EXHIBIT 4.1
FORM OF
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
Novatel Wireless, Inc.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
The undersigned (the "INVESTOR"), hereby confirms its agreement with you as
follows:
1. This Preferred Stock and Warrant Purchase Agreement (the "AGREEMENT") is
made as of the date set forth below between Novatel Wireless, Inc., a Delaware
corporation (the "COMPANY"), and the Investor.
2. The Company has authorized the sale and issuance of up to 30,000 shares
(the "SHARES") of Series A Convertible Preferred Stock of the Company, $.001 par
value per share (the "PREFERRED STOCK") convertible into shares of the Company's
common stock, par value $.001 per share (the "COMMON STOCK") as provided in the
form of Series A Certificate of Designation attached as Exhibit D, and Common
Stock Purchase Warrants (the "INVESTOR WARRANTS") exercisable for shares of
Common Stock (the "WARRANT SHARES") to certain investors in a private placement
(the "OFFERING").
3. The Company and the Investor agree that the Investor will purchase from
the Company and the Company will issue and sell to the Investor _______ Shares,
and Investor Warrants initially exercisable for ________ Warrant Shares, at a
purchase price of $1,000.00 per Share, or an aggregate purchase price of
$____________________, pursuant to the Terms and Conditions for Purchase of
Shares and Investor Warrants attached hereto as Annex I and incorporated herein
by this reference as if fully set forth herein. Unless otherwise requested by
the Investor in Exhibit A, certificates representing the Shares and Investor
Warrants purchased by the Investor will be registered in the Investor's name and
address as set forth below.
4. The Investor represents that, except as set forth below, (a) it has had
no position, office or other material relationship within the past three years
with the Company or its affiliates, (b) neither it, nor any group of which it is
a member or to which it is related, beneficially owns (including the right to
acquire or vote) any securities of the Company and (c) it has no direct or
indirect affiliation or association with any National Association of Securities
Dealers, Inc. ("NASD") member. Exceptions:
________________________________________________________________________________
(If no exceptions, write "none."
If left blank, response will be deemed to be "none.")
Please confirm that the foregoing correctly sets forth the agreement between us
by signing in the space provided below for that purpose.
DATED AS OF: December __, 2001
________________________________________
"INVESTOR"
By: ____________________________________
Print Name: ____________________________
Title: _________________________________
Address: _______________________________
AGREED AND ACCEPTED:
NOVATEL WIRELESS, INC.
By: ______________________________________
Name: Xxxxxx X. Xxxxxxx
Title: Senior Vice President, Finance,
Chief Financial Officer and
Secretary
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ANNEX I
TERMS AND CONDITIONS FOR PURCHASE OF SHARES AND INVESTOR WARRANTS
1. AGREEMENT TO SELL AND PURCHASE THE SHARES AND INVESTOR WARRANTS;
SUBSCRIPTION DATE.
1.1 PURCHASE AND SALE. At the Closing (as defined in Section
2), the Company will sell to the Investor, and the Investor will purchase from
the Company, upon the terms and conditions hereinafter set forth, the number of
Shares and Investor Warrants (together, the "SECURITIES") set forth in paragraph
3 of the Agreement to which these Terms and Conditions for Purchase of Shares
and Investor Warrants are attached as Annex I (this "ANNEX") at the purchase
price set forth in such paragraph 3.
1.2 OTHER INVESTORS. As part of the Offering, the Company
proposes to enter into this same form of Preferred Stock and Warrant Purchase
Agreement with certain other investors (the "OTHER INVESTORS"), and the Company
expects to complete sales of Securities to them. (The Investor and the Other
Investors are hereinafter sometimes collectively referred to as the "INVESTORS,"
and the Agreement and the Preferred Stock and Warrant Purchase Agreements
executed by the Other Investors are hereinafter sometimes collectively referred
to as the "AGREEMENTS"). The Company will accept executed Agreements from
Investors for the purchase of Securities until the date (the "SUBSCRIPTION
DATE") on which the Company has notified U.S. Bancorp Xxxxx Xxxxxxx Inc. (in its
capacity as Placement Agent for the Securities, the "PLACEMENT AGENT") in
writing that it is no longer accepting Agreements for the purchase of Securities
in the Offering.
1.3 PLACEMENT AGENT FEE. Investor acknowledges that the
Company intends to pay the Placement Agent a fee in respect of the sale of
Securities to the Investor.
2. DELIVERY OF THE SECURITIES AT CLOSING. The completion of the
purchase and sale of the Securities (the "CLOSING") shall occur on December 21,
2001 (the "CLOSING DATE") at a place and time to be specified by the Company and
the Placement Agent, and of which the Investors will be notified in advance by
the Placement Agent, or such other date as the Company and the Placement Agent
may determine. The Company will not be required to accept any subscriptions or
issue any Securities after the Closing Date. However, in the event that the
Company receives subscriptions for Securities following the Closing Date, the
Company and the holders of not less than one third of the then outstanding
shares of Preferred Stock may, in their sole and absolute discretion, accept
such subscriptions in whole or in part, and may set one or more additional
closing dates on or before, but not after, January 15, 2002 (each an "ADDITIONAL
CLOSING DATE") for the closing of the purchase and sale of Securities (each an
"ADDITIONAL CLOSING") to additional Investors. References herein to the "Closing
Date" include any Additional Closing Dates. The Company shall not be subject to
a maximum number of shares of Preferred Stock that it may issue. The closing of
the purchase and sale of any such additional subscriptions accepted by the
Company after the Initial Closing Date shall be held on an Additional Closing
Date at the place and time determined by the Company. At the Closing, the
Company shall deliver to the Investor one or more stock certificates
representing the number of Shares, together with the Investor Warrants, set
forth in paragraph 3 of the Agreement to which this Annex is attached, each such
certificate to be registered in the name of the Investor or, if so indicated on
the Stock Certificate Questionnaire attached hereto as Exhibit A, in the name of
a nominee designated by the Investor, provided that, if requested by the
Investor, stock certificates representing such Shares, together with the
Investor Warrants, shall be delivered in escrow to such Investor's agent prior
to the Closing, to be held until the completion of the Closing. In addition, on
or prior to the Closing Date, the Company shall cause counsel to the Company to
deliver to the Investors the legal opinion substantially in the form attached
hereto as Exhibit F.
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The Company's obligation to issue and sell the Securities to the
Investor shall be subject to the following conditions, any one or more of which
may be waived by the Company: (a) receipt by the Company of the purchase price
for the Securities being purchased hereunder as set forth in paragraph 3 of the
Agreement to which this Annex is attached; (b) completion of purchases and sales
under the Agreements with the Other Investors; (c) the accuracy of the
representations and warranties made by the Investors and the fulfillment prior
to the Closing of the undertakings of the Investors; and (d) on or before the
Closing, the filing by the Company with the Secretary of State of the State of
Delaware of a Series A Preferred Stock Certificate of Designation (the "SERIES A
CERTIFICATE") substantially in the form attached hereto as Exhibit D.
The Investor's obligation to purchase the Securities shall be subject to
the following conditions, any one or more of which may be waived by the
Investor: (a) the Company's agreement to issue and sell, and the Investors'
agreement to purchase, on the Closing Date, not less than seventeen thousand
five hundred (17,500) shares of Preferred Stock; (b) the delivery to the
Investor by counsel to the Company of the legal opinion substantially in the
form attached hereto as Exhibit F; (c) The representations and warranties of the
Company contained in Section 3 hereof being true and correct on and as of such
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing; (d) the absence of any order,
writ, injunction, judgment or decree that questions the validity of the
Agreements or the right of the Company to enter into such agreements or to
consummate the transactions contemplated hereby and thereby; (e) the delivery to
the Investor by the Secretary or an Assistant Secretary of the Company of a
certificate stating that the conditions specified in parts (c), (d) and (f) of
this paragraph have been fulfilled; and (f) on or before the Closing, the filing
by the Company with the Secretary of State of the State of Delaware of the
Series A Certificate.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company and each of its Subsidiaries (as defined in Section 3.3 below) hereby
jointly and severally represent and warrant to each of the Investors as follows,
each such representation and warranty being deemed to have been made to the
Investor on the date hereof and at the time of the Closing:
3.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization or formation. The Company and each Subsidiary has the corporate
power and authority to own and lease its respective properties, to carry on its
business as presently conducted and to carry out the transactions contemplated
hereby. The Company and each Subsidiary is duly qualified as a foreign
corporation and is in good standing in all such other jurisdictions in which the
conduct of its business or its ownership or leasing of property requires such
qualification and in which the failure so to qualify or to be in good standing
would have a Material Adverse Effect on the operations or financial condition of
the Company and its Subsidiaries, taken as a whole.
As used herein, the term "MATERIAL ADVERSE EFFECT" shall mean any
event or circumstance which involves or results in an actual cost or loss of
$50,000 or more, or could reasonably be expected to result in a cost or loss of
$50,000 or more.
The Company's Annual Report on Form 10-K for the year ended
December 31, 2000, the Company's Proxy Statement for its 2001 Annual Meeting of
Stockholders, and the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2001, June 30, 2001 and September 30, 2001 and any of the
Company's Current Reports on Form 8-K filed since January 1, 2001 (in each case
together with any amendments thereto filed prior to the date hereof,
collectively, the "SEC REPORTS") do not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements and information contained therein in light of
the circumstances under which they were made not misleading.
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3.2 CAPITALIZATION. The capitalization of the Company as of
September 30, 2001 is as described in the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2001. The Company has not issued any
capital stock since September 30, 2001 other than pursuant to the exercise of
employee stock options under the stock option plans. The outstanding shares of
capital stock of the Company have been duly and validly issued and are fully
paid and nonassessable, have been issued in compliance with the registration
requirements of federal and state securities laws, and were not issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. Except for options issued under the Company's stock option
plans, warrants to purchase 10,804,593 shares of Common Stock (which are subject
to adjustment upon dilutive issuances of the Company's securities, including the
Securities) and the Securities, there are no outstanding rights (including,
without limitation, preemptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any unissued shares of capital
stock or other equity interest in the Company or any of its Subsidiaries, or any
contract, commitment, agreement, understanding or arrangement of any kind, in
either case to which the Company or any of its Subsidiaries is a party and
providing for the issuance or sale of any capital stock of the Company or any of
its Subsidiaries, any such convertible or exchangeable securities or any such
rights, warrants or options (except as may be issued to Sanmina Corporation in
connection with the settlement of claims, as contemplated by Section
3(c)(i)(1)(e) of the Series A Certificate). Without limiting the foregoing, no
preemptive right, co-sale right, right of first refusal or other similar right
exists with respect to the issuance and sale of the Securities, except as
provided in the Transaction Agreements (as defined in Section 3.4 below). There
are no stockholders agreements, voting agreements or other similar agreements
with respect to the Common Stock to which the Company is a party.
3.3 EQUITY INVESTMENTS. The Company owns of record all of the
issued and outstanding capital stock of Novatel Wireless Solutions, Inc., a
Delaware corporation ("NWS"), and all of the issued and outstanding capital
stock of Novatel Wireless Technologies, Ltd., an Alberta corporation ("NWT" and
together with NWS, the "SUBSIDIARIES"). Other than NWS and NWT, and except as
set forth on the SEC Reports, the Company has no Subsidiaries nor does it
currently own any capital stock or other proprietary interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture
or other entity.
3.4 AUTHORIZATION OF THE AGREEMENT. The execution, delivery
and performance by the Company of the Agreement and the Investor Warrants (all
of the foregoing agreements being referred to hereinafter collectively as the
"TRANSACTION AGREEMENTS") have been duly authorized by all requisite corporate
action of the Company. The Transaction Agreements have been duly executed and
delivered on behalf of the Company and constitute the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) to the extent that the indemnification provisions
contained herein may be limited by applicable laws. Assuming the Series A
Certificate is filed with the Delaware Secretary of State, the execution,
delivery and performance of the Transaction Agreements, the issuance, sale and
delivery of the Securities, and compliance with the provisions hereof and
thereof, by the Company, do not and will not, with or without the passage of
time or the giving of notice or both, (a) violate any provision of law, statute,
rule or regulation or any ruling, writ, injunction, order, judgment or decree of
any court, administrative agency or other governmental body, which violation
would have a Material Adverse Effect on the Company and its Subsidiaries, taken
as a whole, (b) violate the certificate of incorporation, bylaws or other
organization documents of the Company or its Subsidiaries, or (c) conflict with
or result in any breach of any of the terms, conditions or provisions of, or
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of
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the Company or the Subsidiaries under, its certificate of incorporation or
bylaws or any note, debenture, indenture, mortgage, lease, contract, purchase
order or other instrument, document or agreement to which the Company or such
Subsidiary is a party or by which it or any of its property is bound or
affected, which conflict, breach, default or other occurrence described in this
clause (c) would have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
3.5 AUTHORIZATION OF PREFERRED STOCK. The issuance, sale and
delivery of the shares of Preferred Stock hereunder and the shares of Common
Stock issuable by the Company upon conversion of the Preferred Stock have been
duly authorized by all requisite corporate and, subject to approval by the
holders of a majority of the shares of the Company's outstanding Common Stock as
required by Rule 4350(i)(1)(D)(ii) of The Nasdaq Stock Market, stockholder
action of the Company, and when so issued, sold and delivered in accordance with
the terms of the Agreement for the consideration expressed herein, the shares of
Preferred Stock will be validly issued and outstanding, fully paid and
nonassessable, and the shares of Common Stock issuable upon conversion of the
Preferred Stock have been duly reserved for issuance and delivery upon
conversion of the Preferred Stock and at such time of conversion such shares of
Common Stock will be validly issued and outstanding fully paid and
nonassessable, and each such class of security will not be subject to preemptive
or any other similar rights of the stockholders of the Company or others.
3.6 AUTHORIZATION OF INVESTOR WARRANTS. The issuance, sale and
delivery of the Investor Warrants and the Warrant Shares issuable upon exercise
of the Investor Warrants by the Company have been duly authorized by all
requisite corporate and, subject to approval by the holders of a majority of the
shares of the Company's outstanding Common Stock as required by Rule
4350(i)(1)(D)(ii) of The Nasdaq Stock Market, stockholder action of the Company,
the Warrant Shares have been duly reserved for issuance and delivery upon
exercise of the Investor Warrants and, at such time the Investor Warrants are
exercised and the consideration therefor is received by the Company, each of the
Warrant Shares issued pursuant to such exercise will be validly issued and
outstanding, fully paid and nonassessable, and not subject to preemptive or any
other similar rights of the stockholders of the Company or others.
3.7 STOCKHOLDER APPROVAL. (a) The Company agrees to use its
best efforts to file with the Securities and Exchange Commission (the "SEC") a
preliminary proxy statement (the "PRELIMINARY PROXY") on Schedule 14A in
connection with a special meeting of the Company's stockholders to approve the
issuance of the Securities pursuant to the Agreement, and the issuance of shares
of Common Stock upon the conversion of the Preferred Stock and upon the exercise
of the Investor Warrants (the "STOCKHOLDER PROPOSAL") not later than 10 business
days following the Initial Closing Date. Promptly following the approval by the
SEC of the Preliminary Proxy or, if the SEC does not review the Preliminary
Proxy, the 10th calendar day after filing the Preliminary Proxy with the SEC (or
if such day is not a business day, then the next business day), the Company
shall use its best efforts to commence distribution of a definitive proxy
statement related to the Stockholder Proposal to the Company's stockholders of
record established by the Company's board of directors for such purpose. The
Company agrees to use its best efforts to obtain stockholder approval of the
Stockholder Proposal. Promptly following the special meeting of the
stockholders, the Company shall notify the Investor in writing of the results of
the vote of the stockholders on the Stockholder Proposal and, if approved by the
requisite number of shares of Common Stock, that the limitations on conversion
of the Shares pursuant to Section 3(m) of the Series A Certificate, on exercise
of the Investor Warrant pursuant to Section 1.06 of the Investor Warrant and on
the number of votes entitled to be cast by holders of the Shares pursuant to
Section 4(c) of the Series A Certificate, are terminated. The Company agrees
that the definitive proxy statement distributed pursuant to this Section 3.7(a)
will as of its mailing and as of the date of the special meeting of the
stockholders (i) comply as to form with the requirements of Schedule 14A under
the Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT") and
(ii) comply with Rule 14a-9
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of the Exchange Act. Notwithstanding the foregoing, if the Company is able to
obtain a waiver from The Nasdaq Stock Market of the requirement to obtain
stockholder approval for the issuance of the Securities, the Company's
obligations pursuant to this Section 3.7 shall lapse.
(b) Based on telephone conversations with
representatives of The Nasdaq Stock Market, Investors who were holders of shares
of the Company's Common Stock prior to the issuance of the Securities, and who
own such shares of Common Stock as of the stockholder record date established in
connection with the stockholder approval for the issuance of the Securities, are
entitled to vote such shares of Common Stock in connection with such stockholder
approval.
3.8 FINANCIAL STATEMENTS. The consolidated financial
statements of the Company (the "FINANCIAL STATEMENTS") and the related notes
contained in the SEC Reports present fairly, in accordance with generally
accepted accounting principles, the consolidated financial position of the
Company and its Subsidiaries as of the dates indicated, and the results of their
operations, cash flows and the changes in stockholders' equity for the periods
therein specified, subject, in the case of unaudited financial statements for
interim periods, to normal year-end audit adjustments. Such consolidated
financial statements (including the related notes) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods therein specified, except that unaudited financial
statements may not contain all footnotes required by generally accepted
accounting principles. Since September 30, 2001, there has not been (a) any
change in the assets, liabilities, financial condition or operating results of
the Company from that reflected in the Financial Statements, except changes in
the ordinary course of business which have not been, in the aggregate,
materially adverse to the Company; (b) any damage, destruction or loss, whether
or not covered by insurance, materially and adversely affecting the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a material debt owed to
it; (d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted); or (e) any other
event or condition of any character which has a significant possibility of
materially and adversely affecting the assets, properties, financial condition,
operating results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted).
3.9 TITLE TO PROPERTIES. Except as set forth in Schedule 3.9
hereto, the Company and each Subsidiary has good and marketable title to its
assets, real, personal, or mixed, tangible or intangible, and none of such
assets is subject to any mortgage, pledge, lien, claim, encumbrance, charge,
security interest or title retention or other security arrangement except for
liens for the payment of federal, state or other taxes, the payment of which is
neither delinquent nor subject to penalties, and except for mortgages, pledges
and liens, which would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
3.10 INTELLECTUAL PROPERTY RIGHTS. Except as set forth in
Schedule 3.10 hereto:
(a) the Company and each Subsidiary owns all right,
title and interest in and to or has the valid and enforceable right to use all
Intellectual Property Rights (as hereinafter defined) necessary or required for
the conduct of its business as presently conducted or as proposed to be
conducted, free and clear of liens or other encumbrances;
(b) no royalties or other amounts are payable by the
Company or either Subsidiary to other persons by reason of their ownership or
use of the Intellectual Property Rights, except
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for such amounts as are paid in the ordinary course of business which are not
individually material to the Company and its Subsidiaries, taken as a whole;
(c) to the knowledge of the Company and each
Subsidiary, no product or service marketed, provided or sold or proposed to be
marketed, provided or sold by the Company or its Subsidiaries violates or will
violate any license or infringes or misappropriates or will infringe or
misappropriate any Intellectual Property Rights of another, nor has the Company
or either Subsidiary received any notice that any of the Intellectual Property
Rights of the Company's Subsidiaries or the operation or proposed operation of
its business conflicts, or will conflict, with the rights of others, including,
without limitation, any demand or request that the Company or any of its
Subsidiaries license any Intellectual Property Rights from any third party, and
to the knowledge of the Company and each Subsidiary, there are no grounds for
the same;
(d) to the best knowledge of the Company and the
Subsidiaries, no third person or entity is marketing or selling any product or
service that violates or infringes the Intellectual Property Rights of the
Company or any Subsidiary, which violation could have a Material Adverse Effect
on the Company and its Subsidiary;
(e) to the knowledge of the Company and the
Subsidiaries, there exists no claim by any third party contesting the validity,
enforceability, use or ownership of any of the Intellectual Property Rights
owned or used by the Company or any of its Subsidiaries; and
(f) the Company or each Subsidiary, as applicable, have
taken all necessary and desirable action to maintain and protect the material
Intellectual Property Rights owned or used by the Company or its Subsidiaries.
As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" means all
(i) patents, patent applications and patent disclosures; (ii) trademarks,
service marks, trade dress, trade names, Internet domain names, slogans, logos
and corporate names and registrations and applications thereof together with all
the goodwill associated therewith; (iii) copyrights (registered or unregistered)
and copyrightable works and registrations and applications for the registration
thereof; (iv) computer software, data, databases and documentation thereof; (v)
trade secrets and other confidential information, including, ideas, inventions
(whether or not patentable and whether or not reduced to practice), know-how,
research information, drawings, specifications, designs, plans, proposals,
financial and marketing plans, customer and supplier lists and related
information and marketing materials; (vi) other intellectual property rights and
(vii) copies and tangible embodiments thereof (in whatever form or medium).
3.11 CONTRACTS. Except for matters which are not reasonably
likely to have a Material Adverse Effect, the contracts listed as exhibits to
the SEC Reports, other than those contracts that are substantially or fully
performed or expired by their terms, are in full force and effect on the date
hereof, and none of the Company, its Subsidiaries nor, to the Company's
knowledge, except as disclosed in the SEC Reports, any other party to such
contracts is in breach of or default under any of such contracts.
3.12 COMPLIANCE. The Company and each Subsidiary has complied
in all material respects with all federal, state, provincial, local or, to the
Company's knowledge, foreign laws applicable to its business. The Company and
each Subsidiary has, or will procure when required, all federal, state, local
and foreign governmental licenses, registrations and permits material to or
necessary for the conduct of its business, and such licenses, registrations and
permits are, or will be when required, in full force and effect and there have
been no violations in any material respect of any such licenses, registrations
or permits.
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3.13 NASDAQ COMPLIANCE. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and is listed on The
Nasdaq Stock Market, and the Company has taken no action designed to, or which
to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act or delisting the Common Stock from
The Nasdaq Stock Market.
3.14 LITIGATION. Except as disclosed in the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 2001 and the period ended
September 30, 2001, and in the Company's other SEC Reports, there is no action,
suit, claim, or, to the best knowledge of the Company and each Subsidiary, no
proceeding or investigation, at law, in equity or otherwise, by or before any
governmental instrumentality or other agency, now pending, or, to the best
knowledge of the Company and each Subsidiary, threatened against the Company or
such Subsidiary the outcome of which, if determined adversely to the Company,
could reasonably be expected to have a Material Adverse Effect.
3.15 NO DEFAULTS. Except as disclosed in the SEC Reports and
elsewhere in the Agreement (including this Annex), none of the Company nor any
Subsidiary is in violation or breach of, or in default under, any provision of
(a) its certificate of incorporation or bylaws or (b) any note, debenture,
indenture, mortgage, lease, contract, purchase order or other instrument,
document or agreement to which the Company or such Subsidiary is a party or by
which it or such Subsidiary or any of its property or that of such Subsidiary is
bound, or any ruling, writ, injunction, order, judgment or decree of any court,
administrative agency or other governmental body, in each case which violation,
breach or default could have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole. To the best knowledge of the Company and the
Subsidiaries, there exists no condition, event or act which after notice, lapse
of time, or both, would constitute such a violation or breach of, or default
under, any of the foregoing.
3.16 NO GOVERNMENTAL CONSENT OR APPROVAL REQUIRED. No
authorization, consent, approval or other order of, declaration to, or filing
with, any governmental agency or body is required to be made or obtained by the
Company or the Subsidiaries for the performance by the Company of its
obligations under the Transaction Agreements, except (a) such as have been
already obtained or such exemptive filings as are required to be made under
applicable securities laws, (b) the filing of the Series A Certificate with the
Secretary of State of Delaware, (c) with respect to a registration statement to
be filed with the SEC pursuant Section 6 hereof, (d) with respect to the
Preliminary Proxy and the definitive proxy statement as contemplated by Section
3.7 hereof and (e) such other filings as may be required following the Closing
Date under the Exchange Act and the Delaware General Corporation Law.
3.17 INSURANCE. The insurance maintained by the Company and
each Subsidiary on its properties, assets, business and personnel is in amounts
deemed adequate by the Company or such Subsidiary, as applicable, is in
accordance with the standards of the industry in which the Company operates, and
is under policies currently in effect and issued by insurers of recognized
responsibility.
3.18 RELATED TRANSACTIONS. Except as disclosed in the SEC
Reports, no director, officer or employee of the Company or either Subsidiary,
nor any "associate" (as defined in the rules and regulations promulgated under
the Exchange Act) of any such person is indebted to the Company or such
Subsidiary, nor is the Company or such Subsidiary indebted (or committed to make
loans or extend or guarantee credit) to any such person, nor is any such person
a party to any transaction with the Company or such Subsidiary providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring cash payments to, any such person, in each case in excess of
$60,000 other than (a) for payment of salary or consulting fees for services
rendered, (b) reimbursement for expenses incurred on behalf of the Company and
(c) for other employee benefits, including stock option agreements under any
stock option plan of the Company.
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3.19 REGISTRATION RIGHTS. Except as contemplated by the Amended
and Restated Registration Rights Agreement dated as of June 15, 1999, the
Amended and Restated Investors' Rights Agreement dated as of June 30, 2000, as
amended to date, the Registration Rights Agreement dated as of November 29,
2001, between Silicon Valley Bank and the Company, and the Agreement, no person
has any right to cause the Company to effect the registration under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), of any securities of
the Company.
3.20 EXEMPTIONS FROM SECURITIES LAWS. Subject to the accuracy
of the representations and warranties of the Investor set forth in Section 4
hereof, the offer, issuance, sale and delivery of shares of the Securities are,
and the issuance of the Common Stock and Warrant Shares will be, exempt from the
provisions of Section 5 of the Securities Act, and no consent, approval,
qualification or registration or filing under any state securities laws is
required in connection therewith, except such exemptive filings as are required
to be made under applicable securities laws and shall be made on a timely basis.
3.21 TAX MATTERS. Except for matters which are not reasonably
expected to have a Material Adverse Effect, the Company has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been asserted or threatened against the Company.
3.22 GOVERNMENTAL PERMITS, ETC. Each of the Company and its
Subsidiaries has all necessary franchises, licenses, certificates and other
authorizations from any federal, state or local government or governmental
agency, department or body that are currently necessary for the operation of the
business of the Company and its Subsidiaries as currently conducted, except
where the failure to currently possess such franchises, licenses, certificates
and other authorizations is not reasonably expected to have a Material Adverse
Effect on the Company and the Subsidiaries, taken as a whole.
3.23 REPORTING STATUS. The Company has timely made all filings
required under the Exchange Act during the 12 months preceding the date of the
Agreement, and all of those documents complied in all material respects with the
SEC's requirements as of their respective filing dates, and the information
contained therein as of the respective dates thereof did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading. The Company is
currently eligible to register the resale of Common Stock in a secondary
offering on a registration statement on Form S-3 under the Securities Act.
3.24 NO MANIPULATION OF STOCK. The Company has not taken and
will not, in violation of applicable law, take any action outside the ordinary
course of business designed to or that might reasonably be expected to cause or
result in unlawful manipulation of the price of the Common Stock to facilitate
the sale or resale of the Preferred Stock.
3.25 ACCOUNTANTS. Xxxxxx Xxxxxxxx LLP, who expressed their
opinion with respect to the consolidated financial statements to be incorporated
by reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 into the Registration Statement (as defined below) and the
prospectus which forms a part thereof (the "PROSPECTUS"), have advised that
Company that they are, and to the best knowledge of the Company they are,
independent accountants as required by the Securities Act and the rules and
regulations promulgated thereunder.
3.26 TRANSFER TAXES. On the Closing Date, all stock transfer or
other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Preferred
8
Stock hereunder will be, or will have been, fully paid or provided for by the
Company and the Company will have complied with all laws imposing such taxes.
3.27 INVESTMENT COMPANY. The Company is not an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for an investment company, within the meaning of the Investment Company Act of
1940, as amended.
3.28 OFFERING MATERIALS. The Company has not in the past nor
will it hereafter take any action to sell, offer for sale or solicit offers to
buy any securities of the Company which would bring the offer or sale of the
Preferred Stock as contemplated by the Agreement within the provisions of
Section 5 of the Securities Act.
3.29 BOOKS AND RECORDS. The books, records and accounts of the
Company and the Subsidiaries accurately and fairly reflect, in reasonable
detail, the transactions in, and dispositions of, the assets of, and the
operations of, the Company and the Subsidiaries. The Company maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE INVESTOR.
4.1 INVESTOR KNOWLEDGE AND STATUS. The Investor represents and
warrants to, and covenants with, the Company that: (i) the Investor is an
"accredited investor" as defined in Regulation D under the Securities Act and
has requested, received, reviewed and considered all information it deemed
relevant in making an informed decision to purchase the Securities; (ii) the
Investor understands that the Securities are "restricted securities" and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the number of Shares and Investor Warrants set forth in
paragraph 3 of the Agreement to which this Annex is attached in the ordinary
course of its business and for its own account for investment only, has no
present intention of distributing any of such Securities and has no arrangement
or understanding with any other persons regarding the distribution of such
Securities (this representation and warranty not limiting the Investor's right
to sell the Common Stock pursuant to the Registration Statement or otherwise, or
other than with respect to any claim arising out of a breach of this
representation and warranty, the Investor's right to indemnification under
Section 6.3); (iii) the Investor will not, directly or indirectly, offer, sell,
pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase
or otherwise acquire or take a pledge of) any of the Securities except in
compliance with the Securities Act, applicable state securities laws and the
respective rules and regulations promulgated thereunder; (iv) the Investor has
answered all questions in paragraph 3 of the Agreement to which this Annex is
attached and the Investor Questionnaire attached hereto as Exhibit B for use in
preparation of the Registration Statement and the answers thereto are true and
correct as of the date hereof and will be true and correct as of the Closing
Date; (v) the Investor will notify the Company immediately of any change in any
of such information until such time as the Investor has sold all of its Shares,
Common Stock and Warrant Shares or until the Company is no longer required to
keep the Registration Statement effective; and (vi) the Investor has, in
connection with its decision to purchase the number of Shares and Investor
Warrants set forth on the signature page to the Agreement to which this Annex is
attached, relied only upon the representations and warranties of the Company
contained herein and the information contained in the SEC Reports. The Investor
understands that the issuance of the Securities to the Investor has not been
registered under the Securities Act, or registered or qualified under
9
any state securities law in reliance on specific exemptions therefrom, which
exemptions may depend upon, among other things, the bona fide nature of the
Investor's investment intent as expressed herein. The Placement Agent is not
authorized to make any representation or use any information in connection with
the placement, purchase and sale of the Securities, and no person is authorized
to provide any representation which is inconsistent or in addition to those in
the SEC Reports. The Investor acknowledges that it has not received or relied on
any such representations.
4.2 INTERNATIONAL ACTIONS. The Investor acknowledges,
represents and agrees that no action has been or will be taken in any
jurisdiction outside the United States by the Company or the Placement Agent
that would permit an offering of the Securities, or possession or distribution
of offering materials in connection with the issue of the Securities, in any
jurisdiction outside the United States. If the Investor is located outside the
United States, it has or will take all actions necessary for the sale of the
Securities to comply with all applicable laws and regulations in each foreign
jurisdiction in which it purchases, offers, sells or delivers Securities or has
in its possession or distributes any offering material, in all cases at its own
expense.
4.3 REGISTRATION REQUIRED. The Investor hereby covenants with
the Company not to make any sale of the Shares, Common Stock and Warrant Shares
without complying with the provisions hereof, including Section 6.2 hereof, and
without effectively causing the prospectus delivery requirement under the
Securities Act to be satisfied (unless the Investor is selling such Shares,
Common Stock or Warrant Shares in a transaction not subject to the prospectus
delivery requirement), and the Investor acknowledges that the certificates
evidencing the Shares will be imprinted with a legend that prohibits their
transfer except in accordance therewith. The Investor acknowledges that as set
forth in, and subject to the provisions of, Section 6.2, there may occasionally
be times when the Company, based on the advice of its counsel, determines that
it must suspend the use of the Prospectus forming a part of the Registration
Statement until such time as an amendment to the Registration Statement has been
filed by the Company and declared effective by the SEC or until the Company has
amended or supplemented such Prospectus.
4.4 POWER AND AUTHORITY. The Investor further represents and
warrants to, and covenants with, the Company that (i) the Investor has full
right, power, authority and capacity to enter into the Agreement and to
consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of the Agreement,
and (ii) the Agreement constitutes a valid and binding obligation of the
Investor enforceable against the Investor in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' and contracting
parties' rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law) and except as the indemnification agreements
of the Investors herein may be legally unenforceable.
4.5 NO DISPOSITIONS. Except with the prior written consent of
the Company, the Investor will not, and will not direct any affiliate (within
the meaning of Rule 405 under the Securities Act) of the Investor to, prior to
the earlier of (i) the effectiveness of the Registration Statement and (ii) 120
days after the Closing Date, sell, offer to sell, solicit offers to buy, dispose
of, loan, pledge or grant any right with respect to (collectively, a
"DISPOSITION"), the Common Stock of the Company; provided, however, that any
action taken by an affiliate of the Investor, whether in the ordinary course of
such affiliate's business or otherwise, that was not taken at the direction of
the Investor shall not be a Disposition for purposes of this Section 4.5. Since
December 12, 2001, the Investor has not engaged, and except with the prior
written consent of the Company the Investor will not, prior to the effectiveness
of the Registration Statement, engage in any hedging or other transaction which
is designed to or could reasonably be expected to lead to or result in a
Disposition of Common Stock of the Company by the
10
Investor or any other person or entity. Such prohibited hedging or other
transactions would include, without limitation, effecting any short sale or
having in effect any short position (whether or not such sale or position is
against the box and regardless of when such position was entered into) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to the Common Stock of the Company or with respect to
any security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from the Common Stock of
the Company.
4.6 NO TAX OR LEGAL ADVICE. The Investor understands that
nothing in the Agreement, or any other materials presented to the Investor in
connection with the purchase and sale of the Securities constitutes legal, tax
or investment advice. The Investor has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of Securities.
5. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by any party to the Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company and the Investor herein shall survive the execution of the
Agreement, the delivery to the Investor of the Securities being purchased and
the payment therefor.
6. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES ACT.
6.1 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:
(a) subject to receipt of necessary information from
the Investors, prepare and file with the SEC, as soon as practicable, but in no
event later than thirty (30) calendar days after the Closing Date, a
registration statement on Form S-3 (the "REGISTRATION STATEMENT") to enable the
resale of the Common Stock issuable upon conversion of the Shares and the
Warrant Shares (collectively, the "REGISTRABLE SECURITIES") by the Investors
from time to time through the automated quotation system of The Nasdaq Stock
Market or in privately-negotiated transactions;
(b) use its reasonable efforts, subject to receipt of
necessary information from the Investors, to cause the Registration Statement to
become effective as soon as practicable, but in no event later than ninety (90)
calendar days after the Registration Statement is filed by the Company;
(c) use its reasonable efforts to prepare and file with
the SEC such amendments and supplements to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement current and effective for a period not exceeding, with
respect to each Investor's Registrable Securities, the earliest of (i) the
second anniversary of the Closing Date, (ii) the date on which the Investor may
sell all Registrable Securities then held by the Investor without restriction by
the volume limitations of Rule 144(e) of the Securities Act or (iii) such time
as all Securities purchased by such Investor in this Offering and all
Registrable Securities have been sold by such Investor;
(d) furnish to the Investor with respect to the
Registrable Securities registered under the Registration Statement such number
of copies of the Registration Statement, Prospectuses (including supplemental
prospectuses) and preliminary versions of the Prospectus filed with the SEC
("PRELIMINARY PROSPECTUSES") in conformity with the requirements of the
Securities Act and such other documents as the Investor may reasonably request,
in order to facilitate the public sale or other disposition of all or any of the
Registrable Securities by the Investor, provided, however, that unless waived by
the Company in writing, the obligation of the Company to deliver copies of
Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the
receipt by the Company of reasonable
11
assurances from the Investor that the Investor will comply with the applicable
provisions of the Securities Act and of such other securities or blue sky laws
as may be applicable in connection with any use of such Prospectuses or
Preliminary Prospectuses;
(e) file documents required of the Company for normal
blue sky clearance in states reasonably specified in writing by the Investor
prior to the effectiveness of the Registration Statement, provided, however,
that the Company shall not be required to qualify to do business or consent to
service of process in any jurisdiction in which it is not now so qualified or
has not so consented;
(f) bear all expenses (other than underwriting
discounts and commissions, if any) in connection with the procedures in
paragraph (a) through (e) of this Section 6.1 and the registration of the
Registrable Securities pursuant to the Registration Statement; and
(g) advise the Investors, promptly after it shall
receive notice or obtain knowledge of the issuance of any stop order by the SEC
delaying or suspending the effectiveness of the Registration Statement or of the
initiation of any proceeding for that purpose; and it will promptly use its
commercially reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order should
be issued.
(h) With a view to making available to the Investor the
benefits of Rule 144 (or its successor rule) and any other rule or regulation of
the SEC that may at any time permit the Investor to sell Shares to the public
without registration, the Company covenants and agrees to: (i) make and keep
public information available, as those terms are understood and defined in Rule
144, until the earlier of (A) such date as all of the Investor's Securities and
Registrable Securities may be resold pursuant to Rule 144(e) or any other rule
of similar effect or (B) such date as all of the Investor's Securities and
Registrable Securities shall have been resold; (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Act and under the Exchange Act; and (iii) furnish to the Investor
upon request, as long as the Investor owns any Securities and Registrable
Securities, (A) a written statement by the Company that it has complied with the
reporting requirements of the Securities Act and the Exchange Act, (B) a copy of
the Company's most recent Annual Report on Form 10-K or Quarterly Report on Form
10-Q, and (C) such other information as may be reasonably requested in order to
avail the Investor of any rule or regulation of the SEC that permits the selling
of any such Securities and Registrable Securities without registration.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 6.1 that the Investor shall furnish to
the Company such information regarding itself, the Registrable Securities to be
sold by the Investor, and the intended method of disposition of such securities
as shall be required to effect the registration of the Shares.
The Company understands that the Investor disclaims being an
underwriter, but the Investor being deemed an underwriter by the SEC shall not
relieve the Company of any obligations it has hereunder.
6.2 TRANSFER OF SECURITIES AFTER REGISTRATION; SUSPENSION.
(a) The Investor agrees that it will not effect any
Disposition of the Securities or Registrable Securities or its right to purchase
the Securities or Registrable Securities that would constitute a sale within the
meaning of the Securities Act, other than transactions exempt from the
registration requirements of the Securities Act, except as contemplated in the
Registration Statement referred to in Section 6.1 and as described below, and
that it will promptly notify the Company of any
12
changes in the information set forth in the Registration Statement regarding the
Investor or its plan of distribution.
(b) Except in the event that paragraph (c) below
applies, the Company shall: (i) if deemed necessary by the Company, prepare and
file from time to time with the SEC a post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or a supplement
or amendment to any document incorporated therein by reference or file any other
required document so that such Registration Statement will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
so that, as thereafter delivered to purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) provide the Investor copies of any
documents filed pursuant to Section 6.2(b)(i); and (iii) upon request, inform
each Investor who so requests that the Company has complied with its obligations
in Section 6.2(b)(i) (or that, if the Company has filed a post-effective
amendment to the Registration Statement which has not yet been declared
effective, the Company will notify the Investor to that effect, will use its
reasonable efforts to secure the effectiveness of such post-effective amendment
as promptly as possible and will promptly notify the Investor pursuant to
Section 6.2(b)(i) hereof when the amendment has become effective).
(c) Subject to paragraph (d) below, in the event: (i)
of any request by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to a Registration Statement or related Prospectus or for
additional information; (ii) of the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose;
(iii) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose; or (iv) of any event or circumstance which
necessitates the making of any changes in the Registration Statement or
Prospectus, or any document incorporated or deemed to be incorporated therein by
reference, so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or any omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; then the Company shall promptly deliver a certificate in writing to
the Investor (the "SUSPENSION NOTICE") to the effect of the foregoing and, upon
receipt of such Suspension Notice, the Investor will refrain from selling any
Registrable Securities pursuant to the Registration Statement (a "SUSPENSION")
until the Investor's receipt of copies of a supplemented or amended Prospectus
prepared and filed by the Company, or until it is advised in writing by the
Company that the current Prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in any such Prospectus. In the event of any Suspension, the Company
will use its reasonable efforts to cause the use of the Prospectus so suspended
to be resumed as soon as reasonably practicable within 30 days after delivery of
a Suspension Notice to the Investors. In addition to and without limiting any
other remedies (including, without limitation, at law or at equity) available to
the Investor, the Investor shall be entitled to specific performance in the
event that the Company fails to comply with the provisions of this Section
6.2(c).
(d) Notwithstanding the foregoing paragraphs of this
Section 6.2, the Investor shall not be prohibited from selling Registrable
Securities under the Registration Statement as a result of Suspensions on more
than two occasions of not more than 30 days each in any twelve month
13
period, and any such Suspension must be separated by a period of at least thirty
(30) days from a prior Suspension.
(e) Provided that a Suspension is not then in effect
the Investor may sell Registrable Securities under the Registration Statement,
provided that it arranges for delivery of a current Prospectus to the transferee
of such Registrable Securities. Upon receipt of a request therefor, the Company
will provide an adequate number of current Prospectuses to the Investor and to
any other parties requiring such Prospectuses.
(f) In the event of a sale of Registrable Securities by
the Investor, unless such requirement is waived by the Company in writing, the
Investor must also deliver to the Company's transfer agent, with a copy to the
Company, a Certificate of Subsequent Sale substantially in the form attached
hereto as Exhibit C, so that the shares may be properly transferred.
6.3 INDEMNIFICATION. For the purpose of this Section 6.3
(a) the term "SELLING STOCKHOLDER" shall include the
Investor and each person, if any, who controls the Investor within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act;
(b) the term "REGISTRATION STATEMENT" shall include any
final Prospectus, exhibit, supplement or amendment included in or relating to,
and any document incorporated by reference in, the Registration Statement (or
deemed to be a part thereof) referred to in Section 6.1; and
(c) the term "UNTRUE STATEMENT" shall include any
untrue statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(i) The Company agrees to indemnify and hold
harmless each Selling Stockholder from and against any losses, claims, damages
or liabilities to which such Selling Stockholder may become subject (under the
Securities Act or otherwise) insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon (i) any untrue statement of a material fact contained in the
Registration Statement (ii) any inaccuracy in the representations and warranties
of the Company contained in the Agreement (including this Annex) or the failure
of the Company to perform its obligations hereunder, or (iii) any failure by the
Company to fulfill any undertaking included in the Registration Statement, and
the Company will reimburse such Selling Stockholder for any reasonable legal or
other expenses reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim, provided, however, that the Company
shall not be liable in any such case to the extent that such loss, claim, damage
or liability arises out of, or is based upon, an untrue statement made in such
Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Selling Stockholder
specifically for use in preparation of the Registration Statement or the failure
of such Selling Stockholder to comply with its covenants and agreements
contained in Sections 4.1, 4.2, 4.3 or 6.2(a) hereof or any statement or
omission in any Prospectus that is corrected in any subsequent Prospectus that
was delivered to the Investor at least one business day prior to the pertinent
sale or sales by the Investor.
(ii) The Investor agrees to indemnify and hold
harmless the Company (and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act, each officer of the Company who
signs the Registration Statement and each director of the Company) from and
against any losses, claims, damages or liabilities to which the Company (or any
such
14
officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or are
based upon, (i) any failure to comply with the covenants and agreements
contained in Section 4.1, 4.2, 4.3 or 6.2(a) hereof, or (ii) any untrue
statement of a material fact contained in the Registration Statement if such
untrue statement was made in reliance upon and in conformity with written
information furnished by or on behalf of the Investor specifically for use in
preparation of the Registration Statement, and the Investor will reimburse the
Company (or such officer, director or controlling person), as the case may be,
for any legal or other expenses reasonably incurred in investigating, defending
or preparing to defend any such action, proceeding or claim. The obligation to
indemnify shall be limited to the net amount of the proceeds received by the
Investor from the sale of the Registrable Securities pursuant to the
Registration Statement.
(iii) Promptly after receipt by any indemnified
person of a notice of a claim or the beginning of any action in respect of which
indemnity is to be sought against an indemnifying person pursuant to this
Section 6.3, such indemnified person shall notify the indemnifying person in
writing of such claim or of the commencement of such action, but the omission to
so notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party under this Section 6.3 (except to the extent
that such omission materially and adversely affects the indemnifying party's
ability to defend such action) or from any liability otherwise than under this
Section 6.3. Subject to the provisions hereinafter stated, in case any such
action shall be brought against an indemnified person, the indemnifying person
shall be entitled to participate therein, and, to the extent that it shall elect
by written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
person. After notice from the indemnifying person to such indemnified person of
its election to assume the defense thereof (unless it has failed to assume the
defense thereof and appoint counsel reasonably satisfactory to the indemnified
party), such indemnifying person shall not be liable to such indemnified person
for any legal expenses subsequently incurred by such indemnified person in
connection with the defense thereof, provided, however, that if there exists or
shall exist a conflict of interest that would make it inappropriate, in the
reasonable opinion of counsel to the indemnified person, for the same counsel to
represent both the indemnified person and such indemnifying person or any
affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person; provided,
however, that no indemnifying person shall be responsible for the fees and
expenses of more than one separate counsel (together with appropriate local
counsel) for all indemnified parties. In no event shall any indemnifying person
be liable in respect of any amounts paid in settlement of any action unless the
indemnifying person shall have approved the terms of such settlement; provided
that such consent shall not be unreasonably withheld. No indemnifying person
shall, without the prior written consent of the indemnified person, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified person is or could reasonably have been a party and indemnification
could have been sought hereunder by such indemnified person, unless such
settlement includes an unconditional release of such indemnified person from all
liability on claims that are the subject matter of such proceeding.
(iv) If the indemnification provided for in this
Section 6.3 is unavailable to or insufficient to hold harmless an indemnified
party under subsection (i) or (ii) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and the Investors
on the other in connection with the statements or omissions or other matters
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, in
15
the case of an untrue statement, whether the untrue statement relates to
information supplied by the Company on the one hand or an Investor on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement. The Company and the
Investors agree that it would not be just and equitable if contribution pursuant
to this subsection (iv) were determined by pro rata allocation (even if the
Investors were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to above in this subsection (iv). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (iv) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (iv), no Investor
shall be required to contribute any amount in excess of the amount by which the
net amount received by the Investor from the sale of the Registrable Securities
to which such loss relates exceeds the amount of any damages which such Investor
has otherwise been required to pay by reason of such untrue statement. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Investors' obligations in
this subsection to contribute are several in proportion to their sales of
Registrable Securities to which such loss relates and not joint.
(v) The parties to the Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 6.3, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 6.3 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement as required by the Securities
Act and the Exchange Act.
6.4 TERMINATION OF CONDITIONS AND OBLIGATIONS. The conditions
precedent imposed by Section 4 or this Section 6 upon the transferability of the
Registrable Securities shall cease and terminate as to any particular number of
the Registrable Securities when such Registrable Securities shall have been
effectively registered under the Securities Act and sold or otherwise disposed
of in accordance with the intended method of disposition set forth in the
Registration Statement covering such Registrable Securities or at such time as
an opinion of counsel satisfactory to the Company shall have been rendered to
the effect that such conditions are not necessary in order to comply with the
Securities Act.
6.5 INFORMATION AVAILABLE. So long as the Registration
Statement is effective covering the resale of Registrable Securities owned by
the Investor, the Company will furnish to the Investor:
(a) as soon as practicable after it is available, one
copy of (i) its Annual Report to Stockholders (which Annual Report shall contain
financial statements audited in accordance with generally accepted accounting
principles by a national firm of certified public accountants) and (ii) if not
included in substance in the Annual Report to Stockholders, its Annual Report on
Form 10-K (the foregoing, in each case, excluding exhibits);
(b) upon the reasonable request of the Investor, all
exhibits excluded by the parenthetical to subparagraph (a)(ii) of this Section
6.5 as filed with the SEC and all other information that is made available to
stockholders; and
(c) upon the reasonable request of the Investor, an
adequate number of copies of the Prospectuses to supply to any other party
requiring such Prospectuses; and the Company,
16
upon the reasonable request of the Investor, will meet with the Investor or a
representative thereof at the Company's headquarters to discuss all information
relevant for disclosure in the Registration Statement covering the Registrable
Securities and will otherwise cooperate with the Investor conducting an
investigation for the purpose of reducing or eliminating the Investor's exposure
to liability under the Securities Act, including the reasonable production of
information at the Company's headquarters; provided, that the Company shall not
be required to disclose any confidential information to or meet at its
headquarters with the Investor until and unless the Investor shall have entered
into a confidentiality agreement in form and substance reasonably satisfactory
to the Company with the Company with respect thereto.
6.6 PUBLIC STATEMENTS. The Company will not issue any public
statement, press release or any other public disclosure listing Investor as one
of the purchasers of the Securities without Investor's prior written consent,
except as may be required by applicable law or rules of any exchange on which
the Company's securities are listed.
7. RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 7, the Company hereby grants to each Investor who
holds Shares of Preferred Stock a right of first offer with respect to future
issuances by the Company of its Equity Securities (as hereinafter defined).
7.1 Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for any shares of, any class of its
capital stock ("EQUITY SECURITIES"), the Company shall first make an offering of
such Equity Securities to the Investor in accordance with the following
provisions:
(a) The Company shall deliver a notice by certified
mail (a "NOTICE") to the Investor stating (i) its bona fide intention to offer
such Equity Securities, (ii) the number of such Equity Securities to be offered,
and (iii) the price and terms, if any, upon which it proposes to offer such
Equity Securities.
(b) Within 15 calendar days after delivery of the
Notice, the Investor may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Equity Securities
which equals the proportion that the sum of the number of shares of Common Stock
plus the number of shares of Common Stock issuable upon conversion of Preferred
Stock and upon the exercise of the Investor Warrants, in each case then held, by
such Investor bears to the total number of shares of Common Stock then
outstanding (assuming full conversion and exercise of all convertible or
exercisable securities).
(c) The Company may, during the 60-day period following
the expiration of the period provided in subsection 7.1(b) hereof, offer the
remaining unsubscribed portion of the Equity Securities to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Equity Securities within such period, or if such agreement
is not consummated within 90 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Equity Securities shall not be
offered unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this Section 7 shall
not be applicable (i) to the issuance or sale by the Company of any of its
capital stock pursuant to any benefit, option, restricted stock, stock purchase
or similar plans or arrangements, including pursuant to or upon the exercise of
option rights, warrants or other securities or agreements, (ii) any underwritten
public offering or any other public offering by the Company in which shares are
offered at market price, (iii) to the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities, (iv) to the
17
issuance of securities in connection with a bona fide business acquisition of or
by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise, (v) to the issuance of securities to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings, or similar transactions, (vi) to the issuance or sale of
the Preferred Stock, (vii) to any issuance in connection with a stock split,
reverse stock split, reclassification, recapitalization, consolidation, merger
or similar event, (viii) to the issuance of securities that, with unanimous
approval of the Board of Directors of the Company, are not offered to any
existing stockholder of the Company or (ix) any securities issued to Sanmina
Corporation as contemplated by Section 3(c)(i)(1)(e) of the Series A
Certificate.
8. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed (A) if within domestic United
States by first-class registered or certified airmail, or nationally recognized
overnight express courier, postage prepaid, or by facsimile, or (B) if delivered
from outside the United States, by International Federal Express (or comparable
service) or facsimile, and shall be deemed given (i) if delivered by first-class
registered or certified mail domestic, three business days after so mailed, (ii)
if delivered by nationally recognized overnight carrier, one (1) business day
after so mailed, (iii) if delivered by International Federal Express (or
comparable service), two (2) business days after so mailed, (iv) if delivered by
facsimile, upon electric confirmation of receipt and shall be delivered as
addressed as follows:
(a) if to the Company, to:
Novatel Wireless, Inc.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Attn: Xxxx Xxxxx
Chief Executive Officer
Phone: (000) 000-0000
Telecopy: (000) 000-0000
with a copy mailed to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attn: J. Xxxxx Xxxxxxxx, Esq.
Phone: (000) 000-0000
Telecopy: (000) 000-0000
(b) if to the Investor, at its address on the Signature
Page hereto, or at such other address or addresses as may have been furnished to
the Company in writing.
9. CHANGES. The Agreement may not be modified or amended except
pursuant to an instrument in writing signed by the Company and the Investor.
10. HEADINGS. The headings of the various sections of the Agreement
have been inserted for convenience of reference only and shall not be deemed to
be part of the Agreement.
11. SEVERABILITY. In case any provision contained in the Agreement
should be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
18
12. GOVERNING LAW. The Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of New York, without giving
effect to the principles of conflicts of law.
13. COUNTERPARTS. The Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument, and shall become effective
when one or more counterparts have been signed by each party hereto and
delivered to the other parties.
14. CONFIDENTIAL DISCLOSURE AGREEMENT. Notwithstanding any provision
of the Agreement to the contrary, any confidential disclosure agreement
previously executed by the Company and the Investor in connection with the
transactions contemplated by the Agreement shall remain in full force and effect
in accordance with its terms following the execution of the Agreement and the
consummation of the transactions contemplated hereby.
19
EXHIBIT A
NOVATEL WIRELESS, INC.
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 4 of the Agreement, please provide us with the
following information:
1. The exact name that your Shares are to be registered __________________
in (this is the name that will appear on your stock
certificate(s)). You may use a nominee name if
appropriate:
2. The relationship between the Investor and the __________________
registered holder listed in response to item 1
above:
3. The mailing address of the registered holder listed __________________
in response to item 1 above:
4. The Social Security Number or Tax Identification __________________
Number of the registered holder listed in the
response to item 1 above:
A-1
EXHIBIT B
NOVATEL WIRELESS, INC.
INVESTOR QUESTIONNAIRE
(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)
To: Novatel Wireless, Inc.,
This Investor Questionnaire ("QUESTIONNAIRE") must be completed by each
potential investor in connection with the offer and sale of the shares of the
series A convertible preferred stock, par value $.001 per share and warrants to
purchase common stock, par value $.001 per share (collectively, the
"SECURITIES"), of Novatel Wireless, Inc. (the "COMPANY"). The Securities are
being offered and sold by the Company without registration under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and the securities laws of
certain states, in reliance on the exemptions contained in Section 4 of the
Securities Act and on Regulation D promulgated thereunder and in reliance on
similar exemptions under applicable state laws. The Company must determine that
a potential investor meets certain suitability requirements before offering or
selling Securities to such investor. The purpose of this Questionnaire is to
assure the Company that each investor will meet the applicable suitability
requirements. The information supplied by you will be used in determining
whether you meet such criteria, and reliance upon the private offering exemption
from registration is based in part on the information herein supplied.
This Questionnaire does not constitute an offer to sell or a
solicitation of an offer to buy any security. Your answers will be kept strictly
confidential. However, by signing this Questionnaire you will be authorizing the
Company to provide a completed copy of this Questionnaire to such parties as the
Company deems appropriate in order to ensure that the offer and sale of the
Shares will not result in a violation of the Securities Act or the securities
laws of any state and that you otherwise satisfy the suitability standards
applicable to purchasers of the Securities. All potential investors must answer
all applicable questions and complete, date and sign this Questionnaire. Please
print or type your responses and attach additional sheets of paper if necessary
to complete your answers to any item.
A. BACKGROUND INFORMATION
Name: __________________________________________________________________________
Business Address: ______________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number: ( ) _______________________________________________________
Residence Address: _____________________________________________________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number: ( ) _______________________________________________________
If an individual: ______________________________________________________________
Age:______ Citizenship:_________ Where registered to vote: ___________
If a corporation, partnership, limited liability company, trust or other entity:
B-1
Type of entity: ________________________________________________________________
State of formation:______________ Date of formation: ____________________
Social Security or Taxpayer Identification No. _________________________________
Send all correspondence to (check one): __ Residence Address __ Business Address
B. STATUS AS ACCREDITED INVESTOR
The undersigned is an "accredited investor" as such term is defined in
Regulation D under the Securities Act, as at the time of the sale of the
Securities the undersigned falls within one or more of the following categories
(Please initial one or more, as applicable):(1)
_____(1) a bank as defined in Section 3(a)(2) of the Securities Act, or a
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934; an insurance company as defined in Section 2(13) of the
Securities Act; an investment company registered under the Investment Company
Act of 1940 or a business development company as defined in Section 2(a)(48) of
that act; a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its
political subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the meaning of
the Employee Retirement Income Security Act of 1974 if the investment decision
is made by a plan fiduciary, as defined in Section 3(21) of such act, which is
either a bank, savings and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in excess
of $5,000,000 or, if a self-directed plan, with the investment decisions made
solely by persons that are accredited investors;(1)
_____(2) a private business development company as defined in Section
202(a)(22) of the Investment Adviser Act of 1940;
_____(3) an organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the
Shares offered, with total assets in excess of $5,000,000;
_____(4) a natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase of the Shares
exceeds $1,000,000;
_____(5) a natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year;
_____(6) a trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Shares offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D;
and
--------
(1) As used in this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In computing net worth for the purpose of
subsection (4), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income, the investor should add to the investor's adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depreciation,
contributions to an XXX or XXXXX retirement plan, alimony payments, and any
amount by which income from long-term capital gains has been reduced in arriving
at adjusted gross income.
B-2
_____(7) an entity in which all of the equity owners are accredited investors
(as defined above).
C. REPRESENTATIONS
The undersigned hereby represents and warrants to the Company as follows:
1. Any purchase of the Securities would be solely for the account of
the undersigned and not for the account of any other person or with a view to
any resale, fractionalization, division, or distribution thereof.
2. The information contained herein is complete and accurate and may
be relied upon by the Company, and the undersigned will notify the Company
immediately of any material change in any of such information occurring prior to
the closing, if any, with respect to the purchase of Securities by the
undersigned or any co-purchaser.
3. There are no suits, pending litigation, or claims against the
undersigned that could materially affect the net worth of the undersigned as
reported in this Questionnaire.
4. The undersigned acknowledges that there may occasionally be times
when the Company, based on the advice of its counsel, determines that it must
suspend the use of the Prospectus forming a part of the Registration Statement
(as such terms are defined in the Agreement to which this Questionnaire is
attached) until such time as an amendment to the Registration Statement has been
filed by the Company and declared effective by the Securities and Exchange
Commission or until the Company has amended or supplemented such Prospectus. The
undersigned is aware that, in such event, the Securities will not be subject to
ready liquidation, and that any Shares purchased by the undersigned would have
to be held during such suspension. The overall commitment of the undersigned to
investments which are not readily marketable is not excessive in view of the
undersigned's net worth and financial circumstances, and any purchase of the
Securities will not cause such commitment to become excessive. The undersigned
is able to bear the economic risk of an investment in the Securities.
5. The undersigned has carefully considered the potential risks
relating to the Company and a purchase of the Securities, and fully understands
that the Securities are speculative investments which involve a high degree of
risk of loss of the undersigned's entire investment. Among others, the
undersigned has carefully considered each of the risks described under the
headings "Risk Factors" in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 and the Company's Current Report on Form 10-Q filed on
September 30, 2001.
B-3
IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this __ day
of December, 2001, and declares under oath that it is truthful and correct.
Print Name
By: _______________________________________
Signature
Title: ____________________________________
(required for any purchaser that is
a corporation, partnership, trust or
other entity)
B-4
EXHIBIT C
Intentionally Omitted
EXHIBIT D
Intentionally Omitted
D-1
EXHIBIT E
NOVATEL WIRELESS, INC.
CERTIFICATE OF SUBSEQUENT SALE
_____________________
_____________________
_____________________
_____________________
RE: Sale of Shares of Common Stock of Novatel Wireless, Inc. (the
"Company") pursuant to the Company's Prospectus dated
_______________, _____ (the "Prospectus")
Dear Sir/Madam:
The undersigned hereby certifies, in connection with the sale of shares
of Common Stock of the Company included in the table of Selling Stockholders in
the Prospectus, that the undersigned has sold the Shares pursuant to the
Prospectus and in a manner described under the caption "Plan of Distribution" in
the Prospectus and that such sale complies with all applicable securities laws,
including, without limitation, the Prospectus delivery requirements of the
Securities Act of 1933, as amended.
Selling Stockholder (the beneficial owner): ____________________________
Record Holder (e.g., if held in name of nominee): ______________________
Restricted Stock Certificate No.(s): ___________________________________
Number of Shares Sold: _________________________________________________
Date of Sale: __________________________________________________________
In the event that you receive a stock certificate(s) representing more
shares of Common Stock than have been sold by the undersigned, then you should
return to the undersigned a newly issued certificate for such excess shares in
the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you
should place a stop transfer on your records with regard to such certificate.
Dated:_________________ Very truly yours,
By: ____________________________________
Print Name: ____________________________
Title: _________________________________
cc: Investor Relations
Novatel Wireless, Inc.
0000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
E-1
EXHIBIT F
FORM OF OPINION OF XXXXXX & XXXXXXX
December 21, 2001
To each of the Purchasers,
listed on Schedule A attached hereto
Re: Series A Convertible Preferred Stock and
Common Stock Purchase Warrants
Ladies and Gentlemen:
We have acted as special counsel to Novatel Wireless, Inc., a Delaware
corporation (the "Company"), in connection with that certain Preferred Stock and
Warrant Purchase Agreement, dated December 21, 2001 (the "Purchase Agreement"),
by and among the Company and the purchasers named therein (each a "Purchaser"
and collectively, the "Purchasers"). This opinion is being rendered to you
pursuant to Section 2 of the Purchase Agreement. Unless otherwise stated herein,
capitalized terms that are used herein and not otherwise defined herein shall
have the meanings given them in the Purchase Agreement.
As such counsel, we have made such legal and factual examinations and
inquiries as we have deemed necessary or appropriate for purposes of this
opinion, except where a specified factual confirmation procedure is stated to
have been performed (in which case we have with your consent performed the
stated procedure), and except where a statement is qualified as to knowledge or
awareness (in which case we have with your consent made no or limited inquiry as
specified below). We have examined, among other things, the following:
(a) the Purchase Agreement;
(b) the Common Stock Purchase Warrants, dated as of
December 21, 2001, by and among the Company and
each Purchaser;
(c) the Amended and Restated Certificate of
Incorporation and Bylaws of the Company (the
"Governing Documents"); and
(d) the Company's SEC Reports.
The documents described in clauses (a) and (b) above are referred to herein
collectively as the "Operative Documents." With your consent we have relied upon
the foregoing and other certificates of officer(s) of the Company and of public
officials with respect to certain factual matters. We have not independently
verified such factual matters. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity to authentic original documents of all documents
submitted to us as copies. As to facts material to the opinions, statements
F-1
and assumptions expressed herein, we have, with your consent, relied upon oral
or written statements and representations of officers and other representatives
of the Company and others. In addition, we have obtained and relied upon such
certificates and assurances from public officials as we have deemed necessary.
Whenever a statement herein is qualified by "to the best of our
knowledge" or a similar phrase, it is intended to indicate that those attorneys
in this firm who have rendered legal services in connection with the above
transaction do not have current actual knowledge of the inaccuracy of such
statement. However, except as otherwise expressly indicated, we have not
undertaken any independent investigation to determine the accuracy of any such
statement, and no inference that we have any knowledge of any matters pertaining
to such statement should be drawn from our representation of the Company.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of
California and the General Corporation Law of the State of Delaware (the
"DGCL"), and we express no opinion with respect to the applicability thereto, or
the effect thereon, of the laws of any other jurisdiction or, in the case of
Delaware, any other laws, or as to any matters of municipal law or the laws of
any other local agencies within any state or any laws which are applicable to
the subject transaction or the parties thereto because of the nature of their
business.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
1. The Company is a corporation and is validly existing and in good
standing under the laws of the State of Delaware, with corporate power and
authority to own its properties, conduct its business as described in the SEC
Reports, and to execute and deliver the Operative Documents and perform its
obligations thereunder. Based solely on certificates from public officials of
the applicable jurisdiction, we confirm that the Company is qualified to do
business in the States of Arizona and California.
2. The authorized capital stock of the Company is 350,000,000 shares
of Common Stock, $.001 par value per share, and 15,000,000 shares of preferred
stock.
3. The execution and delivery by the Company of the Operative
Documents and the offering, issuance and sale of the Shares and the Investor
Warrants and the consummation of the transactions contemplated by the Operative
Documents, do not, to the best of our knowledge:
(i) violate the provisions of the Governing Documents;
(ii) violate the DGCL, any federal or California statute, rule
or regulation applicable to the Company (excluding federal securities
laws as to which no opinion is expressed in this paragraph 3, and
antifraud, antitrust and state securities or Blue Sky laws as to which
we express no opinion); or
(iii) result in the breach of or a default under any indentures,
notes, loan agreements, mortgages, deeds of trust, security agreements
and other written agreements and instruments creating, evidencing or
securing indebtedness of the Company for borrowed money that are filed
as exhibits to the Company's SEC Reports, or any court and
administrative orders, judgments and decrees identified by the Company's
officers in an officer's certificate as specifically directed to and
binding on the Company; provided, however, that we express no opinion as
to whether the execution, delivery and performance of the Operative
Documents or the compliance by the Company with the terms and provisions
thereof will constitute a violation of or default under any
F-2
covenant, restriction or provision with respect to financial ratios or
tests or any aspect of the financial condition or results of operations
of the Company and its subsidiaries.
The opinions set forth in paragraph 3(ii) above are based upon our consideration
of only those statutes, rules and regulations which, in our experience, are
normally applicable to private placement of securities. Further, in rendering
the opinion expressed in paragraph 3(iii) above, we express no opinion with
respect to the effect of any action or inaction required to be taken or not
taken after the date hereof.
4. Each of the Operative Documents has been duly authorized,
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms.
5. The execution, delivery and performance of the Operative
Documents by the Company and the offering, issuance and sale of the Securities
pursuant to and in accordance with the Purchase Agreement does not require the
consent, approval, authorization or other order of, or qualification or filing
with, any court or governmental body or agency (except such as may be required
under federal or state securities laws). Our opinions set forth in this
paragraph are based upon our consideration of those laws, rules and regulations
that, in our experience, are normally applicable to private placements of
securities. Without limiting the foregoing, we express no opinion in this
paragraph as to the application of any antifraud or antitrust laws.
6. The Shares to be issued and sold by the Company pursuant to the
Purchase Agreement have been duly authorized for issuance and, when issued to
and paid for by the Purchasers in accordance with the terms of the Purchase
Agreement, will be validly issued, fully paid and non-assessable.
7. The Common Stock issuable upon conversion of the Shares and upon
exercise of the Investor Warrants has been duly authorized for issuance and
reserved by the Company and when issued to the Purchasers upon conversion of the
Shares in accordance with the Company's charter or issued to and paid for by the
Purchasers in accordance with the Investor Warrants, will be validly issued,
fully paid and non-assessable.
8. Assuming (i) the accuracy of the representations and warranties
of each of the Investors set forth in Section 4 of the Purchase Agreement and
the applicable Investor questionnaire, (ii) the due performance by the Company
of the covenants and agreements set forth in the Purchase Agreement, and (iii)
the compliance by the Investors with the offering and transfer procedures and
restrictions described in the Purchase Agreement, the offer, sale and delivery
of the securities to the Investors in the manner contemplated by the Purchase
Agreement do not require registration under the Act, it being understood that we
express no opinion as to any subsequent reoffer or resale of any security.
The opinions rendered in paragraph 4 relating to the enforceability of
the Operative Documents, respectively, are subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors; (ii) the effect
of general principles of equity, whether enforcement is considered in a
proceeding in equity or at law, and the discretion of the court before which any
proceeding therefor may be brought; (iii) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification of or contribution to a party with respect to a liability where
such indemnification or contribution is contrary to public policy; and (iv) we
express no opinion regarding the enforceability of any provision requiring the
payment of attorney's fees, except to the extent that a court determines such
fees to be reasonable.
F-3
To the extent that the obligations of the Company under the Operative
Documents may be dependent upon such matters, we assume for purposes of this
opinion that each of the Investors is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and/or has the
capacity, power and authority to enter into and perform the obligations under
the Operative Documents; that each of the Investors is duly qualified to engage
in the activities contemplated by the Operative Documents; that each of the
Operative Documents has been duly authorized, executed and delivered by the
Investors, as applicable; and that each of the Operative Documents constitutes
the legally valid and binding obligation of each of the parties thereto,
enforceable against such person in accordance with its terms.
This opinion is rendered only to the Purchasers and is solely for the
benefit of the Purchasers in connection with the transactions covered hereby.
This opinion may not be relied upon by the Purchasers for any other purpose, or
furnished to, quoted to, or relied upon by any other person, firm or corporation
for any purpose, without our prior written consent.
Very truly yours,
F-4
SCHEDULE A
[List of Purchasers]
Intentionally Omitted
F-5
SCHEDULE 3.9
TITLE TO PROPERTIES
Silicon Valley Bank, Commercial Finance Division ("Silicon") holds a perfected
security interest in all the Company's tangible and intangible assets in order
to secure repayment of the Company's borrowings from Silicon pursuant to the
terms and conditions of an account receivables facility entered into with
Silicon as of November 29, 2001. The facility permits borrowings initially up to
$2 million and, upon the Company reaching certain milestones, up to $10 million.
The Company has borrowed approximately $1.6 million under the facility.
Agilent Technologies ("Agilent") holds a perfected security interest in certain
software the Company leases from Agilent pursuant to equipment lease financings
the Company entered into with Agilent in April 2000. Approximately $357,393.34
remains payable on the leases which expire in April 2003.
Schedule 3.9
SCHEDULE 3.10
INTELLECTUAL PROPERTY RIGHTS
The Company markets certain of its products under the Merlin brand name. In July
2000, and July 2001, Avaya Communications ("Avaya") indicated to the Company
that it believed the Company's use of such name infringed on Avaya's proprietary
right to such name. The Company believes that the Company's commercial use of
such name does not present any likelihood of confusion with Avaya's products and
Avaya has not communicated further with the Company on this issue, or otherwise
asserted any right against the Company.
Schedule 3.10
