EXHIBIT 10.1
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SILICON VALLEY BANK
AMENDMENT TO LOAN DOCUMENTS
BORROWER: NOVATEL WIRELESS, INC.
DATE: APRIL 21, 2003
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between Silicon Valley
Bank ("Silicon") and the borrower named above ("Borrower").
The Parties agree to amend the Loan and Security Agreement between
them, dated November 29, 2001 (as otherwise amended, the "Loan Agreement"), as
follows, effective as of the date hereof. (Capitalized terms used but not
defined in this Amendment shall have the meanings set forth in the Loan
Agreement.)
1. MODIFIED DISCLOSURE RE MATERIAL ADVERSE LITIGATION. That portion of
Section 8 of the Schedule to Loan and Security Agreement that currently reads as
follows:
MATERIAL ADVERSE
LITIGATION (Section 3.10): Sanmina Corporation v. Novatel Wireless,
Inc., Case No. CV 802384.
is hereby amended to read as follows:
MATERIAL ADVERSE
LITIGATION (Section 3.10): On February 28, 2003, a class action law
suit was filed in the United States District
Court for the Southern District of Florida
against Credit Suisse First Boston (CSFB)
and approximately 50 companies, including
Novatel Wireless, for whose respective
initial public offering CSFB purportedly
served as the lead underwriter. The suit
purports to be on behalf of all the
purchasers of the common stock of the named
issuing companies and alleges violations of
federal and state securities law.
Specifically, the suit alleges that CSFB and
each named issuer conspired to file false
and misleading registration statements and
other reports containing knowingly inflated
financial and performance projections in
order to support an aggressive IPO issue
price. Although the
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Company has not yet been served in this
action, the Company has reviewed the
complaint, believes to have meritorious
defenses, and the Company intends to
vigorously defend against it.
In January of 2003, our wholly-owned
subsidiary, Novatel Wireless Technologies,
Ltd. (NWT) terminated one of its Canadian
employees for cause. On February 26, 2003,
the employee filed suit on the judicial
district of Calgary, in the Court of Queen's
Bench of Alberta, claiming that NWT had
wrongfully terminated him and seeking
approximately $365,000 in damages. NWT has
been informed by its counsel that NWT has
meritorious defenses, and NWT intends to
vigorously defend against the claim.
On April 30, 2002, the Company entered into
an employment agreement pursuant to which
the employee purportedly commenced working
for us on May 8, 2002. The individual has
alleged that on or about May 10, 2002, we
breached our agreement with him by
materially diminishing his responsibilities
and, as a consequence of which, he has
alleged, he terminated his employment with
the Company for "Good Reason" as defined in
the employment agreement. The employee has
filed a claim with the California Department
of Labor (DOL) seeking approximately
$450,000. The Company is currently waiting
for the DOL to schedule a hearing on the
matter. The Company believes this claim is
without merit and intends to vigorously
defend against the claim.
Sanmina Settlement. On January 12, 2002, the
Company entered into a settlement agreement
(the "Settlement Agreement") with Sanmina
related to claims filed in October 2001. In
October 2001 Sanmina Corporation (now known
as Sanmina-SCI Corporation) ("Sanmina")
filed suit against the Company in Santa
Xxxxx County Superior Court seeking
approximately $27
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million of claims for breach of contract
under a contract manufacturing arrangement.
The Company reached a settlement with
Sanmina to end any and all disputes and
litigation arising from the claims and
signed a settlement agreement and mutual
general release (the "Settlement"). Under
the Settlement, which became effective on
January 28, 2002, the Company made a cash
payment to Sanmina of $1,300,000 and issued
to Sanmina 333,333 shares of common stock.
As part of this issuance, we also granted to
Sanmina the right to obligate us to
repurchase up to 133,333 of the shares of
common stock at a price of $12.00 per share.
In addition, the Company agreed to take
delivery of inventory held by Sanmina and
make payments totaling $5 million in 2002
and $4 million in 2003 and up to an
additional $2 million in the event the
Company fails to make any of the agreed upon
payments. On February 7, 2003, the Company
and Sanmina amended the Settlement Agreement
to extend the time period during which the
Company would be permitted to satisfy its
remaining payment obligations (the
"Amendment"). Pursuant to the terms of the
Amendment, the Company agreed that for so
long as the Company owed monies to Sanmina
pursuant to the Settlement Agreement (the
"Sanmina Debt") the Company would make
specified pre-payments on the Sanmina Debt
in the event that the Company failed to meet
agreed upon performance targets, met or
exceeded other performance targets, or
raised additional working capital. As of
February 10, 2003, the Sanmina Debt totaled
approximately $3.505 million. See Note 2 for
further discussion of the Company's
obligation to Sanmina in connection with the
Purchase Agreement.
2. ADDITIONAL DISCLOSURES. Borrower hereby discloses the following
additional information all of which has been disclosed in Borrower's Form 10-K
dated March 28, 2003 for the Borrower's fiscal year ending December 31, 2002
(all references in "Company" in these disclosures shall be to Borrower):
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a. Effective January 13, 2003, the Company's former Chief
Executive Officer was replaced. The former CEO's employment agreement with the
Company provides that in the event that the Company terminates him without
cause, or in the event he terminates his employment with the Company because the
Company has materially breached the terms of his employment agreement or because
a change of control occurs, he is entitled to receive in a lump sum payment an
amount equal to his annual base salary then in effect and all unvested options
will immediately vest and become exercisable. He would then also be entitled to
a bonus equal to the amount of the bonus he had earned as of the date of his
termination as well as to the continuation of certain employee benefits pursuant
to the terms of existing company plans. If the Company terminates his employment
for cause, or he terminates his employment without good reason, he will be
entitled to receive severance and other benefits only as may then be established
under the Company's existing severance and benefit plans and policies at the
time of such termination. The Company is currently evaluating the amounts that
might be owed to him under the terms of his employment agreement. Management
believes the maximum amount owned, if any, could be his base salary, which was
$325,000 upon his termination. Management does not believe any amounts are due
to him under the management retention agreement. No payments have been made to
date to him under any of these agreements. The amounts owed, if any, will be
recorded in 2003.
b. The Company has sustained substantial losses from
operations in each period since its inception and has used substantially all of
its available cash resources to fund the operating losses, including the $2.4
million financing completed in September 2002 (see Note 7) and the $1.1 million
net proceeds received in March 2003 (see below).
During the fourth quarter of 2002, management determined
that the Company had insufficient working capital to continue operations through
the second quarter of 2003. As part of management's plan to improve the
Company's financial condition, on March 12, 2003, the Company entered into a
series of agreements, including the Securities Purchase Agreement (the "Purchase
Agreement") with a group of investors (the "Investors") in connection with the
private placement of $3.25 million of convertible debt and equity securities,
and the issuance of up to $3.505 of equity securities in satisfaction of
outstanding third-party obligations. As a result of these agreements, the
Company completed, or agreed to complete subject to stockholder approval, for
which the Company has scheduled a Special Meeting of Stockholders on April 30,
2003, the following transactions which are collectively referred to as the
"Private Placement Transactions":
- On March 13, 2003, the Company received cash of
$1.1 million, net of $100,000 fees, in exchange
for issuing $1.2 million of secured subordinated
convertible promissory notes (the "Initial
Convertible Notes"), convertible subject to
stockholder approval into newly authorized Series
B Stock, and Common Stock, and warrants to
purchase an aggregate of 857,143 shares of Common
Stock;
- Upon receiving Stockholder approval, the Company
agreed to sell 2,050 additional shares of Series B
Stock and warrants to purchase an aggregate of
1,983,929 shares of Common Stock in exchange for
$2.05 million in cash; and
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- Upon receiving Stockholder approval, the Company
agreed to issue $3.505 million of secured
subordinated convertible promissory notes (the
"Additional Convertible Notes,") to the Investors
in satisfaction of presently outstanding
third-party obligations to be acquired by the
Investors from Sanmina-SCI Corporation (the
"Sanmina Obligations"). The Investors agreed
subsequently to convert the Additional Convertible
Notes into 3,505 shares of Series B Stock. The
purchase of the Sanmina Obligations by the
Investors is conditioned upon the Company
receiving stockholder approval for the Private
Placement. The Convertible Notes convert into a
number of shares of Series B Stock equal to the
total amount outstanding divided by $1,000. The
Series B shares are convertible into shares of
Common Stock equal to the total amount outstanding
divided by $0.70.
On March 12, 2003, concurrent with the Purchase Agreement,
the Investors and Sanmina entered into an agreement pursuant to which, subject
to certain terms and conditions, Sanmina agreed to sell to the Investors, and
the Investors agreed to purchase from Sanmina, (herein, the "Sanmina Purchase")
the Sanmina Obligation at a substantial discount. In order to facilitate the
Sanmina Purchase, Sanmina granted the Company a forbearance from its obligation
to make payments to Sanmina upon the earlier of the Sanmina Purchase or August
1, 2003. In return for obtaining this payment forbearance, the Company agreed to
continue to observe the operating covenants contained in the Amendment, such as
achieving certain revenue milestones, through the earlier of the Sanmina
Purchase or August 1, 2003. The Holders of the Initial Convertible Notes have
the right to extend the forbearance period beyond August 1, 2003 by making
payments to Sanmina at the rate of $150,000 per month of extension. These
extension payments will reduce the Company's aggregate obligation to Sanmina
under the Settlement Agreement, as amended, and will increase the principal
balance of the Initial Convertible Notes.
The Sanmina Purchase is subject to, among other things, the
approval by the stockholders. The Sanmina Purchase is also subject to the
Company and Sanmina each providing the other with a general release from any and
all claims and liabilities arising out of the Settlement Agreement, as amended,
and the related security agreement. Upon consummation of the Sanmina Purchase,
Sanmina will no longer be a creditor of the Company.
If stockholder approval is not obtained, the Company would
not be able to complete the Private Placement Transactions, and would not have
sufficient working capital to continue operations. In addition, if stockholder
approval is not obtained, the holders of the Initial Convertible Notes would be
entitled to require that the Company repay the indebtedness evidenced by the
Initial Convertible Notes within 60 days following the termination of the
Purchase Agreement either in cash or in shares of Common Stock, subject to
Nasdaq's rules and regulations. Moreover, given the recent quoted market price
per share of the Common Stock, stockholder approval is all but required for
practically any issuance of equity securities that would generate net proceeds
sufficient to maintain operations through the remainder of the calendar year.
Because of the length of time required to negotiate an alternative transaction
with prospective investors and assuming such transaction were an equity issuance
or an issuance of securities convertible into or exercisable for equity
securities, the Company would have to present it to the Company's stockholders
for approval, and in light of the Company's current
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financial condition, it is unlikely that the Company would be able to continue
operations long enough to pursue an alternative source of financing.
c. The Company has incurred significant costs to develop its
technologies and products. These costs have exceeded total revenue. As a result,
the Company has incurred losses in each year since inception. As of December 31,
2002, the Company had an accumulated deficit of $230.4 million and negative
working capital of $2.1 million. During the year ended December 31, 2002, the
Company incurred a net loss of $28.3 million and a reduction in cash on hand
from $29 million to $1.6 million.
If the Company continues to experience negative cash flow,
it may be required to raise additional funds through the private or public sale
of additional debt or equity securities or through commercial bank borrowings to
fund working capital requirements and anticipated capital expenditures. The
Company's ability to obtain additional capital will depend on financial market
conditions, investor expectations for the wireless technology industry, the
national economy and other factors outside our control. There can be no
assurance that such additional financing will be available on acceptable terms,
or at all. If needed, the failure to secure additional financing would have a
material adverse effect on the business, financial condition and operating
results and may impair the Company's ability to continue or cause us to cease
our operations or cause it to cease operations.
3. MODIFIED REPRESENTATION RE INSIDE DEBT. Subclause (2) of Section 9
of the Schedule to Loan and Security Agreement that currently reads as follows:
(2) SUBORDINATION OF INSIDE DEBT. All present and future
indebtedness of Borrower to its officers, directors and
shareholders ("Inside Debt") shall, at all times, be
subordinated to the Obligations pursuant to a subordination
agreement on Silicon's standard form. Borrower represents and
warrants that there is no Inside Debt presently outstanding,
except for the following: NONE. Prior to incurring any Inside
Debt in the future, Borrower shall cause the person to whom
such Inside Debt will be owed to execute and deliver to
Silicon a subordination agreement on Silicon's standard form.
is hereby amended to read as follows:
(2) SUBORDINATION OF INSIDE DEBT. All present and future
indebtedness of Borrower to its officers, directors and
shareholders ("Inside Debt") shall, at all times, be
subordinated to the Obligations pursuant to a subordination
agreement on Silicon's standard form. Borrower represents and
warrants that there is no Inside Debt presently outstanding,
except for the following: $1,200,000 in the aggregate in favor
of the holders of that Secured Convertible Subordinated Note
dated March 12, 2003 and, if shareholder approval is obtained,
an aggregate principal amount not to exceed $3,505,000
pursuant to that certain Secured Convertible Subordinated Note
(which amends and restates the Borrower's obligations to
Sanmina-SCI Corporation). Prior to incurring any Inside Debt
in the future, Borrower shall cause the person to whom such
Inside
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Debt will be owed to execute and deliver to Silicon a
subordination agreement on Silicon's standard form.
4. ACCOUNTS PURCHASE AGREEMENT--CROSS-DEFAULT AND
CROSS-COLLATERALIZATION. The following new Section 10 is hereby added to the
Schedule to the Loan Agreement:
10. Accounts Receivable Purchase Agreement. Borrower and
Silicon are entering into an Accounts Receivable Purchase Agreement
dated April 21, 2003 (together with all amendments thereto and all
extensions and renewals thereof and all replacements therefor, the
'Purchase Agreement'). Borrower and Silicon agree that, without
limiting the generality of any of the provisions of this Loan Agreement
or the Purchase Agreement,
(a) the 'Obligations' as defined in this Loan
Agreement shall include without limitation all present and
future indebtedness, liabilities and obligations of Borrower
under or in connection with the Purchase Agreement, and the
'Obligations' for purposes of the Purchase Agreement shall
include without limitation all 'Obligations' as defined in
this Loan Agreement, and
(b) any default or event of default under or as
defined in the Purchase Agreement shall constitute an Event of
Default under this Loan Agreement, and any Default or Event of
Default under this Loan Agreement shall constitute an "Event
of Default" under the Purchase Agreement, and
(c) all security interests granted by Borrower to
Silicon under this Loan Agreement shall also secure all
'Obligations' as defined in the Purchase Agreement, and all
security interests granted by Borrower to Silicon under the
Purchase Agreement shall also secure all 'Obligations' as
defined in this Loan Agreement; and
(d) Eligible Receivables under this Loan Agreement
shall not in any event or circumstance include any Receivables
which are 'Purchased Receivables' under the Purchase
Agreement; and
(e) All of Silicon's rights and remedies under this
Loan Agreement and under the Purchase Agreement are
cumulative.
5. CREDIT LIMIT. Section 1(a) of the Schedule to the Loan Agreement,
which presently reads:
(a) An amount not to exceed the lesser of: (i) $5,000,000 at
any one time outstanding (the "Maximum Credit Limit"); or
(ii) 65% of the amount of Borrower's Eligible Receivables
(as defined in Section 8 above);
is amended to read as follows:
(a) An amount not to exceed the lesser of (i) or (ii) below:
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(i) An amount equal to the following: $5,000,000 (the
'Maximum Credit Limit') at any one time outstanding, minus
the total amount of all outstanding Advances under the
Purchase Agreement, and minus all outstanding 'Finance
Charges', 'Administrative Fees', interest, 'Repurchase
Amounts' (as the foregoing terms are defined in the Purchase
Agreement), and all other sums owing from Borrower to
Silicon under or in connection with the Purchase Agreement
(whether or not then due), or
(ii) 65% of the amount of Borrower's Eligible Receivables
(as defined in Section 8 above);
6. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
7. GENERAL PROVISIONS. This Amendment, the Loan Agreement, the Purchase
Agreement, the prior written amendments to the Loan Agreement signed by Silicon
and Borrower, and the other written documents and agreements between Silicon and
Borrower set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and Borrower shall continue in full force and effect
and the same are hereby ratified and confirmed.
BORROWER:
NOVATEL WIRELESS, INC.
SILICON:
BY /S/ XXXXX X. XXXXXXXX SILICON VALLEY BANK
PRESIDENT OR VICE PRESIDENT
BY /S/ XXXXXX X. XXXXXXX BY /S/XXXXXX XXXXXXXX
SECRETARY OR ASS'T SECRETARY TITLE VICE PRESIDENT
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