Trust Indenture - Notes

EXHIBIT 10.2


DRAFT: August 30, 2001


CERTICOM CORP.


and


COMPUTERSHARE TRUST COMPANY OF CANADA


AS TRUSTEE


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TRUST INDENTURE


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$13,500,000 aggregate principal amount of 7.25% Senior Convertible Unsecured


Subordinated Debentures Due August 30, 2004


August 30, 2001


THIS TRUST INDENTURE is made as of August 30, 2001


B E T W E E N:


CERTICOM CORP.,
a corporation existing under the laws of the
Yukon Territory,
(hereinafter referred to as the "Corporation")


- and -


COMPUTERSHARE TRUST COMPANY OF CANADA, a trust
company existing under the laws of Canada and duly
authorized to carry on the business of a trust
company in each province of Canada


(hereinafter referred to as the "Trustee")


WHEREAS the Corporation is desirous of creating and issuing Debentures, as defined in, and the issuance of which is provided for by, this trust indenture;


AND WHEREAS the Corporation, under the laws relating thereto, is duly authorized to create and issue the Debentures to be issued as herein provided to evidence indebtedness of the Corporation existing on the date hereof or incurred by the Corporation at any time hereafter;


AND WHEREAS all necessary resolutions of the directors of the Corporation have been duly passed and other proceedings taken and conditions complied with to make the creation and issue of the Debentures proposed to be issued hereunder and this trust indenture and the execution thereof and hereof legal, valid and effective;


AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Corporation and not by the Trustee;


NOW THEREFORE THIS INDENTURE WITNESSETH and it is hereby covenanted, agreed and declared as follows:


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ARTICLE 1
INTERPRETATION


1.1 Definitions


In this Trust Indenture, unless there is something in the subject matter context inconsistent therewith:


"Affiliate" has the meaning ascribed to such term in the Business Corporations Act (Ontario);


"Associate" has the meaning ascribed to such term in the Business Corporations Act (Ontario);


"Authorized Investments" means short-term interest bearing or discount debt obligations issued or guaranteed by the Government of Canada or a Province or a Canadian chartered bank (which may include an affiliate or related party of the Trustee) provided that each such obligation is rated at least R-1 (middle) by Dominion Bond Rating Service Limited or any equivalent rating by CBRS Inc.;


"Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday which is a day on which banking institutions in Toronto, Ontario and Hayward, California are generally open for business and are not authorized or obligated by law to close;


"Capital Reorganization" has the meaning attributed to such term in subsection 4.3(e);


"Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designed, whether voting or non-voting) in the equity of such Person, whether now outstanding or issued after the date of this Indenture;


"Certificate of the Corporation" means an instrument signed in the name of the Corporation by any one of the Chief Executive Officer, the Chief Financial Officer or any Vice President of the Corporation certifying the matters specified therein;


"Change of Control" means the occurrence of (i) a Person, including the Person's Affiliates and Associates, becoming the beneficial owner of directly or indirectly, or, exercising control or direction over, Common Shares carrying in excess of 50.1% of the total voting rights attached to the Common Shares; or (ii) the Corporation consolidating or amalgamating with, or merging with or into, another Person or selling, assigning, conveying, transferring, leasing or otherwise disposing of all or substantially all of its assets to any Person, or any Person consolidating or amalgamating with, or merging with or into, the Corporation, in any such event pursuant to a transaction in which any of the outstanding Common Shares are converted into or exchanged for cash, securities or other property, other than any such transaction in which the outstanding Common Shares are converted into or exchanged for, or the assets of the Corporation are exchanged for, voting securities or securities exchangeable at the option of the holder into voting securities of the surviving or transferee Person constituting a majority of such voting securities (giving effect to such issuance and the exercise of any rights to exchange such securities into voting securities);


"Change of Control Date" means the date on which a Change of Control occurs;


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"Common Shares" means the common shares in the capital of the Corporation, as such shares exist at the close of business on the date of execution and delivery of this Indenture; provided that, in the event of a subdivision, redivision, reduction, combination or consolidation thereof, or successive such subdivisions, redivisions, reductions, combinations or consolidations, then, subject to adjustments, if any, having been made in accordance with section 4.3, "Common Shares" shall thereafter mean the shares resulting from such subdivision, redivision, reduction, combination or consolidation;


"Common Share Reorganization" has the meaning attributed to such term in subsection 4.3 (b);


"Contingent Obligation" shall mean, as to any Person, any obligation, whether secured or unsecured, of such Person guaranteeing or indemnifying, or in effect guaranteeing or indemnifying, for any indebtedness, leases, dividends, letters of credit or other monetary obligations (the "primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of such Person as an account party in respect of a letter of credit or letter of guarantee issued to assure payment by the primary obligor of any such primary obligation and any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds for the purchase or payment of any such primary obligation or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the obligee under any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) otherwise to assure or hold harmless the obligee under such primary obligation against loss in respect of such primary obligation; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business;


"Conversion Price" means the dollar amount for which each Common Share may be issued from time to time upon the conversion of Debentures in accordance with Article 4;


"Convertible Notes" means the 7.25% convertible notes of the Corporation issued pursuant to the convertible note trust indenture dated as of August 30, 2001 between the Corporation and Computershare Trust Company of Canada;


"Corporation" means Certicom Corp., until a successor shall have become such pursuant to Article 9, and thereafter "Corporation" shall mean such successor (or any successor thereto which shall have become such pursuant to Article 9);


"Counsel" means a barrister or solicitor or firm of barristers and solicitors retained by the Trustee, who may be counsel to the Corporation, or retained by the Corporation and acceptable to the Trustee;


"Credit Document" has the meaning attributed to such term in section 5.6;


"Current Market Price" at any date means the weighted average trading price per share of the Common Shares during the 20 consecutive trading days ending five trading days before such


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date on the TSE, or, if the Common Shares are not listed thereon, on such stock exchange or quotation system on which the shares are listed or quoted as may be selected for such purpose by the Directors or, if the Common Shares are not listed on any stock exchange or quoted on any quotation system, then on the over-the-counter market selected for such purpose by the Directors;


"Date of Conversion" has the meaning attributed to such term in subsection 4.2(b);


"Debentures" means the 7.25% Senior Convertible Unsecured Subordinated Debentures due August 30, 2004 issued hereunder;


"Debentureholders" or "Holders" means the Persons for the time being entered in the registers hereinafter mentioned as holders of Debentures;


"Debentureholders' Request" means an instrument signed in one or more counterparts by the Holders of not less than 25% in principal amount of the outstanding Debentures requesting the Trustee to take or refrain from taking the action or proceeding specified therein;


"Debt" shall mean, at any time:


(a) all items which would then be classified as a liability on a consolidated balance sheet of the Corporation or in the notes thereto; and


(b) to the extent not otherwise included as Debt pursuant to the provisions of paragraph (a) of this definition, without duplication, any item which is


(i) an obligation of the Corporation or any of its Subsidiaries in
respect of borrowed money or for the deferred purchase price of
property or services or an obligation of the Corporation which
is evidenced by a note, bond, debenture or other similar
instrument,


(ii) a transfer with recourse or with an obligation to repurchase, to
the extent of the liability of the Corporation or any of its
Subsidiaries with respect thereto,


(iii) an obligation secured by any Lien on any property of the
Corporation or any of its Subsidiaries to the extent
attributable to its respective interest in such property, even
though it has not assumed or become liable for the payment
thereof,


(iv) an obligation of the Corporation or any of its Subsidiaries
arising in connection with an acceptance facility or letter of
credit or letter of guarantee issued by or for the account of
the Corporation or any of its Subsidiaries, or


(v) a Contingent Obligation of the Corporation or any of its
Subsidiaries to the extent that the primary obligation so
guaranteed is not otherwise classified as a liability on the
consolidated balance sheet of the Corporation,


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provided, however, that there shall not be included for the purpose of this definition any item which is on account of (w) issued share capital or surplus, (x) reserves for deferred income taxes or general contingencies, (y) minority interests in Subsidiaries, or (z) trade debt;


"Director" means a director of the Corporation for the time being and "Directors" means the board of directors of the Corporation or, whenever duly empowered, the executive committee (if any) of the board of directors of the Corporation or the managing director of the Corporation for the time being, and reference to action by the Directors means action by the directors as a board or action by the executive committee of the board as a committee or action by the managing director as the case may be;


"Dividends Paid in the Ordinary Course" means dividends paid on the Common Shares in any financial year of the Corporation, whether in (i) cash, (ii) shares of the Corporation, (iii) rights, options or warrants to purchase any shares, property or other assets of the Corporation (but excluding rights, options or warrants referred to in subsection 4.3(b)(i) or (ii)), or (iv) property or other assets of the Corporation, in each case to the extent that the amount or value of such dividends in the aggregate does not exceed the greater of:


(c) 150% of the aggregate amount or value of dividends paid by the Corporation on the Common Shares in its immediately preceding financial year; or


(d) 100% of the consolidated net income of the Corporation (before extraordinary items but after dividends payable on all shares ranking prior to or on a parity with the Common Shares with respect to the payment of dividends) for its immediately preceding financial year, determined in accordance with generally accepted accounting principles;


and for the purpose of the foregoing where any dividend is paid, otherwise than in cash, any securities, property or other assets so distributed by way of dividend shall be valued at the fair market value of such securities, property or other assets, as the case may be, as determined by the Directors, which determination shall be conclusive;


"dollars" or "$" shall mean references to Canadian dollars;


"Event of Default" has the meaning attributed to such term in section 7.1;


"Extraordinary Resolution" has the meaning attributed to such terms in sections 10.12 and 10.15;


"Foregone Interest" means, in respect of a Debenture, an amount per Debenture equal to the interest payable on the Debenture that would have accrued to the Holder of such Debenture without giving effect to the provisions of subsection 2.6(b) from and including the Change of Control Date to but not including August 30, 2003; "generally accepted accounting principles" means generally accepted accounting principles in effect from time to time in Canada as applied by the Corporation in the preparation of its consolidated financial statements;


"Indenture Legislation" has the meaning attributed to such term in such subsection 12.1(a);


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"Lien" means any lien, encumbrance, mortgage, pledge, charge, security interest or other encumbrance;


"Maturity Date" means August 30, 2004; "NASDAQ" means the Nasdaq National Market;


"Offer to Purchase" means an offer to purchase Debentures by the Corporation from the Holders in accordance with section 3.16 hereof;


"Offer to Purchase Price" has the meaning attributed to such term in section 3.16;


"Payment Date" has the meaning attributed to such term in subsection 3.16(c);


"Permitted Secured Debt" means, with respect to the Corporation or any of its Subsidiaries:


(i) indebtedness (other than trade debt) created, incurred, assumed
or guaranteed, for moneys borrowed or raised by whatever means
(including, without limitation, by means of commercial paper,
bankers' acceptances, debt instruments, bank debt and financial
leases, and any liability evidenced by bonds, debentures, notes
or similar instruments);


(ii) indebtedness created, incurred, assumed or guaranteed after the
date of this Indenture to finance the cost of the acquisition by
the Corporation or any of its Subsidiaries of any assets or
services;


(iii) any guarantee of any indebtedness of a type described in clause
(i) or (ii); and


(iv) renewals, extensions or refunds of any indebtedness or guarantee
referred to in clauses (i), (ii) or (iii);


provided that, in each case, such indebtedness or guarantee is secured by a Lien and such Lien has been created or granted for bona fide purposes of the Corporation or any of its Subsidiaries and not for the purpose of avoiding the Corporation's obligations under section 6.9;


"Person" means any individual, partnership, limited partnership, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative, government or governmental authority or entity, however designated or constituted;


"Redemption Price" has the meaning attributed to such term in section 3.1;


"Restricted Debenture" has the meaning attributed to such term in section 2.12;


"Rights Offering" and "Rights Period" have the meanings attributed to such terms in subsection 4.3(c);


"Rights Offering Price" has the meaning attributed to such term in subsection 4.3(f);


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"Special Distribution" has the meaning attributed to such term in subsection 4.3(d);


"Subsidiary" means, with respect to any Person, (i) a corporation of which such Person and its other Subsidiaries or any of them own an aggregate number of the Voting Stock of such corporation sufficient to enable them to elect a majority of the directors (or other Persons performing similar functions) of such corporation regardless of the manner in which the other Voting Stock are voted, (ii) a corporation of which a Person and its other Subsidiaries or any of them have, through the operation of any agreement or otherwise, the ability to elect or cause the election of a majority of the directors (or other Persons performing similar functions) or otherwise who exercise control over the management and policies of such corporation; provided however, that in the case of the Corporation and its Subsidiaries, the definition of "Subsidiary" shall include corporations in which the Corporation and/or its Subsidiaries own, directly or indirectly, 50% or more of the Voting Stock of such corporation.


"Successor Person" has the meaning attributed to such term in subsection 9.1(a);


"this Indenture", "this Trust Indenture", "hereto", "hereby", "hereunder", "hereof", "herein" and similar expressions refer to this indenture and not to any particular Article, section, subsection, paragraph, clause or other portion hereof, and include any and every supplemental indenture; and "supplemental indenture" and "indenture supplemental hereto" include any and every instrument which amends this indenture or is supplemental or ancillary hereto or in implementation hereof;


"Time of Expiry" has the meaning attributed to such term in section 4.1(a);


"trade debt" means all unsecured debt of the Corporation incurred in connection with the purchase of goods or services in the ordinary course of business;


"Trading Day" means a day on which the facilities of the TSE are available for trading of securities listed on the TSE;


"Trustee" means Computershare Trust Company of Canada and its successors for the time being in the trusts hereby created;


"TSE" means The Toronto Stock Exchange;


"U.S. Person" means a U.S. Person as that term is defined in Regulation S of the U.S. Securities Act;


"U.S. Securities Act" means the United States Securities Act of 1933, as amended;


"Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of voting members of the governing body of such Person; and


"Written Order of the Corporation", "Written Request of the Corporation" and "Written Direction of the Corporation" mean, respectively, an order, a request or a direction signed in


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the name of the Corporation by the Chief Executive Officer, Chief Financial Officer or any Vice President of the Corporation, and may consist of one or more instruments so executed.


Words importing the singular include the plural and vice versa and words importing the masculine gender include the feminine gender and vice versa.


1.2 Meaning of "outstanding" for Certain Purposes
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Every Debenture certified and delivered by the Trustee hereunder shall be deemed to be outstanding until it shall be cancelled or delivered to the Trustee for cancellation, or a new Debenture shall be issued in substitution therefor in accordance with the provisions hereof, or moneys for the payment thereof shall be set aside under Article 8, provided that:


(a) where a new Debenture has been issued in substitution for a Debenture which has been lost, stolen or destroyed, only one of such Debentures shall be counted for the purpose of determining the aggregate principal amount of Debentures outstanding;


(b) Debentures which have been partially redeemed or purchased shall be deemed to be outstanding only to the extent of the unredeemed or unpurchased part of the principal amount thereof;


(c) Debentures in respect of which a notice of redemption has been given in accordance with Article 3, in whole or in part, shall to such extent, not be considered to be outstanding from and after the date fixed for redemption in such notice unless the Corporation shall fail to deposit with the Trustee the Redemption Price in respect thereof as provided in section 3.6; and


(d) for the purpose of any provision of this Indenture entitling Holders of outstanding Debentures to vote, sign consents, requests or other instruments or take other action under this Indenture, Debentures owned legally or equitably by the Corporation or any Subsidiary shall be disregarded, except that:


(i) for the purpose of determining whether the Trustee shall be
protected in relying on any such vote, consent, request or other
instrument or action, only the Debentures of which the Trustee
has received actual written notice that they are so owned shall
be so disregarded; and


(ii) Debentures so owned which have been pledged in good faith other
than to the Corporation or a Subsidiary shall not be so
disregarded if the pledgee shall establish, to the satisfaction
of the Trustee, the pledgee's right to vote such Debentures in
his discretion free from the control of the Corporation or such
Subsidiary.


1.3 Interpretation Not Affected by Headings, etc.
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The division of this Indenture into Articles, sections, subsections and paragraphs, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture.


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1.4 Statute References
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Any reference in this Indenture to a statute shall be deemed to be a reference to such statute as amended, re-enacted or replaced from time to time.


1.5 Non-Business Days
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Whenever any payment to be made hereunder shall be due, any period of time would begin or end, any calculation is to be made or any other action is to be taken, on or as of a day other than a Business Day, such payment shall be made, such period of time shall begin or end, such calculation shall be made and such other actions shall be taken, as the case may be, unless otherwise specifically provided for herein, on or as of the next succeeding Business Day.


1.6 Invalidity of Provisions
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Each of the provisions contained in this Indenture or the Debentures is distinct and severable and a declaration of invalidity or unenforceability of any such provision by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof or thereof.


1.7 Governing Law
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This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and shall be treated in all respects as Ontario contracts.


1.8 Paramountcy
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In the event of any inconsistency between the provisions of any section of this Indenture and the provisions of Schedule "A" which forms a part hereof, the provisions of this Indenture shall prevail.


ARTICLE 2
THE DEBENTURES


2.1 Limitation on Issue and Designation
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The aggregate principal amount of Debentures which may be issued and certified hereunder shall consist of and be limited to $13,500,000 in lawful money of Canada and such Debentures are hereby designated 7.25% Senior Convertible Unsecured Subordinated Debentures due August 30, 2004.


2.2 Terms of Debentures
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(a) The Debentures shall be dated August 30, 2001, regardless of their actual date of issue, shall mature and become due and payable on the Maturity Date and shall bear interest (subject to section 2.6) from and including August 30, 2001 at the rate of 7.25% per annum (after


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as well as before default or judgment, with interest on amounts in default at the same rate) payable in arrears in equal semi-annual instalments on February 28 and August 30 in each year, the first such payment to be made on February 28, 2002 for the period from and including August 30, 2001 to but excluding February 28, 2002.


(b) As interest becomes due on the Debentures (except interest payable at maturity or on redemption or purchase pursuant to an Offer to Purchase or conversion which shall be paid upon surrender of a Debenture for payment), the Corporation shall, at least three Business Days prior to each date on which interest becomes due, forward or cause to be forwarded by first class mail, postage prepaid, to the registered address of each registered Holder for the time being, or in the case of joint registered Holders to the registered address of one of the joint Holders, a cheque for such interest (less any tax required by law to be deducted) payable to or to the order of such Holder or Holders and negotiable at par at any branch in Canada of such Canadian chartered bank as may be designated by the Corporation. The Corporation may make provision for the making of any such payment in such other manner as is acceptable to the Trustee. Subject to the provisions of this Indenture, the mailing of such cheque or the making of such payment in such other manner shall satisfy and discharge all liability for interest on the Debentures to the extent of the sum represented thereby (plus the amount of any tax so deducted from such interest payment) unless such cheque shall not be paid upon presentation to any such branch.


(c) Interest for any period other than a semi-annual period on the Debentures shall accrue from day to day and shall be calculated on the basis of the actual number of ...