Item 1.01
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Entry into a Material Definitive Agreement.
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On September 21, 2016, Novatel Wireless, Inc., a Delaware
corporation (
Novatel Wireless
), Vanilla Technologies, Inc., a Delaware corporation and direct wholly owned subsidiary of Novatel Wireless (
Newco
), T.C.L. Industries Holdings (H.K.) Limited, a Hong
Kong limited liability company (
TCL
), and Jade Ocean Global Limited, a British Virgin Islands business company (the
Purchaser
and, together with TCL, the
Purchasers
),
entered into a Stock Purchase Agreement (the
Purchase Agreement
). Pursuant to the Purchase Agreement, Purchaser will acquire Novatel Wirelesss mobile broadband business, which includes its MiFi branded hotspots and
USB modem product lines, and related liabilities (the
Business
) for cash consideration of $50 million (the
Purchase Price
), subject to potential adjustment based on Novatel Wirelesss working
capital as of the closing (such acquisition of the Business being referred to herein as the
Sale
). The Sale will be structured as a purchase by Purchaser of all of the issued and outstanding shares of common stock of
Novatel Wireless, which shares will be solely owned by Newco immediately prior to the consummation of the Sale as a result of the holding company reorganization more fully described in Item 8.01 below (the
Restructuring
).
The consummation of the Sale is expected to occur in the first quarter of 2017.
The consummation of the Sale is subject to the completion of the
Restructuring. In addition, the consummation of the Sale is subject to certain other conditions, including, but not limited to, (i) the approval of the Sale by the stockholders of Newco following the Restructuring, (ii) Novatel Wireless no longer
being a borrower under the Indenture, dated June 10, 2015, governing its 5.50% Senior Convertible Notes due 2020 (it is anticipated that the obligations under the Indenture will be assumed by Newco), (iii) obtaining approval of the transaction
from the Committee on Foreign Investment in the United States (
CFIUS Approval
), (iv) subject to certain materiality exceptions, the accuracy of the representations and warranties of each of the parties to the Purchase
Agreement, and (v) the compliance in all material respects by the parties with the covenants contained in the Purchase Agreement.
The Purchase
Agreement contains customary operational covenants that prevent Novatel Wireless and Newco from engaging in certain actions during the period between the execution of the Purchase Agreement and the earlier of the closing of the Sale or termination
of the Purchase Agreement (such earlier period, the
Pre-Closing Period
). In addition, the Purchase Agreement contains a customary no solicitation provision pursuant to which, during the Pre-Closing Period,
neither Novatel Wireless nor Newco may solicit, initiate or knowingly encourage or facilitate, or enter into negotiations with, third parties with respect to proposals or inquiries to acquire the Business, unless either Novatel Wireless or Newco has
received an unsolicited written offer that the Novatel Wireless or Newco board of directors, as appropriate, in good faith determines constitutes or would reasonably be likely to lead to a Superior Proposal.
Additionally, the Purchase Agreement prohibits Newco, for three years following the closing of the Sale, from directly or indirectly, designing, developing,
manufacturing, marketing or selling (i) any Mobile Hotspot Device (as defined in the Purchase Agreement), (ii) any USB modem, or (iii) any device intended primarily for home use providing voice-over-LTE functionality, unless such device or modem is
a Telematics Device, a Telemetry Device, or a Tracking Device (in each case, as defined in the Purchase Agreement). The Purchase Agreement provides that the foregoing prohibitions would be binding upon certain third party acquirors as condition to
such third party acquirers purchasing Newco or all or substantially all of the assets of Newco.
The Purchase Agreement contains indemnification
provisions, entitling the Purchasers to be indemnified after the closing of the Sale by Newco for breaches of representations, warranties and covenants and for certain excluded liabilities. The indemnification obligations of Newco are subject to
specified limitations on the amount of any such indemnification.
The Purchase Agreement contains certain termination rights in favor of Novatel Wireless
and Newco, on the one hand, and the Purchasers, on the other hand, including each partys right to terminate the Purchase Agreement if, among other things, (i) the Newco stockholder approval of the Sale is not obtained, or (ii) the Sale has not
been consummated by April 21, 2017, or such later date as the parties may agree to in writing (the
Outside Date
), so long as the terminating partys action or failure to act was not a principal cause of the Sale
failing to be
consummated by the Outside Date. In addition, the Purchase Agreement provides that the Purchase Agreement may be terminated by (i) Newco, to enter into a definitive agreement with respect to
Superior Proposal, or (ii) Purchasers, if the board of directors of Newco shall have failed to recommend, or shall have withdrawn its recommendation, that the stockholders of Newco approve the Sale.
If either party terminates the Purchase Agreement because the Outside Date has arrived and (i) Purchasers are in breach of their covenants relating to seeking
the CFIUS Approval, (ii) any governmental consent required to consummate the Sale, other than the CFIUS Approval, required by or with respect to Purchasers has not been obtained, or (iii) all conditions to closing are satisfied but Purchasers refuse
to close, then Purchasers shall pay Newco a termination fee of $4,000,000. The Purchase Agreement provides that Purchasers shall deposit, not later than September 28, 2016, cash in the amount of $4,000,000 in an escrow account with SunTrust Bank as
security for its obligations to pay such amount with respect to the termination of the Purchase Agreement under the circumstances described above.
The
Purchase Agreement also provides that Newco shall be required to pay to Purchasers a cash termination fee equal to $4,000,000 if either: (i) Purchasers terminate the Purchase Agreement because (a) the Newco board of directors effects a change in its
recommendation to the Newco stockholders to approve the Sale; (b) Newco fails to include the Newco board of directors recommendation in the proxy statement to its stockholders; (c) the Novatel Wireless or Newco board of directors, as applicable,
adopts, approves, endorses or recommends any competing acquisition proposal; (d) the Newco board of directors fails to reaffirm its recommendation to the Newco stockholders to approve the Sale within 10 business days after the date any competing
proposal is first publicly disclosed; (e) the Novatel Wireless board of directors changes its approval of the transaction; or (f) Novatel Wireless and/or Newco materially breaches its no solicitation obligations described above; or (ii)
Newco terminates the Purchase Agreement because the Novatel Wireless board of directors or the Newco board of directors, as applicable, has determined to enter into a definitive agreement with respect to a Superior Proposal.
The parties have also entered into certain ancillary agreements, to become effective upon the closing of the Sale, including, (i) a transition services
agreement, pursuant to which each party will provide the other with certain services over a transition period; and (ii) a cross license agreement, pursuant to which Novatel Wireless will license to Newco certain of its intellectual property for use
in Newcos operations post-closing of the Sale and Newco will license to Novatel Wireless certain of its intellectual property for use in Novatel Wirelesss operation of the Business.
In connection with the proposed transaction, Newco will seek approval of the Sale from its stockholders following the Restructuring. Newco will prepare and
file with the Securities and Exchange Commission (the
SEC
) a proxy statement to be used in connection with seeking Newco stockholder approval of the Sale and certain other related items.
The Purchase Agreement has been provided pursuant to applicable rules and regulations of the SEC in order to provide investors and stockholders with
information regarding its terms; however, it is not intended to provide any other factual information about Novatel Wireless, Newco, TCL or Purchaser, their respective subsidiaries and affiliates, or any other party. In particular, the
representations, warranties and covenants contained in the Purchase Agreement have been made only for the purpose of the Purchase Agreement and, as such, are intended solely for the benefit of the parties to the Purchase Agreement. In many cases,
these representations, warranties and covenants are subject to limitations agreed upon by the parties and are qualified by certain disclosures exchanged by the parties in connection with the execution of the Purchase Agreement. Furthermore, many of
the representations and warranties in the Purchase Agreement are the result of a negotiated allocation of contractual risk among the parties and, taken in isolation, do not necessarily reflect facts about Novatel Wireless, Newco, TCL, the Purchaser,
their respective subsidiaries and affiliates or any other party. Likewise, any references to materiality contained in the representations and warranties may not correspond to concepts of materiality applicable to investors or stockholders. Finally,
information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement and these changes may not be fully reflected in Novatel Wirelesss and Newcos public disclosures.
AS A RESULT OF THE FOREGOING, INVESTORS AND STOCKHOLDERS ARE STRONGLY ENCOURAGED NOT TO RELY ON THE
REPRESENTATIONS, WARRANTIES AND COVENANTS CONTAINED IN THE PURCHASE AGREEMENT, OR ON ANY DESCRIPTIONS THEREOF, AS ACCURATE CHARACTERIZATIONS OF THE STATE OF FACTS OR CONDITION OF NOVATEL WIRELESS, NEWCO OR ANY OTHER PARTY. INVESTORS AND
STOCKHOLDERS ARE LIKEWISE CAUTIONED THAT THEY ARE NOT THIRD-PARTY BENEFICIARIES UNDER THE PURCHASE AGREEMENT AND DO NOT HAVE ANY DIRECT OR CONTRACTUAL RIGHTS OR REMEDIES PURSUANT TO THE PURCHASE AGREEMENT.
The foregoing description of the Purchase Agreement is subject to, and qualified in its entirety by, the full text of the Purchase Agreement, a copy of which
is attached hereto as
Exhibit 2.1
and the terms of which are incorporated herein by reference.