Trust Indenture - Debentures

EXHIBIT 10.3


CERTICOM CORP.


and


COMPUTERSHARE TRUST COMPANY OF CANADA


as Trustee


________________________________


TRUST INDENTURE


________________________________


7.25% Convertible Notes


Dated as of August 30, 2001


THIS CONVERTIBLE NOTE INDENTURE is made as of August 30, 2001.


BETWEEN:


CERTICOM CORP., a corporation continued under the laws
of the Yukon Territory and having an office in the City
of Toronto, in the Province of Ontario (hereinafter
referred to as the "Corporation")


-and-


COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company
organized under the laws of Canada and having an office
in the City of Toronto, in the Province of Ontario
(hereinafter referred to as the "Trustee")


WHEREAS the Corporation is proposing to issue Convertible Notes in the manner herein set forth;


AND WHEREAS each Convertible Note shall entitle the holder thereof to acquire an aggregate principal amount of Convertible Debentures equal to the aggregate principal amount represented by such Convertible Note, at no additional cost and upon the terms and conditions herein set forth;


AND WHEREAS the Corporation represents to the Trustee that all necessary resolutions of the Corporation have been duly enacted, passed or confirmed and all other proceedings taken and conditions complied with to authorize the execution and delivery of this Indenture and the execution and issue of the Convertible Notes and to make the same legal and valid and binding on the Corporation in accordance with the laws applicable to the Corporation;


AND WHEREAS the Trustee has agreed to act as trustee for the Convertible Noteholders on the terms and conditions herein set forth;


AND WHEREAS all acts and deeds necessary have been done and performed to make the Convertible Notes, when certified by the Trustee and issued as provided for in this Indenture, legal and valid and binding upon the Corporation with the benefits and subject to the terms of this Indenture;


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 that for good and valuable consideration mutually given and received, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:


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ARTICLE 1 - INTERPRETATION


1.1 Definitions


In this Indenture, including the recitals and schedules hereto, and in all indentures supplemental hereto, the following words and terms shall have the indicated meanings:


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


(b) "Applicable Legislation" means the provisions of the Business
Corporations Act (Ontario), as from time to time amended, and any
other statute of Canada or a province thereof, and the regulations and
rules under any such named or other statute, relating to trust
indentures or to the rights, duties and obligations of trustees and of
corporations under trust indentures, to the extent that such
provisions are at the time in force and applicable to this Indenture;


(c) "Applicable Securities Law" means, collectively, the applicable
securities laws of each of the Qualifying Jurisdictions and the
respective regulations and rules made thereunder together with all
applicable published policy statements, blanket orders and rulings of
the Securities Commissions and all discretionary orders or rulings, if
any, of the Securities Commissions made in connection with the
transactions contemplated hereunder;


(d) "Business Day" means a day other than a Saturday, Sunday or statutory
holiday in Toronto, Ontario;


(e) "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);


(f) "Common Shares" means common shares in the capital of the Corporation;


(g) "Contingent Obligation" shall mean, as to any Person, any obligation,
whether secured or unsecured, of such Person guaranteeing or
indemnifying, or in effect


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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;


(h) "Convertible Debentures" means the debentures of the Corporation
issuable under the Trust Indenture to holders of the Convertible
Notes;


(i) "Convertible Note Agency" means the principal office of the Trustee in
the City of Toronto or such other place as may be designated in
accordance with subsection 3.1(c);


(j) "Convertible Note Certificate" means a certificate issued pursuant to
this Indenture, in substantially the form set forth in Schedule "A",
issued on or after the Effective Date to evidence Convertible Notes;


(k) "Convertible Noteholders" or "holders" without reference to
Convertible Notes or Common Shares, means the Persons who, on and
after the Effective Date, are registered owners of Convertible Notes;


(l) "Convertible Noteholders' Request" means an instrument signed in one
or more counterparts by Convertible Noteholders representing in the
aggregate not less than 25% of the aggregate principal amount of all
Convertible Notes then unexercised and outstanding, requesting the
Trustee to take or refrain from taking some action or proceeding
specified therein;


(m) "Convertible Notes" means the convertible notes issued and certified
hereunder and for the time being outstanding and entitling the holder
to acquire Convertible Debentures in accordance with the terms and
conditions hereof;


(n) "Counsel" means a barrister or solicitor or a firm of barristers and
solicitors retained by the Trustee or retained by the Corporation and
acceptable to the Trustee;


(o) "Debt" shall mean, at any time:


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(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,


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;


(p) "director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to action "by the
directors" means action by the directors of the Corporation as a board
or, whenever duly empowered, action by any committee of such board;


(q) "Effective Date" means August 30, 2001;


(r) "Escrow Agent" means Computershare Trust Company of Canada;


(s) "Escrow Agreement" means the escrow and custodial agreement dated as
of August 30, 2001 among the Corporation, the Underwriter and the
Escrow Agent;


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(t) "Escrow Direction" means a direction substantially in the form
attached hereto as Schedule "B";


(u) "Event of Default" means any event specified in Section 6.1, continued
for a period of time, if any, therein designated;


(v) "Exercise Date" means, with respect to any Convertible Note, the date
on which the Convertible Note is exercised in accordance with Section
3.1 or Section 3.7, as applicable;


(w) "Exercise Form" means the exercise form attached to or applicable to a
Convertible Note;


(x) "Expiry Date" means the earlier of:


(i) the date which is five Business Days following the date on
which the Receipt is issued; and


(ii) August 30, 2002;


(y) "Extraordinary Resolution" has the meaning Set forth in Section 7.11;


(z) "Final Prospectus" means the final short form prospectus of the
Corporation qualifying the distribution, in the Qualifying
Jurisdictions, of the Convertible Debentures to the holders of
Convertible Notes upon exercise of the Convertible Notes;


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


(bb) "NASDAQ" means the Nasdaq National Market;


(cc) "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


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(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
5.2(q);


(dd) "Person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;


(ee) "Preliminary Prospectus" means the preliminary short form prospectus
of the Corporation qualifying the distribution, in the Qualifying
Jurisdictions, of the Convertible Debentures to holders of Convertible
Notes upon the exercise of Convertible Notes;


(ff) "Qualifying Jurisdictions" means, collectively, the provinces of
Ontario and Quebec;


(gg) "Receipt" means collectively the receipts required to be issued by
each of the Securities Commissions for the Final Prospectus;


(hh) "Receipt Deadline" means 4:00 p.m. (Toronto time) on September 29,
2001 or such later date as agreed to in writing by the Corporation and
the Underwriter;


(ii) "Securities Commissions" means the securities commission or regulatory
authority in each of the Qualifying Jurisdictions;


(jj) "Shareholder" means a holder of record of one or more Common Shares;


(kk) "Subscription Funds" means the aggregate amount of the funds paid or
consideration provided by purchasers of the Convertible Notes for such
Convertible Notes;


(ll) "Subsidiary" has the meaning attributed thereto in the Business
Corporations Act (Ontario);


(mm) "Successor Corporation" has the meaning ascribed thereto in Section
8.2;


(nn) "this Indenture", "herein", "hereby", "hereof" and similar expressions
mean and refer to this Indenture and any indenture, deed or instrument
supplemental hereto; and the expressions "Article", "Section",
"subsection" and "paragraph" followed by a number, letter or both mean
and refer to the specified article, section, subsection or paragraph
of this Indenture;


(oo) "Time of Expiry" means 5:00 p.m. (Toronto time) on the Expiry Date;


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(pp) "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;


(qq) "Trust Indenture" means the convertible debenture trust indenture
dated as of August 30, 2001 between the Corporation and the Trustee
providing for the issuance of $13,500,000 aggregate principal amount
of Convertible Debentures;


(rr) "Trustee" means Computershare Trust Company of Canada or its
successors from time to time in the trust hereby created;


(ss) "TSE" means The Toronto Stock Exchange;


(tt) "Underwriter" means Yorkton Securities Inc.; and


(uu) "written request of the Corporation" and "certificate of the
Corporation" mean, respectively, a written order, request, consent and
certificate signed in the name of the Corporation by its President or
a Vice-President; and may consist of one or more instruments so
executed.


1.2 Gender and Number


Unless herein otherwise expressly provided or unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders.


1.3 Interpretation not Affected by-Headings, etc.


The division of this Indenture into Articles and Sections; 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 or any provision hereof.


1.4 Day not a Business Day


In the event that any day on which any action is required to be taken under this Indenture is not a Business Day, then such action shall be required to be taken at or before the requisite time on the next succeeding day that is a Business Day.


1.5 Time of the Essence


Time shall be of the essence of this Indenture.


1.6 Currency


Except as otherwise specified herein, all dollar amounts herein are expressed in lawful money of Canada.


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1.7 Meaning of "Outstanding"


Every Convertible Note represented by a Convertible Note Certificate countersigned and delivered by the Trustee hereunder shall be deemed to be outstanding until it shall be cancelled or exercised pursuant to Article 3, provided that where a new Convertible Note Certificate has been issued pursuant to Section 2.11 hereof to replace one which has been mutilated, lost, destroyed or stolen, the Convertible Notes represented by only one of such Convertible Note Certificates shall be counted for the purpose of determining the aggregate number of Convertible Notes outstanding.


1.8 Severability


In the event that any provision hereof shall be determined to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remainder of such provision and any other provision hereof shall not be affected or impaired thereby.


1.9 English Language Only


The parties to this Indenture hereby agree and request that this Indenture, and any documents related hereto, including without limitation the Convertible Note Certificates, be drafted only in the English language.


1.10 Schedules


The following schedules are appended to this Indenture and are incorporated as fully as though contained in the body of this Indenture.


Schedule "A" - Form of Convertible Note Certificate
Schedule "B" - Escrow Direction
Schedule "C" - Redemption Election Notice


1.11 Date of Issue of Receipt


The Receipt shall conclusively be deemed to be issued on the date appearing on such Receipt as the Receipt's date.


1.12 Beneficiaries


This Indenture is entered into by the Trustee for the benefit of all such Persons who subscribe for and purchase Convertible Notes and each of them shall, upon such subscription and purchase, be entered in the register as Convertible Noteholders. The Trustee hereby declares that it holds all rights, interest and benefits to be derived therefrom for and on behalf of all such Persons in accordance with the terms and restrictions contained herein.


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ARTICLE 2 - ISSUE OF CONVERTIBLE NOTES


2.1 Issue of Convertible Notes


The aggregate principal amount of Convertible Notes authorized for issue hereunder is limited to $13,500,000. The Corporation shall not have the right to prepay the Convertible Notes. Notwithstanding anything to the contrary contained in this Indenture, this Section 2.1 shall not be amended so as to increase the aggregate principal amount of Convertible Notes that may be created and authorized for issue hereunder without the approval of the Convertible Noteholders by Extraordinary Resolution.


2.2 Subscription Funds


Upon issuance of the Convertible Notes all Subscription Funds shall be paid to the Escrow Agent in accordance with the terms of the Escrow Agreement. Upon the earlier of (i) receipt by the Escrow Agent of an Escrow Direction, and (ii) the Time of Expiry, the Subscription Funds, together with interest thereon, shall be paid by the Escrow Agent to the Trustee or the Corporation, as applicable in accordance with the provisions of Section 4.1.


2.3 Exercise of Convertible Notes


Each Convertible Note shall entitle the holder thereof, upon exercise, to acquire an aggregate principal amount of Convertible Debentures equal to the aggregate principal amount of such Convertible Note, at any time until the Time of Expiry at no additional cost to the holder.


2.4 Interest


(a) Each Convertible Note shall bear interest on the principal amount
thereof from the Effective Date or the date of issue, whichever is
later, at the rate of 7.25% per annum, after as well as before
default, with interest on overdue interest at the same rate. Interest
shall be based on a 365 or 366 day year, as the case may be, and
shall be calculated semi-annually not in advance from the Effective
Date or the date of issue of a Convertible Note, whichever is later,
or from the last interest payment date to which interest has been
paid or made available for payment on the Convertible Notes,
whichever is later, and shall be paid in like money semi-annually on
February 28 and August 30, commencing on February 28, 2002 (unless a
Convertible Note shall have been previously exercised as duly
provided for).


(b) In the event of exercise of a Convertible Note all accrued and unpaid
interest on a Convertible Note shall be paid on then first date for
the payment of interest following the exercise of such Convertible
Note provided for under the terms of the Convertible Debenture into
which such Convertible Note is exercised to the Person to whom
interest on such Convertible Debenture is payable on such date, and
such Person shall be entitled to the interest accrued hereunder on
the same basis as if such interest had accrued on such Convertible
Debenture and was payable on such interest payment date.


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2.5 Payment


(a) As the interest on the Convertible Notes becomes due (except interest
payable at maturity which may be paid upon presentation and surrender
of such Convertible Notes for payment), the Corporation, either
directly or indirectly through the Trustee, shall forward or cause to
be forwarded by prepaid ordinary mail at least three (3) Business
Days prior to the interest payment date, to the holder for the time
being, or, in the case of joint holders, to one of such joint holders
(failing written instructions to the contrary from all of such joint
holders), at his address appearing on the register, a cheque for such
interest (less any tax required to be deducted), payable to or to the
order of such holder or holders and negotiable at par. The forwarding
of such cheque shall satisfy and discharge the liability for the
interest upon the Convertible Notes to the extent of the sums
represented thereby (plus the amount of any tax deducted as
aforesaid) unless such cheque is not paid on presentation; provided
that in the event of the non-receipt of such cheque by such
registered holder or the loss or destruction thereof, the
Corporation, upon being furnished with reasonable evidence of such
non-receipt, loss or destruction and indemnity reasonably
satisfactory to it, shall issue or cause to be issued to such
registered holder a replacement cheque for the amount of such cheque.


(b) The holder for the time being of any Convertible Note shall be
entitled to the principal moneys and interest evidenced by such
Convertible Notes, free from all equities or rights of set-off or
counterclaim between the Corporation and the original or any
intermediate holder thereof and all Persons may act accordingly.


2.6 Convertible Noteholder not a Shareholder


Nothing in this Indenture nor in the holding of a Convertible Note or Convertible Note Certificate or otherwise, shall, in itself, confer, or be construed as conferring upon a Convertible Noteholder an ...