1
EXHIBIT 10.7
--------------------------------------------------------------------------------
NOVATEL WIRELESS, INC.
LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------
2
This LOAN AND SECURITY AGREEMENT is entered into as of October 12, 1999,
by and between VENTURE BANKING GROUP, a division of Cupertino National Bank
("Bank") and NOVATEL WIRELESS, INC. ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Adjusted Net Worth" means Net Worth plus the book value of the
Minority Interest.
"Advance" or "Advances" means a cash advance or cash advances
under the Revolving Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; reasonable Collateral audit fees; and Bank's reasonable attorneys'
fees and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal), incurred before, during and
after an Insolvency Proceeding, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" means an amount equal to (i) seventy percent
(70%) of Eligible Accounts of Borrower and each Guarantor before the Equity
Event and eighty percent (80%) thereafter plus (ii) forty percent (40%) of
Eligible Inventory of Borrower and each Guarantor (not to exceed One Million
Dollars ($1,000,000)), as determined by Bank in its good faith business judgment
with reference to the most recent Borrowing Base Certificate delivered by
Borrower, provided that Accounts owing to Novatel Canada and Eligible Inventory
owned by any Person may not be included in the Borrowing Base after January 31,
2000.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
1
3
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to Two
Million Five Hundred Thousand Dollars ($2,500,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance, Letter of Credit, or any
other extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendible at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's or a Guarantor's business that comply in all
material respects with all of Borrower's representations and warranties to Bank
set forth in Section 5.4; provided, that standards of eligibility may be fixed
and revised from time to time by Bank in Bank's reasonable judgment and upon
notification thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Bank, Eligible Accounts shall not include the
following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, twenty-five
percent (25%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
2
4
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States, unless there is compliance with the Assignment of Claims Act;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, to the extent such obligations exceed
the aforementioned percentage, except that the concentration limit for Accounts
owing by OpenSky, Inc. and Metricom shall be forty percent (40%);
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its reasonable discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that (i) are supported by one or more letters of credit or insurance
in an amount and of a tenor, and issued by a financial institution, insurance
company or governmental entity acceptable to Bank, or (ii) that Bank approves on
a case-by-case basis.
"Eligible Inventory" means raw materials and finished goods
Inventory approved from time to time by Bank in its good faith business
judgment, valued at Bank's reasonable determination of the lower of cost or fair
market value.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equity Event" means the receipt by Borrower after the Closing
Date of not less than Fifteen Million Dollars ($15,000,000) from the sale or
issuance of its equity securities.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning assigned in Article 8.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
3
5
"Guarantor" or "Guarantors" means Novatel Wireless Technology,
Ltd. and Novatel Wireless Solutions, Inc.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's right,
title, and interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to ▇▇▇ for and collect such damages for said use or infringement
of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
4
6
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Minority Interest" means the equity interest of Borrower in
Novatel Canada.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Net Worth" means net worth, as determined in accordance with
GAAP.
"Novatel Canada" means Novatel Wireless Technologies, Ltd., a
corporation organized under the laws of Alberta.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness secured by a lien described in clause (c) of the
defined term "Permitted Liens," provided such Indebtedness does not exceed the
lesser of the cost or fair market value of the equipment financed with such
Indebtedness;
(d) Subordinated Debt;
(e) accounts payable to trade creditors and accrued expenses
(other than for money borrowed) that are not aged more than 30 days from due
date, in each case incurred in the ordinary course of business and paid within
such time period, unless the same are being actively contested in good faith and
by appropriate and lawful proceedings, and Borrower shall have set aside such
reserves, if any, with respect thereto as are required by GAAP and deemed
adequate by Borrower and its independent accountants;
(f) rental obligations under existing leases of Borrower;
5
7
(g) contingent liabilities arising out of endorsements of checks
and other negotiable instruments for deposit or collection in the ordinary
course of Borrower's business;
(h) intercompany indebtedness among Borrower and Guarantors;
(i) taxes, assessments and governmental charges or levies which
are not delinquent or which are being contested in good faith and for which, in
accordance with GAAP, adequate reserves have been set aside on the books of
Borrower; and
(j) indebtedness not included in paragraphs (a) through (i) above
which does not exceed at any time, in the aggregate, the sum of $50,000.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having rating of at least A-2 or P-2 from either Standard
& Poor's Corporation or ▇▇▇▇▇'▇ Investors Service, (iii) certificates of deposit
maturing no more than one (1) year from the date of investment therein issued by
Bank and (iv) Bank's money market accounts.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
quoted from time to time in the Western Edition of The Wall Street Journal, as
the "prime rate," whether or not such rate is the lowest rate available from
Bank.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the unrestricted cash and cash-equivalents and billed trade
accounts receivable of Borrower determined in accordance with GAAP.
6
8
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Operating Officer, the Chief Financial Officer and the Controller of
Borrower.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue Advances, as specified in Section 2.1(a) hereof.
"Revolving Maturity Date" means the day before the first
anniversary of the Closing Date.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity, at the time as of which any determination is
being made, is owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means the excess of total assets over Total
Liabilities, excluding from the determination of total assets all assets that
would be classified as intangible assets under GAAP.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in lawful money of
the United States of America, the aggregate unpaid principal amount of all
Credit Extensions made by Bank to Borrower hereunder. Borrower shall also pay
interest on the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof.
(a) Revolving Advances.
(i) Subject to and upon the terms and conditions of this
Agreement, Borrower may request Advances in an aggregate outstanding amount not
to exceed the lesser of (i) the Committed Revolving Line or (ii) the Borrowing
Base, minus, in each case, the aggregate undrawn face amount of the outstanding
Letters of Credit, and any drawn but unreimbursed Letters of Credit. Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1(a) may be repaid and reborrowed at any time prior to the Revolving
Maturity Date, at which time all Advances under this Section 2.1(a) shall be
immediately due and payable. Borrower may prepay any Advances without penalty or
premium. Borrower's obligation to repay the Advances is evidenced by this
Agreement and a Promissory Note in substantially the form of Exhibit B attached
hereto.
7
9
(ii) Whenever Borrower desires an Advance, Borrower will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit C hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer or a designee thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1(a) to
Borrower's deposit account.
(b) Letters of Credit.
(i) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued letters of credit for the account of
Borrower (each, a "Letter of Credit" and collectively, the "Letters of Credit")
in an aggregate outstanding face amount not to exceed the lesser of the
availability under the Committed Revolving Line and the Borrowing Base; provided
the undrawn face amount of such Letters of Credit and any drawn but unreimbursed
Letters of Credit shall not in any case exceed Five Hundred Thousand Dollars
($500,000) in the aggregate. All Letters of Credit shall be, in form and
substance, acceptable to Bank in its sole discretion and shall be subject to the
terms of Bank's form of standard application and letter of credit agreement,
including Bank's fee equal to two percent (2%) of the face amount of each Letter
of Credit. On any drawn but unreimbursed Letter of Credit, the unreimbursed
amount shall be deemed an Advance under Section 2.1(a). No Letter of Credit may
have an expiration date later than the Revolving Maturity Date.
(ii) Subject to the penultimate sentence of Section
2.1(b)(i), the obligation of Borrower to immediately reimburse Bank for drawings
made under Letters of Credit shall be absolute, unconditional and irrevocable,
and shall be performed strictly in accordance with the terms of this Agreement
and such Letters of Credit, under all circumstances whatsoever. Borrower shall
indemnify, defend, protect, and hold Bank harmless from any loss, cost, expense
or liability, including, without limitation, reasonable attorneys' fees, arising
out of or in connection with any Letters of Credit, except for expenses caused
by Bank's gross negligence or willful misconduct.
2.2 Overadvances. If at any time the aggregate amount of the
outstanding Advances plus the undrawn face amount of any outstanding Letters of
Credit, and any drawn but unreimbursed Letters of Credit, exceeds the lesser of
the Borrowing Base or the Committed Revolving Line, Borrower shall immediately
pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), the
Advances shall bear interest, on the outstanding daily balance thereof, at a
rate equal to one and three quarters percent (1.75%) above the Prime Rate,
provided the interest rate shall be equal to one half percent (0.5%) above the
Prime Rate from and after Bank's receipt of written certification from a
Responsible Officer that the Equity Event has occurred.
(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence and during the continuance of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable in
arrears on the twenty-seventh calendar day of each month during the term hereof.
Bank shall, at its option, charge such interest, all Bank Expenses, and all
Periodic Payments against any of Borrower's deposit accounts or against the
Committed Revolving Line, in which case those amounts shall thereafter accrue
interest at the rate then applicable hereunder. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
8
10
(d) Computation. In the event the Prime Rate is changed from time
to time hereafter, the applicable rate of interest hereunder shall be increased
or decreased, effective as of the day the Prime Rate is changed, by an amount
equal to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Eastern time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On the Closing Date, a Facility Fee equal to
Eighteen Thousand Seven Hundred Fifty Dollars ($18,750), which shall be
nonrefundable;
(b) Bank Expenses. On the Closing Date, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses and, after the Closing Date, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due. Bank shall provide to
Borrower monthly accountings of all Bank Expenses.
2.6 Additional Costs. In case after the date hereof any law,
regulation, treaty or official directive or the interpretation or application
thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force of
law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to
Bank the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or determined,
upon presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7 Term. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Revolving Maturity Date. Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of
9
11
Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain
in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF CREDIT EXTENSIONS.
3.1 Conditions Precedent to Initial Credit Extension. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance reasonably
satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement in the form of
Exhibit F hereto;
(e) an unconditional guaranty and security agreement of each
Guarantor;
(f) a warrant to purchase stock in the form of Exhibit G hereto;
(g) an agreement to provide insurance;
(h) a subordination agreement in the form of Exhibit H hereto;
(i) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(j) an audit of the Collateral, the results of which shall be
satisfactory to Bank; and
(k) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would exist after giving effect to such Credit
Extension (provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date). The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of such
Credit Extension as to the accuracy of the facts referred to in this Section
3.2(b).
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except for Permitted Liens, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof.
10
12
4.2 Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, the certificates evidencing all of the outstanding
capital stock of each Guarantor (together with stock powers executed in blank),
all financing statements and other documents that Bank may reasonably request,
in form satisfactory to Bank, to perfect and continue perfected Bank's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours but no more than once a year (unless an
Event of Default has occurred and is continuing), to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary
is a corporation duly existing under the laws of its state or province of
incorporation and qualified and licensed to do business in any jurisdiction in
which failure to be so qualified or licensed could reasonably be expected to
have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and acceptance by the account debtor, subject only to
usual and customary return rights, or the services giving rise to such Eligible
Accounts have been fully performed. Borrower has not received notice of actual
or imminent Insolvency Proceeding of any account debtor that is included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Eligible Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Intellectual Property Collateral. Borrower is the sole owner of
the Intellectual Property Collateral, except for non-exclusive licenses granted
by Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. The Intellectual Property Security
Agreement sets forth all of the Intellectual Property Collateral that is
material to Borrower's business. Except as set forth in the Schedule, Borrower's
rights as a licensee of intellectual property do not give rise to more than five
percent (5%) of its gross revenue in any given month, including without
limitation revenue derived from the sale, licensing, rendering or disposition of
any product or service.
5.7 Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
11
13
5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could reasonably
be expected to have a Material Adverse Effect, or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements of Borrower and any Subsidiary that are
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Bank.
5.10 Solvency, Payment of Debts. Borrower is solvent and able to pay
its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary have met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied in all material respects with all the provisions
of the Federal Fair Labor Standards Act. Borrower has not violated any statutes,
laws, ordinances or rules applicable to it, violation of which could reasonably
be expected to have a Material Adverse Effect.
5.12 Environmental Condition. Except as disclosed in the Schedule,
none of Borrower's or any Subsidiary's properties or assets has ever been used
by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by
previous owners or operators, in the disposal of, or to produce, store, handle,
treat, release, or transport, any hazardous waste or hazardous substance other
than in accordance with applicable law; to the best of Borrower's knowledge,
none of Borrower's properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure pursuant
to any environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary have filed or caused to be
filed all tax returns required to be filed, and have paid (unless the same are
being contested in good faith by appropriate proceedings), or have made adequate
provision for the payment of, all taxes reflected therein.
5.14 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 Government Consents. Borrower and each Subsidiary have obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted, the
failure to obtain which could reasonably be expected to have a Material Adverse
Effect.
5.16 Year 2000. Borrower and its Subsidiaries have reviewed the areas
within their operations and business which could be adversely affected by, and
have developed or are developing a program to address on a timely basis, the
Year 2000 Problem and have made related appropriate inquiry of material
suppliers and vendors, and based on such review and program, the Year 2000
Problem will not have a Material Adverse Effect upon its financial condition,
operations or business as now conducted. "Year 2000 Problem" means the
possibility that any
12
14
computer applications or equipment used by Borrower may be unable to recognize
and properly perform date sensitive functions involving certain dates prior to
and any dates on or after December 31, 1999.
5.17 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence in its jurisdiction of incorporation and
maintain qualification in each jurisdiction in which the failure to so qualify
could reasonably be expected to have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, in force all
licenses, approvals and agreements, the loss of which could reasonably be
expected to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect, or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within twenty (20)
days after the end of each calendar month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during such period, in a form acceptable to Bank and certified by a Responsible
Officer; (b) as soon as available, but in any event within ninety (90) days
after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
as soon as available, but in any event within twenty (20) days after the end of
Borrower's fiscal quarter, a company prepared consolidating balance sheet and
income statement for Borrower and each Guarantor; (d) copies of all statements,
reports and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and, to the extent applicable,
all reports on Forms 10-K and 10-Q filed with the Securities and Exchange
Commission; (e) promptly upon receipt of notice thereof, a report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
reasonably be expected to result in damages or costs to Borrower or any
Subsidiary of Fifty Thousand Dollars ($50,000) or more; (f) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time generally prepared by Borrower in the
ordinary course of business; and (g) within thirty (30) days of the last day of
each fiscal quarter, a report signed by Borrower, in form reasonably acceptable
to Bank, listing any applications or registrations that Borrower has made or
filed in respect of any Patents, Copyrights or Trademarks and the status of any
outstanding applications or registrations, as well as any material change in
Borrower's intellectual property, including but not limited to any subsequent
ownership right of Borrower in or to any Trademark, Patent or Copyright not
specified in Exhibits A, B, and C of the Intellectual Property Security
Agreement delivered to Bank by Borrower in connection with this Agreement.
Within twenty (20) days after the last day of each month in which any
Credit Extension is outstanding, Borrower shall deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto, together with aged listings of accounts receivable and accounts
payable.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit E hereto.
13
15
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts and appraise Collateral at Borrower's expense, provided that such
audits will be conducted no more often than annually unless an Event of Default
has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects except for Inventory for
which adequate reserves have been made. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank of all returns and recoveries and of all disputes and claims, where
the return, recovery, dispute or claim involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof, and all liability insurance policies shall show the Bank as an
additional insured and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Year 2000 Compliance. Borrower shall perform all acts reasonably
necessary to ensure that Borrower and any business in which Borrower holds a
substantial interest become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all Borrower's systems and adopting a detailed plan, with itemized
budget, for the remediation, monitoring and testing of such systems. As used in
this paragraph, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall, promptly upon request, provide to Bank such certifications
or other evidence of Borrower's compliance with the terms of this paragraph as
Bank may from time to time reasonably require.
6.8 Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.9 Quick Ratio. Borrower shall maintain, as of the last day of each
fiscal quarter, beginning on March 31, 2000, a ratio of Quick Assets to Current
Liabilities of at least 1.25 to 1.00.
14
16
6.10 Profitability. Borrower shall not suffer cumulative monthly
losses from the Closing Date through the last day of each month in excess of
125% of the losses set forth in the projection delivered to Bank as of the
Closing Date (excluding any loss attributable to the tax expense recognized
under GAAP in connection with issuance of warrants to the holders of the
Subordinated Debt).
6.11 Net Worth. Borrower shall maintain at all times through January
31, 2000 a balance of Adjusted Net Worth plus Subordinated Debt of at least One
Million Dollars ($1,000,000). Beginning March 31, 2000, Borrower shall maintain
as of the last day of each fiscal quarter a Net Worth of at least Ten Million
Dollars ($10,000,000).
6.12 Total Liabilities-Tangible Net Worth. Beginning March 31, 2000,
Borrower shall maintain, as of the last day of each fiscal quarter, a ratio of
Total Liabilities to Tangible Net Worth of not more than 1.00 to 1.00.
6.13 Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered on an
expedited basis (to the extent not already registered) with the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable: (i) those intellectual property rights listed on Exhibits A, B and C
to the Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement, within thirty (30) days of the date of this
Agreement, (ii) all registerable intellectual property rights Borrower has
developed as of the date of this Agreement but heretofore failed to register,
within thirty (30) days of the date of this Agreement, and (iii) those
additional intellectual property rights developed or acquired by Borrower from
time to time in connection with any product, prior to the sale or licensing of
such product to any third party, and prior to Borrower's use of such product
(including without limitation major revisions or additions to the intellectual
property rights listed on such Exhibits A, B and C). Borrower shall give Bank
notice of all such applications or registrations.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Bank in writing of material infringements detected and (iii) not
allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited
or dedicated to the public without the written consent of Bank, which shall not
be unreasonably withheld.
(d) Bank may audit Borrower's Intellectual Property Collateral
to confirm compliance with this Section 6.13, provided such audit may not occur
more often than once per year, unless an Event of Default has occurred and is
continuing. Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense, any actions that Borrower is required under this
Section 6.13 to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify Bank for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section 6.13.
6.14 Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Credit Extensions,
Borrower will not do any of the following without the prior written consent of
Bank:
15
17
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than: (i) Transfers of
Inventory in the ordinary course of business; (ii) Transfers of non-exclusive
licenses and similar arrangements for the use of the property of Borrower or its
Subsidiaries; or (iii) Transfers of surplus, worn-out or obsolete Equipment; or
(iv) Transfers of property with an aggregate value of $50,000 or less per fiscal
year of Borrower.
7.2 Change in Business. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and its Subsidiaries and any business substantially
similar or related thereto (or incidental thereto). Borrower will not, without
thirty (30) days prior written notification to Bank, relocate its chief
executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided
that a Subsidiary of Borrower may merge with and into Borrower, so long as
Borrower is the surviving entity.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock, except that Borrower may (i) repurchase the stock of former employees
pursuant to stock repurchase agreements, but only so long as an Event of Default
does not exist or would not exist after giving effect to such repurchase and
(ii) make distributions in capital stock of Borrower.
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory and Equipment. Store the Inventory or the Equipment
with a bailee, warehouseman, or similar party unless Bank has received a pledge
of the warehouse receipt covering such Inventory; provided, however, that
Borrower may deposit software code in escrow for customers in the ordinary
course of business. Except for Inventory sold in the ordinary course of business
and except for such other locations as Bank may approve in writing, Borrower
shall keep the Inventory and Equipment only at the location set forth in Section
10 hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files at Bank's request a financing
statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" or be controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to
16
18
occur, fail to comply in all material respects with the Federal Fair Labor
Standards Act or violate any law or regulation, which violation could reasonably
be expected to have a Material Adverse Effect, or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.
7.12 Negative Pledge Agreements. Borrower shall not permit the
inclusion in any contract to which it becomes a party of any provisions that
could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any Collateral, unless an exception is made
therein for the security interest of Bank.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
under Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Credit Extensions will be required to be made
during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of $250,000 or that could reasonably be
expected to have a Material Adverse Effect;
17
19
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed herein or under
any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least $250,000 shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period
of ten (10) days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.
8.10 Guaranty. If any guaranty of all or a portion of the Obligations
ceases for any reason to be in full force and effect, or any of the
circumstances described in any of Sections 8.3, 8.4 or 8.5 occurs with respect
to any Guarantor, or any Guarantor fails to perform any obligation under any
guaranty of all or a portion of the Obligations, or any Guarantor revokes or
purports to revoke any guaranty of the Obligations, or any material
misrepresentation or material misstatement exists now or hereafter in any
warranty or representation set forth in any guaranty of all or a portion of the
Obligations or in any certificate delivered to Bank in connection with such
guaranty.
9. BANK'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5, all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letters of Credit fees scheduled to be paid or payable over the
remaining term of the Letters of Credit; and
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the Collateral.
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Borrower authorizes Bank to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Bank a license to enter into possession of such
premises and to occupy the same, without charge, in order to exercise any of
Bank's rights or remedies provided herein, at law, in equity, or otherwise, but
only for so long as is reasonably required for the exercise of such right;
18
20
(f) Set off and apply to the Obligations any and all (i) balances
and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to
or for the credit or the account of Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a license or other right, solely
pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to Bank's
benefit;
(h) Dispose of the Collateral in accordance with the Code,
including a public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower's premises) as is commercially reasonable, and apply any proceeds to
the Obligations in whatever manner or order Bank deems appropriate;
(i) Bank may credit bid and purchase at any public sale;
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower's policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; (g)
to modify, in its sole discretion, any intellectual property security agreement
entered into between Borrower and Bank without first obtaining Borrower's
approval of or signature to such modification by amending Exhibits A, B, and C,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents or Trademarks acquired by Borrower after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents or Trademarks in which Borrower no longer has or claims to
have any right, title or interest; (h) to file, in its sole discretion, one or
more financing or continuation statements and amendments thereto, relative to
any of the Collateral without the signature of Borrower where permitted by law;
and (i) to transfer the Intellectual Property Collateral into the name of Bank
or a third party to the extent permitted under the California Uniform Commercial
Code; provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred if Borrower has not done so within 10 days of
Bank's request. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time during the term of this
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds and verify the amount of such Account. Borrower shall
collect all amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following
after reasonable notice to Borrower: (a) make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Facility as Bank deems
necessary to protect Bank from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type discussed in Section 6.6 of
this Agreement,
19
21
and take any action with respect to such policies as Bank deems prudent. Any
amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Novatel Wireless, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Chief Financial Officer
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
If to Bank: Venture Banking Group
Three ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. Failure to deliver a notice to Borrower's counsel shall not render
ineffective any notice delivered to Borrower.
20
22
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
▇▇▇▇▇, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS.
12.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of transactions between Bank and
Borrower under this Agreement or the other Loan Documents (including without
limitation reasonable attorneys fees and expenses), except for losses caused by
Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
21
23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
NOVATEL WIRELESS, INC.
By: /s/ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Title: 10/12/99
----------------------------------
VENTURE BANKING GROUP, a division of
Cupertino National Bank
By: /s/ ▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Title: Vice President
----------------------------------
22
24
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, investment
property, financial assets, securities entitlements, securities accounts,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions,
know-how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof; provided
that, notwithstanding anything in the foregoing description to the contrary, the
Collateral shall not include (i) Borrower's equipment and related computer
programs and other related general intangibles to the extent the same are
subject to a lease or financing arrangement which includes a valid and
enforceable prohibition on further encumbrances ("Excluded Equipment"), (ii)
additions, attachments, accessories and accessions to, substitutions,
replacements and exchanges for, and products and proceeds (including insurance
proceeds) of the Excluded Equipment, and (iii) Borrower's rights as licensee
under license agreements, the encumbering of which constitutes an event of
termination which may be asserted against Borrower; provided that such exclusion
shall not apply to proceeds generated from or inventory sold pursuant to any
such license agreement; provided, however, that "Collateral" shall include, (A)
any general intangible or contract right which is an Account or a proceed of, or
otherwise related to the enforcement or collection of, any Account or goods
which are the subject of any Account, and (B) any and all proceeds of any
general intangibles or contract rights which are otherwise excluded to the
extent that the assignment or encumbrance of such proceeds is not so restricted,
and (C) upon obtaining the consent of any such licensor, lessor, or other
applicable party with respect to any such otherwise excluded general
intangibles, contract rights and Equipment, such general intangibles, contract
rights and Equipment as well as any and all proceeds thereof that might
theretofore have been excluded from the term "Collateral."
23
25
EXHIBIT B
REVOLVING PROMISSORY NOTE
$2,500,000 Palo Alto, California
October 12, 1999
FOR VALUE RECEIVED, NOVATEL WIRELESS, INC. (the "Borrower"), promises to
pay to the order of Venture Banking Group (the "Bank") the principal amount of
Two Million Five Hundred Thousand Dollars ($2,500,000) or, if less, the
aggregate amount of Advances (as defined in the Loan Agreement referred to
below) made by Bank to Borrower pursuant to the Loan Agreement referred to below
outstanding on the Revolving Maturity Date (as defined in the Loan Agreement
referred to below). All unpaid amounts of principal and interest shall be due
and payable in full on the Revolving Maturity Date.
Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Loan Agreement.
Notwithstanding any other limitations contained in this Note, Bank does not
intend to charge and Borrower shall not be required to pay any interest or other
fees or charges in excess of the maximum permitted by applicable law. Any
payments in excess of such maximum shall be refunded to the Borrower or credited
against principal.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of Bank described in the Loan Agreement. Until notified of the transfer
of this Note, Borrower shall be entitled to deem Bank or such person who has
been so identified by the transferor in writing to the Borrower as the holder of
this Note, as the owner and holder of this Note.
This Note is referred to in, and is entitled to the benefits of, the
Loan and Security Agreement dated as of October 12, 1999 (the "Loan Agreement")
between Borrower and Bank. The Loan Agreement, among other things, (i) provides
for the making of Advances by Bank to Borrower from time to time in an aggregate
amount not to exceed at any time outstanding the U.S. dollar amounts stated
therein, and (ii) contains provisions for acceleration of the maturity hereof
upon the happening of certain stated events and also for prepayments on account
of principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
The terms of this Note are subject to amendment only in the manner
provided in the Loan Agreement.
No reference herein to the Loan Agreement and no provision of this Note
or the Loan Agreement shall alter or impair the obligation of Borrower, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the place, at the respective times, and in the currency herein prescribed.
Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note.
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the
laws of the State of California without giving effect to its choice of law
doctrine.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
NOVATEL WIRELESS, INC.
By: ____________________________________
Title: _________________________________
24
26
EXHIBIT C
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., Pacific Time
TO: Venture Banking Group DATE: _______________
FAX #: ▇▇▇-▇▇▇-▇▇▇▇ TIME: _______________
--------------------------------------------------------------------------------
FROM: __________________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY: NOVATEL WIRELESS, INC. __________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: __________________________________________________________
PHONE NUMBER: __________________________________________________________________
FROM ACCOUNT # _________________________ TO ACCOUNT # _________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
$_________________________________________
PRINCIPAL INCREASE (ADVANCE) $_________________________________________
PRINCIPAL PAYMENT (ONLY) $_________________________________________
INTEREST PAYMENT (ONLY) $_________________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________________________________
OTHER INSTRUCTIONS:_____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for an Advance confirmed by this Advance
Request Form; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
-----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
____________________________________________ ____________________________
Authorized Requester Phone #
____________________________________________ ____________________________
Received By (Bank) Phone #
__________________________________
Authorized Signature (Bank)
--------------------------------------------------------------------------------
25
27
EXHIBIT D
BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------
Borrower: Novatel Wireless, Inc., Novatel Wireless Solutions, Inc., Novatel
Wireless Technologies, Ltd.
Commitment Amount: $2,500,000
--------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ___ $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 25% over 90 day accounts $___________
6. Concentration Limits $___________
7. Foreign Accounts $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (70% of #14) $___________
ELIGIBLE INVENTORY (Until January 31, 2000)
16. Inventory Book Value as of _______ $___________
a. Raw materials $___________
b. Finished goods $___________
17. Loan Value of Inventory (40%) of #16, up to $1,000,000) $___________
BALANCES
18. Maximum Loan Amount $2,500,000
19. Total Funds Available [Lesser of (#15 + #17) or #18] $___________
20. Present balance owing on Line of Credit $___________
21. Outstanding under Sublimits (Letters of Credit) $___________
22. RESERVE POSITION (#18 minus #19 and #20) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Venture Banking Group.
NOVATEL WIRELESS, INC.
By: _____________________________
Authorized Signer
26
28
EXHIBIT E
COMPLIANCE CERTIFICATE
TO: VENTURE BANKING GROUP
FROM: NOVATEL WIRELESS, INC.
The undersigned authorized officer of Novatel Wireless, Inc. hereby
certifies in his capacity as an officer of the Borrower that in accordance with
the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the "Agreement"), (i) Borrower is in complete compliance for the period
ending _______________ with all required covenants except as noted below and
(ii) all representations and warranties of Borrower stated in the Agreement are
true and correct in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
Monthly consolidated financial statements Monthly within 20 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10K and 10Q (as applicable) Yes No
A/R & A/P Agings, Borrowing Base Cert. Monthly within 20 days (when Yes No
borrowing)
A/R Audit Initial and Annual Yes No
Quarterly consolidating financial statements Quarterly within 20 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain through January 31, 2000:
Minimum Adjusted Net Worth (monthly) $1,000,000 $_____ Yes No
Profitability/Losses (monthly) <125% of $_____ Yes No
projected
cumulative
monthly losses
Maintain beginning March 31, 2000
Minimum Net Worth (quarterly) $10,000,000 $_____ Yes No
Maximum Total Liabilities to TNW 1.00:1.00 _____:1.00 Yes No
(quarterly)
Minimum Quick Ratio (quarterly) 1.25:1.00 _____:1.00 Yes No
--------------------------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached.
BANK USE ONLY
Received by: _________________________________________
Sincerely, AUTHORIZED SIGNER
Date: ________________________________________________
Verified: ____________________________________________
_________________________________________________ AUTHORIZED SIGNER
SIGNATURE
Date: ________________________________________________
_________________________________________________
TITLE
Compliance Status Yes No
__________________________________________________
DATE
--------------------------------------------------------
27
29
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Section 1.1)
See attached UCC search.
Permitted Investments (Section 1.1)
None.
Permitted Liens (Section 1.1)
See attached search.
Prior Names (Section 5.7)
None.
Litigation (Section 5.8)
None.
Environmental (Section 5.12)
None.
28
30
EXHIBIT F
INTELLECTUAL PROPERTY SECURITY AGREEMENT
1
31
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
October 12, 1999 by and between VENTURE BANKING GROUP, a division of Cupertino
National Bank ("Bank") and NOVATEL WIRELESS, INC. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks and Patents
to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement and any other amounts
owing to Bank from time to time, Grantor grants and pledges to Bank a security
interest in all of Grantor's right, title and interest in, to and under its
Intellectual Property Collateral (including without limitation those Copyrights,
Patents and Trademarks listed on Schedules A, B and C hereto), and including
without limitation all proceeds thereof (such as, by way of example but not by
way of limitation, license royalties and proceeds of infringement suits), the
right to ▇▇▇ for past, present and future infringements, all rights
corresponding thereto throughout the world and all re-issues, divisions
continuations, renewals, extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this Intellectual Property
Security Agreement, the Loan Agreement or any of the other Loan Documents, or
now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Bank, of any or all
other rights, powers or remedies.
1
32
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: NOVATEL WIRELESS INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ By:
-------------------------------------
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇ Title:
----------------------------------
BANK:
VENTURE BANKING GROUP, a division of
Address of Bank: Cupertino National Bank
Three ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ By:
-------------------------------------
Attn: Mr. ▇▇▇▇ ▇▇▇▇▇ Title:
----------------------------------
2
33
EXHIBIT A
Copyrights
Registration/ Registration/
Application Application
Description Number Date
----------- ------ ----
None
34
EXHIBIT B
Patents
Registration/ Registration/
Application Application
Description Number Date
----------- ------ ----
Bus for Cellular Telephone 5,109,402
Duplexing Antenna for Portable Radio 5,231,407
Handheld Power Saving Technique 5,129,098
ESN Secure Cellular Data Transmitter 5,337,345
Controlled Output Amplifier & Power Detector Therefor 4,760,347
R.F. Power Control Circuit 4,952,886
R.F. Power Control Circuit (cont.-in-part) 5,003,270
Power Detector Utilizing Bias Voltage Divider 5,043,672
Factor 2 Wireline Interface 5,526,403
Automatic Power Control for Burst Transmission 5,438,683
35
EXHIBIT C
Trademarks
Registration/ Registration/
Application Application
Description Number Date
----------- ------ ----
MERLIN 75/742,650 07/01/99
36
EXHIBIT G
WARRANT TO PURCHASE STOCK
2
37
THE WARRANT EVIDENCED HEREBY, THE SHARES OF PREFERRED STOCK ISSUABLE HEREUNDER,
AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION OF SUCH SHARES OF
PREFERRED STOCK HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE APPLICABLE SECURITIES LAWS OF ANY
STATE. SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND SHALL NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS THE PROPOSED DISPOSITION IS THE SUBJECT OF A CURRENTLY
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT AND SUCH STATE SECURITIES LAWS
IN CONNECTION WITH SUCH DISPOSITION.
NOVATEL WIRELESS, INC.
PREFERRED STOCK PURCHASE WARRANT
VOID AFTER OCTOBER 12, 2004
THIS STOCK PURCHASE WARRANT IS ISSUED TO
VENTURE BANKING GROUP, A DIVISION OF CUPERTINO NATIONAL BANK
3 ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
(hereinafter called the "initial registered holder" or the "registered holder,"
which term shall include its successors and assigns) by Novatel Wireless, Inc.,
a Delaware corporation (hereinafter referred to as the "Company"). Holder is
entitled to purchase the number of fully paid and nonassessable shares of the
Series C Preferred Stock (the "Shares") of the Company at the initial exercise
price per Share (the "Warrant Price") all as set forth herein and as adjusted
pursuant to this Warrant, subject to the provisions and upon the terms and
conditions set forth of this Warrant. The Warrant shall be exercisable for the
number of Shares equal to $150,000 divided by the Warrant Price. If the Company
on or prior to January 31, 2000 shall close the sale of its Series C Preferred
Stock pursuant to an offering in which the Company receives not less than
Fifteen Million Dollars ($15,000,000) (such round being the "Series C Round"),
the Warrant Price shall be equal to the weighted average of the price per share
at which the Series C Preferred Stock is sold in the Series C Round and the
price per share at which the Series B Preferred Stock was last sold in a bona
fide venture capital round. If the Company does not close the Series C Round on
or prior to January 31, 2000, the Shares shall be Series B Preferred Stock and
the Warrant Price shall be the price per share at which the Series B Preferred
Stock was last sold in a bona fide venture capital round. The holder of this
Warrant is entitled to certain of the benefits conferred by that certain
Registration Rights Agreement, as amended, dated as of August 21, 1996, as
amended (the "Registration Rights Agreement"), a copy of which is on file at the
office of the Company at the address specified below. This Warrant may
38
be transferred by the registered holder only in accordance with the provisions
of Sections 1.4 and 5 hereof. A copy of the Registration Rights Agreement will
be furnished to any subsequent registered holder hereof upon written request.
The Registration Rights Agreement contains an undertaking by the Company under
certain circumstances to effect registration and qualification under federal and
state securities laws of, or to take other action with respect to, the shares of
Common Stock, par value $.001, of the Company ("Common Stock") issuable on
conversion of the Shares issued upon exercise of this Warrant.
Section 1: The Warrant.
1.1 This Warrant may be exercised in full or in part from time to
time. As promptly as practicable after surrender of this Warrant and receipt of
payment of the Warrant Price, the Company shall issue and deliver to the
registered holder a certificate or certificates for the Shares, as applicable,
in certificates of such denominations and in such names as the registered holder
may specify, together with any other stock, securities or property to which such
holder may be entitled to receive pursuant to Sections 1.5(A), 1.5(B) or 1.5(C)
hereof. In the case of the purchase of less than all the shares purchasable
under this Warrant, the Company shall cancel this Warrant upon the surrender
hereof and shall execute and deliver a substitute Warrant of like tenor for the
balance of the shares purchasable hereunder. This Warrant shall expire at 8:00
P.M. (Eastern Standard Time) on October 12, 2004 and shall be void thereafter.
In lieu of exercising this Warrant by cash payment, Holder may from time to time
convert this Warrant, in whole or in part, into a number of Shares determined by
dividing (a) the aggregate fair market value of the Shares or other securities
otherwise issuable upon exercise of this Warrant minus the aggregate Warrant
Price of such Shares by (b) the fair market value of one Share. If the Shares
are traded in a public market, the fair market value of the Shares shall be the
closing price of the Shares (or the closing price of the Company's stock into
which the Shares are convertible) reported for the business day immediately
before Holder delivers its Notice of Exercise to the Company. If the Shares are
not traded in a public market, the Board of Directors of the Company shall
determine fair market value in its reasonable good faith judgment.
1.2 During the period within which the rights represented by this
Warrant may be exercised, the Company shall at all times have authorized and
reserved for the purpose of issue upon exercise of the rights evidenced hereby,
a sufficient number of shares of its Shares and Common Stock issuable upon the
conversion of such Shares to provide for the exercise of such rights. Upon
surrender for exercise, this Warrant shall be canceled and shall not be
reissued; provided, however, that upon the partial exercise hereof a substitute
Warrant representing the rights to subscribe for and purchase any such
unexercised portion hereof shall be issued.
1.3 Subject to compliance with applicable securities laws, this
Warrant may be subdivided into one or more Stock Purchase Warrants entitling the
registered holder to purchase Shares in multiples of one or more whole shares,
upon surrender of this Warrant by the registered holder for such purpose at the
office of the Company.
1.4 The Company shall maintain at its office (or at such other
office or agency of the Company as it may from time to time designate in writing
to the registered holder hereof), a register containing the names and addresses
of the holders of all Stock Purchase Warrants. The
39
registered holder of such a Warrant shall be the person in whose name such
Warrant is originally issued and registered, unless a subsequent holder shall
have presented to the Company such Warrant, duly assigned to him, for inspection
and a written notice of his acquisition of such Warrant and designating in
writing the address of such holder, in which case such subsequent holder of the
Warrant shall become a subsequent registered holder. Any registered holder of
this Warrant may change his address as shown on such register by written notice
to the Company requesting such change. Any written notice required or permitted
to be given to the registered holder of this Warrant shall be mailed, by
registered or certified mail, to such registered holder at his address as shown
on such register.
1.5 The rights of the registered holder shall be subject to the
following terms and conditions:
(A) Adjustments for Certain Dividends and Distributions.
In the event that at any time or from time to time after the date hereof the
Company shall make or issue, or fix a record date for the determination of
holders of Shares entitled to receive, a dividend or other distribution payable
in securities of the Company other than shares of Common Stock, then and in each
such event provision shall be made so that the holders of Stock Purchase
Warrants shall receive upon exercise thereof in addition to the number of Shares
receivable thereupon, the amount of securities of the Company that they would
have received had their Stock Purchase Warrants been exercised for Shares on the
date of such event and had they thereafter, during the period from the date of
such event to and including the exercise date, retained such securities
receivable by them as aforesaid during such period, giving application during
such period to all adjustments called for herein.
(B) Adjustment for Reclassification, Exchange, or
Substitution. In the event that at any time or from time to time after the date
hereof, the Shares issuable upon the exercise of this Warrant shall be changed
into the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
merger, consolidation, or sale of assets provided for below), then and in each
such event the registered holder of this Warrant shall have the right thereafter
to exercise this Warrant for the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification,
or other change, by holders of the number of Shares which such Warrant might
have been exercisable for immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein.
(C) Adjustment for Merger, Consolidation or Sale of
Assets. In the event that at any time or from time to time after the date
hereof, the Company shall sell all or substantially all of its assets or merge
or consolidate with or into another entity, this Warrant shall thereafter be
exercisable for the kind and amount of shares of stock or other securities or
property to which a holder of the number of Shares deliverable upon exercise of
this Warrant would have been entitled to receive upon such consolidation, merger
or sale; and, in such case, appropriate adjustment (as determined in good faith
by the Board of Directors) shall be made in the application of the provisions in
this Section with respect to the rights and interest thereafter of the
registered holders of the Stock Purchase Warrants, to the end that the
provisions set forth in this Section (including provisions with respect to
changes in and other adjustments of the
40
Warrant Price) shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other property thereafter deliverable upon
the exercise of this Warrant.
(D) No Impairment. The Company shall not, by amendment of
its Certificate of Incorporation or By-Laws or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, including, without limitation,
voluntary bankruptcy proceedings, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company but shall at all times in good faith assist in the carrying out of all
the provisions of this Section and in the taking of all such action as may be
necessary or appropriate on order to protect the rights of the registered holder
of this Warrant against impairment.
(E) Notice of Adjustment of the Warrant Price or Number of
Shares. Upon the occurrence of each adjustment, readjustment or other change
relating to the Warrant Price or in the number of Shares into which this Warrant
is exercisable, then, and in each such case, the Company at its expense shall
give written notice thereof, by first class mail, postage prepaid, addressed to
the registered holder at the address of such registered holder as shown on the
books of the Company, which notice shall state the Warrant Price resulting from
such adjustment and the increase or decrease in the number of Shares (or other
denominations of securities) purchasable at the Warrant Price upon the exercise
of this Warrant setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
(F) Notice. In case at any time: (1) the Company shall pay
any dividend or make any distribution (other than regular cash dividends from
earnings or earned surplus paid at an established rate) to the holders of its
Shares; (2) the Company shall offer for subscription pro rata to the holders of
its Shares any additional shares of stock of any class or other rights; (3)
there shall be any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with or sale of
all or substantially all of its assets to another corporation; or (4) there
shall be a voluntary or involuntary dissolution, liquidation or winding up of
the Company; then, in any one or more of such cases, the Company shall give
written notice, by first class mail, postage prepaid, addressed to the
registered holder at the address of such registered holder as shown on the books
of the Company of the date on which (a) the books of the Company shall close or
a record date shall be fixed for determining the shareholders entitled to such
dividend, distribution or subscription rights, or (b) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also provide
reasonable details of the proposed transaction and specify the date as of which
the holders of Shares of record shall participate in such dividend, distribution
or subscription rights, or shall be entitled to exchange their Shares for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least 20
days prior to the action in question and not less than 20 days prior to the
record date or the date on which the Company's transfer books are closed in
respect thereto.
(G) Voting Rights. This Warrant shall not entitle the
registered holder to any voting rights or any other rights as a stockholder of
the Company but upon presentation of this Warrant with the subscription form
annexed duly executed and the tender of payment of the
41
Warrant Price at the office of the Company pursuant to the provisions of this
Warrant the registered holder shall forthwith be deemed a stockholder of the
Company in respect of the Shares so subscribed and paid for.
(H) No Change Necessary. The form of this Warrant need not
be changed because of any adjustment in the Warrant Price or in the number of
Shares issuable upon its exercise. A Warrant issued after any adjustment on any
partial exercise or upon replacement may continue to express the same Warrant
Price and the same number of Shares (appropriately reduced in the case of
partial exercise) as are stated on this Warrant as initially issued, and that
Warrant Price and that number of shares shall be considered to have been so
changed as of the close of business on the date of adjustment.
Section 2: Covenant of the Company. All Shares and shares of Common
Stock issuable upon conversion of the Shares which may be issued upon the
exercise of the rights represented by this Warrant, shall, upon issuance, be
duly authorized, validly issued, fully paid and non-assessable and free from all
taxes, liens and charges with respect to the issue thereof.
Section 3: Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant. If, upon
exercise of this Warrant as an entirety, the registered holder would, except for
the provisions of this Section 3, be entitled to receive a fractional Share,
then the Company shall pay in cash to such registered holder an amount equal to
such fractional share multiplied by the fair market value of one such Share (as
reasonably determined by the Board of Directors of the Company) on the date of
such exercise.
Section 4: Substitution. In case this Warrant shall be mutilated, lost,
stolen or destroyed, the Company will issue a new Warrant of like tenor and
denomination and deliver the same (a) in exchange and substitution for and upon
surrender and cancellation of any mutilated Warrant, or (b) in lieu of any
Warrant lost, stolen or destroyed, upon receipt of evidence satisfactory to the
Company of the loss, theft, or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction), and of indemnity (or, in the case of the initial holder
or any other institutional holder, an indemnity agreement) satisfactory to the
Company.
Section 5: Transfer Restrictions. This Warrant, the Shares or the shares
of Common Stock issuable upon conversion of the Shares shall not be sold,
transferred, pledged or hypothecated unless the proposed disposition is the
subject of a currently effective registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), or unless the Company has received
an opinion of counsel reasonably satisfactory in form and scope to the Company
that such registration is not required except that such restrictions shall not
apply to any transfer of this Warrant, the Shares or the shares of Common Stock
issuable upon conversion of the Shares: (i) to a partner or other affiliate of
the registered holder, including any entity of which the registered holder or a
related entity is a General Partner; (ii) by gift or bequest or through
inheritance to, or for the benefit of, any member or members of the registered
holder's immediate family; (iii) by a registered holder to a trust (a) in
respect of which the registered holder serves as trustee, provided that the
trust instrument governing such trust shall provide that the registered holder,
as trustee, shall retain sole and exclusive control over the voting and
disposition of such Warrant until the termination of this Warrant or (b) for the
benefit solely of
42
any member or members of the registered holder's immediate family; and (iv)
pursuant to any underwritten public offering of Common Stock pursuant to an
effective registration statement under the Securities Act.
Section 6: Remedies. The Company stipulates that the remedies at law of
the registered holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 7: Taxes. The Company shall pay any taxes or other charges that
may be imposed in respect of the issuance and delivery of the Warrant or any of
the Shares or other property upon exercise hereof.
Section 8: Governing Law. This Warrant shall be deemed a contract made
under the laws of the State of Delaware and its provisions and the rights and
obligations of the parties hereunder shall be governed by, and construed and
enforced in accordance with, the substantive laws of the State of Delaware,
without regard to its principles of conflicts of laws.
Section 9: Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.
****
43
IN WITNESS WHEREOF, the Company has caused this Preferred Stock Purchase Warrant
to be signed by its Chief Executive Officer thereunto duly authorized and its
corporate seal to be hereunto affixed and attested by its Secretary this ___ day
of _______, 1999.
ATTEST: NOVATEL WIRELESS, INC.
By: By:
------------------------------- -------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇ ▇▇▇▇▇
Its: Secretary Its: Chief Executive Officer
44
SUBSCRIPTION FORM
The undersigned, the registered holder of the within Preferred Stock
Purchase Warrant, hereby irrevocably elects to exercise the purchase right
represented by such Warrant for, and to purchase thereunder, ________ shares of
Preferred Stock of Novatel Wireless, Inc., and herewith makes payment of
$___________ therefor and requests that the certificates representing such
shares be issued in the name of and delivered to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
and if such shares shall not include all of the shares issuable under this
Warrant, that a new Warrant of like tenor and date be delivered to the
undersigned for the shares not issued.
Dated:
------------------------ -----------------------------------
Signature
45
FORM OF ASSIGNMENT
For value received the undersigned hereby sells, assigns and transfers unto
_________________________________ whose address is______________________________
________________________________________________________________________________
________________________________________________________________, the within
Preferred Stock Purchase Warrant with respect to ____________ shares purchasable
thereby, and does hereby irrevocably constitute and appoint
_____________________________________ attorney to transfer such Warrant on the
books of the within named corporation with full power of substitution in the
premises.
Dated:
-----------------------------
In the presence of:
----------------------------------- -----------------------------------
Signature
46
EXHIBIT H
SUBORDINATION AGREEMENT
3
47
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of October 12, 1999, by and
between ARGO GLOBAL CAPITAL, INC., for itself and on behalf of the Investors, as
defined below ("Creditor") and VENTURE BANKING GROUP, a division of Cupertino
National Bank ("Bank").
Recitals
A. Novatel Wireless, Inc. ("Borrower") has requested and/or obtained
certain loans or other credit accommodations from Bank to Borrower which are or
may be from time to time secured by assets and property of Borrower.
B. Creditor is the Agent for certain Investors pursuant to a Security
Agreement and Stock Pledge dated as of June 15, 1999 between Creditor and
Borrower pursuant to which Borrower granted Agent, as agent for the Investors, a
security interest in substantially all of Borrower's property. Such security
interest secures payment and other obligations owed by Borrower to Agent and
Investors under certain Convertible Subordinated Debentures (the "Debentures")
issued pursuant to a certain Unit Purchase Agreement (the "NWI Purchase
Agreement") and under a certain Guaranty (the "Guaranty") by Borrower for the
benefit of Working Ventures Canadian Fund Inc.("Working Ventures").
C. Bank and Borrower are parties to a Loan and Security Agreement of even
date, as amended from time to time (the "Loan Agreement"). Borrower's
obligations under the Loan Agreement are guaranteed pursuant to Unconditional
Guarantees by each of Borrower's wholly-owned subsidiaries.
D. In order to induce Bank to extend credit to Borrower and, at any time
or from time to time, at Bank's option, to make such further loans, extensions
of credit, or other accommodations to or for the account of Borrower, or to
purchase or extend credit upon any instrument or writing in respect of which
Borrower may be liable in any capacity, or to grant such renewals or extension
of any such loan, extension of credit, purchase, or other accommodation as Bank
may deem advisable, Creditor, for itself and on behalf of Investors, is willing
to subordinate: (i) all of Borrower's indebtedness and obligations to Investors
and Creditor, whether presently existing or arising in the future (the
"Subordinated Debt"), up to a principal amount of $5,000,000 of Borrower's
indebtedness and obligations to Bank; and (ii) all of the security interests of
Creditor and Investors, if any, to all of Bank's security interests in the
Borrower's property.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or lien that
Creditor may have in any property of Borrower, Novatel Wireless Solutions, Inc.,
or Novatel Wireless Technology Ltd. (such entities are sometimes referred to
herein as a "Loan Party" or collectively, the "Loan Parties"). Notwithstanding
the respective dates of attachment or perfection of the security interest of
Creditor and the security interest of Bank, the security interest of Bank in the
Collateral, as defined in the Loan Agreement and each other security agreement
between Bank and each Loan Party, shall at all times be prior to the security
interest of Creditor.
2. All Subordinated Debt is subordinated in right of payment to all
obligations of the Loan Parties to Bank now existing or hereafter arising in a
principal amount not to exceed $5,000,000, together with all costs of collecting
such obligations (including attorneys' fees), including, without limitation, all
interest accruing after the commencement by or against any Loan Party of any
bankruptcy, reorganization or similar proceeding, and all obligations under the
Loan Agreement (the "Senior Debt").
3. Except as otherwise permitted in this Section 3, Creditor will not
demand or receive from a Loan Party (and no Loan Party will pay to Creditor) all
or any part of the Subordinated Debt, by way of payment, prepayment, setoff,
lawsuit or otherwise, nor will Creditor exercise any remedy with respect to the
Collateral, nor will Creditor commence, or cause to commence, prosecute or
participate in any administrative, legal or equitable action against a Loan
Party, for so long as any portion of the Senior Debt remains outstanding.
Subject to the next sentence, Creditor shall not demand or receive from a Loan
Party any principal payment under the Subordinated Debt until the Revolving
Maturity Date, as defined in the Loan Agreement. Upon (i) the occurrence and
continuation of an Event of Default relating to the Senior Debt and (ii) written
notice thereof to Creditor from Bank
48
(a "Payment Blockage Notice"), Creditor may not exercise any remedy nor receive
any payment with respect to the Subordinated Debt for any period (a "Payment
Blockage Period") commencing on the date of the Payment Blockage Notice and
ending on the earliest to occur of the following events: (i) such Event of
Default has been cured or has been waived by Bank in writing; (ii) 180 days have
passed from the date of such Payment Blockage Notice, unless at the expiration
of such period the Senior Debt shall have been accelerated or any judicial
proceeding shall be pending that stays or prevents the acceleration of the
Senior Debt or the exercise of Bank's remedies in connection therewith, or (iii)
such Senior Debt has been discharged or paid in full and Bank's commitment, if
any, with respect thereto has been terminated, immediately after which Creditor
may exercise such remedies and Borrower may make all required payments in
respect of the Subordinated Debt. Notwithstanding the foregoing, Creditor shall
be entitled to receive each regularly scheduled payment of interest that
constitutes Subordinated Debt, provided that an Event of Default (as defined in
the Loan Agreement) has not occurred or would not exist after giving effect to
such payment. Notwithstanding any other provisions hereof, Creditor and
Investors may at any time (i) convert the Debentures into Borrower's equity
securities in accordance with the terms of the Debentures and the NWI Purchase
Agreement, and (ii) receive dividends and other distributions made to Borrower's
shareholders in accordance with Borrower's Certificate of Incorporation, as
amended from time to time, to the extent such dividends and distributions are
permitted under the Loan Agreement.
4. Creditor shall promptly deliver to Bank in the form received (except
for endorsement or assignment by Creditor where required by Bank) for
application to the Senior Debt any payment, distribution, security or proceeds
received by Creditor with respect to the Subordinated Debt other than in
accordance with this Agreement.
5. In the event of a Loan Party's insolvency, reorganization or any case
or proceeding under any bankruptcy or insolvency law or laws relating to the
relief of debtors, these provisions shall remain in full force and effect, and
Bank's claims against such Loan Party and the estate of such Loan Party shall be
paid in full before any payment is made to Creditor.
6. No amendment of the documents evidencing or relating to the
Subordinated Debt shall directly or indirectly modify the provisions of this
Agreement in any manner which might terminate or impair the subordination of the
Subordinated Debt or the subordination of the security interest or lien that
Creditor may have in any property of any Loan Party. By way of example, such
instruments shall not be amended to (i) increase the rate of interest with
respect to the Subordinated Debt, or (ii) accelerate the payment of the
principal or interest or any other portion of the Subordinated Debt.
7. This Agreement shall remain effective for so long as any Loan Party
owes any amounts to Bank under the Loan Agreement or otherwise. Subject to
Section 5, upon satisfaction of all Obligations, as defined in the Loan
Agreement, or the conversion of all the Subordinated Debt into equity securities
of Borrower, this Agreement shall terminate. Notwithstanding the foregoing, if
at any time after payment in full of the Senior Debt any payments of the Senior
Debt must be disgorged by Bank for any reason (including, without limitation,
the bankruptcy of Borrower), this Agreement and the relative rights and
priorities set forth herein shall be reinstated as to all such disgorged
payments as though such payments had not been made and Creditor shall
immediately pay over to Bank all payments received with respect to the
Subordinated Debt to the extent that such payments would have been prohibited
hereunder. At any time and from time to time, without notice to Creditor, Bank
may take such actions with respect to the Senior Debt as Bank, in its sole
discretion, may deem appropriate, including, without limitation, terminating
advances to Borrower, increasing the principal amount, extending the time of
payment, increasing applicable interest rates, renewing, compromising or
otherwise amending the terms of any documents affecting the Senior Debt and any
collateral securing the Senior Debt, and enforcing or failing to enforce any
rights against any Loan Party or any other person. No such action or inaction
shall impair or otherwise affect Bank's rights hereunder. Creditor waives the
benefits, if any, of Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848,
2849, 2850, 2899 and 3433.
8. This Agreement shall bind any successors or assignees of Creditor and
shall benefit any successors or assigns of Bank. This Agreement is solely for
the benefit of Creditor and Bank and not for the benefit of any Loan Party or
any other party. Creditor further agrees that if Borrower is in the process of
refinancing a portion of the Senior Debt with a new lender, and if Bank makes a
request of Creditor, Creditor shall agree to enter into a new subordination
agreement with the new lender on substantially the terms and conditions of this
Agreement.
2
49
9. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
instrument.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to conflicts of laws
principles. Creditor and Bank submit to the exclusive jurisdiction of the state
and federal courts located in Santa ▇▇▇▇▇ County, California. CREDITOR AND BANK
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN.
11. This Agreement represents the entire agreement with respect to the
subject matter hereof, and supersedes all prior negotiations, agreements and
commitments. Creditor is not relying on any representations by Bank or any Loan
Party in entering into this Agreement, and Creditor has kept and will continue
to keep itself fully apprised of the financial and other condition of Borrower.
This Agreement may be amended only by written instrument signed by Creditor and
Bank.
12. In the event of any legal action to enforce the rights of a party
under this Agreement, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in such action.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
3
50
"Creditor" "Bank"
ARGO GLOBAL CAPITAL INC. VENTURE BANKING GROUP, A DIVISION OF
CUPERTINO NATIONAL BANK
By:
----------------------------------
Title:
-------------------------------
By:
-------------------------------------
Title:
----------------------------------
The undersigned approves of the terms
of this Agreement.
"Borrower"
NOVATEL WIRELESS, INC.
By:
-------------------------------------
Title:
----------------------------------
NOVATEL WIRELESS TECHNOLOGY, LTD.
By:
-------------------------------------
Title:
----------------------------------
NOVATEL WIRELESS SOLUTIONS, INC.
By:
-------------------------------------
Title:
-------------------------------------
4
51
CORPORATE RESOLUTIONS TO BORROW
--------------------------------------------------------------------------------
BORROWER: Novatel Wireless, Inc.
--------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Novatel Wireless,
Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true
and complete copies of the Certificate of Incorporation, as amended, and the
Bylaws of the Corporation, each of which is in full force and effect on the date
hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITION ACTUAL SIGNATURES
----- -------- -----------------
________________________ ________________________ ________________________
________________________ ________________________ ________________________
________________________ ________________________ ________________________
________________________ ________________________ ________________________
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Venture Banking Group, a
division of Cupertino National Bank ("Bank"), on such terms as may be agreed
upon between the officers, employees, or agents and Bank, such sum or sums of
money as in their judgment should be borrowed, without limitation, including
such sums as are specified in that certain Loan and Security Agreement dated as
of October 12, 1999 (the "Loan Agreement").
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the Loan
Agreement and any other agreement entered into between Borrower and Bank in
connection with the Loan Agreement, all as amended or extended from time to time
(collectively, with the Loan Agreement, the "Loan Documents"), and also to
execute and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for the Loan Documents, or any
portion thereof.
GRANT SECURITY; ISSUE WARRANTS. To grant a security interest to Bank in
the Collateral described in the Loan Documents, which security interest shall
secure all of the Corporation's Obligations, as described in the Loan Documents,
and to issue to Bank a warrant to purchase the Corporation's capital stock.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letters of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to
these resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full force
and effect and Bank
4
52
may rely on these Resolutions until written notice of their revocation shall
have been delivered to and received by Bank. Any such notice shall not affect
any of the Corporation's agreements or commitments in effect at the time notice
is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on _______________, 1999
and attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED AND ATTESTED BY:
X_______________________________________
--------------------------------------------------------------------------------
5
53
AGREEMENT TO PROVIDE INSURANCE
TO: VENTURE BANKING GROUP Date: October 12, ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Borrower: Novatel Wireless, Inc.
In consideration of a loan in the amount of $2,500,000, secured by all
tangible personal property including inventory and equipment.
I/We agree to obtain adequate insurance coverage to remain in force
during the term of the loan.
I/We also agree to advise the below named agent to add Venture Banking
Group, a division of Cupertino National Bank as lender's loss payable on the new
or existing insurance policy, and to furnish Bank at above address with a copy
of said policy/endorsements and any subsequent renewal policies.
I/We understand that the policy must contain:
1. Fire and extended coverage in an amount sufficient to cover:
(a) The amount of the loan, OR
(b) All existing encumbrances, whichever is greater,
But not in excess of the replacement value of the improvements on the
real property.
2. Lender's "Loss Payable" Endorsement Form 438 BFU in favor of Venture
Banking Group, a division of Cupertino National Bank, or any other form
acceptable to Bank.
INSURANCE INFORMATION
Insurance Co./Agent Telephone No.:
Agent's Address:
Signature of Obligor: _______________________
Signature of Obligor: _______________________
--------------------------------------------------------------------------------
---------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION: Date: _________________________
Person Spoken to: _____________________________________
Policy Number: ________________________________________
Effective From: ______ To: ____________________________
Verified by: __________________________________________
---------------------------------------------------------
54
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement, is entered into as of
November 9, 1999, (the "Amendment"), by and between Venture Banking Group, a
division of Cupertino National Bank ("Bank") and Novatel Wireless, Inc.
("Borrower"). Capitalized terms used herein without definition shall have the
same meanings as is given to them in the Agreement (defined below).
RECITALS
A. The Borrower and the Bank have entered into that certain Loan and
Security Agreement dated as of October 12, 1999, (as amended or modified from
time to time, the "Agreement") pursuant to which the Bank has agreed to extend
and make available to the Borrower certain advances of money.
B. Borrower has disclosed to Bank a breach of Section 6.11, entitled Net
Worth as of fiscal month ending October 31, 1999, the Borrower desires that the
Bank amend the Loan Agreement upon the terms and conditions more fully set
forth herein.
C. Subject to the representations and warranties of the Borrower herein
and upon the terms and conditions set forth in this Amendment, the Bank is
willing to amend the Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and intending
to be legally bound, the parties hereto agree as follows:
SECTION 1. THE BORROWER'S REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants that:
(a) the execution, delivery, and performance of the Loan Documents
are within Borrower's powers, have been duly authorized, and are not in
conflict with nor constitute a breach of any provision contained in Borrower's
Amended and Restated Articles of Incorporation or Bylaws, nor will they
constitute an event of default under any material agreement to which Borrower
is a party or by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect; and
(b) immediately before and immediately after giving effect to this
Amendment, no event shall have occurred and be continuing which constitutes an
Event of Default that has not be disclosed to Bank.
SECTION 2. AMENDMENTS TO THE LOAN AND SECURITY AGREEMENT.
2.1 Bank hereby waives Borrower's breach of Section 6.11, entitled
Net Worth as of fiscal month ending October 31, 1999. Any further breach of
this covenant is not waived.
Except as waived hereby, the Agreement, as the same may have previously
been waived, shall remain unaltered and in full force and effect. This
Amendment shall not be a waiver of any existing default or breach of a covenant
unless specified herein.
SECTION 3. LIMITATION. The amendments and waivers set forth in this
Amendment shall be limited precisely as written and shall not be deemed (a) to
be a modification of any other term or condition of the Agreement or of any
other instrument or agreement referred to therein or to prejudice any right or
remedy which the Bank may now have or may have in the future under or in
connection with the Agreement or any instrument or agreement referred to
therein; or (b) to be a consent to any future amendment or waiver to any
instrument or agreement the execution and delivery of which is consented to
1
55
hereby, or to any waiver of any of the provisions thereof. Except as expressly
amended hereby, the Agreement shall continue in full force and effect.
SECTION 4. EFFECTIVENESS. This Amendment shall become effective upon:
(1) The execution and delivery of a copy hereof by Borrower to
the Bank;
(2) The execution and delivery of a certificate of the Secretary
of Borrower with respect to incumbency and resolutions authorizing the
execution and delivery of this Amendment;
(3) The payment of the amendment fee in the amount of One
Thousand Dollars ($1,000) by Borrower to the Bank; and
(4) Bank shall have received, in form and substance satisfactory
to Bank, such other documents, and completion of such other matters, as Bank
may reasonably deem necessary or appropriate.
SECTION 5. RELEASE AND WAIVER. BORROWER HEREBY REPRESENTS AND WARRANTS
TO THE BANK THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM,
COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF, AND HEREBY RELEASES BANK FROM ALL
LIABILITY ARISING UNDER OR WITH RESPECT TO AND WAIVES ANY AND ALL CLAIMS,
COUNTERCLAIMS, DEFENSES AND RIGHTS OF SET-OFF, AT LAW OR IN EQUITY, THAT
BORROWER MAY HAVE AGAINST BANK EXISTING AS OF THE DATE OF THIS AMENDMENT
ARISING UNDER OR RELATED TO THIS AMENDMENT, THE AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR TO ANY ACT OR
OMISSION TO ACT BY THE BANK WITH RESPECT HERETO OR THERETO.
SECTION 6. COUNTERPARTS. This Amendment may be signed in any number
of counterparts, and by different parties hereto in separate counterparts, with
the same effect as if the signatures to each such counterpart were upon a
single instrument. All counterparts shall be deemed an original of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BORROWER NOVATEL WIRELESS, INC.
By: [SIGNATURE ILLEGIBLE]
------------------------------------
Title: VP/CFO
---------------------------------
BANK VENTURE BANKING GROUP, a division of
Cupertino National Bank
By: [SIGNATURE ILLEGIBLE]
------------------------------------
Title: Vice President
---------------------------------
2
56
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement is entered into as of
July 13, 2000, (the "Amendment"), by and between Venture Banking Group, a
division of Cupertino National Bank ("Bank") and Novatel Wireless, Inc.
("Borrower"). Capitalized terms used herein without definition shall have the
same meanings as is given to them in the Agreement (defined below).
RECITALS
A. The Borrower and the Bank have entered into that certain Loan and
Security Agreement dated as of October 12, 1999, (as amended or modified from
time to time, the "Agreement") pursuant to which the Bank has agreed to extend
and make available to the Borrower certain advances of money.
B. Borrower has disclosed to Bank (i) a breach of Section 6.10, entitled
Profitability as of fiscal year ending December 31, 1999 and (ii) a breach of
Sections 6.9, 6.10, 6.11, and 6.12 entitled Quick Ratio, Profitability, Net
Worth, and Total Liabilities-Tangible Net Worth, respectively, as of fiscal
quarter ending March 31, 2000. The Borrower desires that the Bank amend the
Loan Agreement upon the terms and conditions more fully set forth herein.
C. Subject to the representations and warranties of the Borrower herein
and upon the terms and conditions set forth in this Amendment, the Bank is
willing to amend the Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and intending
to be legally bound, the parties hereto agree as follows:
SECTION 1. THE BORROWER'S REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants that:
(a) the execution, delivery, and performance of the Loan Documents
are within Borrower's powers, have been duly authorized, and are not in
conflict with nor constitute a breach of any provision contained in Borrower's
Amended and Restated Articles of Incorporation or Bylaws, nor will they
constitute an event of default under any material agreement to which Borrower
is a party or by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect; and
(b) Immediately before and immediately after giving effect to this
Amendment, no event shall have occurred and be continuing which constitutes an
Event of Default that has not be disclosed to Bank.
SECTION 2. AMENDMENTS TO THE LOAN AND SECURITY AGREEMENT.
2.1 Bank hereby waives (i) Borrower's breach of Section 6.10,
entitled Profitability as of fiscal year ending December 31, 1999 and (ii)
Borrower's breach of Sections 6.9, 6.10, 6.11, and 6.12 entitled Quick Ratio,
Profitability, Net Worth, and Total Liabilities-Tangible Net Worth,
respectively, as of fiscal quarter ending March 31, 2000. Any further breach of
this covenant is not waived.
Except as waived hereby, the Agreement, as the same may have previously
been waived, shall remain unaltered and in full force and effect. This
Amendment shall not be a waiver of any existing default or breach of a covenant
unless specified herein.
SECTION 3. LIMITATION. The amendments and waivers set forth in this
Amendment shall be limited precisely as written and shall not be deemed (a) to
be a modification of any other term or condition
1
57
of the Agreement or of any other instrument or agreement referred to therein or
to prejudice any right or remedy which the Bank may now have or may have in the
future under or in connection with the Agreement or any instrument or agreement
referred to therein; or (b) to be a consent to any future amendment or waiver
to any instrument or agreement the execution and delivery of which is consented
to hereby, or to any waiver of any of the provisions thereof. Except as
expressly amended hereby, the Agreement shall continue in full force and effect.
SECTION 4. EFFECTIVENESS. This Amendment shall become effective upon:
(1) The execution and delivery of a copy hereof by Borrower to
the Bank; and
(2) Bank shall have received, in form and substance
satisfactory to Bank, such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
SECTION 5. RELEASE AND WAIVER. BORROWER HEREBY REPRESENTS AND WARRANTS
TO THE BANK THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM,
COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF, AND HEREBY RELEASES BANK FROM ALL
LIABILITY ARISING UNDER OR WITH RESPECT TO AND WAIVES ANY AND ALL CLAIMS,
COUNTERCLAIMS, DEFENSES AND RIGHTS OF SET-OFF, AT LAW OR IN EQUITY, THAT
BORROWER MAY HAVE AGAINST BANK EXISTING AS OF THE DATE OF THIS AMENDMENT
ARISING UNDER OR RELATED TO THIS AMENDMENT, THE AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR TO ANY ACT OR
OMISSION TO ACT BY THE BANK WITH RESPECT HERETO OR THERETO.
SECTION 6. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with
the same effect as if the signatures to each such counterpart were upon a
single instrument. All counterparts shall be deemed an original of this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BORROWER NOVATEL WIRELESS, INC.
BY: /s/ [Signature Illegible]
-------------------------------
Title: VP & CFO
-------------------------------
BANK VENTURE BANKING GROUP, a division of
Cupertino National Bank
By: /s/
-------------------------------
Title: Vice President
-------------------------------
2