Item 1.01 Entry into a Material Definitive Agreement.
On January 10, 2013, Unwired Planet, Inc. and certain of its subsidiaries (collectively referred to as the
Company
or
UP
), including its indirect subsidiary, Unwired Planet, LLC (
UP LLC
), entered into a Master Sale Agreement (the
MSA
) with Telefonaktiebolaget L M Ericsson (publ) and an indirect subsidiary
(collectively referred to herein as
Ericsson
) pursuant to which such subsidiary of Ericsson will transfer and sell 2,185 patents and patent applications (the
Ericsson Transferred Patent Portfolio
) to UP LLC in
exchange for certain ongoing rights to revenues generated from the Ericsson Transferred Patent Portfolio and the Companys patent portfolio, as summarized below (the
Patent Purchase
). At or prior to the closing, UP will
transfer all of its patents not previously transferred to UP LLC. The Ericsson Transferred Patent Portfolio consists of 825 patent families and includes 1,922 issued patents and 263 patent applications covering technology utilized in
telecommunications infrastructure including signal processing, network protocols, radio resource management, voice/text applications, mobility management, software, hardware and antennas. Of the 1,922 issued patents, 753 are United States patents.
Pursuant to the MSA, during the period commencing on January 1, 2014 and ending five years thereafter, Ericsson also will assign to UP LLC, for no additional consideration, 100 patents each year (a portion of which will be United States
patents) selected by Ericsson (the
Additional Patents
), provided that Ericsson may choose to accelerate such contribution to be made at one time or over a shorter period of time. Capitalized terms used but not defined in this
Current Report on Form 8-K (this
Report
) are defined in the MSA.
In consideration for the Ericsson
Transferred Patent Portfolio and the Additional Patents, UP will pay Ericsson the following portion of UP LLCs cumulative gross revenue on a quarterly basis in accordance with the provisions of the MSA (the
Gross Revenue
Payments
): (i) 20% of the amount of Cumulative Gross Revenue, until the Cumulative Gross Revenue equals $100 million; plus (ii) 50% of the amount of Cumulative Gross Revenue in excess of $100 million, until the Cumulative Gross
Revenue equals $500 million; plus (iii) 70% of the amount of Cumulative Gross Revenue in excess of $500 million. Revenue sharing may be adjusted in Ericssons favor in certain circumstances as described below.
The MSA also provides that in connection with a UP Change of Control, Ericsson will have the right either to (i) terminate the MSA
and receive a cash payment (the
Sale Payment
) or (ii) elect to continue the MSA in full force and effect and not receive the Sale Payment. In the event Ericsson elects to receive the Sale Payment, such Sale Payment will be
equal to Ericssons share of the fair market value of all patents and other assets owned or held by UP LLC (the
Patent FMV
). The Patent FMV will be determined in accordance with the mechanism set forth in the MSA. After such
Patent FMV has been determined it will be deemed incremental Cumulative Gross Revenue and distributed in accordance with the formula for Gross Revenue Payments set forth above. Notwithstanding the foregoing, if a UP Change of Control
occurs within three years of the consummation of the transactions contemplated by the MSA and Ericsson elects to receive the Sale Payment, the Sale Payment will be at least $1.05 billion less Gross Revenue Payments actually received by Ericsson
prior to the consummation of the UP Change of Control.
Pursuant to the MSA and certain Ancillary Agreements, UP LLC granted
or will grant Ericsson licenses and other rights under the Ericsson Transferred Patent Portfolio and all other Patents owned or controlled by UP LLC. The Ericsson Transferred Patent Portfolio is also subject to certain encumbrances relating to
existing Ericsson licensees. UP LLC remains unrestricted in the licensing of its existing patent portfolio without any additional encumbrances as a result of the transaction. Additionally, pursuant to the MSA, UP has agreed not to engage in, or
provide services to any Person who conducts or otherwise engages in, the business of generating revenue or otherwise monetizing Patents through licensing or selling of Patents or initiation or participation in litigation or other legal proceedings
to protect and enforce any Patent or any other intellectual property right or any other business that is competitive with the business of UP LLC. During a specified period following the closing of the Patent Purchase, with respect to certain
patents, the MSA establishes revenue sharing adjustments in favor of Ericsson if UP LLC grants licenses (or similar rights) below certain agreed-upon royalty rates. Additionally, pursuant to the MSA with respect to the Ericsson Transferred Patent
Portfolio and to the extent applicable, UP LLC has accepted an obligation to behave in a manner that is fair, reasonable and non-discriminatory (
FRAND
). The aggregate result of these commitments together with other obligations
contained in these documents is such that UP LLC will pursue recurring revenue license arrangements that reflect the fair value of its entire patent portfolio, while at the same time respecting Ericssons existing commitments, customers and, to
the extent applicable, any FRAND obligations. UP LLC believes that such an approach will maximize value for its shareholders over the long term, but such arrangements may take a longer period of time to achieve and may result in smaller upfront
payments, as compared to lump sum perpetual licensing.
Consummation of the Patent Purchase is subject to customary closing conditions, including
the expiration or termination of all applicable waiting periods (and any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
HSR Act
). The MSA provides that if the United States Department of
Justice Antitrust Division or Federal Trade Commission Bureau of Competition initiates a preliminary investigation or requests that the parties provide additional information and materials on a voluntary basis, then UP may withdraw and refile its
Premerger Notification and Report up to two times in accordance with the HSR Act requirements. The MSA grants Ericsson and the Company certain customary termination rights, including that any party may terminate the MSA if the Patent Purchase has
not been consummated prior to May 10, 2013.
Additionally, during the three years following the closing of the Patent
Purchase and subject to certain notice and dispute mechanisms provided in the MSA, the Company has the right to terminate the MSA in the event of the existence of certain undisclosed encumbrances on the Ericsson Transferred Patent Portfolio that
materially encumber and materially adversely impact UP LLCs ability to derive value from the Ericsson Transferred Patent Portfolio taken as a whole (an
Encumbrance Termination
). If the Company effects an Encumbrance
Termination, UP LLC will transfer to Ericsson all of UP LLCs right, title and interest in and to the Ericsson Transferred Patent Portfolio and other Patents assigned or sold to UP LLC by Ericsson any time prior to the effective date of such
termination (collectively, the
Assigned Back Patents
). After an Encumbrance Termination, Ericsson will retain the rights to gross revenue primarily attributable to the Assigned Back Patents, UP LLC will retain the rights to gross
revenue attributable to Other Patents and Ericsson and the Company will share the rights to gross revenue primarily attributable to both Assigned Back Patents and any Other Patents, to be distributed in accordance with the Gross Revenue Payments
formula set forth above.
The MSA also provides that upon the occurrence of any Trigger Event (defined below), Ericsson will
be entitled to monetary damages of at least $1.05 billion less Gross Revenue Payments actually received by Ericsson prior to the date such amount of damage is paid. A
Trigger Event
includes: (a) any representation or warranty
in the MSA and the ancillary documents (collectively, the
Purchase Documents
) failing to be true and correct and that would result in a material adverse effect; (b) a default in the payment of obligations under the Purchase
Documents in an aggregate amount exceeding $5 million (except in the case of a good faith dispute); (c) a knowing or willful, uncured default in the performance of any other material covenant, condition or agreement contained in the Purchase
Documents or a default in the performance of any other material covenant, condition or agreement contained in the Purchase Documents that would reasonably be expected to result in an Insolvency Event; (d) any event or condition that results in
the acceleration of more than $5 million in indebtedness of UP LLC or its members, or UP LLC or its members failing to pay more than $5 million of indebtedness at maturity; (e) the commencement of certain bankruptcy proceedings and other
Insolvency Events; (f) the failure by UP LLC or its members to pay one or more final judgments in an aggregate amount exceeding $5 million (to the extent not covered by insurance); or (g) the Company asserting in writing that any
provision of the Purchase Documents is not a legal, valid and binding obligation of any party thereto, or that any guarantees or any security interests purported to be created by the Purchase Documents are not in full force and effect including, if
applicable, a valid and perfected security interest in the securities, assets or properties covered thereby.
In connection
with the closing of the Patent Purchase, the Company will amend and restate the operating agreement for UP LLC (the
Operating Agreement
) to include provisions regarding, among other things, the specific operations, purpose and
activities of UP LLC, including certain covenants which restrict the activities of UP LLC. In connection with the closing of the Patent Purchase, the Company will terminate its credit facility with Silicon Valley Bank, dated as of January 23,
2009, provided that the Company will be able to maintain certain letters of credit under the credit facility to the extent such letters of credit are fully cash collateralized. The amount expected to be collateralized is approximately $18.0 million
and will be reflected as restricted cash on the Companys balance sheet; approximately $16.5 million of this amount relates to the lease on the Companys prior headquarters which expires in June 2013, after which time that amount of cash
will no longer be restricted. Also in connection with the Patent Purchase, UP LLC will enter into a security agreement in favor of Ericsson pursuant to which UP LLC will grant Ericsson a lien on all of UP LLCs assets. In addition, the
members of UP LLC, which are subsidiaries of the Company, have agreed to guarantee the obligations of UP LLC under the MSA and have pledged all of their assets, including the equity interests of UP LLC, to Ericsson to secure such obligations. A
default under the applicable security agreements will occur upon the occurrence of a Trigger Event.
The MSA and the Operating Agreement contain other terms and conditions, including, but not
limited to representations and warranties, provisions related to post-closing operations of UP LLC, restrictions on the transfer of interests in UP LLC, tax matters and confidentiality. The MSA also contains negative covenants limiting or
prohibiting certain post-closing activities of UP LLC, including limitations on changes to UP LLCs business purpose. The foregoing summary is qualified in its entirety by the text of the MSA and the Operating Agreement. A copy of the Operating
Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by reference. A redacted copy of the MSA will be filed as an exhibit to this Report by amendment on or about January 14, 2013, and upon filing will be incorporated herein
by reference. The Company intends to submit a FOIA Confidential Treatment Request to the U.S. Securities and Exchange Commission (the
SEC
) pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended (the
Exchange Act
), requesting that it be permitted to redact certain portions of the Agreement. The omitted material will be included in the request for confidential treatment.