EXHIBIT 4.2
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR STATE SECURITIES LAWS AND NO TRANSFER OF
THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND THE RULES AND REGULATIONS THEREUNDER AND OF ALL
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS, OR (B) PURSUANT TO AN EXEMPTION
THEREFROM UNDER SAID ACT AND ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS
WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A SATISFACTORY
OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE
REQUIREMENTS OF THE ACT.
FORM OF NOVATEL WIRELESS, INC.
SECURED CONVERTIBLE SUBORDINATED NOTE
$[_______] March 12, 2003
San Diego, California
FOR VALUE RECEIVED, the undersigned, NOVATEL WIRELESS, INC., a Delaware
corporation (the "Company"), hereby promises to pay to [_______] ("Holder") at
such place as Holder shall hereafter direct by notice in writing to the Company,
the principal sum of [_______] ($[_______]) or such greater or lesser principal
amount as is then currently outstanding, in such coin or currency of the United
States of America as at the time shall be legal tender for the payment of public
and private debts, plus interest thereon at the rate provided for herein from
the date hereof, with principal and interest payable as herein provided. At
Holder's request, such payment (if required to be in cash under the terms of
this Note) shall be by wire transfer in immediately available funds to an
account to be specified by Holder.
1. Loan, Interest Rate; Payment Provisions; Increase to Principal.
1.1 This Note is issued pursuant to the Securities Purchase
Agreement, of even date herewith (the "Purchase Agreement"), among the Company,
the Holder and the other parties thereto. This Note is one of the Tranche I
Notes (as defined in the Purchase Agreement).
1.2 The principal amount of this Note outstanding from time to
time shall bear interest from the date hereof through the Maturity Date (as
hereinafter defined), at a rate (the "Note Rate") equal to eight percent (8%)
per annum.
1.3 Interest on this Note shall be computed on the basis of a
360-day year of twelve 30-day months. Unless previously paid or converted
pursuant to the terms of Sections 3.1 or 3.2 herein, all unpaid interest and
principal on this Note shall be paid in full on the Maturity Date.
1.4 All payments made by the Company on this Note shall be applied
first to the payment of accrued, but unpaid interest on this Note and then to
the reduction of the unpaid principal balance of this Note.
1.5 Unless converted pursuant to Section 3.2 herein, if payment of
the principal amount of this Note, together with accrued unpaid interest thereon
at the Note Rate, is not paid on the Maturity Date or when otherwise due, or if
any payment of interest is not paid when due, then interest shall accrue on such
unpaid amount at the Note Rate plus four percent (4%) from and after such date
of default to the date of the payment in full of such unpaid amount (including
from and after the date of the entry of judgment in favor of Holder in an action
to collect this Note). Any amount repaid under this Note may not be reborrowed.
1.6 In no event shall Holder be entitled to receive interest at an
effective rate in excess of the maximum rate permitted by law.
1.7 In the event the date for the payment of any amount payable
under this Note falls due on a Saturday, Sunday or public holiday under the laws
of the State of California, the time for payment of such amount shall be
extended to the next succeeding business day and interest at the Note Rate shall
continue to accrue on any principal amount so effected until the payment thereof
on such extended due date.
1.8 Capitalized terms used herein shall, unless otherwise defined
herein, have the meanings assigned thereto in the Purchase Agreement. For
purposes of this Agreement the following terms shall have the following
meanings:
1.8.1 "Maturity Date" means the earliest of (i) March 12,
2005, or (ii) the date on which this Note is otherwise due pursuant to
Section 3.1 or 5.
1.8.2 "Note" means this Secured Convertible Subordinated
Note.
1.8.3 "Tranche I Holders" means the holders of the Tranche
I Notes, including the Holder.
1.9 The Tranche I Holders have the right, at their election, to
make payments to Sanmina-SCI Corporation ("Sanmina") in order to continue the
Company's ability to defer payments to Sanmina beyond August 1, 2003 (at a rate
of $150,000 per month of extension), as contemplated by the letter agreement
between certain investors in the Company and Sanmina of even date herewith (the
"Sanmina Extension Payments"), which such Sanmina Extension Payments shall
reduce the Company's aggregate obligation to Sanmina under the Settlement
Agreement and Mutual Release, dated January 12, 2002, as amended. In the event
that Holder makes any Sanmina Extension Payments, the principal balance of this
Note shall be increased by the amount of such payments.
2. Replacement of Note. In case this Note is mutilated, destroyed, lost or
stolen, the Company shall, at its sole expense, execute and deliver a new Note,
in exchange and substitution for this Note. In the case of destruction, loss or
theft, Holder shall furnish to the Company indemnity reasonably satisfactory to
the Company, and in any such case, and in the case of mutilation, Holder shall
also furnish to the Company evidence to its reasonable
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satisfaction of the mutilation, destruction, loss or theft of this Note and of
the ownership thereof. Any replacement Note so issued shall be in the same
outstanding principal amount as this Note and dated the date of this Note.
3. Repayment, Conversion and Security.
3.1 The Agent may, at its option, require repayment of all or any
portion of (i) the entire principal amount of, and (ii) all accrued interest on,
this Note and all of the other Tranche I Notes, to the extent then outstanding
and unpaid at any time following the occurrence of any of the following events:
3.1.1 in the event that prior to the Third Closing Date,
the Company receives financing (other than non-convertible debt or as
proceeds as a consequence of any exercise of common stock purchase
warrants outstanding as of the date hereof) from any third party, with
such repayment to occur concurrently with the closing of such
financing, and from and to the extent of the proceeds of such
financing; provided, however, the Holder, may, at its option, convert
all or any portion of the outstanding principal and accrued interest of
this Note into any equity securities issued in connection with such
financing, on the same terms as the other investors in such financing,
instead of requiring repayment of the entire principal amount and all
accrued interest on the Note;
3.1.2 in the event that the Purchase Agreement terminates,
other than by reason of the Purchasers' material breach, prior to the
Third Closing Date, with such repayment to occur within sixty (60) days
of such termination date; or
3.1.3 in the event that, for any reason other than the
Purchasers' material breach, the Third Closing does not occur on or
before the Expiration Date, with such repayment to occur within sixty
(60) days of such date.
Such payment shall be made in cash; provided, however, that at Holder's
election, a portion of such payment (in an amount to be designated by Holder)
shall be effected by the issuance to Holder of that number of shares of the
Company's common stock equal to the amount of the accelerated portion of the
remaining balance divided by Seventy Cents ($0.70) (such figure shall be
adjusted appropriately to reflect any stock dividends, stock splits, reverse
stock splits, combinations, reorganizations or similar transactions affecting
the Common Stock); provided, further, that, the total number of shares of Common
Stock issuable to the Tranche I Holders in the aggregate pursuant to Section 3.1
of each of the Tranche I Notes, together with the total number of shares
issuable upon exercise of the warrants granted to Purchasers on the date of this
Note, shall not exceed 1,396,964 shares of Common Stock.
3.2 Notwithstanding anything to the contrary herein, at the Third
Closing, the Note, to the extent not repaid pursuant to Section 3.1 above, shall
automatically (and without the need for any further action by any party) convert
into a number of shares of Series B Preferred Stock equal to (i) the total
amount of principal outstanding and accrued, unpaid interest under the Note as
of the Third Closing Date divided by (ii) $1,000.
3.3 This Note shall be secured by a lien on all of the assets and
property of the Company (subordinate to the rights of Silicon Valley Bank and
Sanmina-SCI Corporation
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("Sanmina") as set forth in Section 7 below) pursuant to the terms of a Security
Agreement (the "Security Agreement"), dated as the date hereof, between the
Company and the Agent (for the benefit of the Tranche I Holders).
3.4 Other than as set forth in Section 3.5, this Note shall not be
prepaid.
3.5 Nothwithstanding Section 3.4, if the Agent submits a written
request to the Company stating that the Holder wishes to make a Sanmina
Extension Payment, then within 5 days of receipt of Agent's request, the Company
shall pre-pay a portion of the balance of this Note, in cash, in an amount
sufficient for the Holder to make such Sanmina Extension Payment.
4. Covenants of the Company. The Company covenants and agrees that, so
long as this Note remains outstanding and unpaid, in whole or in part:
4.1 The Company will faithfully and in all material respects
perform all of its covenants and agreements under the Security Agreement and the
Purchase Agreement and the Company will not make any loan to any person who is
or becomes a shareholder of the Company, other than for reasonable advances for
expenses in the ordinary course of business.
4.2 The Company will promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon it or upon its
income and profits, or upon any of its property, before the same shall become in
default; provided, however, that the Company shall not be required to pay and
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
the Company, shall set aside on its books adequate reserves with respect to any
such tax, assessment, charge, levy or claim so contested.
4.3 The Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence, rights
and franchises and comply with all laws applicable to the Company as its legal
counsel may advise.
4.4 The Company will, except for the effects of reasonable wear
and tear in the ordinary course of business, at all times maintain, preserve,
protect and keep its property used or useful in the conduct of its business in
good repair, working order and condition, and from time to time make all needful
and proper repairs, renewals, replacements, betterments and improvements
thereto.
4.5 The Company will keep adequately insured, by financially sound
reputable insurers, all property of a character usually insured by similar
entities and carry such other insurance as is usually carried by similar
entities.
4.6 The Company will, promptly following its obtaining knowledge
of the occurrence of an Event of Default or of any condition or event which,
with the giving of notice or the lapse of time or both, would constitute an
Event of Default, furnish a statement of the Company's Chief Financial Officer,
to Agent setting forth the details of such Event of Default or condition or
event and the action which the Company intends to take with respect thereto.
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4.7 The Company will at all times maintain books and records in
which all of its financial transactions are duly recorded in conformity in all
material respects with generally accepted accounting principles.
4.8 The Company will use the proceeds of the Note solely for the
working capital purposes of the Company and its Subsidiaries, including the
discharge of existing liabilities of the Company and its Subsidiaries.
4.9 The Company shall not make any distributions to any equity
holders or affiliates of the Company (other than in connection with arm's-length
obligations to equity holders or affiliates who are suppliers or customers). In
addition, the Company shall not make contributions to, or payments on behalf of,
any Subsidiary, except as permitted pursuant to that certain Loan and Security
Agreement, dated as of November 29, 2001, between the Company and Silicon Valley
Bank, Commercial Finance Division, as amended, as in effect on the date hereof.
5. Events of Default. If any of the following events (each an "Event of
Default") shall occur:
5.1 The Company shall fail to pay on the due date therefor, the
principal of, or interest on, or any other amount payable under the Note or any
other Tranche I Note and such failure shall continue uncured for a period of
five (5) days from such due date, or
5.2 The Company shall default in the due observance or performance
of any covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms of this Note or any other Tranche I
Note (other than the other defaults specified in Section 5) or the Company or
any Subsidiary shall default in the due observance or performance of any
covenant, condition or agreement on the part of the Company or such Subsidiary
to be observed or performed pursuant to the terms of the Security Agreement or
the Purchase Agreement and such defaults shall continue uncured for a period of
fifteen (15) days after notice thereof shall have been given to the Company by
Agent; or
5.3 The dissolution of the Company or any Subsidiary or any vote
in favor thereof by the board of directors and shareholders of the Company or
such Subsidiary, as the case may be; or
5.4 The Company or any Subsidiary shall resolve (including without
limitation by board action) or otherwise establish any definitive intention in
writing to file a petition seeking relief under any provision of the Federal
Bankruptcy Code or any other federal or state statute now or hereafter in effect
affording relief to debtors, or make an assignment for the benefit of creditors,
or file with a court of competent jurisdiction an application for appointment of
a receiver or similar official with respect to it or any substantial part of its
assets, or there shall be filed against the Company or any such Subsidiary any
such application or petition, which application or petition is not dismissed or
withdrawn within thirty (30) days from the date of filing thereof; or
5.5 Any default or event of default occurs under the obligations
to Silicon Valley Bank or Sanmina (or any lender which refinances such
obligations) under the respective agreements listed on Schedule I, any of the
Sanmina Notes, if and when issued, or under any
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other obligation of the Company or any Subsidiary for borrowed money, which
default is not cured during the applicable cure period or waived in writing by
the lender or obligee; or
5.6 The Company or any Subsidiary shall sell all or substantially
all of its assets or merge or be consolidated with or into another entity other
than, in the case of any such Subsidiary, the Company or another Subsidiary of
the Company; or
5.7 The commencement of a proceeding to foreclose a security
interest or lien in any property or assets of the Company or any Subsidiary upon
default in the payment or performance of any debt of the Company or any such
Subsidiary in excess of $25,000 which is secured thereby; or
5.8 Other than in connection with matters set forth on Schedule
3.10 to the Purchase Agreement, the entry against the Company or any Subsidiary
of a final judgment for the payment of money in excess of $100,000 by a court of
competent jurisdiction, which judgment shall not be discharged (or the discharge
thereof not duly provided for) in accordance with its terms within thirty (30)
days of the date of entry thereof, or a stay of execution thereof procured
within thirty (30) days from the date of entry thereof and, within such period
(or such longer period during which execution of such judgment shall have been
effectively stayed) an appeal therefrom shall not have been prosecuted and the
execution thereof caused to be stayed during such appeal; or
5.9 An attachment or garnishment shall have been levied against
the assets of the Company or any Subsidiary involving an amount in excess of
$100,000 and such levy is not vacated, bonded or otherwise terminated within
thirty (30) days after the date of the effectiveness of the levy;
then, upon the occurrence of any such Event of Default and at any time
thereafter, the Agent shall have the right to declare the principal of, accrued
unpaid interest on, and all other amounts payable under all of the Tranche I
Notes (including this Note) to be forthwith due and payable, whereupon all such
amounts shall be immediately due and payable to Holder, without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived; provided, however, in case of the occurrence of an Event of Default
under Section 5.3 or 5.4, such amounts shall become immediately due and payable
without any such declaration by the Agent.
6. Suits for Enforcement and Remedies. If any one or more Events of
Default shall occur and be continuing, the Agent may proceed to (i) protect and
enforce Holder's rights either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, condition or agreement
contained in this Note or in any agreement or document referred to herein or in
aid of the exercise of any power granted in this Note or in any agreement or
document referred to herein, (ii) enforce the payment of this Note, or (iii)
enforce any other legal or equitable right of the holder of this Note. No right
or remedy herein or in any other agreement or instrument conferred upon the
holder of this Note is intended to be exclusive of any other right or remedy,
and each and every such right or remedy shall be cumulative and shall be in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
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7. Seniority. This Note shall be senior in priority to the payment of all
other debts of the Company, whether now existing or hereinafter incurred, other
than the obligations of the Company to Silicon Valley Bank and Sanmina now
existing as shown on the attached Schedule I hereto and trade payables and, if
and when issued, the Sanmina Notes described in the Purchase Agreement (each of
which may be pari passu with the repayment of this Note).
8. Unconditional Obligation; Fees, Waivers, etc.
8.1 The obligations to make the payments provided for in this Note
are absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
8.2 If Agent shall seek to enforce the collection of any amount of
principal of and/or interest on this Note, there shall be immediately due and
payable from the Company, in addition to the then unpaid principal of, and
accrued unpaid interest on, this Note, all reasonable costs and expenses
incurred by Agent or the Holder in connection therewith, including, without
limitation, attorneys' fees and disbursements.
8.3 No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy.
8.4 Any term, covenant, agreement or condition of this Note may be
amended or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
signed written consent of the Agent and the Company.
8.5 The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder or in connection with any right, lien, interest or property at any
and all times which Agent had or is existing as security for any amount called
for hereunder, except as specifically provided herein.
9. Restriction on Transfer. This Note has not been registered under the
securities laws of the United States of America or any state thereof. This Note
has been acquired for investment, accordingly, no interest in this Note may be
offered for sale, sold or transferred in the absence of registration and
qualification of this Note under applicable federal and state securities laws or
an opinion of counsel of Holder reasonably satisfactory to the Company that such
registration and qualification are not required.
10. Miscellaneous.
10.1 The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
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10.2 The provisions of this Note are severable and, if any one
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, such invalidity or unenforceability shall affect only such
provision in such jurisdiction.
10.3 Notices, demands or other communications given or made in
connection with this Note shall be in writing and delivered in accordance with
the provisions of the Purchase Agreement.
10.4 This Note and the obligations of the Company and the rights of
Holder shall be governed by and construed in accordance with the internal
substantive laws of the State of California without giving effect to the choice
of laws rules thereof.
10.5 The Company and the Holder (a) agree that any legal suit,
action or proceeding arising out of or relating to this Note will be instituted
exclusively in the courts of the State of California sitting in the County of
Los Angeles, or any Federal court in such State, (b) waive any objection which
such party may have now or hereafter based upon forum non conveniens or to the
venue of any such suit, action or proceeding, and (c) irrevocably consent to the
jurisdiction of the State Courts located in said State in any such suit, action
or proceeding. Each such party further agrees to accept and acknowledge service
of any and all process which may be served in any such suit, action or
proceeding in said courts in said State, and agrees that service of process upon
such party, mailed by certified mail to such party's address, will be deemed in
every respect effective service of process upon such party, in any suit, action
or proceeding. FURTHER, BOTH THE COMPANY AND HOLDER HEREBY WAIVE TRIAL BY JURY
IN ANY ACTION TO ENFORCE THIS NOTE.
10.6 This Note shall bind the Company and its successors and
assigns.
10.7 Neither the Agent, the Holder nor the Company shall have any
liability under or in connection with this Note or the Security Agreement for
special, exemplary, punitive, incidental, indirect or consequential damages of
any sort in any action of any type or nature whatsoever in connection with this
Note or the Security Agreement and the parties waive any right that they have to
claim or recover in any such action any special, exemplary, punitive,
incidental, indirect or consequential damages or any sort other than actual
damages.
NOVATEL WIRELESS, INC.,
a Delaware corporation
By /s/ Peter V. Leparulo
---------------------------------
Name: Peter Leparulo
Title: Chief Executive Officer
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SCHEDULE I
PRIOR LIENS
1. Lien in favor of Silicon Valley Bank pursuant to Loan and Security
Agreement dated November 29, 2001.
2. Lien in favor of Sanmina-SCI Corporation pursuant to Security Agreement
dated January 12, 2002.
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