale,
transfer or disposition, and (iv) all other material terms and conditions of the
proposed transaction.
2.3.2. ENTRUST shall have the first option to purchase all but not less than all
of the OFFERED CONSIDERATION SHARES for the consideration per SHARE and on the
terms and conditions specified in the NOTICE. ENTRUST must exercise such option,
no later than 15 days after such NOTICE is deemed to have been delivered to it
under Section 8.5, by written NOTICE to the SELLER, provided, however, that such
deadline will be extended to 30 days if the number of OFFERED CONSIDERATION
SHARES exceeds 50'000.
2.3.3. In the event ENTRUST duly exercises its option to purchase the OFFERED
CONSIDERATION SHARES, the closing of such purchase shall take place at the
offices of the COMPANY, or at any other place mutually agreed between the
PARTIES five (Swiss) business days after the expiration of deadline for the
exercise of the right of first refusal pursuant to Section 2.3.2. above. If
ENTRUST does not exercise its option to purchase the CONSIDERATION SHARES, the
closing of the sale must take place in accordance with the terms and conditions
specified in the NOTICE no later than 60 days after the expiration of the option
of ENTRUST.
2.3.4. To the extent that the consideration proposed to be paid by the OFFEROR
for the OFFERED CONSIDERATION SHARES consists of property other than cash or a
promissory note, the consideration required to be paid by ENTRUST may consist of
cash equal to the value of such property, as determined in good faith by
agreement of the SELLER and ENTRUST.
2.3.6. The right of first refusal of ENTRUST set forth in this Section 2.3 shall
terminate upon the closing of ENTRUST's initial public offering of Series A
Common Stock pursuant to an effective registration statement under the
SECURITIES ACT (a "PUBLIC OFFERING").
2.4. Put Option and Make Whole Payment
2.4.1. If ENTRUST's Series A Common Stock is not listed on a United States
national securities exchange, the Nasdaq Stock Market or another U.S. nationally
recognized exchange or trading system on the first anniversary of CLOSING (the
"FIRST ANNIVERSARY"), and the SELLER is the beneficial owner of CONSIDERATION
SHARES as of the FIRST ANNIVERSARY, then the SELLER shall have 15 days to give
written notice to ENTRUST of its intention, if any, to sell to ENTRUST (the "PUT
RIGHT"), all, but not less than all, of the CONSIDERATION SHARES owned by the
SELLER (including any CONSIDERATION SHARES to be released from escrow on the
FIRST ANNIVERSARY but excluding any CONSIDERATION SHARES remaining in escrow
after the FIRST ANNIVERSARY) (the "PUT SHARES"). If the SELLER
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exercises its PUT RIGHT, the SELLER agrees to sell the PUT SHARES to ENTRUST,
and ENTRUST agrees to purchase the PUT SHARES from the SELLER, at a price of USD
$58.30 (subject to adjustment for stock dividends, stock splits and other
recapitalizations) (the "STANDARD PUT PRICE"). The PUT RIGHT is subject to the
following:
(a) [Intentionally omitted pursuant to waiver letter of ENTRUST]
(b) the payment of the STANDARD PUT PRICE against the delivery of the PUT
SHARES shall be made in three equal quarterly installments beginning within
5 (Swiss) business days after ENTRUST has received notice of exercise of
the PUT RIGHT.
2.4.2. If ENTRUST's Series A Common Stock is listed on a United States national
securities exchange, the Nasdaq Stock Market or another U.S. nationally
recognized exchange or trading system prior to the FIRST ANNIVERSARY, and the
MARKET PRICE is less than USD $48.30 (subject to adjustment for stock dividends,
stock splits and other recapitalizations) (the "IPO PUT PRICE"), then ENTRUST
shall make an additional payment per CONSIDERATION SHARE, in cash or in shares
of its Series A Common Stock (the choice of either form being at the sole
discretion of ENTRUST), to the SELLER equal to the difference between the IPO
PUT PRICE and the MARKET PRICE (the "MAKE WHOLE PAYMENT"), subject to the
following provisions:
(a) [Intentionally omitted pursuant to waiver letter of ENTRUST]
(b) ENTRUST agrees to deliver the MAKE WHOLE PAYMENT pursuant to the
instructions of the SELLER within 10 Swiss business days after the end of
the relevant period for the determination of the MARKET PRICE pursuant to
Sec. 2.4.3 hereinafter.
(c) Notwithstanding the previous paragraph and Sec. 1.5.5, any MAKE WHOLE
PAYMENT made in connection with any CONSIDERATION SHARES held in
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escrow pursuant to Sec. 1.5 shall be placed by ENTRUST into ESCROW and
shall be held and released like the CONSIDERATION SHARES it relates to.
2.4.3. MARKET PRICE means the average of the closing sale price of ENTRUST's
Series A Common Stock on the principal United States securities exchange or
trading market for such stock (the "PRINCIPAL MARKET") for the ten (10) trading
days beginning on the first day of trading of such stock on the PRINCIPAL
MARKET.
3. Closing
3.1. Conditions Precedent
CLOSING is subject to the following conditions precedent:
(a) the approval of the AGREEMENT by the board of directors of the COMPANY;
(b) the approval of the AGREEMENT by the stockholders and the board of
directors of ENTRUST;
(c) the share purchase agreements with Xx. Xxxxxx Xxxxxxx and Invision AG
concerning the sale of all their COMPANY SHARES to ENTRUST have come into
force; and
(d) the Watermark intellectual property has been transferred to the WATERMARK
COMPANY pursuant to Sec. 7.4. prior to CLOSING.
3.2. Completion of the sale
3.2.1. The sale and purchase of the SHARES will be completed at the offices of
Bar & Xxxxxx, Xxxxxxxxxxxxxx 00, 0000 Xxxxxx, at the latest on 8 June 1998
("CLOSING").
3.2.2. At CLOSING, the SELLER shall produce and deliver to ENTRUST:
(a) share certificates endorsed to ENTRUST representing the SHARES;
(b) share certificates endorsed to the COMPANY representing the COMPANY SHARES
held in treasury by the COMPANY as of CLOSING;
(c) the original of the minutes of the board of the COMPANY authorizing the
transfer of the SHARES to ENTRUST;
(d) the original share register of the Company (Art. 686 CO), duly signed by
the board of directors, and bearing ENTRUST as shareholder for the SHARES,
without any restriction or limitation; and
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(e) the resignation letter of Xx. Xxxxxx Xxxxx and of Xx. Xxxxx Xxxx.
3.2.3. At CLOSING, ENTRUST shall, on its part, deliver to the SELLER:
(a) a certificate of the Secretary evidencing the decision of the BOARD of
ENTRUST approving this AGREEMENT;
(b) an original and irrevocable promise by a bank of international standing and
reputation to pay the BASIS PRICE, and, if due at CLOSING, the PRICE
ADJUSTMENT or, at the election of ENTRUST, a bank check drawn on a bank of
international standing and reputation and issued for the same amount;
(c) stock certificates registered in the name of the SELLER for the number of
CONSIDERATION SHARES;
(d) a receipt issued by the ESCROW AGENT as proof that the CONSIDERATION SHARES
to be delivered to the ESCROW AGENT at CLOSING pursuant to Sec. 1.5.1 have
been placed into ESCROW.
3.3. Transfer of Risks
The risks and profits relating to the SHARES and to the COMPANY shall pass to
ENTRUST at CLOSING.
4. Representations of Seller
Subject to the disclosure made in the Disclosure Letter (Exhibit DIL) and to the
provisions of Sec. 5 below, the SELLER makes the following representations,
which truly and accurately reflect the factual and legal situation as of the
date of this AGREEMENT.
4.1. With Respect to US Securities Regulations
4.1.1. With respect to the CONSIDERATION SHARES issued to and acquired by the
SELLER hereunder, the SELLER represents and warrants as follows:
(a) The SELLER will be acquiring the CONSIDERATION SHARES for his own account
for investment only, and not with a view to, or for sale in connection
with, any distribution of such CONSIDERATION SHARES in violation of the
SECURITIES ACT or any rule or regulation under the SECURITIES ACT.
(b) The SELLER has sufficient experience in business, financial and investment
matters to be able to evaluate the risks involved in the acquisition of the
CONSIDERATION SHARES and to make an informed investment decision with
respect to such investment.
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(c) The SELLER is not a "U.S. person" (as defined in Regulation S under the
SECURITIES ACT ("REGULATION S").
(d) The SELLER understands and acknowledges that (i) the CONSIDERATION SHARES,
if and when issued, will be "restricted securities" under Rule 144 of the
SECURITIES ACT and may not be offered or sold in the United States or to,
or for the account or benefit of, any U.S. person unless such securities
are registered under the SECURITIES ACT or such offer or sale is made
pursuant to an exemption from the registration requirements of the
SECURITIES ACT, (ii) the CONSIDERATION SHARES are being distributed by
ENTRUST pursuant to the terms of REGULATION S, which permits securities to
be sold to non-U.S. persons in "offshore transactions" (as defined in
REGULATION S), subject to certain terms and conditions, and (iii) hedging
transactions involving the CONSIDERATION SHARES may not be conducted unless
in compliance with the SECURITIES ACT.
(e) The SELLER has signed this AGREEMENT outside the United States.
4.1.2. The following are definitions contained in REGULATION S as in effect on
the date of this Agreement:
(a) "U.S. person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated under the
laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the United
States;
(vi) Any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit
or account of a U.S. person;
(vii) Any discretionary account or similar account (other than an estate
or trust) held by a dealer or other fiduciary organized,
incorporated, or (if an individual) resident in the United States;
and
(viii) Any partnership or corporation if:
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- Organized or incorporated under the laws of any foreign jurisdiction;
and
- Formed by a U.S. person principally for the purpose of investing in
securities not registered under the SECURITIES ACT, unless it is
organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a) of the SECURITIES ACT) who are not natural
persons, estates or trusts.
(b) The following are not "U.S. persons":
(i) Any discretionary account or similar account (other than an estate or
trust) held for the benefit or account of a non-U.S. person by a
dealer or other professional fiduciary organized, incorporated, or
(if an individual) resident in the United States;
(ii) Any estate of which any professional fiduciary acting as executor or
administrator is a U.S. person if:
- An executor or administrator of the estate who is not a U.S. person
has sole or shared investment discretion with respect to the assets
of the estate; and
- The estate is governed by foreign law;
(iii) Any trust of which any professional fiduciary acting as trustee is a
U.S. person, if a trustee who is not a U.S. person has sole or shared
investment discretion with respect to the trust assets, and no
beneficiary of the trust (and no settlor if the trust is revocable)
is a U.S. person;
(iv) An employee benefit plan established and administered in accordance
with the law of a country other than the United States and customary
practices and documentation of such country;
(v) Any agency or branch of a U.S. person located outside the United
States if:
- The agency or branch operates for valid business reasons; and
- The agency or branch is engaged in the business of insurance or
banking and is subject to substantive insurance or banking
regulation, respectively, in the jurisdiction where located; and
(vi) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank,
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the Asian Development Bank, the African Development Bank, the United
Nations, and their agencies, affiliates and pension plans, and any
other similar international organizations, their agencies, affiliates
and pension plans.
(c) "United States" means the United States of America, its territories
and possessions, any State of the United States, and the District of
Columbia.
4.2. With Respect to the SHARES and the COMPANY's Capital
4.2.1. The SHARES have been duly issued and are fully paid in. They are free of
any pledge, charge, encumbrances, or restrictions of any kind or nature.
4.2.2. The SELLER has good and valid title to the SHARES and he may freely
dispose of such SHARES without any limitation or restriction of any kind or
nature.
4.2.3. The COMPANY has a an issued share capital of CHF 400'000.-- composed of
40'000.--fully paid in registered shares with a nominal value of CHF 10.-- each.
8'000 of said registered shares are preferred shares. In addition to the issued
share capital, the COMPANY has a conditional capital of CHF 50'000.-- for 5'000
registered shares with a par value of CHF 10.-- each. The COMPANY has no other
issued, authorized or conditional equity.
4.2.4. There are no subscription rights, options, warrants, offers or other
commitments outstanding, which would oblige the COMPANY to issue any new COMPANY
SHARES or to transfer such COMPANY SHARES. Any such rights, options or offers
disclosed to ENTRUST in the due diligence have extinguished without affecting
the representation made under Sec. 4.2.3 above.
4.2.5. No prior issue, payment, contribution, sale, redemption, or transfer in
respect of the SHARES, has given or may give rise to any right, claim or action
against the COMPANY or ENTRUST.
4.3. With Respect to the COMPANY
4.3.1. Existence, Good Standing, and Records
4.3.1.1. The excerpt from the Commercial Register and the articles of
association in Exhibit DIL are current, true, and complete.
4.3.1.2. The minutes of the shareholders' and of the board of directors'
meetings listed in Exhibit DIL contain a complete, true and accurate record of
all such meetings over the period mentioned therein.
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4.3.1.3. To the extent that the COMPANY carries business outside of Switzerland,
it is presently in good standing and having the necessary licenses and permits
to carry on its business in these jurisdictions.
4.3.1.4. The COMPANY has no subsidiary, and has no participation in any other
entity, except for its participation in Swiss Security Service Laboratory AG,
Solothurn.
4.3.2. Accounts
4.3.2.1. The accounts attached in Exhibit DIL, including the first quarter
results submitted to ENTRUST, comply with the requirement of the Swiss Code of
Obligations, and have been prepared in accordance with accounting principles and
practices generally accepted in Switzerland.
4.3.2.2. Subject to the applicable accounting principles, the audited accounts
as of 31 December 1997 (the "Accounts"), as well as the first quarter results,
as per the date they were established:
(a) set forth without overestimation the capital, reserves, assets, and profits
of the COMPANY;
(b) fully provide for all bad or doubtful claims and receivables;
(c) fully provide for all liabilities, including contingent liabilities, or
disclose them in the notes; and
(d) are not affected (except as disclosed in the Accounts) by any extraordinary
or exceptional event, circumstance or item.
4.3.2.3. The accounts of the COMPANY for each financial year since its creation
have been consistently approved, without any qualification or restriction of any
kind, by the statutory auditors of the COMPANY.
4.3.2.4. The accounting records of the COMPANY are up to date and contain
complete and accurate details of all transactions of the COMPANY in compliance
with Art. 662 et seq. and 957 et seq. CO.
4.3.2.5. The COMPANY's records' systems and information, and the means of access
to them, are under the COMPANY's direct control.
4.3.2.6. There was no distribution of, nor any decision or commitment to
distribute any dividend in whatever form for the financial year ending on 31
December 1997. The spin-off of the WATERMARK BUSINESS pursuant to Sec. 7.4. is
reserved.
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4.3.2.7. ENTRUST is aware that the first quarter results do not contain the
accrued bonus payments for the first quarter of 1998, since the bonus payment,
if any, shall be decided at the end of the year. Said bonus payments are to be
made pursuant to the provisions of the employment agreements disclosed to
ENTRUST.
4.3.2.8. The issue prospectus dated 22 May 1998, including the financial
statements contained therein, constitutes full, true and plain disclosure of all
material facts relating to the COMPANY as of such date. The issue prospectus
contains no untrue statement of material facts, and the financial figures
contained in the issue prospectus are based on the same principle as those
applied for the establishment of the Accounts, as represented above in this Sec.
4.3.2.
4.3.3. Financing
4.3.3.1. The COMPANY has not made nor entered into any contract to make any loan
to any person or other arrangement whereby it is or may be owed any money other
than trade debts incurred in the ordinary course of business.
4.3.3.2. The COMPANY is not entitled to the benefit of any debt otherwise than
as the original creditor and has not factored or discounted any debt or agreed
to do so.
4.3.3.3. All of the accounts receivable which are reflected in the Accounts as
owed to the COMPANY (apart from bad and doubtful debts to the extent to which
they have been provided for in the Accounts) or which have subsequently been
recorded in the books of COMPANY have realized or are reasonably expected to
realize in the normal course of collection and within three months of CLOSING
their full value as included in the Accounts, after deduction of any provision
for bad debts.
4.3.3.4. ENTRUST is aware that some employees may have an overdraft with the
COMPANY, such overdraft being in aggregate of no more than CHF 50'000.--.
4.3.4. Technical characteristics
4.3.4.1. The quality of the COMPANY'S source code base in terms of security
design, documentation, performance, stability and reliability including year
2000 compliance is sufficient to carry on the business of the COMPANY as
currently contemplated, subject, however, to (i) the ongoing improvements and
developments made in the ordinary course of the COMPANY's business, and (ii)
unforeseen external market and technology developments.
4.3.5. Intellectual property
4.3.5.1. The COMPANY owns, or is licensed or otherwise possesses a right to use,
all INTELLECTUAL PROPERTY (as defined below) used in the operation of its
business
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or necessary for the operation of its business as currently conducted, except as
otherwise disclosed in Exhibit IPR. The COMPANY has taken reasonable measures to
protect the proprietary nature of trade secrets and confidential information (as
defined below) that it owns or uses. Except as disclosed in Exhibit IPR, the
Company has not granted any rights to any of the INTELLECTUAL PROPERTY owned by
the COMPANY (other than any rights in any INTELLECTUAL PROPERTY not owned by the
COMPANY that constitutes commercially available software generally available to
the public) to any person or business entity. To the SELLER's knowledge, no
other person or business entity is infringing, violating or misappropriating any
of the INTELLECTUAL PROPERTY that the COMPANY owns. The COMPANY has acquired all
rights to INTELLECTUAL PROPERTY developed or held by any employees (within the
scope and term of his employment or otherwise relating to the current or
proposed business of the COMPANY) or third parties who developed INTELLECTUAL
PROPERTY for the COMPANY and no outstanding claims for the payment of any
purchase price or indemnity in respect of such INTELLECTUAL PROPERTY is
threatened or outstanding, except as disclosed in Exhibit IPR.
4.3.5.2. For purposes of this Agreement, "INTELLECTUAL PROPERTY" means all (A)
patents, patent applications, patent disclosures and all related continuation,
continuation in part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations; (B) trademarks, service marks, trade dress,
logos, trade names and corporate names and registrations and applications for
registration thereof; (C) copyrights and registrations and applications for
registration thereof; (D) computer software, data and documentation; (E) trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information; (F) other proprietary rights relating to any of the foregoing and
(G) copies and tangible embodiments thereof.
4.3.5.3. None of the activities or business conducted by the COMPANY infringes,
violates or constitutes a misappropriation of (or in the past infringed,
violated or constituted a misappropriation of) any INTELLECTUAL PROPERTY rights
of any other person or business entity, except as disclosed in Exhibit IPR. The
COMPANY has not received any complaint, claim or notice alleging any such
infringement, violation or misappropriation, and, to SELLER's knowledge, there
is no basis for any such complaint, claim or notice.
4.3.5.4. Exhibit IPR identifies each (a) patent or registration that has been
issued to the COMPANY with respect to any of its INTELLECTUAL PROPERTY, (b)
pending patent application or application for registration that the COMPANY has
made with respect to any of its INTELLECTUAL PROPERTY and (c) license or other
agreement
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pursuant to which the COMPANY has granted any rights to any third party with
respect to any of its INTELLECTUAL PROPERTY. The COMPANY has delivered to
ENTRUST or its advisors correct and complete copies of all such patents,
registrations, applications, licenses and agreements (as amended to date) and
has specifically identified and made available to ENTRUST or its advisors
correct and complete copies of all other written documentation evidencing
ownership of, and any claims or disputes relating to, each such item. With
respect to each item of INTELLECTUAL PROPERTY that the COMPANY owns, except as
provided in Exhibit IPR:
(a) the COMPANY possesses all right, title and interest in and to such item;
(b) such item is not subject to any outstanding judgment, order, decree,
stipulation or injunction; and
(c) the COMPANY has not agreed to indemnify any person or business entity for
or against any infringement, misappropriation or other conflict with
respect to such item.
4.3.5.5. The COMPANY has supplied ENTRUST or its advisors with correct and
complete copies of all licenses, sublicenses or other agreements (as amended to
date) pursuant to which the COMPANY uses such INTELLECTUAL PROPERTY, all of
which are annexed in Exhibit IPR. To the SELLER's knowledge and with respect to
each such item of INTELLECTUAL PROPERTY, except as otherwise disclosed in
Exhibit IPR:
(a) the license, sublicense or other agreement covering such item is legal,
valid, binding, enforceable and in full force and effect with respect to
the COMPANY, and is legal, valid, binding, enforceable and in full force
and effect with respect to each other party thereto;
(b) neither the COMPANY nor any other party to such license, sublicense or
other agreement is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default by the
COMPANY or by any such other party, or permit termination, modification or
acceleration thereunder;
(c) the underlying item of INTELLECTUAL PROPERTY is not subject to any
outstanding judgment, order, decree, stipulation or injunction to which the
COMPANY is a party or has been specifically named, nor subject to any other
outstanding judgment, order, decree, stipulation or injunction;
4.3.5.6. With respect to each such item of INTELLECTUAL PROPERTY except as
otherwise disclosed in Exhibit IPR:
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(a) the COMPANY has not agreed to indemnify any person or business entity for
or against any interference, infringement, misappropriation or other
conflict with respect to such item; and
(b) no license or other fee is payable upon any transfer or assignment of such
license, sublicense or other agreement by the terms thereof or the terms of
any other agreement or arrangement with the other party or parties thereto.
4.3.5.7. The SELLER warrants to the best of its knowledge that the COMPANY has
taken and plans to take up to the year 2000 all reasonable measures up to then
known as state of the art to ensure that its software products are designed to
perform, and will perform correctly at all times prior to, during and after the
calendar year 2000, all functions, calculations, sequencing, displays and other
processing of calendar dates and date-related data without error or degradations
in performance, specifically including any error relating to, or the product of,
date data which represent different centuries or more than one century.
4.3.6. Insurances
4.3.6.1. Exhibit DIL lists all private insurance contracts concluded by the
COMPANY.
4.3.6.2. All premiums due in relation to the COMPANY's insurances have been
paid, and nothing has been done or omitted to be done which would make any
policy of insurance of the COMPANY void or voidable or which is likely to result
in an increase in premium or which would release any insurer from any of its
obligations under any policy of insurance of the COMPANY.
4.3.6.3. There is no insurance claim pending or outstanding and there are no
circumstances likely to give rise to any such claim.
4.3.7. Customers and Suppliers
4.3.7.1. To the SELLER's best knowledge, none of the current COMPANY's customers
or suppliers intends or has threatened to cease or alter their business with the
COMPANY. The SELLER is not aware of the existence of any formal change of
control clause in any material contract with any customer or supplier of the
COMPANY, other than as might be contained in the contracts listed in Exhibit DIL
and provided to ENTRUST. The SELLER has not made and is not expected to make any
investigations as to the intents of the COMPANY's suppliers and customers.
4.3.7.2. Neither the COMPANY nor the SELLER has made extraordinary promises,
commitments or assurances, whether oral or written, express or implied, to the
effect that the COMPANY will or may:
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(a) offer future price reductions, concessions or other special terms to any
customer of the COMPANY;
(b) accept future price increases or additional charges or other special terms
to any supplier of the COMPANY; or
(c) be liable to the payment of any liquidated damages, penalties or similar
liabilities.
4.3.7.3. There is no assumed contract which the SELLER can reasonably foresee
that will result in any material loss upon performance thereof by the COMPANY
after CLOSING.
4.3.8. Employees
4.3.8.1. Exhibit DIL accurately lists the name, position, and current annual
compensation of each employee of the COMPANY. The employment agreements with the
key-employees enclosed in Exhibit DIL are true and correct and fully in force.
4.3.8.2. None of the key-employees has notified the COMPANY of its intent to
terminate employment or is expected to terminate employment. With the exception
of military service and regular vacations, no such key-employee is absent from
work on disability or other leave or has notified the COMPANY of intent to take
any such leave. ENTRUST is aware of a possible termination of the contract with
Xx. Xxxxxxxx as well as of the absence of Xx Xxxxxxxxx for education purposes
(for an aggregate amount of about 15 days).
4.3.8.3. All salaries, bonuses or other compensation of any kind and nature have
been timely paid to the COMPANY's employees.
4.3.9. Pensions and social security contributions
4.3.9.1. The COMPANY has paid all contributions it is required to make by law or
by agreement with its employees, with any labor organization, or with any
insurance company with respect to pensions and social security, and especially
all contributions to the AHV / IV, ALV and SUVA.
4.3.9.2. The COMPANY complies with all legal obligations with respect to its
employees' pensions and social security.
4.3.10. Litigation
4.3.10.1. To the knowledge of the SELLER, there are no suits, arbitrations,
administrative or other proceedings (including debt collection proceeding or
other
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insolvency proceedings) in any matter subject to private or to public law,
pending, threatened against or otherwise affecting the COMPANY.
4.3.10.2. The COMPANY is not subject to any judgement, order or decree which has
affected or may affect its business.
4.3.11. Taxes
4.3.11.1. The COMPANY has filed all tax returns and withheld and paid or
discharged all taxes, assessments and penalties due and payable , and there is
no further liability for any such taxes and no interests or penalties accrued or
accruing with respect thereto.
4.3.11.2. All tax returns of the COMPANY are accurate and complete. To the
SELLER's best knowledge, no audit of any tax return of the COMPANY is pending or
proposed. There is no fact, circumstance, organizational structure, act or event
which could give rise to any claim of tax underpayments, penalties, or
disqualifications of any tax status of the COMPANY for prior years, which have
not been discharged of or provisioned for.
4.3.11.3. For the tax period ending on 31 December 1997, the tax returns can be
filed on the basis of the accounts for the business year 1997 as attached in
Exhibit DIL. There are no outstanding agreements or waivers extending any period
of limitation applicable to any tax return of the COMPANY. Notwithstanding the
previous sentence, the COMPANY has received an extension of the filing of the
tax return for 1997, since the COMPANY has just received the audit report in
relation to the 1997 figures.
4.3.11.4. There are no disputes as to taxes nor any tax liens, whether existing
or threatened, on any assets as well as on any income or expense item of the
profit and loss statement of the COMPANY.
4.3.11.5. The words "tax" and "taxes" in this AGREEMENT mean all taxes, however
denominated, including interest, penalties, and other additions to taxes that
may become payable in respect thereof, imposed by the state, the cantons, the
municipalities or by any other agency or political subdivision, such as income
taxes and capital taxes due on the basis of taxable profit and taxable capital
as declared in the tax returns, or other taxes (for example VAT) due on the
basis of a filed tax return, as well as all other taxes, including but not
limited to taxes due on the basis of an adjustment of figures as declared in tax
returns filed with the tax authorities or due on the basis of an adjustment of a
provisional or final assessment from whatever authority and for whatever reason.
4.3.12. Events since Accounting Date and since end of Q1
4.3.12.1. Since 31 December 1997, respectively since 31 March 1998:
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(a) the business of the COMPANY has been carried on in the ordinary and normal
course;
(b) there has been no material adverse change in the financial or market
position of the COMPANY, including any such change in respect of turnover,
profits, margins of profitability, liabilities (actual or contingent) or
expenses of the COMPANY; and
(c) there has been no substantial and abnormal change in the basis or terms on
which clients or suppliers are prepared to do business with the COMPANY.
4.3.12.2. The spin-off of the Watermark business pursuant to Sec. 7.4 is
excluded from the representations made in this Sec. 4.3.12.
4.3.13. Effect of the transaction
4.3.13.1. To the SELLERS' best knowledge the customers and suppliers of the
COMPANY have not been informed that the control over the COMPANY may be sold to
ENTRUST. The SELLER is not aware of any formal notification that the execution
or CLOSING of this AGREEMENT and of the change of control will lead to the
termination of the relationship between the COMPANY and its normal customers or
suppliers. ENTRUST has been made aware that it might be preferable to maintain
the name of the COMPANY and the Swiss character of the COMPANY to avoid negative
impacts on the relationship with the COMPANY's customers and suppliers.
4.3.13.2. The execution of the AGREEMENT and the observance and performance of
its provisions by the SELLER, including the spin-off of the WATERMARK business,
will not:
(a) result in a breach of any contract, law, regulation, order, judgement,
injunction, undertaking, decree or other like imposition to or by which the
COMPANY is a party or is bound, or entitle any person to terminate or avoid
any contract to which the COMPANY is a party, or have any material effect
on any such contract;
(b) result in the loss or impairment of or any default under any license,
authorization or consent required by the COMPANY for the purposes of its
business;
(c) result in the creation, imposition, crystallization or enforcement of any
encumbrance whatsoever on any of the assets of the COMPANY;
(d) result in any present indebtedness of the COMPANY becoming due and payable,
or capable of being declared due and payable, prior to its stated maturity
date or in any financial facility of the COMPANY being withdrawn; or
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(e) result in any grant or subvention to the COMPANY, in connection with any
research, development, or consulting project being cancelled or claimed
back;
4.3.13.3. There is no contract to which the COMPANY is party which formally
depends on the continuation of the connection (whether as an officer of the
COMPANY or otherwise) of any person with the COMPANY.
4.3.13.4. Notwithstanding the intended generality of the above, the
representations made in this Sec. 4.3.13 are limited by the specific
qualifications made in this agreement (e.g. in Sec. 4.3.7.1) and by the general
principles governing the liability of the SELLER and laid down in Sec. 5.4.
4.3.14. Other material items
To the SELLER's best knowledge there is no fact, contractual or legal
obligations, which has or may have a material adverse effect on the value of the
COMPANY, and which, if known to ENTRUST prior to the date of this AGREEMENT,
could have caused ENTRUST not to enter into this AGREEMENT.
5. Warranty Claims Against Seller
5.1. Subject to the provisions of this AGREEMENT, the SELLER shall be liable to
ENTRUST for any breach of the representations made in Sec. 4 above (a "DEFECT"),
and shall indemnify and hold ENTRUST (or at the option of ENTRUST, the COMPANY)
harmless against any damage incurred by ENTRUST or by the COMPANY, unless
ENTRUST was aware of the DEFECT at SIGNING.
5.2. In order to account for the effective participation of the SELLER in the
COMPANY's capital, the liability of the SELLER for the damage caused by the
DEFECT shall be reduced to 0.986 % of the damage, unless such damage affects
directly the SHARES.
5.3. For the purpose of any claim for the reduction of the PURCHASE PRICE in
connection with any DEFECT, such DEFECT shall be deemed to affect pro rata the
value of the SHARES in the same manner as it affects the value of the COMPANY.
The hypothetical value of the SHARES without the DEFECT shall be deemed to be
equal to the PURCHASE PRICE, or, if no PRICE ADJUSTMENT was payable, to the
BASIS PRICE.
5.4. ENTRUST shall notify the SELLER in writing of any DEFECT no later than 45
days after ENTRUST has become aware of such DEFECT. ENTRUST shall not be deemed
to have been aware of, or to have accepted any DEFECT, unless such DEFECT has
been clearly disclosed by the COMPANY (i) in the course of the due diligence or
(ii)
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in the documents and information provided to ENTRUST and listed in the answers
to the due diligence questionnaire dated 10 May 1998, as attached in Exhibit
DIL. The requirement that ENTRUST examine the object of the sale after CLOSING
pursuant to Art. 201 CO is waived.
5.5. The claims of ENTRUST in connection with any DEFECT shall be subject to a
statute of limitation of 24 months after CLOSING and of one year after the
notification of the DEFECT by ENTRUST pursuant to Sec. 5.2., provided, however,
that claims raised in connection with taxes for any given tax period shall
expire one year after the final assessment for such tax period.
5.6. No claim may be raised against the SELLER in connection with any DEFECT,
unless the aggregate amount of the damage claimed by ENTRUST against the SELLER
and/or any other person in connection with DEFECTS exceeds CHF 100'000.--. The
maximum aggregate amount of warranty claims against the SELLER shall be limited
to 0.986 % of CHF 15'000'000. If a DEFECT affects only the value of the SHARES,
without any damage for the COMPANY, the claim of ENTRUST shall be limited to the
PURCHASE PRICE paid.
5.7. A rescission of the sale of the SHARES is excluded.
6. Representations of Entrust
6.1. Good Standing and Authority
6.1.1. ENTRUST is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, United States of America, and
has requisite power and authority (corporate and other) to own its properties,
to carry on its business as now being conducted, to execute and deliver this
AGREEMENT and to consummate the transactions contemplated hereby.
6.1.2. The execution and delivery of this AGREEMENT by ENTRUST, and the
consummation by ENTRUST of all transactions contemplated hereby, have been duly
authorized by all requisite corporate action on the part of ENTRUST.
6.2. Consideration Shares
All CONSIDERATION SHARES will be, when issued in accordance with this AGREEMENT,
duly authorized, validly issued, fully paid and nonassessable.
6.3. Capitalization
6.3.1. As of the date of this AGREEMENT, the authorized capital stock of ENTRUST
consists of (a) 15'000'000 shares of Series A Common Stock, USD .01 par value
per share, of which approximately 5'078'010 shares are issued and outstanding,
(b) 260'000 shares
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of Series B Common Stock, USD .01 par value per share, of which 221'052 shares
are issued and outstanding, (c) 260'000 shares of Series B Non-Voting Common
Stock, of which 38'948 shares are issued and outstanding, (d) 2'500'000 shares
of Special Voting Stock, USD .01 par value per share, of which 1'925'000 shares
are issued and outstanding, and (e) 500'000 shares of Preferred Stock, USD .01
par value per share, none of which shares are issued or outstanding. ENTRUST's
Series A Common Stock. 6.3.2. In addition to the issued stock of ENTRUST, as of
the date of this AGREEMENT, ENTRUST has reserved 1'857'230 shares of Series A
Common Stock for issuance pursuant to the 1996 Stock Incentive Plan. ENTRUST
anticipates reserving additional Series A Common Stock for issuance pursuant to
the 1996 Stock Incentive Plan or similar plan.
6.3.3. The capital stock table of ENTRUST attached hereto as Exhibit CAP shows
the approximate fully diluted capital structure of ENTRUST at CLOSING.
6.3.4. As a holder of CONSIDERATION SHARES, the SELLER shall have the same
rights, preferences and privileges as the other holders of ENTRUST's Series A
Common Stock.
6.4. Governmental Consents
No consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any US GOVERNMENTAL AUTHORITY is
required on the part of ENTRUST in connection with the execution and delivery of
this AGREEMENT, the offer, issuance, sale and delivery of the CONSIDERATION
SHARES, or the other transactions to be consummated at the CLOSING, as
contemplated by this AGREEMENT.
6.5. Warranty Claims Against Entrust
6.5.1. Warranty claims in connection with a breach of the representations of
ENTRUST made under Sec. 6.1 to 6.3 are subject to the following limitations:
(a) The claims shall be capped at USD 10.-- per CONSIDERATION SHARE, i.e. the
difference between the agreed upon price per CONSIDERATION SHARE of USD
58.30 and the price of USD 48.30 guaranteed by Sec. 2.4.2.
(b) If the conditions for the exercise of PUT RIGHT pursuant to Sec. 2.4.1. are
fulfilled, any warranty claim shall be excluded altogether.
6.5.2. If the breach of Sec. 6.4.3 impairs the enforceability of the PUT RIGHT
of Sec. 2.4.1. and 2.4.3, the claim shall be capped at 58.30 per CONSIDERATION
SHARE. 6.5.3. Without prejudice to the foregoing, Warranty Claims shall be
subject to a time-bar of 24 months following CLOSING.
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7. Covenants
7.1. Management of the Company
7.1.1. Starting on the date of this AGREEMENT and until the earlier of (i) three
months following CLOSING or (ii) the issuance by the COMPANY of new
organizational by-laws under the control of ENTRUST, the SELLER shall not, alone
or acting with others, without the prior consent of ENTRUST:
(a) cause the business of the COMPANY to be conducted in any manner
inconsistent with the ordinary and usual course of the COMPANY's business;
(b) cause the COMPANY to enter into any contract or into any commitment which
is likely to have a material adverse effect upon the operations or
activities of the COMPANY or the value of the COMPANY for ENTRUST;
(c) cause the COMPANY to terminate any of the employment agreements with any
person employed by the COMPANY at the date of this AGREEMENT or to transfer
the title to any of the INTELLECTUAL PROPERTY listed in Exhibit IPR;
(d) take any other action which is inconsistent with the provisions of this
AGREEMENT; or
(e) cause the COMPANY to sell any COMPANY SHARES held in treasury, or to issue
any new COMPANY SHARE or options, or to take any action which would change
the situation with respect to the COMPANY SHARES and, generally, the
COMPANY's capital, as represented in Sec.4.2.
7.1.2. The expenses incurred by the COMPANY in connection with the current
venture capital round shall not be charged to the COMPANY. No fees shall be paid
in connection with any work performed by or on behalf of INVISION.
7.2. Product Liability
7.2.1. The SELLER undertakes to hold the COMPANY free of any harm caused by
warranty claims in connection with defects affecting the products of the COMPANY
existing at CLOSING, provided, however, that ENTRUST cannot call upon this
covenant in connection with any product of the COMPANY if (i) ENTRUST or the
COMPANY fails to show reasonable care in maintaining such product or in
responding to customers' requests with respect to such product, or (ii) if
ENTRUST or the COMPANY made any modification to such product. The claim of
ENTRUST may only be raised if the warranty claims against the COMPANY exceed in
aggregate an amount of CHF 250'000, and if such claims are notified to the
COMPANY within 12 months following CLOSING.
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The claim of ENTRUST against the SELLER shall be limited to [ ] % of the excess
of the aggregate warranty claims raised against the COMPANY over CHF 250'000.--.
7.2.2. The claim of ENTRUST against the SELLER pursuant to this Sec. 7.2 is
subject to and shall be covered by the cap of Sec. 5.6.
7.3. Consideration Shares
7.3.1. The SELLER acknowledges that for a period of one year following the
CLOSING (the "DISTRIBUTION COMPLIANCE PERIOD"), the SELLER shall not (a) engage
in any activity for the purpose of, or which may reasonably be expected to have
the effect of, conditioning the market in the United States for the
CONSIDERATION SHARES or (b) unless such CONSIDERATION SHARES are registered
under the SECURITIES ACT or an exemption from the registration requirements of
the SECURITIES ACT is available, offer, sell or transfer the CONSIDERATION
SHARES in the United States or to, or for the account or benefit of, a U.S.
person. The SELLER understands that the CONSIDERATION SHARES or any interest
therein are only transferable on the books and records of the transfer agent and
registrar of ENTRUST. The SELLER further understands that neither ENTRUST nor
its transfer agent and registrar will register any transfer of the CONSIDERATION
SHARES except in accordance with the provisions of REGULATION S, pursuant to
registration under the SECURITIES ACT or pursuant to an available exemption from
registration, and that ENTRUST may place stop transfer orders with its transfer
agent with respect to certificates representing CONSIDERATION SHARES.
7.3.2. Unless the CONSIDERATION SHARES shall first have been registered under
the SECURITIES ACT, any proposed offer, sale or transfer during the DISTRIBUTION
COMPLIANCE PERIOD of any of the CONSIDERATION SHARES shall be subject to the
condition that the SELLER must deliver to ENTRUST;
(a) written certification that neither record nor beneficial ownership of the
CONSIDERATION SHARES has been offered or sold in the United States or to,
or for the account or benefit of, any U.S. person;
(b) a written certification of the proposed transferee that such transferee (or
any account for which such transferee is acquiring such CONSIDERATION
SHARES) is not a U.S. person, that such transferee is acquiring such
CONSIDERATION SHARES for such transferee's own account (or an account over
which he or she has investment discretion) and that such transferee is
knowledgeable of and agrees to be bound by the restrictions on re-sale set
forth in this Agreement and REGULATION S during the DISTRIBUTION COMPLIANCE
PERIOD, and
(c) a written opinion of United States counsel, in form and substance
reasonably satisfactory to ENTRUST, to the effect that the offer, sale and
transfer of such
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CONSIDERATION SHARES are exempt from registration under the SECURITIES ACT.
Any CONSIDERATION SHARES offered, sold or transferred during the
DISTRIBUTION COMPLIANCE PERIOD in accordance with the foregoing
restrictions will continue to be deemed "restricted securities" under Rule
144 of the SECURITIES ACT, notwithstanding that they were acquired in a
resale transaction made pursuant to Rules 901 or 904 of REGULATION S.
7.3.3. Rule 144. The SELLER understands that "restricted securities" may be
resold in the United States or to, or for the benefit of, U.S. persons in
accordance with Rule 144 of the SECURITIES ACT. The SELLER acknowledges that the
following is a summary of the resale requirements of Rule 144, and such summary
is qualified in its entirety by reference to such rule, a copy of which was
previously provided to the SELLER.
7.3.4. Rule 144, as currently in effect, imposes the following requirements on
any holder of restricted securities:
(a) at the time of resale, ENTRUST must have been a public company for at least
90 days (i.e., ENTRUST must have securities registered pursuant to Section
12 of the United States Securities Exchange Act of 1934, as amended, and
have filed all reports required to be field thereunder during the 12 months
preceding the sale (or for such shorter period as ENTRUST is a public
company);
(b) the holder of restricted securities must have held such securities for at
least one year;
(c) the number of shares of Series A Common Stock sold by the holder within any
three-month period may not exceed the greater of (a) 1% of the number of
outstanding shares of Series A Common Stock or (b) the average weekly
trading volume of the Series A Common Stock during the four calendar weeks
preceding the filing of the Form 144;
(d) the holder must sell the securities only in "brokers' transactions" or in
transactions directly with a "market maker," which transactions may not
involve any solicitations of orders to buy the securities or any payments
to any person other than the broker executing the sale order; and
(e) the holder must mail three copies of a Form 144 to the United States
Securities and Exchange Commission at the same time as he or she places the
sale order with the broker.
7.3.5. After the holder of CONSIDERATION SHARES has held the CONSIDERATION
SHARES for two years, and assuming the holder has not been an affiliate of
ENTRUST (such as an officer, director or principal stockholder) during the
preceding three months, ENTRUST shall, to the extent permitted by law, at the
request of SELLER remove the
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restrictive legend from the CONSIDERATION SHARES under Rule 144(k). Thereafter,
and in respect of the transfers made in accordance with Rule 144, the holder
need not comply with the restrictions on resale noted above.
7.3.6. A legend substantially in the following form will be placed on the
certificates representing the CONSIDERATION SHARES which may be issued to the
SELLER. "The shares represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated (i) unless and
until such shares are registered under such Act or an opinion of counsel
satisfactory to Entrust Technologies Inc. is obtained to the effect that such
registration is not required or (ii) except in accordance with Regulation S of
such Act. Hedging transactions involving the shares represented by this
certificate may not be conducted except in compliance with the Securities Act of
1933, as amended.
The sale or other disposition of any of the shares represented by this
certificate is restricted by a Share Purchase Agreement entered into by the
holder of this certificate and Entrust Technologies Inc. A copy of the Share
Purchase Agreement is available for inspection during normal business hours at
the principal executive office of the corporation."
7.3.7. The SELLER, if requested by ENTRUST or the managing underwriter of a
public offering of ENTRUST's Series A Common Stock or other securities pursuant
to a registration statement under the SECURITIES ACT (a "REGISTRATION
STATEMENT"), shall agree not to sell publicly or otherwise transfer or dispose
of any CONSIDERATION SHARES or other securities of ENTRUST held by the SELLER
for a specified period of time (not to exceed 180 days) following the effective
date of such REGISTRATION STATEMENT; provided, however, that.
(a) such agreement shall only apply to the first REGISTRATION STATEMENT
covering Series A Common Stock or other securities to be sold to the public
in an underwritten offering, and
(b) all stockholders of ENTRUST holding not less than the number of shares of
Series A Common Stock held by the SELLER and all officers and directors of
ENTRUST enter into similar agreements.
7.3.8. ENTRUST represents that it has only made offers to sell the CONSIDERATION
SHARES outside the U.S.A. and that it did not generally advertise in the U.S.A.
in respect to the offering for sale or sale of the CONSIDERATION SHARES.
7.4. Watermark Business
7.4.1. The Watermark intellectual property (watermark specific software and
filed patents) shall be transferred to a separate entity (the "WATERMARK
COMPANY") prior to CLOSING in consultation with ENTRUST. The Company shall be
indemnified for
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any claims arising from or relating to the Watermark intellectual property,
either before or after CLOSING. To the extent that the COMPANY is under any
obligation to perform any work on behalf of the WATERMARK COMPANY or in
connection with the Watermark intellectual property, such obligation will be
taken over by the WATERMARK COMPANY at no cost for the COMPANY. If such transfer
is not possible, the WATERMARK COMPANY will pay an arm's length consideration to
the COMPANY and grant to the COMPANY at no charge all licenses necessary for the
performance of such work.
7.4.2. Any costs (including legal costs) or taxes imposed on the COMPANY or on
ENTRUST in connection with the transfer of the watermark intellectual property
to the WATERMARK COMPANY shall be borne by the SELLER in the same proportion as
determined by Sec. 5.2 in respect of the representations and warranties.
8. Miscellaneous
8.1. Costs
8.1.1. Each Party shall bear its own costs, taxes and expenses relating to the
preparation, CLOSING and implementation of this AGREEMENT.
8.2. Confidentiality
Effective as of CLOSING, ENTRUSTS' obligation to the keep confidential the
information received on the COMPANY shall terminate.
8.3. Assignment
8.3.1. The rights and obligations of the PARTIES out of this AGREEMENT may not
be assigned, provided, however, that ENTRUST is authorized to assign such rights
and obligations to any of its affiliates.
8.3.2. In case of such an assignment of the contract by ENTRUST to any of its
affiliates pursuant Sec. 8.3.1, a letter of comfort or a guarantee of ENTRUST
shall be delivered to the SELLERS.
8.4. Announcements
No announcement concerning the transaction contemplated by this AGREEMENT or any
matter ancillary to it and no disclosure of the terms of this AGREEMENT (save as
required by law, by any market regulations or as expressly provided in this
AGREEMENT) shall be made by the SELLER to any person or entity, except with the
prior written approval of ENTRUST.
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8.5. Notices
8.5.1. Any notice or other communication to be given under this letter shall be
in writing and shall be delivered by hand or sent by registered post or by
courier to the address specified below, or sent by facsimile to the number
specified below;
(a) ENTRUST: General Counsel, Entrust Technologies Inc. 0000 Xxxxx Xxxxxxx
Xxxxxxxxxx, Xxxxxxxxxx, Xxxxx, 00000, phone: 000 000 000 0000, fax 001 972
000 0000
(b) SELLER: [Name], [Address]
8.5.2. Either Party hereto may change the address, facsimile number or name of
the person for whose attention notices are to be addressed by serving a notice
on the other party hereto in accordance with Sec. 8.5.1.
8.5.3. Each such notice or other communication shall be effective:
(a) if given by facsimile when the facsimile is transmitted to the facsimile
number specified in para. 8.5.1 or
(b) if given by any other means, when received at the address specified in
para. 8.5.1.
8.6. Severability
Whenever possible, each provision of this AGREEMENT shall be interpreted in such
manner as to be effective and valid under the applicable law, but if any
provision of this AGREEMENT shall be unenforceable or invalid under applicable
law, such provision shall be ineffective only to the extent of such
unenforceability or invalidity and be replaced by such valid and enforceable
provision which bona fides parties would consider to match as closely as
possible the invalid or unenforceable provision, attaining the same or a similar
economic effect. The remaining provisions of this AGREEMENT shall under all
circumstances continue to be binding and in full force and effect.
8.7. Construction, amendments
8.7.1. This AGREEMENT constitutes the entire agreement among the parties and,
except as otherwise provided, supersedes any prior understandings or agreements,
written or oral, that relate to the acquisition of COMPANY SHARES by ENTRUST.
8.7.2. This AGREEMENT may not be amended except in writing, including
communications by letter, facsimile, or E-mail.
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8.7.3. The PARTIES agree that the AGREEMENT shall not be construed against any
PARTY on the ground that such PARTY drafted or prepared the AGREEMENT.
8.8. Governing law
This AGREEMENT shall be governed by the internal law of Switzerland; the
application of the Vienna (United Nations) Convention on Contracts for the
International Sale of Goods is excluded.
8.9. Arbitration
All disputes arising out of or in connection with the present agreement,
including disputes on its conclusion, binding effect, amendment and termination
shall be resolved, to the exclusion of the ordinary courts by a three-person
Arbitral Tribunal in accordance with the International Arbitration Rules of the
Zurich Chamber of Commerce. The language of the arbitration shall be English.
List of Exhibits
- Exhibit DIL (List of Documents submitted to Entrust)
- Exhibit CAP (Capital Structure of Entrust)
- Exhibit IPR (Intellectual Property)
_________________ , this ___________ _________________ , this __________
ENTRUST Technologies Inc. The SELLER:
---------------------------------- ----------------------------------
Name: [Name]
Title:
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This Form of Share Purchase Agreement (or comparable form) was entered into
by the shareholders of R3 Security Engineering AG listed below. The only
material differences in the Share Purchase Agreements relate to the
consideration paid to such shareholders, which is set forth after their
respective names.
Price
Consideration Escrow Adjusted
Shareholder U.S. Dollars Shares Shares Shares
----------- ------------ ------ ------ ------
Xxxxxxx X. Xxxxxx $52,573 16,062 3,276 1,073
Claus X. Xxxxxxxxx 5,286 1,606 327 107
Xxxxx Xxxxxxxxx 157,747 14,258 2,735 1,073
Xxxxxx Xxxx 3,960 357 68 26
Xuejia Lai 26,316 8,031 1,638 536
Xxxxx Bauspiess 2,614 804 164 53
Xxxxxxx Xxxxxxx 5,286 1,606 513 107
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ENTRUST TECHNOLOGIES
[Name]
[Address]
CONSIDERATION SHARES
Dear [___________]
Reference is made to the share purchase agreement between yourself and ourselves
for the purchase of shares in R3 Security Engineering AG closed on 8 June 1998
(the "Share Purchase Agreement").
The purpose of this letter is the amendment of the Share Purchase Agreement with
respect to its Section 7.3 as follows:
Rule 144 Reporting Requirements
From and after the time ENTRUST has securities registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
in order to permit the Seller to sell the CONSIDERATION SHARES it holds, if it
so desires, from time to time pursuant to Rule 144 or any successor to such rule
or any other rule or regulation of the Securities and Exchange Commission (the
"Commission") that may at any time permit the SELLER to sell its CONSIDERATION
SHARES to the public without registration (the "Resale Rules"), ENTRUST will:
a) comply with all rules and regulations of the Commission applicable in
connection with use of the Resale Rules;
b) make and keep adequate and current public information available, as
those terms are understood and defined in the Resale Rules, at all
times;
c) file with the Commission in a timely manner all reports and other
documents required of ENTRUST under the Securities Act and Exchange
Act;
d) furnish to the SELLER forthwith upon request (i) a written statement
by ENTRUST that it has complied with the reporting requirements of the
Resale Rules, the Securities Act and Exchange Act, (ii) a copy of the
most recent annual or quarterly report of ENTRUST and any other
reports and documents filed by ENTRUST under the Securities Act or the
Exchange
Act, and (iii) such other information as may be reasonably requested
in availing the SELLER of any rule or regulation of the Commission
which permits the selling of any such CONSIDERATION SHARES without
registration; and
e) take any action (including cooperation with the SELLER to cause the
transfer agent to remove any restrictive legend on certificates
evidencing the CONSIDERATION SHARES) which shall be reasonably
requested by the SELLER or which shall otherwise facilitate the sale
of the CONSIDERATION SHARES from time to time by the SELLER pursuant
to the Resale Rules.
Rule 144A Information
Until such time as ENTRUST is subject to Section 13 or 15(d) of the Exchange
Act, ENTRUST will make available, upon request, to the SELLER and prospective
purchaser or transferee of the CONSIDERATION SHARES designated by the Seller,
the information required to allow the resale or other transfer of such
CONSIDERATION SHARES pursuant to Rule 144A under the Securities Act.
Sec. 7.3.7
The legend to be placed on the certificates representing CONSIDERATION SHARES
shall include the following additional transfer exception:
or (iii) except to a "qualified institutional buyer" (as defined in Rule 144A
promulgated under the Securities Act) in a transaction which meets the
requirements of such Rule 144A.
Zurich, 8 June 1998
Entrust Technologies Inc.
/s/ Xxxx Xxxx
-------------
Xxxx Xxxx
ENTRUST TECHNOLOGIES
[Name]
[Address]
Watermark spin-off
Dear [____________]
We confirm to you herewith that Entrust will bear up to CHF 30,000.-- of legal
fees in connection with the spin-off of the Watermark business. Sec. 7.4.2. of
the Share Purchase Agreement should, therefore, read as follows:
"Except for an aggregate of up to CHF 30,000.-- of legal fees, any fees,
costs or taxes imposed on the COMPANY or on ENTRUST in connection with the
transfer of the watermark intellectual property to the WATERMARK COMPANY
shall be borne by the SELLER in the same proportion as determined by Sec.
5.2 in respect of the representations and warranties."
Pursuant to the information received from Xx. Xxxxxx Xxxxx on 6 June 1998, the
tax authorities decided to levy against R3 Security Engineering AG a withholding
tax of CHF 177,697 in connection with the distribution of the shares in
Securights AG as a dividend. Since such taxes are to be borne pro rata by the
Sellers, we will in due course, send you an invoice for your portion of the
taxes, as determined in Sec. 7.4.2. of the Share Purchase Agreement. Indeed, you
may be entitled, to claim back this amount from the tax authorities in
accordance with the tax legislation.
We thank you for your comprehension.
Zurich, 8 June 1998
Entrust Technologies, Inc.
/s/ Xxxx Xxxx
-------------
Xxxx Xxxx
