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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON July 8, 1997
Registration No. 333-27915
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2 ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TELULAR CORPORATION
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C>
DELAWARE 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
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647 N. LAKEVIEW PARKWAY
VERNON HILLS, IL 60061
(847) 247-9400
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive offices)
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KENNETH E. MILLARD
CHIEF EXECUTIVE OFFICER
TELULAR CORPORATION
647 N. LAKEVIEW PARKWAY
VERNON HILLS, IL 60061
(847) 247-9400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
MICHAEL E. CUTLER, ESQ.
COVINGTON & BURLING
1201 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
(202) 662-6000
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Approximate date of commencement of proposed
sale to public: From time to time after this
Registration Statement becomes effective.
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If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offer. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number on the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"), ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUBJECT TO COMPLETION
JULY 8, 1997
TELULAR CORPORATION
COMMON STOCK
(par value $.01 per share)
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This Prospectus relates to the resale of up to Eleven Million
(11,000,000) shares of common stock, par value $.01 per share (the "Common
Stock"), of Telular Corporation, a Delaware corporation (the "Company") issued
or issuable to Nelson Partners, Olympus Securities, Ltd. ("Olympus
Securities"), Stark International and Shepard International Investments, Ltd.
("Shepard International Investments") (collectively referred to hereinafter as
the "Investors"), or the Investors and their respective assigns, as holders of
the Company's Series A Convertible Preferred Stock ("Preferred Stock" and such
holders the "Selling Shareholders") in connection with the transaction
described herein. All of the shares offered hereby will be offered and sold by
the Selling Shareholders. Although the Company received proceeds from the
purchase by the Investors of the Preferred Stock, the Company will not receive
any proceeds from the sale of the shares of Common Stock offered hereby. See
"Selling Shareholders."
The shares of Common Stock offered by the Selling Shareholders
hereby include such presently indeterminate number of shares as may be issued on
conversion of the Preferred Stock pursuant to the provisions thereof regarding
determination of the applicable conversion price. The Company has agreed to
register initially a number of shares of Common Stock equal to approximately one
and one-half times the number of shares of Common Stock that would have been
issued if all the Preferred Stock had been converted at the conversion price in
effect at the time of the filing of this registration statement. By way of
example, if all shares of Preferred Stock had been converted on May 15, 1997,
the Company would have been obligated to issue Four Million Sixteen Thousand
Two Hundred Twenty (4,016,220) shares of Common Stock in respect thereto. The
foregoing estimate is for illustrative purposes only. The actual number of
shares of Common Stock issued or issuable upon conversion of the Preferred
Stock is subject to adjustment and could be materially less or more than such
estimated amount of the 11,000,000 shares of Common Stock noted as being
offered by the Selling Shareholders, depending upon factors which cannot be
predicted by the Company at this time, including, among others, the future
market price of the Common Stock. Additional shares of Common Stock that may
become issuable by reason of changes in the conversion price or conversion
rate of the Preferred Stock are offered hereby pursuant to Rule 416 under the
Securities Act of 1933, as amended.
The Common Stock is listed on the Nasdaq National Market under
the symbol WRLS. On July 3, 1997, the last sale price of the Common Stock, as
reported on the Nasdaq National Market, was $2.9375 per share.
The Common Stock may be offered from time to time by the
Selling Shareholders to or through brokers, dealers or other agents or directly
to other purchasers in one or more market transactions, in one or more private
transactions or in a combination of such methods of sale, at prices then
prevailing, at prices related to such prices, or at negotiated prices. In
effecting sales, brokers, dealers or other agents engaged by the Selling
Shareholders may arrange for other brokers, dealers or agents to participate.
Such brokers, dealers or agents may receive commissions, discounts or
concessions from the Selling Shareholders in amounts to be negotiated. Such
brokers or dealers and any other participating brokers or dealers may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any such commissions, discounts or
concessions may be deemed to be underwriting discounts or commissions under the
Securities Act.
Certain costs, expenses and fees in connection with the
registration of the Common Stock will be borne by the Company. Commissions,
discounts and transfer taxes, if any, attributable to the sales of the Common
Stock will be borne by the Selling Shareholders.
INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 3
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY __, 1997
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NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFER MADE HEREBY. AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
SHAREHOLDER(S) OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT THIS INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
THE COMPANY IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND IN
ACCORDANCE THEREWITH FILES REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"). SUCH REPORTS, PROXY
STATEMENTS AND OTHER INFORMATION FILED BY THE COMPANY CAN BE INSPECTED AND
COPIED AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE COMMISSION AT 450
FIFTH STREET, N.W., WASHINGTON, D.C. 20549; AND THE PUBLIC REFERENCE FACILITIES
LOCATED AT THE REGIONAL OFFICES OF THE COMMISSION AT THE FOLLOWING ADDRESSES:
NEW YORK REGIONAL OFFICE, 7 WORLD TRADE CENTER, SUITE 1300, NEW YORK, NEW YORK
10048 AND CHICAGO REGIONAL OFFICE, CITICORP CENTER, 500 WEST MADISON STREET,
CHICAGO, ILLINOIS 60661-2511. COPIES OF SUCH MATERIAL ALSO CAN BE OBTAINED FROM
THE PUBLIC REFERENCE SECTION OF THE COMMISSION AT 450 FIFTH STREET, N.W.,
WASHINGTON, D.C. 20549, AT PRESCRIBED RATES.
THIS PROSPECTUS CONSTITUTES A PART OF A REGISTRATION STATEMENT
ON FORM S-3 FILED BY THE COMPANY WITH THE COMMISSION UNDER THE SECURITIES ACT
WITH RESPECT TO THE COMMON STOCK BEING OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE REGISTRATION
STATEMENT, CERTAIN PORTIONS OF WHICH HAVE BEEN OMITTED AS PERMITTED BY THE RULES
AND REGULATIONS OF THE COMMISSION. FOR FURTHER INFORMATION, REFERENCE IS MADE TO
THE REGISTRATION STATEMENT, AND TO THE EXHIBITS INCORPORATED THEREIN BY
REFERENCE OR FILED AS A PART THEREOF. ANY STATEMENTS CONTAINED HEREIN CONCERNING
THE PROVISIONS OF ANY SUCH EXHIBITS ARE NOT NECESSARILY COMPLETE AND, IN EACH
INSTANCE, REFERENCE IS MADE TO THE COPY OF SUCH EXHIBIT FILED AS AN EXHIBIT TO
THE REGISTRATION STATEMENT OR OTHERWISE FILED WITH THE COMMISSION. EACH SUCH
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY SUCH REFERENCE.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THE FOLLOWING DOCUMENTS FILED BY THE COMPANY WITH THE
COMMISSION ARE HEREBY INCORPORATED BY REFERENCE IN THIS PROSPECTUS:
(a) THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K FOR THE
FISCAL YEAR ENDED SEPTEMBER 30, 1996.
(b) THE QUARTERLY REPORTS OF THE COMPANY ON FORM 10-Q FOR
THE QUARTERS ENDED DECEMBER 31, 1996 AND MARCH 31,
1997.
(c) THE CURRENT REPORT OF THE COMPANY ON FORM 8-K FILED
APRIL 25, 1997.
(d) THE CURRENT REPORT OF THE COMPANY ON FORM 8-K FILED
JULY 1, 1997.
(e) THE DESCRIPTION OF THE COMPANY'S COMMON STOCK
CONTAINED IN THE COMPANY'S REGISTRATION STATEMENT ON
FORM 8-A, DATED JANUARY 13, 1994, FILED PURSUANT TO
SECTION 12 OF THE EXCHANGE ACT, WHICH INCORPORATES BY
REFERENCE THE DESCRIPTION CONTAINED IN THE COMPANY'S
REGISTRATION STATEMENT ON FORM S-1 UNDER THE
SECURITIES ACT, NO. 33-72096, AS AMENDED, AND IN ANY
AMENDMENTS OR REPORTS THAT ARE FILED FOR THE PURPOSE
OF UPDATING SUCH DESCRIPTION.
ALL DOCUMENTS FILED BY THE COMPANY PURSUANT TO SECTION 13(a),
13(c), 14 OR 15(d) OF THE EXCHANGE ACT, SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS AND PRIOR TO THE TERMINATION OF THE OFFERINGS TO WHICH THIS
PROSPECTUS RELATES SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND TO BE A PART HEREOF FROM THE DATE OF FILING OF SUCH DOCUMENTS.
ANY STATEMENT IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY
REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED BY THIS PROSPECTUS
TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY
FILED DOCUMENT WHICH ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE HEREIN
MODIFIES OR SUPERSEDES SUCH STATEMENT. ANY SUCH STATEMENT SO MODIFIED OR
SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED, TO
CONSTITUTE A PART OF THIS PROSPECTUS.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE COPIES
OF ALL DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN
SUCH DOCUMENTS) TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY
OF THIS PROSPECTUS HAS BEEN DELIVERED ON THE WRITTEN OR ORAL REQUEST OF SUCH
PERSON TO:
THOMAS M. MASON, CHIEF FINANCIAL OFFICER
TELULAR CORPORATION
647 N. LAKEVIEW PARKWAY
VERNON HILLS, IL 60061
(847) 247-9400
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RISK FACTORS
Prospective purchasers of Common Stock of the Company should
carefully consider the following factors in conjunction with the information
contained in the materials in the Company's reports on Forms 10-K, 10-Q and 8-K
and proxy materials, as filed with the Commission (the "SEC Filings").
LIMITED OPERATING HISTORY AND EXPECTATION OF CONTINUED LOSSES
The Company commenced operations in 1986 and although it
reported a profit for the fourth quarter of fiscal year 1996, and the first
quarter of fiscal year 1997, it has yet to report an annual profit. The
development of the Company's business has required significant expenditures in
connection with the defense of the Company's patents, research and development
of its technology and marketing of its products. Substantial costs related to
these activities have been and will continue to be incurred by the Company
before the realization of associated revenues.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
At March 31, 1997, the Company had $11.8 million in cash and
cash equivalents with a working capital surplus of approximately $25.7
million. Expansion of the Company's business, including the development of new
products and markets for the Company's existing products, will require
significant product development expenditures. In addition, the Company is
expected at least in the near term to continue to operate at a loss. Based on
its current operating plan, the Company believes its existing capital
resources, including a credit facility and proceeds from the issuance of
Preferred Stock, should enable it to maintain its current and planned
operations. The Company continues to consider other financing opportunities
that would be used to support additional growth and product development.
Expected future uses of cash include working capital requirements, marketing
programs and product development in anticipation of future revenues. Cash
requirements may vary and are difficult to predict given the nature of the
developing markets targeted by the Company. The amount of royalty income from
the Company's licensees is unpredictable, but could have an impact on the
Company's actual cash flow. Unanticipated events such as litigation could
increase capital requirements. To the extent that additional funds are needed
subsequently, the Company may need to raise additional funds through public or
private financings. No assurance can be given that additional financing will be
available or that, if available, it will be obtained on terms favorable to the
Company.
The Company has now completed a major corporate restructuring
as part of a program to balance expenditure levels with revenues, and to improve
working capital. In connection with that restructuring, the Company incurred
approximately $11.0 million in restructuring and impairment charges, phased out
its manufacturing operations in Puerto Rico and Illinois, consolidated its
manufacturing operations at the Company's Atlanta, Georgia facility, and reduced
its workforce from approximately 250 employees in January 1996 to approximately
110 employees at the end of November 1996. Details of the restructuring are set
forth in the Company's SEC Filings. The Company is continuing to monitor
expenditure levels in light of timing of market expansion and revenues and
anticipates taking further actions from time to time as it deems appropriate.
Faced with terminating leases at its Buffalo Grove and
Atlanta, Georgia facilities, on May 1, 1997, the Company consolidated its
Buffalo Grove and Atlanta, Georgia operations into a new facility in Vernon
Hills, Illinois. This has resulted in the Company's manufacturing, engineering,
and administration operations to be located at a single site. The Company
anticipates this development will enhance the quality of its products and speed
the reach of such products to market.
MANAGEMENT TRANSITION
The Company has experienced several significant changes in
management over the past two years. Richard Gerstner served as Chief Executive
Officer from November 1993 to November 1995. From November 1995 until April
1996, William L. De Nicolo served as Chief Executive Officer. Mr. De Nicolo, the
founder of the Company, served as CEO prior to Mr. Gerstner's appointment and
has served as Chairman of the Board since the Company was founded. Kenneth E.
Millard became President and Chief Executive Officer in April 1996. Mr. Millard
also serves as a member of the Board of Directors. Robert L. Montgomery was
appointed Executive Vice- President and Chief Operating Officer during March,
1997. Thomas M. Mason joined the Company as Senior Vice-
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President and Chief Financial Officer in March, 1997. Mr. Mason replaced Frank
J.M. ten Brink who had performed those functions since joining the Company in
July, 1996. The Company plans to hire additional senior executives for other
functions during fiscal year 1997.
As noted above, the Company has experienced a number of
changes in its executives over the past year, and has substantially reduced its
workforce. These changes may have an adverse effect on the Company's ability to
implement its plans and manage its operations in a consistent manner.
RELATIONSHIP WITH MOTOROLA
The Company has several important relationships with Motorola,
Inc. ("Motorola"), which owns approximately 15% of the Company's outstanding
shares of Common Stock.
Sales by the Company to Motorola represented approximately 31%
of net sales by the Company during the preceding fiscal year. In addition, as
discussed below under "Reliance on Key Customer," the Company has entered into a
substantial contract with Motorola to sell fixed wireless terminals to Motorola
for its construction of a cellular system in Hungary.
The Company purchases cellular transceivers from Motorola.
These purchases represented approximately 54% of total cost of goods for the
Company during the preceding fiscal year.
The Company and Motorola have recently expanded their
purchase/supply relationship into a crossOEM arrangement under which the Company
will sell additional fixed wireless terminals to Motorola and Motorola will sell
current and future cellular products to the Company.
The Company and Motorola have entered into cross-licensing
relationships under their respective intellectual property rights.
These and other aspects of the Company and Motorola's
relationship are discussed in more detail in the SEC Filings.
RELIANCE ON KEY CUSTOMER
In the near term the Company's success may depend on a number
of large orders from a small group of companies, which creates a risk that the
loss of any one customer may have a significant impact on the Company's
financial results. During fiscal year 1996, sales by the Company to Motorola
represented approximately 31% of total sales. The Company has a substantial
contract with Motorola to sell fixed wireless terminals to Motorola for its
construction of a cellular system in Hungary, and is negotiating for additional
business with Motorola for subsequent phases of the Hungarian project. The
contract includes a commitment by Motorola to purchase $100 million of the
Company's fixed wireless terminals over a three-year period commencing January
1, 1996. As of May 23, 1997, Motorola had purchased $23.5 million of product
under this contract. The commitment by Motorola to purchase additional product
under this contract is not guaranteed.
INTELLECTUAL PROPERTY RIGHTS
The Company's success in the United States will depend to a
considerable extent upon its ability to obtain and enforce intellectual property
protection for its technology in the United States. No assurance can be given
that the Company's existing patents or any future patents obtained by the
Company will not be challenged, invalidated or circumvented, or that the
Company's competitors will not independently develop or patent technologies that
are substantially equivalent to or superior to the Company's technology. The
nature and status of litigation that involves the Company's intellectual
property rights is set forth in the SEC Filings.
Although the Company believes that its intelligent interface
can be adapted to accommodate emerging wireless services, there can be no
assurance that these new services will fall within the boundaries of the
Company's existing patent protection.
In some countries, patent protection is not available.
Moreover, some countries that grant patents do not afford meaningful protection
or redress for violations. Neither the Company nor its competitors have
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established, and both are now legally barred from establishing, patent
protection for core technology in many other countries, including the principal
countries of Western Europe. In the absence of patent protection, the Company
has relied upon other competitive factors including: (a) product functionality,
(b) the quality of its products, and (c) the desirability of using products that
meet the same specifications as those in the United States and in other
countries where the Company has obtained patent protection.
There can be no assurance that patent protection can be
obtained, in the United States or elsewhere, for new products or applications,
or that such patent protection, if obtained, will afford meaningful protection.
INTENSE COMPETITION IN INDUSTRY
Competition in the wireless telecommunications equipment
industry is intense. The industry includes major domestic and international
companies, many of which have substantially greater financial, technical,
marketing, sales, manufacturing, distribution and other resources than those of
the Company. The Company faces competition in various areas from certain of its
licensees and those customers who may purchase the licensees' products. It has
granted a non-exclusive royalty-bearing license to Motorola which enables
Motorola to produce and sell products which compete with the Company's products.
To the extent that expansion of the Company's product line or
the development of new uses or applications for its products are outside of the
protection provided by the Company's patents and other intellectual property
rights, the Company may encounter increased competition from a variety of
sources.
RELIANCE UPON GROWTH AND PRICING OF WIRELESS SERVICE
The market for basic telephone service in developing
countries, which at present are the Company's principal markets, is an emerging
one. The timing related to purchases of equipment for the provision of telephone
service is affected by regulatory, macroeconomic, capital availability and
competitive factors which make the timing of such awards difficult to predict.
The success of the Company depends to a considerable extent
upon the continued growth and increased availability of cellular and other
wireless telecommunications services internationally and, to a lesser extent at
least in the short term, in the United States.
ANTI-TAKEOVER PROVISIONS; MOTOROLA PURCHASE RIGHTS
The Company's Board of Directors can, without obtaining
stockholder approval, issue shares of preferred stock having rights that could
adversely affect the voting power of holders of the Common Stock. The issuance
of preferred stock may delay, defer or prevent a change in control of the
Company. In addition, Section 203 of the Delaware General Corporation Law
restricts certain business combinations with any "interested stockholder" as
defined in such law. The current stockholders of the Company are not, by virtue
of their current holdings, deemed to be "interested stockholders" under this
statute. This statute may delay, deter or prevent a change in control of the
Company.
Under the terms and conditions of the Company's Preferred
Stock, the merger, consolidation, or sale of substantially all of the assets
of the Company, or the purchase of more than 50% of the outstanding shares of
Common Stock of the Company, prior to conversion of all of the shares of the
Preferred Stock may trigger a right of redemption on the part of the holders
of the Preferred Stock.
Under the Shareholders' Agreement among certain of the
Company's stockholders, the Company and its principal stockholders are required
to notify Motorola prior to any solicitation of purchase offers for, or the
acceptance of any unsolicited offer for, all or substantially all of the assets
of the Company or a majority of its voting stock. Motorola has the right to
submit a bid at that time, and the Company and its principal stockholders have
agreed not to make any such sale at a valuation lower than that of Motorola's
bid, if any. Motorola's rights will terminate upon any sale by Motorola of
shares of Common Stock, unless after such sale Motorola owns 20% or more of the
outstanding Common Stock, on a fully diluted basis. The existence of this
contractual provision may delay, deter or prevent a change in control of the
Company.
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REDEMPTION OF PREFERRED STOCK
A right of redemption on the part of the holders of the
Preferred Stock may be triggered by a number of events in addition to the
merger, consolidation or sale of substantially all of the assets of the Company,
including the purchase of more than 50% of the outstanding shares of Common
Stock of the Company, the failure by the Company to convert Preferred Stock when
required to do so, the delisting of the Company's Common Stock from a national
securities exchange, or the failure by the Company to timely register and keep
in effect the Common Stock to be issued upon conversion of the Preferred Stock.
VOLATILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate based
on a number of factors, including variations in the Company's distribution
channels and the mix of products it sells, the timing of final product approvals
from any major distributor or end user, the timing of orders from and shipments
to major customers, the timing of new product introductions by the Company or
its competitors, changes in pricing policies by the Company's suppliers, the
availability and cost of key components, the timing of personnel hirings and the
market acceptance of new and enhanced versions of the Company's products.
VOLATILITY OF STOCK PRICE
Factors such as announcements of the results of trials or the
introduction of new products by the Company or its competitors, market
conditions in the telecommunications, technology and emerging growth sectors and
rumors relating to the Company or its competitors may have a significant impact
on the market price of the Common Stock. Furthermore, the stock market has
experienced volatility that has particularly affected the market prices of
equity securities of many high technology and emerging growth companies such as
those in the telecommunications industry. This volatility has often been
unrelated to the operating performance of such companies. These market
fluctuations could adversely affect the price of the Common Stock.
The Company's stock price was particularly volatile during
fiscal 1996. The Company believes that this volatility was attributable in part
to the timing on conversion of the $18 million in convertible debentures issued
by the Company in December 1995. All of the debentures have been converted, and
a total of 7.0 million shares of Common Stock have been issued.
The Preferred Stock issued by the Company is convertible
into Common Stock at a price equal to the lower of the 110% of the 30-day
average trading price prior to the time the Common Stock was issued and 85%
(subject to certain adjustments) of the 30-day average trading price prior to
conversion, subject to certain minimum price provisions. Under the terms of
the purchase agreement for the Preferred Stock, the holders thereof have
covenanted, subject to certain conditions, not to engage in short sales (other
than short sales no more than three days prior to conversion in an amount
which does not exceed the number of shares to be received upon such conversion)
or to engage in transactions in violation of Section 9 of the 1934 Act, relating
to the manipulation of the trading price of the Common Stock. While these
limitations are intended to minimize volatility that may result from the
conversion of the Preferred Stock, there can be no assurance that such
volatility will not occur.
DILUTION
Upon conversion of the Company's Preferred Stock, Common Stock
may be issued at a discount relative to the market price of Common Stock at that
time. Issuance at a discount could result in a dilution in the net tangible book
value of the Company per share and in the stockholders' equity per share. The
magnitude of any dilution will depend on the size of the discount and the number
of shares to be issued. These variables will depend on a variety of factors,
including the timing of conversion and the market price at the time of
conversion.
RAPID TECHNOLOGICAL CHANGE
The telecommunications equipment industry is characterized by
rapid technological advances, evolving industry standards, changes in end-user
requirements and frequent new product introduction and enhancements. The
wireless telecommunications industry is experiencing significant technological
change, such as the proposed transformation of cellular systems from analog to
digital. The rate at which this change occurs and
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the success of such new technologies may have a material effect on the rate at
which the Company expands its business and on its ability to achieve
profitability. Moreover, there can be no assurance that continuing developments
in technology will not result in the establishment of wireless or wireline
technologies for which the Company's interface technology is not required or in
the development of equipment equal or superior to that provided by the Company.
RISK OF LITIGATION
Litigation in the telecommunications equipment and other high
technology industries has increasingly been used as a competitive tactic both by
established companies seeking to protect their existing position in the market
and by emerging companies attempting to gain access to the market. In such
litigation, complaints may be filed on a variety of grounds, including
antitrust, breach of contract, trade secret, patent or copyright infringement,
patent or copyright invalidity, and unfair business practices. If the Company is
forced to defend itself against such claims, whether or not meritorious, the
Company is likely to incur substantial expense and diversion of management
attention, and may encounter market confusion and the reluctance of licensees
and distributors to commit resources to the Company's products. In the event
that the Company's patents or other intellectual property rights were deemed
invalid or were determined not to prohibit competing technologies, the Company
could face additional competition. See "Risk Factors -- Intellectual Property
Rights."
DEPENDENCE ON ABILITY TO DEVELOP MARKETS
The Company's success depends on its ability to develop both
domestic and international markets for its products. There can be no assurances
that the Company will continue to market its products successfully or that a
larger market for its products will continue to develop.
DEPENDENCE ON ABILITY TO MANAGE GROWTH
The Company's ability to produce and market large volumes of
competitively priced quality products depends on its ability to implement and
continually expand its operational and financial systems, recruit additional
employees and train, manage and motivate both current and new employees. Failure
to effectively manage the growth of the Company or the transition in officers of
the Company would have a material adverse effect on the business of the Company.
DEPENDENCE ON CONTRACTORS FOR MANUFACTURING AND DISTRIBUTION
The Company uses subcontractors for the manufacture of certain
of its components and for the assembly of some of its products. In the past, the
Company has experienced delays in the receipt of interface components and
products, which have resulted in delays in product deliveries. The Company may
experience similar delays in the future.
The inability to obtain sufficient quantities of key
components as required, or to develop alternative sources if and as required in
the future, could result in delays or reductions in product shipments. In
addition, shortages of raw materials or production capacity constraints at the
Company or its subcontractors could negatively affect the Company's ability to
meet its production obligations and result in increased prices for affected
parts. These events could have a material adverse effect on the Company's
customer relationships and operating results.
The Company uses third parties, in addition to its direct
sales force, to distribute and market some of its products. In particular, the
Company plans to use interconnect companies and cellular carriers to market,
distribute, install and service certain of its products. Although the Company
has entered into contracts with several major interconnect companies and
cellular carriers, the Company is only in the early stages of developing these
relationships. In addition, these third parties are not contractually obligated
to perform any of the activities on which the Company depends to meet its
business objectives.
7
<PAGE> 9
DEPENDENCE ON MOTOROLA FOR TRANSCEIVERS
The Company currently procures most of its cellular
transceivers from Motorola, a principal stockholder of the Company. Pursuant to
the stock purchase agreement between Motorola and the Company, Motorola has
agreed to provide the Company with an opportunity to purchase transceivers based
on any transmission technology that Motorola's Cellular Subscriber Group offers,
when, as and if such products are made available to the public. Under this
agreement, Motorola has a right of first refusal to supply on competitive terms
the Company's transceiver needs provided, among other things, that Motorola
manufactures a comparable product and that the customer does not specifically
request another manufacturer's transceiver product. If sufficient quantities of
Motorola transceivers were not available, the Company might have to redesign its
products and could experience increased costs and shipment delays.
QUALITY CONTROL PROBLEMS
From time to time, the Company has experienced quality control
problems with components provided by certain of its subcontractors. The Company
has instituted quality monitoring procedures for its components to address these
problems and to comply with ISO-9001. However, there can be no assurance that
future quality control problems will not occur.
RISKS OF DOING BUSINESS IN DEVELOPING MARKETS
Among the Company's largest potential markets are developing
countries that may deploy wireless communications networks as an alternative to
the construction of wireline infrastructure. Such countries may decline to
construct wireless telecommunications systems or construction of such systems
may be delayed for a variety of reasons, in which event the development of
demand for the Company's products in those countries will be similarly limited
or delayed. In doing business in developing markets, the Company may also face
economic, political and hard currency conditions that are more volatile than
those commonly experienced in the United States and other areas.
Despite its reliance on international markets, to date, the
Company's sales have not been adversely affected by currency fluctuations.
Currently, the Company requires letters of credit or qualification for export
credit insurance underwritten by the Export-Import Bank of the United States or
other third party insurers on a substantial portion of its international sales
orders. Also, to mitigate the effects of currency fluctuations on the Company's
results of operations, the Company endeavors to conduct all of its international
transactions in U.S. dollars. However, as the Company's international operations
grow, foreign exchange or the inflation of a foreign currency may pose greater
risks for the Company, and the Company may be required to develop and implement
additional strategies to manage these risks.
DEPENDENCE ON RESEARCH AND DEVELOPMENT
The telecommunications equipment market is characterized by
rapid technological advance and the development of increasingly sophisticated
and powerful systems. To remain competitive, the Company must dedicate
significant resources to the development and enhancement of its present and
future products. There can be no assurance that the Company's development
efforts will be successful or that the Company will have adequate capital to
fund such research and development. See "Risk Factors -- Future Capital Needs;
Uncertainty of Additional Funding."
CONFLICTS OF INTEREST
The Company's Board of Directors includes, and is expected to
continue to include, persons designated by strategic partners of the Company and
other parties that have business relationships with the Company. It is possible
that the companies designating such directors, such as Motorola and other
companies in which a director may hold a financial interest, may be in direct or
indirect competition with the Company or among themselves, including competition
with respect to certain business activities and transactions that the Company
may propose to undertake. Although the affected directors may abstain from
voting on matters in which the interests of the Company and those of another
company with which they are affiliated are in conflict, the presence of
potential or actual conflicts could affect the process or outcome of Board
deliberations in ways that could be adverse to the Company.
8
<PAGE> 10
CONTROL BY EXISTING STOCKHOLDERS
As of November 29, 1996, the officers and directors of the
Company, together with entities affiliated with directors of the Company,
beneficially own approximately 33.2% of the Common Stock (assuming the exercise
of immediately available stock options to purchase Common Stock). Accordingly,
these stockholders, if acting in concert, will be able to elect all of the
Company's directors and to determine the outcome of corporate actions requiring
stockholder approval, regardless of how other stockholders of the Company may
vote. The voting power of these stockholders under certain circumstances could
have the effect of delaying or preventing a change in control of the Company.
Under a Shareholders' Agreement, Motorola has the right to nominate for election
a number of directors proportionate to their respective holdings of outstanding
shares of Common Stock in the case of Motorola, as long as it holds at least 10%
of the outstanding shares it may nominate at least one director, and that if it
holds at least 20% of the outstanding shares it may nominate at least two
directors), and the principal stockholders of the Company have agreed to vote in
favor of each such nominee.
DIVIDEND POLICY
To date, the Company has paid no cash dividends on its Common
Stock. The Company currently intends to retain all future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.
The terms of the Preferred Stock prohibit the Company from
paying dividends except out of retained earnings of the Company generated after
April 1, 1997. Under the terms of the Loan and Security Agreement with Sanwa
Business Credit Corporation that provides a revolving credit facility of up to
Twenty Million Dollars ($20,000,000) (the "Loan"), the Company is prohibited
from paying dividends during the term of the Loan.
THE COMPANY
OVERVIEW
The Company is in the fixed wireless telecommunications
industry. The Company designs, develops, manufactures and markets products based
on its proprietary interface technologies, which provide the capability to
bridge wireline telecommunications customer premises equipment ("CPE") with
cellular-type transceivers for use in wireless communication networks, whether
cellular, enhanced specialized mobile radio ("ESMR"), personal communications
services ("PCS"), or satellite-based. Applications of the Company's technology
include fixed wireless telecommunications as a primary service where wireline
systems are unavailable, unreliable or uneconomical and as wireless backup
systems for wireline telephone systems and wireless security alarm transmission
systems. The Company's principal product lines -- PHONECELL(R) and TELGUARD(R)
- -- allow CPE designed for traditional wireline networks to send and receive
voice, data and facsimile signals over wireless networks.
The Company was founded in June 1986 by Mr. William L. De
Nicolo, the current Chairman of the Board of the Company, when he acquired title
to the intellectual property rights of a pending patent application dealing with
a "cellular interface" concept and methodology. The patent not only describes a
simple physical circuit or device, but also the very concept and principles
underlying the use of intelligent interface device (the "invention") in
conjunction with cellular-type transceivers and systems.
In January 1994, the Company completed an initial public
offering of its common stock and is traded on the NASDAQ National Market System
under the ticker symbol "WRLS".
9
<PAGE> 11
COMPANY STRATEGY
The Company's strategy is to leverage its market experience,
internationally-accepted products, and patents into a leadership position in the
rapidly developing Wireless Alternate Access ("WAA") and Wireless Local Loop
("WLL") subscriber terminal equipment industry. Global telecommunications
equipment manufacturers together with national and international service
providers are increasingly sharing the Company's vision that wireless systems in
both developed and developing countries are well suited for use as basic
telephone service networks. The key trends that are fueling the worldwide
adoption of WAA/WLL programs include the following:
- Rapid acceptance of cellular mobile communications;
- An accelerating trend toward privatization of
telecommunication service in both developed
and developing countries;
- Development and adoption of digital wireless
transmission standards (e.g., Time Divisional
Multiple Access ("TDMA"), Group Special Mobile
("GSM") and Code Division Multiple Access ("CDMA"))
which enhance network capacity and service capability
while significantly reducing the effective cost per
subscriber served;
- Service network providers acceptance of wireless
network solutions as fast, cost effective answers to
their customers' unmet demand for telecommunications;
and,
- PCS licensing and the proposed telecommunications
legislation within the U.S. should intensify
competition by wireless service providers to capture
wireless minutes of usage.
Based upon its proprietary interface technology, the Company
designs, manufacturers and markets a full line of WAA/WLL products which allow
cost-effective, innovative communications solutions where wired facilities are
(1) of substandard quality, (2) unavailable on a timely basis, (3) too costly,
or, (4) in need of alternative access or backup/diverse routing capability for
local telephone service exists.
CAPITAL RESOURCES
The Company has issued 20,000 shares of Preferred Stock. On
April 16, 1997, the Company issued to each of Nelson Partners and Olympus
Securities 5,000 shares of Preferred Stock (collectively a total of 10,000
shares) in exchange for Ten Million Dollars ($10,000,000) pursuant to a private
placement. On June 6, 1997, the Company issued to each of Stark International
and Shepard International Investments 5,000 shares of Preferred Stock
(collectively, 10,000 shares) in exchange for Ten Million Dollars ($10,000,000)
pursuant to a private placement. The conversion terms of the Preferred Stock
reflect the equivalent of a 5% annual stock dividend. The Preferred Stock
automatically converts to shares of the Company's Common Stock on April 16,
1999, or October 16, 1999, depending upon the conversion price. Prior to
maturity, the Preferred Stock is convertible by the holders of the Preferred
Stock under specific terms and conditions which include "collars" on the
conversion price and limitations on related stock trading. In both cases, the
conversion formula is based upon the Nasdaq closing bid prices for the Company's
Common Stock. The Company also has the right to redeem the Preferred Stock for
cash at defined terms. Senior management anticipates that the funds will be used
for the development of new products for the worldwide fixed wireless terminal
business.
On April 23, 1997, the Company entered into a Loan and
Security Agreement with Sanwa Business Credit Corporation for a revolving credit
facility of up to Twenty Million Dollars ($20,000,000) (the "Loan"). Borrowings
under the Loan are subject to borrowing base requirements and other
restrictions. Under the Loan, the Company is required to comply with certain
affirmative and negative covenants.This Agreement replaces a prior credit
facility. Senior management anticipates that the Loan will be used to meet
demands on working capital requirements associated with certain large wireless
local loop projects that the Company intends to bid on.
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends on its
ability to adapt to the rapidly changing telecommunications environment and to
continue to meet customers' needs. The Company is currently adapting its
products to new wireless technologies and is working closely with several
companies, including long-distance carriers, cellular service providers and
telecommunications infrastructure providers and equipment manufacturers, to
develop new fixed wireless products.
10
<PAGE> 12
For example, pursuant to the terms of the Stock Purchase
Agreement, between Wireless Domain, Inc., formerly Telepath Corporation
("Wireless Domain") and the Company, dated as of June 28, 1996 (the "Stock
Purchase Agreement"), Telepath has undertaken to develop certain fixed wireless
products for the Company. The agreement calls for the Company to increase its
equity position in Wireless Domain to 50% by August of 1997 by purchasing an
additional one-sixth of Wireless Domain for 150,000 shares of the Company's
common stock as well as payments totaling $0.5 million in two separate
transactions. The first of the two additional investments in Wireless Domain
occurred during the second quarter of fiscal year 1997. In January 1997, the
Company exchanged $0.25 million in cash and 75,000 shares of the Company's
common stock (approximate value of $0.5 million) for an additional one-twelfth
of Wireless Domain. Under the agreement, the Company purchases various product
development services from Wireless Domain. The Company spent $0.5 million and
$1.1 million respectively on such services from Wireless Domain during the three
months and six months ended March 31, 1997. This relationship provides the
Company, subject to certain terms of the Stock Purchase Agreement, with access
to an additional 24 engineers. Additionally, Motorola has also agreed to fund
certain product development activities.
As of May 15, 1997, the Company's research and development
staff was comprised of 18 engineers and is focused on bringing new products to
market in the most advantageous and timely manner possible. Additionally, the
research staff continually investigates methods by which the Company can reduce
the costs of its products.
The Company is currently adapting its products to digital
wireless standards, including GSM, DCS1800, PCS1900, TDMA and CDMA as well as
satellite-based systems.
MANUFACTURING
Fabrication of the Company's products is accomplished through
a combination of in-house manufacturing and subcontracting. The Company
manufactures security alarm transmission products and fixed wireless terminals
at its facility in Vernon Hills. The Company has developed proprietary testing
equipment and procedures to conduct comprehensive quality control and quality
assurance throughout the manufacturing and assembly process. Quality programs
are a high priority at the Company; since 1994, the Company has been designated
as an ISO 9001 certified Company.
The Company historically has contracted with several suppliers
for the critical components of its products. The major exception to this policy
has been transceiver units, which are principally supplied by Motorola. The
Company's interface technology is compatible with several other manufacturers'
transceivers, and the Company believes it could obtain transceivers from such
manufacturers if sufficient quantities were not available from Motorola,
although not necessarily on equivalent terms.
SELLING SHAREHOLDERS
All of the shares offered hereby were issued or are issuable
by the Company to the Selling Shareholders based on each such Selling
Shareholders pro-rata share of the Common Stock issued or issuable to the
Selling Shareholder upon the conversion of the Preferred Stock ("Registrable
Securities") as of the date this Registration Statement, as amended, becomes
effective. The Registrable Securities will be issued or are issuable to the
Selling Shareholders pursuant to the terms of the Certificate of Designation of
the Preferred Stock. The 20,000 shares of Preferred Stock issued by the Company
to the Investors constituted the consideration for the payment by the
Investors to the Company of approximately Twenty Million Dollars ($20,000,000).
Pursuant to the terms of the registration rights agreements,
between the Company and the Investors, the Company agreed to register the
Registrable Securities under the Securities Act and to keep such registration
effective until the earlier of: (i) the date as of which the Selling
Shareholders may sell all of the Registrable Securities, without restriction
pursuant to Rule 144(k) under the 1933 Act (or successor thereto), or (ii) the
date on which (A) the Selling Shareholders have sold all of the Registrable
Securities and (B) none of the Preferred Stock is outstanding.
The following table sets forth certain information regarding
the hypothetical beneficial ownership of the Company's Common Stock that would
be held by the Selling Shareholders if the conversion of Preferred Stock to
Common Stock occurred on May 15, 1997. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common
11
<PAGE> 13
Stock. None of the Selling Shareholders is currently an affiliate of the
Company or has had a material relationship with the Company during the last
three years.
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially
Shares of Common Stock Shares of Owned
Beneficially Owned Common Stock After the Offering
Prior to the Being ------------------
Offering(1) Offered Number Percent
----------- ------- ------ -------
<S> <C> <C> <C> <C>
Nelson Partners(4) 1,004,055(2) 2,750,000(3) -0- 0%
Olympus Securities(4) 1,004,055(2) 2,750,000(3) -0- 0%
Stark International 1,004,055(2) 2,750,000(3) -0- 0%
Shepherd Inter'l Investments 1,004,055(2) 2,750,000(3) -0- 0%
--------- ---------- --- --
4,016,220 11,000,000 -0- 0%
</TABLE>
PLAN OF DISTRIBUTION
- --------
(1) Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of Common Stock
subject to options, warrants and convertible securities currently exercisable or
convertible, or exercisable or convertible within 60 days, are deemed
outstanding, including for purposes of computing the percentage ownership of the
person holding such option, warrant or convertible security, but not for
purposes of computing the percentage of any other holder.
(2) Beneficial ownership is shown as of May 15, 1997 based on a
hypothetical calculation of the number of shares of Common Stock issuable to
each Selling Shareholder if all the shares of Preferred Stock held by such
Selling Shareholder had been converted on that date. Beneficial ownership is
based upon conversion of all of the Selling Shareholders Preferred Stock at
$5.00 per share of Common Stock (which price was the effective conversion price
of the Preferred Stock on May 15, 1997) and accretion of a 5% premium per
annum.
(3) The shares of Common Stock offered by the Selling Shareholders
hereby include such presently indeterminate number of shares as may be issued on
conversion of the Preferred Stock pursuant to the provisions thereof regarding
determination of the applicable conversion price. The Company has agreed to
register initially a number of shares of Common Stock equal to approximately one
and one-half times the number of shares of Common Stock that would have been
issued if all the Preferred Stock had been converted at the conversion price in
effect at the time of the filing of this registration statement. By way of
example, if all of the shares of Preferred Stock held by the Selling
Shareholders had been converted on May 15, 1997, the Company would have been
obligated to issue an aggregate of 4,016,220 shares of Common Stock in respect
thereto. The foregoing estimate is for illustrative purposes only. The actual
number of shares of Common Stock issued or issuable upon conversion of the
Preferred Stock is subject to adjustment and could be materially less or more
than such estimated amount depending upon factors which cannot be predicted by
the Company at this time, including, among others, the future market price of
the Common Stock, accretion of a 5% premium per annum and certain anti-dilution
adjustments. Pursuant to the terms of the Preferred Stock, the Preferred Stock
is convertible by the holders thereof only to the extent that the number of
shares of Common Stock thereby issuable, together with the number of shares of
Common Stock then held by such holder and its affiliates (not including shares
underlying unconverted shares of Preferred Stock) would not exceed 4.9% of the
then outstanding Common Stock as determined in accordance with Section 13(d) of
the Securities Act of 1934, as amended. Accordingly, the number of shares of
Common Stock set forth for such Selling Shareholder may exceed the actual number
of shares of Common Stock that such Selling Shareholder could own beneficially
at any given time through its ownership of the Preferred Stock. See "Risk
Factors "Potential Dilution." The number of shares noted as being offered by
the Selling Shareholder are also subject to increase in the event of a stock
split, stock dividend or similar transaction involving the Common Stock pursuant
to Rule 416 under the Securities Act.
(4) Citadel Limited Partnership is the managing general partner of
Nelson Partners and the trading manager of Olympus Securities and consequently
has voting control and investment discretion over securities held by both Nelson
Partners and Olympus Securities. The ownership information for Nelson Partners
does not include the shares owned by Olympus Securities and the ownership
information for Olympus Securities does not include the shares owned by Nelson
Partners.
12
<PAGE> 14
The purpose of this Prospectus is to permit each Selling
Shareholder, if it desires, to dispose of some or all of their shares at such
times and at such prices as each may choose. Whether sales of shares will be
made, and the timing and amount of any sale made, is within the sole discretion
of each Selling Shareholder.
The Common Stock covered by this Prospectus may be offered for
sale from time to time by the Selling Shareholder(s) to or through underwriters
or directly to other purchasers or through agents in one or more market
transactions, in one or more private transactions or in a combination of such
methods of sale, at prices then prevailing, at prices related to such prices or
at negotiated prices. Such methods of distribution may include, without
limitation: (a) a block trade in which the broker-dealer so engaged will attempt
to sell the Common Stock as agent but may position and resell a portion of the
block as a principal to facilitate the transaction; (b) purchases by a
broker-dealer as a principal and resale by such broker-dealer for its own
account pursuant to this Registration Statement; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face- to-face transactions between sellers and purchasers without a broker or
dealer. This Prospectus may be amended and supplemented from time to time to
describe a specific plan of distribution.
In connection with distributions of the Common Stock or
otherwise, the Selling Shareholder(s) may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of Common Stock in the course of hedging the positions they assume with
the Selling Shareholder(s). The Investors each have agreed that, subject to
certain conditions, so long as an Investor, or any of its affiliates, owns
beneficially any Preferred Stock, such Investor shall engage in short sales of
Common Stock only if made no earlier than three days prior to the date of
conversion of any Preferred Stock with respect to the number of shares of Common
Stock that does not exceed the number of shares of Common Stock to be obtained
by such Investor pursuant to such conversion. Except as limited by the preceding
sentence, the Selling Shareholder(s) may also sell Common Stock short and
redeliver the shares to close out such short positions. The Selling
Shareholder(s) may also enter into options or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealer or financial institution of the Common Stock offered hereby,
which Common Stock such broker-dealer or other financial institutions may resell
pursuant to this Prospectus (as supplemented or amended to reflect such
transaction). The Selling Shareholder(s) may also pledge the shares registered
hereunder to a broker-dealer or other financial institution and, upon a default,
such broker-dealer or other financial institution may effect sales of the
pledged Common Stock pursuant to this Prospectus (as supplemented or amended to
reflect such transaction). In addition, any Common Stock covered by this
Prospectus that qualifies for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than pursuant to this Prospectus.
Brokers, dealers or agents may receive compensation in the
form of commissions, discounts or concessions from the Selling Shareholders in
amounts to be negotiated in connection with sales pursuant thereto. Such brokers
or dealers and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act, in connection with such
sales and any such commission, discount or concession may be deemed to be
underwriting discounts or commissions under the Securities Act.
Certain costs, expenses and fees in connection with the
registration of the Common Stock will be borne by the Company. Commissions,
discounts and transfer taxes, if any, attributable to the sales of the Common
Stock will be borne by the Selling Shareholders. The Selling Shareholders have
agreed or may agree to indemnify the Company or any underwriter, as the case may
be, and any of their respective affiliates, directors, officers and controlling
persons, against certain liabilities in connection with the offering of the
Common Stock pursuant to this Registration Statement, including liabilities
arising under the Securities Act. In addition, the Company has agreed to
indemnify the Selling Shareholders or any underwriter, as the case may be, and
any of their respective affiliates, directors, officers and controlling persons,
against certain liabilities in connection with the offering of the Common Stock
pursuant to this Prospectus, including liabilities arising under the Securities
Act.
13
<PAGE> 15
The Company has agreed to supply the Selling Shareholders with
such number of copies of this Prospectus as each may reasonably request. The
Selling Shareholders will in all cases be responsible for complying with the
prospectus delivery requirements of Section 5(b)(2) of the Securities Act in
connection with the offering and sale of the shares.
14
<PAGE> 16
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby
are being passed upon for the Company by Covington & Burling, Washington, D.C.
EXPERTS
The consolidated financial statements of Telular Corporation appearing
in Telular Corporation's Form 10-K for the year ended September 30, 1996, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
15
<PAGE> 17
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered hereby (other than
underwriting discounts and commissions) are set forth below:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee............................................ $12,650
----------
Nasdaq Listing Fee.............................................................................. 17,500
---------
Blue Sky Fees and Expenses...................................................................... 0
---------
Accounting Fees and Expenses................................................................... 5,000
---------
Legal Fees and Expenses......................................................................... 30,000
---------
Registrar and Transfer Agent's Fees and Expenses............................................... 0
---------
Miscellaneous Expenses......................................................................... 1,000
---------
Printing Costs.................................................................................. 0
---------
Total $ 66,150
-----------
</TABLE>
- ----------------------------------
* Except for the Securities and Exchange Commission registration fee and
the Nasdaq listing fee all expenses are estimated.
Item 15. Indemnification of Officers and Directors
Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") provides that a corporation may indemnify any person,
including any officer or director, who was or is a party or who is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of the fact that he
is or was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise ("such Person"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonable
incurred by such Person, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In any threatened, pending or completed action
by or in the right of the corporation, a corporation also may indemnify any such
Person for costs actually and reasonably incurred by him in connection with that
action's defense or settlement, if he acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation; however, no indemnification shall be made with respect to any
claim, issue or matter as to which such Person shall have been adjudged to be
liable to the corporation, unless and only to the extent that a court shall
determine that such indemnity is proper. Where a director, officer, employee or
agent is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
(including attorneys' fees) that such officer or director actually and
reasonably incurred.
The Registrant's Bylaws provide that the Registrant will
indemnify such Persons against all liability and expense arising out of such
Person's connection with the business of the Registrant, provided that the Board
of
II-1
<PAGE> 18
Directors determines that such Person acted in good faith and reasonably
believed that his actions were not opposed to the best interests of the
Registrant; and with respect to any criminal action or proceeding, that such
Person had no reasonable cause to believe his conduct was unlawful. In the case
of any action, suit or proceeding by or in the right of the Registrant in which
such Person is adjudged liable to the Registrant, the Registrant will indemnify
such Person for expenses only to the extent that the court in which such action
is brought determines, upon application, that such Person is entitled to
indemnity for reasonable expenses, and in no case shall such indemnification
extend to liability. Advances against reasonable expenses may be made by the
Registrant on terms fixed by the Board of Directors subject to an obligation to
repay if indemnification proves unwarranted.
The Registrant's Certificate of Incorporation provides that,
to the fullest extent permitted by Delaware law, its directors shall not be
liable for monetary damages for breach of the directors' fiduciary duty to the
Registrant and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care. In appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant or its stockholders, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
Directors and officers of the Registrant are covered by a
directors' and officers' liability insurance policy of the Registrant.
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------ ----------- ---------
<S> <C> <C>
Instruments defining the rights
of Security Holders
4.1 Certificate of Incorporation Incorporated by reference to
Exhibit 3.1 to the Registration State-
ment of Telular Corporation on Form
S-1, Registration No. 33-72096, as
amended ("Form S-1")
4.2 Amendment No. 1 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.2 to Form S-1
4.3 Amendment No. 2 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.3 to Form S-1
4.4 Amendment No. 3 to Certificate Incorporated by reference to
of Incorporation Exhibit 3.4 to Form 10-Q filed
on May 16, 1997
4.5 Bylaws Incorporated by reference to
Exhibit 3.4 to Form S-1
</TABLE>
II-2
<PAGE> 19
<TABLE>
<S> <C> <C>
4.6 Certificate of Designations, Incorporated by reference
Rights and Preferences of to Exhibit 99.2 to The Current
Series A Convertible Preferred Report of the Company on
Stock Form 8-K filed on
April 25, 1997
Opinion on legality of Common
Stock being registered
5.1 Opinion of Covington & Burling Filed herewith
Consents of experts and counsel
23.1 Consent of Covington & Burling Filed herewith as Exhibit 5.1
23.2 Consent of Ernst & Young LLP Filed herewith
Additional Exhibits
99.1 Securities Purchase Agreement dated Incorporated by reference
April 16, 1997, by and between the to Exhibit 99.1 to the Current Report
Company and the purchasers of the of the Company on Form 8-K filed on
Series A Convertible Preferred Stock April 25, 1997
99.2 Registration Rights Agreement dated Incorporated by reference
April 16, 1997, by and between the to Exhibit 99.3 to the Current Report
Company and the purchasers of the of the Company on Form 8-K dated
Series A Convertible Preferred April 25, 1997
Stock
99.3 Securities Purchase Agreement Filed herewith
dated June 6, 1997, by and between
the Company and the purchasers
of the Series A Convertible Preferred
Stock
99.4 Registration Rights Agreement Filed herewith
dated June 6, 1997, by and between
the Company and the purchasers
of the Series A Convertible Preferred
Stock
</TABLE>
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers
or sales are being made, a post-effective
amendment to the Registration Statement:
(i) To include any prospectus required
by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any
facts or events arising after the
effective date of the Registration
Statement (or the most recent
post-effective amendment thereof)
which, individually or in the
aggregate, represent a fundamental
change in the information set forth
in the Registration Statement;
(iii) To include any material information
with respect to the plan of
distribution not previously
disclosed in the Registration
Statement or any material change to
such information in the Registration
Statement;
Provided, however, that paragraphs (a)(1)(i)
and (a)(1)(ii) do not apply if the
information required to be included in a
post-effective amendment by those paragraphs
is contained in periodic reports filed by
the Registrant pursuant to
II-3
<PAGE> 20
Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in
the Registration Statement.
(2) That, for the purpose of determining any
liability under the Securities Act, each
such post-effective amendment shall be
deemed to be a new registration statement
relating to the securities offered therein,
and the offering of such securities at that
time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the
securities registered which remain unsold at
the termination of the offering.
(b) The Registrant hereby undertakes that, for purposes
of determining any liability under the Securities
Act, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new
Registration Statement relating to the Common Stock
therein, and the offering of such Common Stock at
that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person
of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in Vernon Hills, State of Illinois, on the 8th day
of July, 1997.
TELULAR CORPORATION
(Registrant)
By /s/ Kenneth E. Millard
----------------------
Kenneth E. Millard
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Kenneth E. Millard Chief Executive Officer and Director July 8, 1997
- ---------------------- (principal executive officer)
Kenneth E. Millard
/s/ Thomas M. Mason Senior Vice President, Chief July 8, 1997
- ------------------- Financial Officer and Secretary
Thomas M. Mason (principal financial officer)
/s/ William L. De Nicolo * Director and Chairman of the Board July 8, 1997
- ------------------------
William L. De Nicolo
/s/ John E. Berndt * Director July 8, 1997
- ------------------
John E. Berndt
/s/ Larry J. Ford * Director July 8, 1997
- -----------------
Larry J. Ford
</TABLE>
II-5
<PAGE> 22
<TABLE>
<S> <C> <C>
/s/ Richard D. Haning * Director July 8, 1997
- ---------------------
Richard D. Haning
/s/ David P. Mixer * Director July 8, 1997
- ------------------
David P. Mixer
</TABLE>
* By Kenneth E. Millard, attorney-in-fact
II-6
<PAGE> 23
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Reference
- ------- ----------- ---------
<S> <C> <C>
Instruments defining the rights
of Security Stockholders
4.1 Certificate of Incorporation Incorporated by reference to
Exhibit 3.1 to the Registration State-
ment of Telular Corporation on Form
S-1, Registration No. 33-72096, as
amended ("Form S-1")
4.2 Amendment No. 1 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.2 to Form S-1
4.3 Amendment No. 2 to Incorporated by reference to
Certificate of Incorporation Exhibit 3.3 to Form S-1
4.4 Amendment No. 3 to Certificate Incorporated by reference to
of Incorporation Exhibit 3.4 to Form 10-Q filed
on May 16, 1997
4.5 Bylaws Incorporated by reference to
Exhibit 3.4 to Form S-1
4.6 Certificate of Designations, Incorporated by reference
Rights and Preferences of to Exhibit 99.2 to Form 8-K
Series A Convertible Preferred filed on April 25, 1997
Stock
Opinion on legality of Common
Stock being registered
5.1 Opinion of Covington & Burling Filed herewith
Consents of experts and counsel
23.1 Consent of Covington & Burling Filed herewith as Exhibit 5.1
23.2 Consent of Ernst & Young LLP Filed herewith
Additional Exhibits
99.1 Securities Purchase Agreement Incorporated by reference
by and between Telular to Exhibit 99.1 to Form 8-K
Corporation and the purchasers filed on April 25, 1997
of the Series A Convertible
Preferred Stock
99.2 Registration Rights Agreement Incorporated by reference to
by and between Telular Exhibit 99.3 on Form 8-K
Corporation, and the dated April 25, 1997
purchasers of the Preferred
Stock
99.3 Securities Purchase Agreement Filed herewith
dated June 6, 1997, by and between
the Company and the purchasers
of the Series A Convertible Preferred
Stock
99.4 Registration Rights Agreement Filed herewith
dated June 6, 1997, by and between
the Company and the purchasers
of the Series A Convertible Preferred
Stock
</TABLE>
<PAGE> 1
Exhibit 5.1
July 8, 1997
Telular Corporation
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Gentlemen:
This opinion is being furnished to you in connection with the
public resale by Olympus Securities, Ltd ("Olympus"), Nelson Partners
("Nelson"), Stark International ("Stark") and Shepherd International
Investments, Ltd. ("Shepherd") or their respective assigns (collectively, the
"Preferred Stock Investors"), of up to Eleven Million (11,000,000) shares of
Telular Corporation's (the "Company") Common Stock, par value $.01 per share
(the "Shares") pursuant to the registration statement filed by the Company
under the Securities Act of 1933 on May 28, 1997, with the Securities and
Exchange Commission (the "Commission") as amended by Amendment No. 1, dated
June 13, 1997, as further amended by Amendment No. 2, of even date herewith
(which registration statement, as amended by all amendments, is hereinafter
called the "Registration Statement").1 The Shares were issued to the Preferred
Stock Investors by the Company under the terms of a Private Placement, by and
among Nelson, Olympus and the Company, dated as of April 16, 1997, and a
Private Placement, by and among Stark, Shepherd and the Company, dated as of
June 6, 1997. The Shares may be sold from time-to-time by Preferred Stock
Investors to or through brokers, dealers or other agents or directly to other
purchasers in one or more market transactions, in one or more private
transactions, or in a combination of such methods of sale, at prices then
prevailing, at prices related to such prices, or at negotiated prices.
We have acted as counsel for the Company in connection with
the issue and sale of the Shares to the Preferred Stock Investors. We have
examined signed copies of the Registration Statement and all exhibits thereto,
all as filed with the Commission. We have also examined and relied
- ----------------
1/ The Registration Statement also covers such indeterminate numbers of
additional shares of Common Stock as may become issuable upon conversion of the
Company's Series A Convertible Preferred Stock (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (ii) by reason of
changes in the conversion price or conversion rate of the Preferred Stock in
accordance with the terms of the Certificate of Designations, Rights and
Preferences of the Series A Convertible Preferred Stock.
<PAGE> 2
Telular Corporation
July 8, 1997
Page - 2 -
upon certain resolutions adopted by the Board of Directors of the Company,
certified by the Secretary of the Company, a copy of the Bylaws of the Company,
and a copy of the Certificate of Incorporation of the Company certified by the
Secretary of the State of the State of Delaware. We also have examined such
other documents and made such other investigations as we have deemed necessary
to form a basis for the opinion hereinafter expressed.
In examining the foregoing documents we have assumed the
authenticity of documents submitted to us as originals, the genuineness of all
signatures, the conformity to original documents of documents submitted as
copies, and the accuracy of the representations and statements included
therein.
Based upon the foregoing, it is our opinion that the Shares
issued to and to be sold by the Preferred Stock Investors pursuant to the
Registration Statement are duly authorized, validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement, and to the use of our name therein and in the related
Prospectus under the caption "Legal Matters".
It is understood that this opinion is to be used only in
connection with the offer and sale of the Shares while the Registration
Statement is in effect.
Very truly yours,
/s/ Covington & Burling
COVINGTON & BURLING
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated November 8, 1996 in Amendment No. 2 to the Registration
Statement (Form S-3 No. 333-27915) and related Prospectus of Telular
Corporation for the registration of up to 11,000,000 shares of its common stock.
Ernst & Young LLP
Chicago, Illinois
July 8, 1997
<PAGE> 1
EXHIBIT 99.3
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of June 6,
1997, by and among Telular Corporation, a Delaware corporation, with
headquarters located at 647 N. Lakeview Parkway, Vernon Hills, Illinois 60061
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of its Preferred
Stock, $.01 par value per share (the "PREFERRED STOCK"): the Company's Series
A Convertible Preferred Stock (the "SERIES A PREFERRED STOCK"), which shall be
convertible into shares of the Company's Common Stock, $.01 par value per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Certificate of Designations,
Preferences and Rights of the Series A Preferred Shares, substantially in the
form attached hereto as Exhibit A (the "CERTIFICATE OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, an aggregate of 10,000 shares of Series A Preferred Stock in
the respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers; and
D. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF SERIES A PREFERRED SHARES.
a. Purchase of Series A Preferred Shares. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate of 10,000 shares of Series A Preferred
Stock (the "SERIES A PREFERRED SHARES"), in the respective amounts set forth
opposite each Buyer's name on the Schedule of Buyers (the "CLOSING"). The per
share purchase price (the "PURCHASE PRICE") of the Series A Preferred Shares
shall be $1,000.00.
<PAGE> 2
b. Closing Date. The date and time of the Closing (the "CLOSING
DATE") shall be 10:00 a.m. Central Standard Time, within five (5) business
days following the date hereof, subject to notification of satisfaction (or
waiver) of the conditions to the Closing set forth in Sections 6 and 7 below
(or such later date as is mutually agreed to by the Company and the Buyers).
The Closing shall occur on the Closing Date at the offices of Covington &
Burling, 1201 Pennsylvania Ave., N.W., Washington, D.C. 20044.
c. Form of Payment. On the Closing Date, (i) each Buyer shall pay
the Purchase Price to the Company for the Series A Preferred Shares to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions,
and (ii) the Company shall deliver to each Buyer, a stock certificate or
certificates representing such number of the Series A Preferred Shares which
such Buyer is then purchasing (as indicated opposite such Buyer's name on the
Schedule of Buyers), duly executed on behalf of the Company and registered in
the name of such Buyer or its designee (the "STOCK CERTIFICATES").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the Series A
Preferred Shares and (ii) upon conversion of the Series A Preferred Shares,
will acquire the Conversion Shares then issuable, for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered
or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Series A
Preferred Shares for any minimum or other specific term and reserves the right
to dispose of Series A Preferred Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the Series
A Preferred Shares and the Conversion Shares are being offered and sold to it
in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of such Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of such Buyer to acquire
the Series A Preferred Shares and the Conversion Shares.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Series A
Preferred Shares and the Conversion Shares which have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due
-2-
<PAGE> 3
diligence investigations conducted by such Buyer or its advisors, if any, or
its representatives shall modify, amend or affect such Buyer's right to rely
on the Company's representations and warranties contained in Section 3 below.
Such Buyer understands that its investment in the Series A Preferred Shares
and the Conversion Shares involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Series A Preferred Shares and the Conversion Shares.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Series A
Preferred Shares or the Conversion Shares or the fairness or suitability of
the investment in the Series A Preferred Shares or the Conversion Shares nor
have such authorities passed upon or endorsed the merits of the offering of
the Series A Preferred Shares or the Conversion Shares.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Series A Preferred
Shares and the Conversion Shares have not been and are not being registered
under the 1933 Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless (A) subsequently registered
thereunder, (B) such Buyer shall have delivered to the Company an opinion of
counsel, in a generally acceptable form, to the effect that such securities to
be sold, assigned or transferred may be sold, assigned or transferred pursuant
to an exemption from such registration, or (C) sold, assigned or transferred
pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule
thereto) ("RULE 144"); (ii) any sale of such securities made in reliance on
Rule 144 promulgated under the 1933 Act (or a successor rule thereto) may be
made only in accordance with the terms of Rule 144 and further, if Rule 144 is
not applicable, any resale of such securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of
the SEC thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such securities under the 1933 Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder.
g. Legends. Such Buyer understands that the certificates or other
instruments representing the Series A Preferred Shares and, until such time as
the sale of the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, or otherwise, may be sold
pursuant to Rule 144 without any restriction as to the public resale thereof,
the stock certificates representing the Conversion Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE
-3-
<PAGE> 4
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Series A Preferred Shares
or the Conversion Shares upon which it is stamped, if, unless otherwise
required by state securities laws, (i) the Series A Preferred Shares or the
Conversion Shares are registered for sale under the 1933 Act, (ii) in
connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of the Series A Preferred Shares or the
Conversion Shares may be made without registration under the 1933 Act, or
(iii) such holder provides the Company with reasonable assurances that the
Series A Preferred Shares or the Conversion Shares can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of
a particular date that can then be immediately sold. Each Buyer acknowledges,
covenants and agrees to sell the Series A Preferred Shares and the Conversion
Shares represented by a certificate(s) from which the legend has been removed,
only pursuant to (i) a registration statement effective under the 1933 Act, or
(ii) advice of counsel that such sale is exempt from registration required by
Section 5 of the 1933 Act. In the event the above legend is removed from the
Series A Preferred Shares or the Conversion Shares, the Company may, upon
reasonable advance notice to the holder, require that the above legend be
placed on any Series A Preferred Shares or Conversion Shares that cannot then
be sold pursuant to an effective registration statement or Rule 144(k) under
the 1933 Act (or any successor rule thereto) which legend shall be removed
when the Series A Preferred Stock or Conversion Shares may again be sold
pursuant to an effective registration statement or Rule 144(k).
h. Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country specified
in its address on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the
requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign
-4-
<PAGE> 5
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole or on the transaction contemplated hereby.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement and the Registration Rights Agreement, and to issue
the Series A Preferred Shares and the Conversion Shares in accordance with the
terms hereof and thereof, (ii) the execution and delivery of this Agreement
and the Registration Rights Agreement by the Company and the consummation by
it of the transactions contemplated hereby and thereby, including without
limitation the issuance of the Series A Preferred Shares and the reservation
for issuance and the issuance of the Conversion Shares issuable upon
conversion thereof, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders, except that, as provided in the
Certificate of Designations, the issuance of certain Conversion Shares may be
restricted in the absence of stockholder approval in accordance with Rule
4460(i) promulgated by the NASD, (iii) this Agreement and the Registration
Rights Agreement have been duly executed and delivered by the Company, (iv)
this Agreement and the Registration Rights Agreement constitute the valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and
(v) prior to the Closing Date, the Certificate of Designations has been filed
with the Secretary of State of the State of Delaware and will be in full force
and effect, enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 75,000,000 shares of Common Stock, of which
as of April 15, 1997, [31,540,041] shares were issued and outstanding, and
10,000,000 shares of Preferred Stock, of which as of the date hereof, 10,000
shares were issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), no shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in Schedule 3(c),
as of the effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or any of its subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or
any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares
of capital stock of the Company or any of its subsidiaries, (ii) there are no
outstanding debt securities and (iii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to register
the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement). Except as disclosed in Schedule 3(c), there
are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Series A Preferred
Shares or the
-5-
<PAGE> 6
Conversion Shares as described in this Agreement. The Company has furnished
to the Buyer true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the
"CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in effect on
the date hereof (the "BY-LAWS"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
d. Issuance of Securities. The Series A Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be
(i) validly issued, fully paid and non-assessable, (ii) free from all taxes,
liens and charges with respect to the issue thereof and (iii) entitled to the
rights and preferences set forth in the Certificate of Designations, and (iv)
free from preemptive rights or other similar rights of stockholders of the
Company. Not less than 150% of the number of shares of Common Stock necessary
to provide for the issuance of the Conversion Shares based on the trading
price of the Common Stock as of the date hereof have been duly authorized and
reserved for issuance upon conversion of the Series A Preferred Shares. Upon
conversion in accordance with the Certificate of Designations, the Conversion
Shares will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, and free from
preemptive rights or other similar rights of stockholders of the Company, with
the holders being entitled to all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of this Agreement and the Registration
Rights Agreement by the Company, the performance by the Company of its
obligations under the Certificate of Designation and the consummation by the
Company of the transactions contemplated hereby and thereby will not (i)
result in a violation of the Certificate of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or By-laws or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. Except as disclosed in Schedule 3(e),
neither the Company nor its subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, Certificate of Designation,
Preferences and Rights of any outstanding series of preferred stock or By-laws
or their organizational charter or by-laws, respectively, or any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company
or its subsidiaries. The business of the Company and its subsidiaries is not
being conducted, and shall not be conducted, in violation of any law,
ordinance, regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act, the Company
is not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental or regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement or the Registration
Rights Agreement or perform its obligations under the Certificate of
Designation in accordance with the terms hereof or thereof. Except as
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disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing requirements of
NASDAQ. The Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing or to delisting of
the Common Stock by NASDAQ.
f. SEC Documents; Financial Statements. Since January 1, 1996,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
ACT") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Buyer or its representative
true and complete copies of the SEC Documents. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of
the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
No other information provided by or on behalf of the Company to the Buyer
which is not included in the SEC Documents, including, without limitation,
information referred to in Section 2(d) of this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in the light of the circumstance under
which they are or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) or the Company's Quarterly Report on Form 10-Q for the three months and
six months ended December 31, 1996 and March 31, 1997, as filed with the SEC
on February 14, 1997, and May 14, 1997, respectively, since March 31, 1997
there has been no material adverse change and no material adverse development
in the business, properties, operations, financial condition, results of
operations or prospects of the Company and its subsidiaries taken as a whole.
The Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company
or its subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
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h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or its subsidiaries or their respective directors or
officers, the Common Stock, wherein an unfavorable decision, ruling or finding
would (i) have a material adverse effect on the transactions contemplated
hereby (ii) adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, this
Agreement, the Registration Rights Agreement, or any of the documents
contemplated herein or (iii), except as expressly set forth in the SEC
Documents or in Schedule 3(h), have a material adverse effect on the business,
operations, properties, financial condition, results of operation or prospects
of the Company and its subsidiaries taken as a whole.
i. Acknowledgment Regarding Buyers' Purchase of Series A Preferred
Shares. The Company acknowledges and agrees that each of the Buyers is acting
solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to
such Buyer's purchase of the Series A Preferred Shares or the Conversion
Shares. The Company further represents to each Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives. The Company has not
provided to any Buyer any nonpublic information that, in the opinion of the
Company, is material to a decision to purchase or sell Common Stock.
j. Intentionally omitted.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Series A Preferred Shares or the Conversion Shares.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Series A Preferred Shares or the Conversion Shares under the 1933 Act or
cause this offering of Series A Preferred Shares and Conversion Shares to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of the Nasdaq National Market System.
m. Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its subsidiaries, is any such dispute threatened. None
of the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.
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<PAGE> 9
n. Intellectual Property Rights. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of
the Company's trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or are expected to
expire or terminate in the near future. The Company and its subsidiaries do
not have any knowledge of any infringement by the Company or its subsidiaries
of trademark, trade name rights, patents, patent rights, copyrights,
inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
service marks, service mark registrations, trade secret or other infringement;
and the Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties.
o. Environmental Laws. The Company and its subsidiaries are (i)
in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.
p. Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries.
q. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be
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<PAGE> 10
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit.
s. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries.
u. Tax Status. Except as set forth on Schedule 3(u), the Company
and each of its subsidiaries has made or filed all federal and state income
and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has paid all taxes and other governmental assessments and charges that are
material in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
v. Certain Transactions. Except as set forth on Schedule 3(v) and
in the SEC Documents and except for arm's length transactions pursuant to
which the Company makes payments in the ordinary course of business upon terms
no less favorable than the Company could obtain from third parties and other
than the grant of stock options disclosed on Schedule 3(c), none of the
officers, directors, or employees of the Company is presently a party to any
transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
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<PAGE> 11
Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
w. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Series A
Preferred Shares will increase in certain circumstances. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Series A Preferred Shares in accordance with this Agreement and the
Certificate of Designations is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Series A Preferred Shares and the Conversion Shares as required under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before the Closing Date, take such action as
the Company shall reasonably determine is necessary to qualify the Series A
Preferred Shares and the Conversion Shares for, or obtain exemption for the
Series A Preferred Shares and the Conversion Shares for, sale to the Buyers at
the Closing pursuant to this Agreement under applicable securities or "Blue
Sky" laws of the states of the United States, and shall provide evidence of
any such action so taken to the Buyers on or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) the date as of
which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares without restriction pursuant
to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii)
the date on which (A) the Investors shall have sold all the Conversion Shares
and (B) none of the Series A Preferred Shares is outstanding (the
"REGISTRATION PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would otherwise
permit such termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Series A Preferred Shares for substantially the same purposes and
in substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Investor (as that term is defined in the Registration Rights
Agreement) during the Registration Period: (i) within five (5) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K, any
definitive proxy statements and any registration statements or amendments
filed pursuant to the 1933 Act; (ii) within one (1) day after release thereof,
copies of all press releases issued by the Company or any of its subsidiaries
and (iii) copies of any notices and other information made
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<PAGE> 12
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares based on the trading price
of the Common Stock at such time.
g. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange and automated
quotation system (including the Nasdaq National Market System), if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Conversion Shares from time to time
issuable under the terms of this Agreement and the Registration Rights
Agreement. The Company shall maintain the Common Stock's authorization for
quotation on the Nasdaq National Market, The New York Stock Exchange, Inc. or
The American Stock Exchange, Inc. ("AMEX"). The Company shall promptly
provide to each Buyer copies of any notices it receives from the Nasdaq
National Market System regarding the continued eligibility of the Common Stock
for listing on the Nasdaq National Market System. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section 4(g).
h. Expenses. Each of the Company and the Buyers shall each pay
its respective costs and expenses incurred by such party in connection with
the negotiation, investigation, preparation, execution, delivery and
performance of this Agreement and the Registration Rights Agreement and the
Certificate of Designations; provided, that, subject to Section 9(l) below,
following the Closing, the Company shall reimburse the Buyers for Buyers'
attorneys' fees and expenses in connection with this Agreement and the
Registration Rights Agreement up to an aggregate of $15,000.
i. No Short Sales of the Common Stock. So long as (i) a Buyer or
any of its affiliates beneficially owns any Series A Preferred Shares, (ii)
the Company has not issued any publicly traded convertible securities and
(iii) the Company is not in default under the Certificate of Designations for
failing to effect any requested Redemption (as defined in the Certificate of
Designations) or conversion of any Series A Preferred Shares pursuant to the
Certificate of Designations, such Buyer shall not (A) directly or through or
with any other person, engage in any transaction in or relating to securities
of the Company in violation of Section 9 of the 1933 Act, or (B) engage in any
short sales of the Common Stock ("SHORT SALES"); provided, however, that Short
Sales made no earlier than three days prior to the Date of Conversion of any
Series A Preferred Shares with respect to a number of shares of Common Stock
that does not exceed the number of Conversion Shares to be obtained pursuant
to such conversion shall not be prohibited by this Section 4(i)(B). Each
Buyer agrees not to engage in any Short Sales during the ten (10) days prior
to the Closing.
j. Additional Issuances of Series A Preferred Stock. So long as a
Buyer or any of its affiliates beneficially owns Series A Preferred Shares,
the Company shall not issue or agree to issue any shares of Series A Preferred
Stock unless (i) the Company receives prior written consent from each Buyer,
which consent shall not be unreasonably withheld, (ii) the
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purchaser of the shares of Series A Preferred Stock enters into a securities
purchase agreement and registration rights agreement in substantially the form
of, and with terms no more favorable to the purchasers of shares of Series A
Preferred Stock than those set forth in, this Agreement and the Registration
Rights Agreement, respectively, and (iii) the issuance of such additional
shares of Series A Preferred Stock is consummated by April 30, 1997.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, which currently is Harris Bank & Trust Company, to issue certificates,
registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares in such amounts as specified from time to time by each Buyer
to the Company upon conversion of the Series A Preferred Shares (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares under the 1933 Act or the resale of the Conversion Shares
under Rule 144, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section
2(f) hereof (in the case of the Conversion Shares, prior to registration of
the Conversion Shares under the 1933 Act) will be given by the Company to its
transfer agent and that the Series A Preferred Shares and the Conversion
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section 5 shall affect in any way each
Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of the Series A Preferred Shares or Conversion Shares. If a
Buyer provides the Company with an opinion of counsel, reasonably satisfactory
in form, and substance to the Company, that registration of a resale by such
Buyer of any of the Series A Preferred Shares or the Conversion Shares is not
required under the 1933 Act, the Company shall permit the transfer, and, in
the case of the Conversion Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denominations as
specified by such Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event
of a breach or threatened breach by the Company of the provisions of this
Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic
loss and without any bond or other security being required. The Company shall
not change its transfer agent without (i) at least 10 business days' prior
written notice to the Buyers and (ii) providing to the substitute transfer
agent instructions equivalent to those provided to the Company's current
transfer agent pursuant hereto.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Series
A Preferred Shares to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
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<PAGE> 14
a. Such Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company the Purchase
Price for the Series A Preferred Shares being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Series A
Preferred Shares at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer
at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to such Buyer.
b. The Certificate of Designations, shall have been filed with the
Secretary of State of the State of Delaware, and a copy thereof certified by
such Secretary of State shall have been delivered to such Buyer.
c. The Common Stock shall be authorized for quotation on the
Nasdaq National Market System, The New York Stock Exchange, Inc. or AMEX,
trading in the Common Stock issuable upon conversion of the Series A Preferred
Shares to be traded on the Nasdaq National Market System, The New York Stock
Exchange, Inc. or AMEX shall not have been suspended by the SEC, The Nasdaq
Stock Market, Inc., The New York Stock Exchange, Inc. or AMEX and all of the
Conversion Shares issuable upon conversion of the Series A Preferred Shares to
be sold at the Closing shall be listed upon the Nasdaq National Market System,
The New York Stock Exchange, Inc. or AMEX.
d. The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date.
Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing
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<PAGE> 15
effect and as to such other matters as may be reasonably requested by such
Buyer including, without limitation, an update as of the Closing Date
regarding the representation contained in Section 3(c) above.
e. Such Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of Exhibit C attached
hereto.
f. The Company shall have executed and delivered to such Buyer the
Stock Certificates (in such denominations as such Buyer shall request) for the
Series A Preferred Shares being purchased by such Buyer at the Closing.
g. The Board of Directors of the Company shall have adopted the
resolutions in substantially the form of Exhibit D attached hereto.
h. As of the Closing Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Series A Preferred Shares, at least 150% of the number
of shares of Common Stock necessary to provide for the issuance of the
Conversion Shares based on the trading price of the Common Stock as of the
Closing Date.
i. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit E attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
j. The transactions contemplated hereby shall not violate any law,
regulation or order then in effect and applicable to Buyers or the Company.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Series A Preferred Shares and
Conversion Shares hereunder and in addition to all of the Company's other
obligations under this Agreement, the Company shall defend, protect, indemnify
and hold harmless each Buyer and each other holder of Series A Preferred
Shares and Conversion Shares and all of their officers, directors, employees
and agents (including, without limitation, those retained in connection with
the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses
in connection therewith (irrespective of whether any such Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "INDEMNIFIED
LIABILITIES"), incurred by any Indemnitee as a result of, or arising out of,
or relating to (a) subject to Section 9(i), any misrepresentation or breach of
any representation or warranty made by the Company in this Agreement, the
Certificate of Designations or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, (b) any
breach of any covenant, agreement or obligation of the Company contained in
this Agreement, the Certificate of Designations or the Registration Rights
Agreement or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Indemnitee and arising out of or resulting from the execution, delivery,
performance or
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enforcement of this Agreement, the Registration Rights Agreement, or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnitees, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Series A
Preferred Shares or the status of such Buyer or holder of the Series A
Preferred Shares or the Conversion Shares as an investor in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities which is permissible
under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the District of Columbia without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page
is delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile, provided a copy is mailed by U.S. certified mail, return receipt
requested; (iii) three (3) days after being sent by U.S. certified mail,
return receipt requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
-16-
<PAGE> 17
If to the Company:
Telular Corporation
647 N. Lakeview Parkway
Vernon Hills, Illinois 60061
Telephone: (847) 247-9400
Facsimile: (847) 247-0021
Attention: President
With a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
Telephone: (202) 662-5258
Facsimile: (202) 662-6291
Attention: Michael Cutler, Esq.
If to the Transfer Agent:
Harris Trust and Savings Bank
311 W. Monroe Street, 11th Floor
Chicago, Illinois 60690
Telephone: (312) 461-2121
Facsimile: (312) 461-1530
Attention: Paulette Striegel
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior written notice as
provided in this Section to the other party of any change in address or
facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Series A Preferred Shares. The
Company shall not assign this Agreement, the Registration Rights Agreement or
any rights or obligations hereunder without the prior written consent of the
Buyers, except pursuant to a Major Transaction (as defined in Section 3(c) of
the Certificate of Designations) with respect to which the Company is in
compliance with Section 3 of the Certificate of Designations. A Buyer may
assign some or all of its rights hereunder without the consent of the Company,
provided, however, that (i) any such assignment shall not release such Buyer
from its obligations hereunder unless such obligations are assumed by such
assignee and assumption and (ii) no Buyer may assign its rights hereunder in a
manner that would cause the offering of Series A Preferred Shares hereunder to
be required to be registered under the 1933 Act.
-17-
<PAGE> 18
h. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers
contained in Sections 3 and 2, respectively, shall survive the Closing until
two years after the Closing Date. Unless this agreement is terminated under
Section 9(l), the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive the
Closing. Each Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain obligated to reimburse
the Buyers for the expenses described in Section 4(h) above.
m. Placement Agent. The Company acknowledges that it has engaged
a placement agent in connection with the sale of the Series A Preferred
Shares, which placement agent may have formally or informally engaged other
agents on its behalf. The Company shall be responsible for the payment of any
placement agent's fees or broker's commissions relating to or arising out of
the transactions contemplated hereby. The Company shall pay, and hold each
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out of pocket expenses) arising in connection
with any such claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their
mutual intent, and no rules of strict construction will be applied against any
party.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
TELULAR CORPORATION STARK INTERNATIONAL
By:/s/ Kenneth E. Millard By:/s/ Michael A. Roth
---------------------- -----------------------------------
Name: Kenneth E. Millard Name: Michael A. Roth
Its: President and Chief Executive Its: Member of Managing General
Officer Partner
SHEPHERD INVESTMENTS
INTERNATIONAL, LTD.
By:/s/ Michael A. Roth
-----------------------------------
Name: Michael A. Roth
Its: Member of Investment Manager
<PAGE> 20
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number
of
Series
A Investor's Advisors
Investor Address Preferred and Legal Counsel
Investor Name and Facsimile Number Shares Address
- ------------------- ----------------------- -------- --------------------
<S> <C> <C> <C>
Stark International c/o Stark Asset Management 5,000 Schulte Roth & Zabel LLP
1500 West Market Street 900 Third Avenue
Mequon, Wisconsin 53092 New York, NY 10022
Attn: Eleazer Klein
Shepherd International c/o Stark Asset Management 5,000 Schulte Roth & Zabel LLP
Investments, Ltd. 1500 West Market Street 900 Third Avenue
Mequon, Wisconsin 53092 New York, NY 10022
Attn: Eleazer Klein
</TABLE>
<PAGE> 21
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(a)
Subsidiaries
1. Telular International, Inc. (inactive)
2. Telular-Adcor Security Products, Inc. (inactive)
3. Wireless Domain, Inc. (43% ownership position)
<PAGE> 22
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(c)
Capitalization
The Company has issued stock option and stock under, and is or may become
obligated to issue stock in the future, under the following agreements and
arrangements:
1. Telular Corporation Second Amended and Restated Stock Incentive Plan.
2. Various stock options agreements with individual employees and former
employees (names, exercise price and number of shares have previously
been disclosed on Form 8-K on April 25, 1997).
3. Stock option agreements with members of the Board of Directors.
4. Services agreement with law firm of Hamman & Benn, pursuant to which
stock is issued in exchange for services.
5. Consulting Agreement with William DeNicolo.
6. Bonus Plan agreements with Kenneth Millard and Robert Montgomery.
7. Stock Purchase Agreement with Telepath Corporation (a/k/a/ Wireless
Domain, Inc.)
The Company has granted registration rights under the following agreements
and arrangements:
1. Various stock option and incentive agreements with current and former
employees (names, exercise price and number of shares have previously
been disclosed on Form 8-K on April 25, 1997).
2. Stock Purchase Agreement with TelePath Corporation (a/k/a/ Wireless
Domain, Inc.)
3. Second Registration Rights Agreement, as amended, between Telular
Corporation and certain of the original shareholders.
<PAGE> 23
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(e)
Conflicts
None
<PAGE> 24
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(g)
Material Changes
1. In connection with its consolidations and restructuring, the Company is
transferring manufacturing and certain other business activities from
Atlanta to Illinois.
2. R&D contracts:
- - Mentor Graphics: Agreement dated December 10, 1996 for development of RJ-11
ASIC software and/or design.
- - Wireless Domain: Various development and project management projects to
develop integrated radio designs for AMPS, ETACS, GSM, CDMA and DCS 1800
standards. Create interface between new radio designs and RJ-11 ASIC.
- - Qualcomm Contract dated April 11, 1997, to enter into Supply Agreement for
services and supplies associated with the Qualcomm daughter card.
- - TTP license agreements dated January 21, 1997 for GSM license and support
including a maintenance contract. Agreement cover GSM protocol stack, GSM
data services and GSM application background layer.
3. The Company is party to ongoing litigation, described on Schedule 3(h).
4. On April 23, 1997, the Company entered into a Loan and Security Agreement
with Sanwa Business Credit Corporation replacing the loan agreement with
LaSalle National Bank.
<PAGE> 25
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(h)
Litigation
1. The Company is party to the litigation described on pages 10-11 of the
Company's Form 10-K for the year ended September 30, 1996.
2. The Company is engaged in a contractual dispute with Global Tel*Link, Inc.,
regarding an agreement pursuant to which the Company had agreed to purchase
payphones to be manufactured by Global Tel*Link. The Company terminated the
agreement for late delivery. Global Tel*Link has asserted a claim for $1.2
million in damages, and has instituted an arbitration demand in accordance
with the agreement.
3. Two ex-employees of the Company has filed lawsuits for unpaid commissions.
One of these employees has also asserted a claim alleging sex
discrimination.
<PAGE> 26
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(n)
Intellectual Property
1. The Company is party to the litigation described on pages 10-11 of the
Company's Form 10-K for the period ending September 30, 1996.
2. Information regarding the Company's patents, licenses and other
intellectual property is set forth on pages 8-10 of the Company's Form 10-K
for the year ended September 30, 1996, and incorporated herein.
<PAGE> 27
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(p)
Liens
1. Liens in favor of Sanwa Business Credit Corporation pursuant to loan
agreement.
2. Hewlett Packard Machinery lease.
<PAGE> 28
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(u)
Tax Status
None
<PAGE> 29
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(v)
Certain Transactions
None
<PAGE> 30
Schedules to Securities Purchase Agreement of June 1997.
SCHEDULE 3(d)
Use of Proceeds
1. General business purposes
2. Research and development
3. Working capital requirements
<PAGE> 31
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF THE SERIES A PREFERRED SHARES
Attached hereto as Exhibit 4.6.
<PAGE> 32
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
Attached hereto as Exhibit 99.4.
<PAGE> 33
EXHIBIT C
FORM OF COMPANY COUNSEL OPINION
Attached hereto.
[COVINGTON & BURLING LETTERHEAD]
June 6, 1997
Stark International
c/o Stark Asset Management
1500 West Market Street
Mequon, Wisconsin 53092
Shepherd Investments International, Ltd.
c/o Stark Asset Management
1500 West Market Street
Mequon, Wisconsin 53092
Ladies and Gentlemen:
We have acted as counsel to Telular Corporation, a Delaware
corporation (the "Company"), in connection with the issuance and sale of
10,000 shares of Series A Convertible Preferred Shares (the "Preferred
Shares") pursuant to the Securities Purchase Agreement dated June 6, 1997,
between the Company and each of you (the "Securities Purchase Agreement").
In connection with rendering the opinions set forth hereto, we have
examined a copy of the Securities Purchase Agreement, the Certificate of
Designations, the Registration Rights Agreement and the Irrevocable Transfer
Agent Instructions (the "Transaction Documents"), the Company's Certificate of
Incorporation, as amended to date, its Bylaws, as amended to date, the
proceedings of the Company's Board of Directors taken in connection with the
sale and issuance of the Preferred Shares, and such other documents and
instruments as we have deemed necessary. As to certain matters of fact, we
have relied upon a certificate of officers of the Company.
In conducting our examination, we have assumed the following: (i) the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity and accuracy of all documents submitted to us as originals, and
accuracy of all documents submitted to us as originals, and the conformity to
originals of all documents submitted to as copies, (ii) that the Securities
Purchase Agreement has been duly and validly authorized, executed, and
delivered by the party or parties thereto other than the Company, and
(iii) that the Securities Purchase Agreement constitutes the valid and binding
agreement of the party
<PAGE> 34
Stark International
Shepherd Investments International, Ltd.
June 6, 1997
Page 2
or parties thereto other than the Company, enforceable against such party or
parties in accordance with the terms of the Securities Purchase Agreement.
In rendering the opinion set forth in paragraph 5 below, we have
relied upon your representations and warranties as set forth in the Securities
Purchase Agreement.
With respect to matters stated herein to be to our actual knowledge,
we have advised you only as to the actual knowledge without independent
investigation of those lawyers in our firm who have devoted substantive
attention to this transaction on behalf of the Company.
Capitalized terms used and not defined herein shall have the meaning
set forth in the Securities Purchase Agreement.
Based on the foregoing, and subject to the assumptions and qualifications
set forth below, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
the requisite corporate power to conduct its business and to own, lease and
operate its properties, as described in the Company's Annual Report on Form
10-K for the year ended September 30, 1996 (the "1996 10-K"). The Company is
qualified as a foreign corporation to do business and is in good standing in
the State of Illinois.
2. The Company has the requisite corporate power and authority to
execute, deliver and perform its obligations under the Securities Purchase
Agreement, the Certificate of Designations, the Registration Rights Agreement
and the Irrevocable Transfer Agent Instructions (collectively, the
"Transaction Documents"), including issuance of the Preferred Shares and the
Conversion Shares in accordance with the terms thereof. The filing of the
Certificate of Designations and the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated therein have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors or its stockholders is required therefor. The Transaction Documents
have been duly executed and delivered by the Company and the Certificate of
Designations has been duly executed and properly filed by the Company with the
Secretary of State of the State of Delaware in accordance with the Delaware
General Corporate Law (the "Delaware Corporate Law") and has become effective
under
<PAGE> 35
Stark International
Shepherd Investments International, Ltd.
June 6, 1997
Page 3
the Delaware Corporate Law. The Transaction Documents, other than the
Certificate of Designations, constitute the valid and binding agreements of
the Company, enforceable against the Company in accordance with their
respective terms, except as such enforceability may be limited by general
principles of equity or applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally,
the enforcement of creditors' rights and remedies.
3. The issuance and sale of the Preferred Shares, have been duly
authorized. When issued in accordance with the terms of the Securities
Purchase Agreement, the Preferred Shares will be validly issued, fully paid
and non-assessable and free of all taxes, liens, charges and preemptive rights
with respect to the issue thereof. The Conversion Shares have been duly
authorized and reserved for issuance upon conversion of the Preferred Shares
in accordance with the Securities Purchase Agreement and the Certificate of
Designations and when issued in accordance with the Securities Purchase
Agreement and the Certificate of Designations, the Conversion Shares will be
validly issued, fully paid and non-assessable and free of all taxes, liens
charges and preemptive rights with respect to the issue thereof.
4. As of the date hereof, the authorized capital stock of the Company
consists of (i) 75,000,000 shares of Common Stock, par value $.01 per share,
and (ii) 10,000,000 shares of Preferred Stock, par value $.01 per share. None
of such Common Stock or such Preferred Stock is subject to preemptive rights
or other rights of the stockholders of the Company pursuant to the Certificate
of Incorporation or the Bylaws or under the Delaware Corporate Law. The
rights, preferences and privileges of the Series A Preferred Shares are as
stated in the Certificate of Designations. The Board of Directors of the
Company has reserved for issuance shares of Common Stock sufficient to provide
for the issuance of the Conversion Shares.
5. The Preferred Shares and the Conversion Shares may be issued to you
pursuant to the Transaction Documents without registration under the 1933 Act
or the securities laws of any state.
6. No authorization, approval, consent, filing or other order of any
federal or state governmental body, regulatory agency, self-regulatory
organization or stock exchange or market, or the stockholders of the Company,
or any court, or, to our knowledge, any third party, is required to be
obtained by the Company to enter into and perform its obligations under the
Transaction Documents or for the issuance and sale of the Preferred Shares and
the Conversion Shares as contemplated by the Transaction Documents, with the
exception of (i) the listing of the Conversion Shares with NASDAQ, (ii) the
filing of a Form D with the Securities and Exchange Commission, and (iii) such
registrations, filings and approvals with and by the Securities and Exchange
Commission and applicable state securities regulators as may be necessary to
effect the registration of the Conversion Shares for resale.
<PAGE> 36
Stark International
Shepherd Investments International, Ltd.
June 6, 1997
Page 4
7. Except as disclosed in the Securities Purchase Agreement, we do not
have actual knowledge of any action, suit, proceeding, inquiry or
investigation before or by any court, public board or body or any governmental
agency or self-regulatory organization pending or threatened against the
Company or any of its subsidiaries or any of the Properties of the Company or
any of its subsidiaries.
8. The execution, delivery and performance by the Company of the
Transaction Documents, the consummation by the Company of the transactions
contemplated thereby and the compliance by the Company with the terms thereof
does not violate, conflict with or constitute a default (or an event which,
with the giving of notice or lapse of time or both, constitutes or would
constitute a default) under, give rise to any right of termination,
cancellation or acceleration under, or result in the creation of any Lien on
or against any of the properties of the Company pursuant to, (i) the
Certificate of Incorporation or the Bylaws, (ii) to the best of our knowledge,
any agreement, note, lease, mortgage, deed or other instrument to which the
Company is a party or by which the Company is bound and which the Company has
filed as an exhibit to the 1996 10-K, or which, to our actual knowledge, the
Company is otherwise required to file with the Securities and Exchange
Commission, or (iii) any statute, law, rule or regulation applicable to the
Company or, to our actual knowledge, any order, writ, injunction or decree, if
such violation would have a material adverse effect on the business,
operations, financial conditions or results of operations of the Company.
9. The Company is not an "investment company" or any entity controlled by
an "investment company," as such term is defined in the Investment Company Act
of 1940, as amended.
In the process of our review of the 1996 10-K and all other reports filed by
the Company pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended, since the date of the filing of the 1996 10-K, although we have not
engaged in any independent investigation and do not assume any responsibility
for the accuracy or completeness of the information contained therein, nothing
has come to our attention that has led us to believe that any of such reports
contain any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, as of its filing
date with the SEC.
This opinion is rendered only with regard to the matters set out
above. No other opinions are intended nor should they be inferred. We are
attorneys licensed to practice in the District of Columbia and the federal
courts and agencies of the United States, and we express no opinion herein as
to the laws of any other jurisdiction other than the General Corporation Law
of the State of Delaware.
<PAGE> 37
Stark International
Shepherd Investments International, Ltd.
June 6, 1997
Page 5
The opinions expressed herein are given to you solely for your use in
connection with the Securities Purchase Agreement and may not be relied upon
by any other person or entity or for any other purpose without our prior
written consent. This opinion is given solely as of the date hereof, and we
assume no obligation or duty to update any of the opinions expressed herein.
Very truly yours,
Covington & Burling
<PAGE> 38
EXHIBIT D
FORM OF RESOLUTIONS ADOPTED BY THE COMPANY'S
BOARD OF DIRECTORS
Attached hereto.
Telular Corporation
Special Meeting of Board of Directors
April 14, 1997
Resolution to approve and execute up to $21,000,000 in Series A Convertible
Preferred Stock through a private placement, using Lehman Brothers as the
Investment Banker
WHEREAS, Telular Corporation has determined that it is in the best interest of
the Company to secure up to $21,000,000 in proceeds from a Private Placement
upon the terms and conditions listed on the attached Exhibit A; and
RESOLVED, that 21,000 shares of the Company's Preferred Stock be designated as
the Series A Convertible Preferred Stock, with the preferences and rights set
forth on Exhibit B hereto; and
RESOLVED, that a Certificate of Designations, Preferences and Rights of Series
A Convertible Preferred Stock of Telular Corporation, in the form of Exhibit B
hereto, be filed with the Secretary of State of Delaware; and
RESOLVED, that the Corporation be, and it hereby is, authorized to issue
21,000 shares of Series A Convertible Preferred Stock in accordance with and
for the consideration specified in Exhibit A hereto to the purchasers
specified in Exhibit A hereto, or to such other or additional purchasers as
the officers of the Corporation may approve; and
RESOLVED, that the Corporation be, and it hereby is, authorized to issue upon
conversion of the Series A Convertible Preferred Stock such shares of Common
Stock, par value $.01 per share, of the Corporation, up to the total amount
authorized under the Certificate of Incorporation and not theretofore issued
or reserved for issuance for any other purpose, as may be required in
accordance with the terms of the Series A Convertible Preferred Stock; and
RESOLVED, that the Corporation hereby reserves for issuance upon conversion of
the Series A Convertible Preferred Stock 12 million shares of Common Stock,
par value $.01 per share, of the Corporation; and
RESOLVED, that the Corporation be, and it hereby is, authorized to effect the
registration of such Common Stock of the Corporation on Securities Exchange
Commission Form S-3 or such other form as may be appropriate, and in
connection therewith to execute and
<PAGE> 39
deliver such registration statements and other documents, instruments,
agreements and certificates, pay such sums, and take such other actions as the
officers of the Corporation may deem necessary or desirable in connection
therewith; and
RESOLVED, that the Corporation be, and it hereby is, authorized to issue to
Lehman Brothers up to 95,000 shares of Common Stock, par value $.01 per share,
of the Corporation, in consideration for its services heretofore provided in
connection with the sale of the Series A Convertible Preferred Stock.
RESOLVED, that the Corporation be, and it hereby is, authorized to issue in
accordance with the terms of the Private Placement, that number of shares of
Common Stock of the Corporation, par value $.01 per share, as is specified in
the Private Placement; and
RESOLVED, that the appropriate officers of the Company be and each is
authorized to do and perform or cause to be done and performed in the name and
on behalf of the Company, any and all such acts and things and execute or
deliver, under corporate seal or otherwise, any and all such documents,
agreements, instruments, certificates and notices as shall be necessary or
appropriate to carry out the intend of the foregoing resolution.
<PAGE> 40
EXHIBIT E
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
Attached hereto.
TRANSFER AGENT INSTRUCTIONS
TELULAR CORPORATION
June 6, 1997
Harris Trust and Savings Bank
311 W. Monroe Street
Chicago, Illinois 60690
Attn: Paulette Striegel
Ladies and Gentlemen:
Referenced is made to that certain Securities Purchase Agreement, of
even date herewith, by and among Telular Corporation, a Delaware Corporation
(the "Company"), and each of Stark International and Shepherd International
Investments, Ltd. (collectively, the "Holders") pursuant to which the Company
is issuing to the Holders an aggregate of 10,000 shares of Series A Preferred
Stock, $.01 par value, of the Company (the "Preferred Shares"). This letter
shall serve as our irrevocable authorization and direction to you (provided
that you are the transfer agent of the Company at such time) to issue shares
(the "Conversion Shares") of Common Stock, $.01 par value (the "Common
Stock"), of the Company to or upon the order of a Holder from time to time
upon (i) surrender to you of a properly completed and duly executed Conversion
Notice, in the form attached hereto as Exhibit I and (ii) certificates
representing Preferred Shares being converted (or an indemnification
undertaking with respect to such shares in the case of their loss, theft or
destruction). Certificates representing the Conversion Shares shall not bear
any legend restricting transfer of the Conversion Shares thereby and should
not be subject to any stop-transfer restriction; provided, however, that if
the Conversion Shares are not registered for resale under the Securities Act
of 1933, as amended, then the certificates for the Conversion Shares shall
bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY
<PAGE> 41
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT."
and, provided, further that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for the Conversion Shares
in the event a registration statement covering the Conversion Shares is
subject to amendment for events then current.
Please be advised that the Holders are relying upon this letter is an
inducement to enter into the Securities Purchase Agreement and, accordingly,
each Holder is a third party beneficiary to these instructions.
Should you have any questions concerning this matter, please contact
me at (847) 465-4500.
Very truly yours,
TELULAR CORPORATION
By: s/s Kenneth E. Millard
Name: Kenneth E. Millard
Its.: President and Chief
Executive Officer
ACKNOWLEDGED AND AGREED:
HARRIS TRUST AND SAVINGS BANK
By: s/s Bruce R. Hartney
Name: Bruce R. Hartney
Title: Vice President
Date: 6/6/97
Enclosure
cc: Stark International Investments
Shepherd International Investments, Ltd.
Eleazer Klein, Esquire
<PAGE> 42
EXHIBIT I
TELULAR CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preference's and Rights
of Telular Corporation (the "Certificate of Designation"). In accordance with
and pursuant to the Certificates of Designations, the undersigned hereby
elects to convert the number of shares of Series A Convertible Preferred
Stock, $.01 par value per share (the "Series A Preferred Shares"), of Telular
Corporation, a Delaware corporation (the "Company"), indicated below into
shares of Common Stock, $.01 par value per share (the "Common Stock"), of the
Company, by tendering the stock certificate(s) representing the share(s) of
Series A Preferred Shares specified below as of the date specified below. The
undersigned represents and warrants that as of the date of the date of this
notice the undersigned is in compliance with Section 4(i) of the Securities
Purchase Agreement among the Company and the Buyers named therein.
Date of Conversion: _______________________________________
Number of Series A
Preferred Shares to be converted: ______________________________________
Stock certificate no(s). of
Series A Preferred Shares
to be converted: _______________________________________
Please confirm the following information:
Conversion Price: _______________________________________
Number of shares of Common
Stock to be issued: _______________________________________
Additional Amount: _______________________________________
Please issue the Common Stock and, if applicable, any check drawn on an
account of the Company into which the Series A Preferred Shares are being
converted in the following name and to the following address:
Issue to: _______________________________________
_______________________________________
_______________________________________
_______________________________________
_______________________________________
Facsimile Number: _______________________________________
Authorization: _______________________________________
By:____________________________________
Title: _______________________________
Date: _______________________________________
<PAGE> 1
EXHIBIT 99.4
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June 6,
1997, by and among Telular Corporation, a Delaware corporation, with
headquarters located at 647 N. Lakeview Parkway, Vernon Hills, Illinois 60061
(the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively,
the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series A Convertible Preferred Stock (the "SERIES A PREFERRED
SHARES"), which will be convertible into shares of the Company's common stock,
$.01 par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES") in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights of the Series A Convertible Preferred
Stock (the "CERTIFICATE OF DESIGNATIONS"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"),
and applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers
hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee thereof
to whom a Buyer assigns its rights under this Agreement and who agrees to
become bound by the provisions of this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or ordering of
effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
<PAGE> 2
d. "REGISTRABLE SECURITIES" means the Conversion Shares issued or
issuable upon conversion of the Series A Preferred Shares and any shares of
capital stock issued or issuable with respect to the Conversion Shares or the
Series A Preferred Shares as a result of any stock split, stock dividend,
recapitalization, exchange or similar event.
e. "REGISTRATION STATEMENT" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or
prior to five (5) business days after the date of issuance of the relevant
Series A Preferred Shares, file with the SEC an amendment to the Registration
Statement filed with the SEC on Form S-3 on May 28, 1997 (or, if such form is
unavailable for such a registration, on such other form as is available for
such a registration, subject to the consent of each Buyer and the provisions
of Section 2(c), which consent will not be unreasonably withheld), covering
the resale of all of the Registrable Securities, which Registration
Statement(s) shall state that, in accordance with Rule 416 promulgated under
the 1933 Act, such Registration Statement(s) also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Series A Preferred Shares (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (ii) by reason
of changes in the Conversion Price or Conversion Rate of the Series A
Preferred Shares in accordance with the terms thereof. Such Registration
Statement shall initially register for resale at least that number of shares
of Common Stock equal to the product of (x) 1.5 and (y) the number of
Registrable Securities (as defined below) as of the date immediately preceding
the date the Registration Statement is initially filed with the SEC, subject
to adjustment as provided in Section 3(b). Such registered shares of Common
Stock shall be allocated among the Investors pro rata based on the total
number of Registrable Securities issued or issuable as of each date that a
Registration Statement, as amended, relating to the resale of the Registrable
Securities is declared effective by the SEC. The Company shall use its best
efforts to have the Registration Statement declared effective by the SEC
within one hundred twenty (120) days after the issuance of the relevant Series
A Preferred Shares.
b. Counsel and Investment Bankers. Subject to Section 5 hereof,
in connection with any offering pursuant to Section 2, the Buyers shall have
the right to select legal counsel and an investment banker or bankers and
manager or managers to administer their interest in the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. The Company shall reasonably cooperate with any
such counsel and investment bankers.
c. Eligibility for Form S-3. The Company represents, warrants and
covenants that it will meet the requirements for the use of Form S-3 for
registration of the sale by the Buyers and any other Investor of the
Registrable Securities on and after the fifth (5th) business day following
that date of issuance of any Series A Preferred Shares and the Company has
filed and shall file all reports required to be filed by the Company with the
SEC in a timely manner
<PAGE> 3
so as to obtain and maintain such eligibility for the use of Form S-3. In the
event that Form S-3 is not available for sale by the investors of the
Registrable Securities, then the Company (i) with the consent of each Investor
pursuant to Section 2(a), shall register the sale of the Registrable
Securities on another appropriate form and (ii) the Company shall undertake to
register the Registrable Securities on Form S-3 as soon as such form is
available, provided that the Company shall maintain the effectiveness of the
Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration Statement
with the SEC pursuant to Section 2(a), the Company will use its best efforts
to effect the registration of the Registrable Securities in accordance with
the intended method of disposition thereof and, pursuant thereto, the Company
shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the date of issuance of the Registrable
Securities) and use its best efforts to cause such Registration Statement(s)
relating to Registrable Securities to become effective as soon as possible
after such filing (within one hundred twenty (120) days after the issuance of
the Registrable Securities) pursuant to Section 2(a)), and keep the
Registration Statement(s) effective pursuant to Rule 415 at all times until
the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor rule thereto) or (ii) the date on which (A)
the Investors shall have sold all the Registrable Securities and (B) none of
the Series A Preferred Shares is outstanding (the "REGISTRATION PERIOD"),
which Registration Statement(s) (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement(s) and the prospectus(es) used in connection with the Registration
Statement(s), which prospectus(es) are to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration Period, and,
during such period, comply with the provisions of the 1933 Act with respect to
the disposition of all Registrable Securities of the Company covered by the
Registration Statement(s) until such time as all of such Registrable
Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in the
Registration Statement(s). In the event the number of shares available under
a Registration Statement filed pursuant to this Agreement is insufficient to
cover all of the Registrable Securities, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any event
within fifteen (15) days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall use it best efforts to
cause such
<PAGE> 4
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time the number of Registrable Securities issued or issuable upon conversion
of the Series A Preferred Shares is greater than the quotient determined by
dividing (i) the number of shares of Common Stock available for resale under
such Registration Statement by (ii) 1.50. For purposes of the calculation set
forth in the foregoing sentence, any restrictions on the convertibility of the
Series A Preferred Shares shall be disregarded and such calculation shall
assume that the Series A Preferred Shares are then convertible into shares of
Common Stock at the then prevailing Conversion Rate (as defined in the
Company's Certificate of Designations).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement(s) and its legal counsel
without charge (i) promptly after the same is prepared and filed with the SEC
at least one copy of the Registration Statement and any amendment thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits, the prospectus(es) included in such
Registration Statement(s) (including each preliminary prospectus) and, with
regards to the Registration Statement, any correspondence by or on behalf of
the Company to the SEC or the staff of the SEC and any correspondence from the
SEC or the staff of the SEC to the Company or its representatives, (ii) upon
the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including any preliminary
prospectus, as such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly
notify each Investor who holds Registrable Securities of the receipt by the
Company of any notification with respect to the suspension of the registration
or qualification of any of the Registrable Securities for sale under the
securities or "blue sky" laws of any jurisdiction in the United States or its
receipt of actual notice of the initiation or threatening of any proceeding
for such purpose.
e. In the event Investors who hold a majority of the Registrable
Securities covered hereby select underwriters for the offering, the Company
shall enter into and perform its obligations under an underwriting agreement,
in usual and customary form, including,
<PAGE> 5
without limitation, customary indemnification and contribution obligations,
with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the happening of any
event, of which the Company has knowledge, as a result of which the prospectus
included in a Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and promptly prepare
a supplement or amendment to the Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement or
amendment to each Investor (or such other number of copies as such Investor
may reasonably request). The Company shall also promptly notify each Investor
in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to each Investor by facsimile on the same day
of such effectiveness and by overnight mail), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement
would be appropriate.
g. The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify each Investor who holds Registrable Securities
being sold (and, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for
such purpose.
h. The Company shall permit each Investor and a single firm of
counsel, initially Schulte Roth & Zabel LLP or such other counsel as
thereafter designated as selling stockholders' counsel by the Investors who
hold a majority of the Registrable Securities being sold, to review and
comment upon the Registration Statement(s) and all amendments and supplements
thereto at least seven (7) days prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects. The
Company shall not submit a request for acceleration of the effectiveness of a
Registration Statement(s) or any amendment or supplement thereto without the
prior approval of such counsel, which consent shall not be unreasonably
withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) if required by an underwriter,
a letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors.
<PAGE> 6
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Investors, and (iv) one firm of
attorneys retained by all such underwriters (collectively, the "INSPECTORS")
all pertinent financial and other records, and pertinent corporate documents
and properties of the Company (collectively, the "RECORDS"), as shall be
reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in strict confidence and shall not make any
disclosure (except to an Investor) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of
such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b)
the release of such Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent jurisdiction,
or (c) the information in such Records has been made generally available to
the public other than by disclosure in violation of this or any other
agreement. Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and
allow the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company
unless (i) disclosure of such information is necessary to comply with federal
or state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration Statement,
(iii) the release of such information is ordered pursuant to a subpoena or
other final, non-appealable order from a court or governmental body of
competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of,
or to obtain a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities
covered by the Registration Statement on the Nasdaq National Market System or,
if, despite the Company's best efforts to satisfy the preceding clause (i) or
(ii), the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), to secure the inclusion for quotation on the Nasdaq SmallCap Market for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities. The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section 3(l).
<PAGE> 7
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any
managing underwriter or underwriters, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case
may be, as the managing underwriter or underwriters, if any, or, if there is
no managing underwriter or underwriters, the Investors may reasonably request
and registered in such names as the managing underwriter or underwriters, if
any, or the Investors may request. Not later than the date on which any
Registration Statement registering the resale of Registrable Securities is
declared effective, the Company shall deliver to its transfer agent
instructions, accompanied by any reasonably required opinion of counsel, that
permit sales of unlegended securities in a timely fashion that complies with
then mandated securities settlement procedures for regular way market
transactions.
n. The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
o. The Company shall provide a CUSIP number, a transfer agent and
registrar of all such Registrable Securities not later than the effective date
of such Registration Statement.
p. If requested by the managing underwriters or an Investor, the
Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and supplement or
make amendments to any Registration Statement if requested by a shareholder or
any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
r. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of the Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if
such Investor elects to have any of such Investor's Registrable Securities
included in the Registration Statement. It shall be a condition precedent
<PAGE> 8
to the obligations of the Company to complete the registration pursuant to
this Agreement with respect to the Registrable Securities of a particular
Investor that such Investor shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended
method of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement(s) hereunder, unless such Investor has notified the Company in
writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration
Statement(s) covering such Registrable Securities until such Investor's
receipt of the copies of the supplemented or amended prospectus contemplated
by Section 3(g) or the first sentence of 3(f) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy all copies in such Investor's possession other than file
copies, of the prospectus covering such Registrable Securities current at the
time of receipt of such notice.
d. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation,
all registration, listing and qualifications fees, printers and accounting
fees, and fees and disbursements of counsel for the Company and fees and
disbursements of one counsel for the Investors, shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents
and each Person, if any, who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended
<PAGE> 9
(the "1934 ACT"), and any underwriter (as defined in the 1933 Act) for the
Investors, and the directors and officers of, and each Person, if any, who
controls, any such underwriter within the meaning of the 1933 Act or the 1934
Act (each, an "INDEMNIFIED PERSON"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, attorneys' fees,
amounts paid in settlement or expenses, joint or several, (collectively,
"CLAIMS") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory
agency, body or the SEC, whether pending or threatened, whether or not an
indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"), to
which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which the statements therein were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in
the foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS").
Subject to the restrictions set forth in Section 6(d) with respect to the
number of legal counsel, the Company shall reimburse the Investors and each
such underwriter or controlling person, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person expressly for
use in connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(c); (ii) with respect to
any preliminary prospectus, shall not inure to the benefit of any such person
from whom the person asserting any such Claim purchased the Registrable
Securities that are the subject thereof (or to the benefit of any person
controlling such person) if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if such prospectus was timely made available by
the Company pursuant to Section 3(c), and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving
rise to a violation and such Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the extent such Claim is based on a
failure of the Investor to deliver or to cause to be delivered the prospectus
made available by the Company; and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not
<PAGE> 10
be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the
same manner as is set forth in Section 6(a), the Company, each of its
directors, each of its officers who signs the Registration Statement, each
Person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or are based upon
any Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as
provided above, with respect to information such persons so furnished in
writing expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a
Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel
<PAGE> 11
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding. The Company shall pay reasonable fees for
only one separate legal counsel for the Investors, and such legal counsel
shall be selected by the Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which the
Claim relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or
defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for
any settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall,
without the consent of the Indemnified Party or Indemnified Person, consent to
entry of any judgment or enter into any settlement or other compromise which
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party or Indemnified Person of a release from
all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are
incurred.
f. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise
be liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (i) no contribution shall be made under circumstances where
the maker would not have been liable for indemnification under the fault
standards set forth in Section 6; (ii) no seller of Registrable Securities
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of fraudulent misrepresentation; and (iii)
contribution by any seller of Registrable Securities shall be limited
<PAGE> 12
in amount to the net amount of proceeds received by such seller from the sale
of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the investors to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long
as the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of Registrable Securities if: (i) the
Investor agrees in writing with the transferee or assignee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (a) the name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the 1933 Act and applicable state securities
laws; (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions contained
herein; (v) such transfer shall have been made in accordance with the
applicable requirements of the Securities Purchase Agreement; (vi) such
transferee shall be an "accredited investor" as that term is defined in
Rule 501 of Regulation D promulgated under the 1933 Act; and (vii) in the
event the assignment occurs subsequent to the date of effectiveness of the
Registration Statement required to be filed pursuant to Section 2(a), the
transferee agrees to pay all reasonable expenses of amending or supplementing
such Registration Statement to reflect such assignment.
<PAGE> 13
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds ( 2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be
binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, provided a copy is
mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
if to the Company:
Telular Corporation
647 N. Lakeview Parkway
Vernon Hills Grove, Illinois 60061
Telephone: (847) 247-9400
Facsimile: (847) 247-0021
Attention: President
with a copy to:
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044-7566
Telephone: (202) 662-5258
Facsimile: (202) 662-6291
Attention: Michael Cutler, Esq.
if to a Buyer, to its address and facsimile number on the
Schedule of Buyers attached hereto, with copies to such Buyer's
counsel as set forth on the Schedule of Buyers.
Each party shall provide five (5) days prior notice in the manner set
forth herein to the other party of any change in address, phone number or
facsimile number.
<PAGE> 14
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the District of Columbia without regard to the
principles of conflict of laws. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Securities Purchase Agreement and the
Certificate of Designations constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Securities Purchase
Agreement and the Certificate of Designations supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement, followed by mailing of original.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
TELULAR CORPORATION STARK INTERNATIONAL
By:/s/ Kenneth E. Millard By:/s/ Michael A. Roth
-------------------------- --------------------------------------
Name: Kenneth E. Millard Name: Michael A. Roth
Its: President and Its: Member of Managing General Partner
Chief Executive Officer
<PAGE> 15
SHEPHERD INTERNATIONAL
INVESTMENTS, LTD.
By:/s/ Michael A. Roth
---------------------------------
Name: Michael A. Roth
Its: Member of Investment Manager
<PAGE> 16
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S LEGAL COUNSEL
INVESTOR NAME AND FACSIMILE NUMBER AND COUNSEL'S ADDRESS
- -------------------- -------------------------- -------------------------
<S> <C> <C>
Stark International c/o Stark Asset Management Schulte Roth & Zabel LLP
1500 West Market Street 900 Third Avenue
Mequon, Wisconsin 53092 New York, NY 10022
Attn: Eleazer Klein
Shepherd International c/o Stark Asset Management Schulte Roth & Zabel LLP
Investments, Ltd. 1500 West Market Street 900 Third Avenue
Mequon, Wisconsin 53092 New York, NY 10022
Attn: Eleazer Klein
</TABLE>
