<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-19528
QUALCOMM INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3685934
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO)
6455 LUSK BLVD., SAN DIEGO, CALIFORNIA 92121-2779
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(619) 587-1121
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORTED)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past ninety days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of the close of business on May 5, 1999:
Class Number of Shares
Common Stock; $0.0001 per share par value 75,322,920
1
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUALCOMM Incorporated
/s/ ANTHONY S. THORNLEY
-----------------------------------------
Anthony S. Thornley
Executive Vice President
& Chief Financial Officer
Dated: May 10, 1999
2
<PAGE> 3
QUALCOMM INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets................. 4
Condensed Consolidated Statements of Income........... 5
Condensed Consolidated Statements of Cash Flows....... 6
Notes to Condensed Consolidated Financial Statements.. 7-14
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.................... 15-29
PART II. OTHER INFORMATION........................................ 30-31
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUALCOMM INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 28, SEPTEMBER 27,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 121,253 $ 175,846
Investments ............................................ 83,395 127,478
Accounts receivable, net ............................... 814,213 612,209
Finance receivables .................................... 59,457 56,201
Inventories, net ....................................... 254,477 386,536
Other current assets ................................... 215,514 178,950
----------- -----------
Total current assets ........................... 1,548,309 1,537,220
PROPERTY, PLANT AND EQUIPMENT, NET ....................... 557,899 609,682
FINANCE RECEIVABLES, NET ................................. 352,525 287,751
OTHER ASSETS ............................................. 162,663 132,060
----------- -----------
TOTAL ASSETS ............................................. $ 2,621,396 $ 2,566,713
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ............... $ 662,781 $ 660,428
Unearned revenue ....................................... 62,858 67,123
Bank lines of credit ................................... 64,000 151,000
Current portion of long-term debt ...................... 3,062 3,058
----------- -----------
Total current liabilities ...................... 792,701 881,609
LONG-TERM DEBT ........................................... 2,360 3,863
OTHER LIABILITIES ........................................ 44,411 25,115
----------- -----------
Total liabilities .............................. 839,472 910,587
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 3 AND 9)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES ........... 45,073 38,530
----------- -----------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE TRUST CONVERTIBLE
PREFERRED SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY
DEBT SECURITIES OF THE COMPANY .......................... 660,000 660,000
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 par value ..................... -- --
Common stock, $0.0001 par value ........................ 7 7
Paid-in capital ........................................ 1,102,313 959,267
Retained earnings ...................................... 5,910 --
Accumulated other comprehensive loss ................... (31,379) (1,678)
----------- -----------
Total stockholders' equity ..................... 1,076,851 957,596
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 2,621,396 $ 2,566,713
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
QUALCOMM INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Communications systems ................ $ 774,308 $ 625,572 $ 1,591,362 $ 1,302,457
Contract services ..................... 81,452 64,927 161,266 128,958
License, royalty and development fees . 76,635 70,054 120,990 114,992
----------- ----------- ----------- -----------
Total revenues ................ 932,395 760,553 1,873,618 1,546,407
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Communications systems ................ 568,441 485,279 1,153,365 992,618
Contract services ..................... 55,334 49,053 112,800 95,329
Research and development .............. 102,713 76,946 203,075 151,747
Selling and marketing ................. 53,628 59,728 123,364 115,826
General and administrative ............ 51,266 38,246 102,053 74,715
Other (Notes 6 and 7) ................. 95,824 -- 95,824 11,976
----------- ----------- ----------- -----------
Total operating expenses ...... 927,206 709,252 1,790,481 1,442,211
----------- ----------- ----------- -----------
OPERATING INCOME ........................ 5,189 51,301 83,137 104,196
INTEREST INCOME ......................... 8,229 9,573 14,035 21,763
INTEREST EXPENSE ........................ (5,459) (1,685) (8,774) (4,374)
NET GAIN ON SALE OF INVESTMENTS ......... -- -- 5,663 2,950
LOSS ON CANCELLATION OF WARRANTS (NOTE 2) (3,273) -- (3,273) --
OTHER (NOTES 2 AND 7) ................... (52,531) -- (52,531) --
DISTRIBUTIONS ON TRUST CONVERTIBLE
PREFERRED SECURITIES OF SUBSIDIARY
TRUST ................................ (9,904) (9,972) (19,703) (19,725)
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES ............ (2,845) (21,642) (6,543) (17,861)
EQUITY IN LOSSES OF INVESTEES ........... (4,974) (1,398) (5,995) (4,170)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ....... (65,568) 26,222 6,016 82,779
INCOME TAX BENEFIT (EXPENSE) ............ 22,948 (211) (106) (20,006)
----------- ----------- ----------- -----------
NET INCOME (LOSS) ....................... $ (42,620) $ 26,011 $ 5,910 $ 62,773
=========== =========== =========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic ................................. $ (0.59) $ 0.38 $ 0.08 $ 0.91
=========== =========== =========== ===========
Diluted ............................... $ (0.59) $ 0.36 $ 0.08 $ 0.85
=========== =========== =========== ===========
SHARES USED IN PER SHARE CALCULATION:
Basic ................................. 72,307 68,934 71,515 68,705
=========== =========== =========== ===========
Diluted ............................... 72,307 73,143 73,263 73,643
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
QUALCOMM INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
MARCH 28, MARCH 29,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ......................................................... $ 5,910 $ 62,773
Depreciation and amortization ...................................... 86,719 65,119
Other non-cash operating expenses .................................. 102,151 11,976
Other non-cash non-operating expenses .............................. 42,204 --
Gain on sale of available-for-sale securities ...................... (5,663) --
Minority interest in income of consolidated subsidiaries ........... 6,543 17,861
Equity in losses of investees ...................................... 5,995 4,170
Increase (decrease) in cash resulting from changes in:
Accounts receivable, net ........................................ (207,641) (153,967)
Finance receivables, net ........................................ (68,030) (39,990)
Inventories, net ................................................ 126,024 (134,539)
Other assets .................................................... (24,944) (29,243)
Accounts payable and accrued liabilities ........................ (50,046) 121,733
Unearned revenue ................................................ (4,265) 7,628
Other liabilities ............................................... 8,329 5,654
--------- ---------
Net cash provided (used) by operating activities ..................... 23,286 (60,825)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures ............................................... (95,048) (154,221)
Purchases of investments ........................................... (15,894) (254,954)
Maturities of investments .......................................... 59,977 454,208
Issuance of notes receivable ....................................... (55,374) --
Collection of notes receivable ..................................... 22,475 --
Purchases of intangible assets ..................................... -- (11,548)
Proceeds from sale of available-for-sale securities and cancellation
of warrants ....................................................... 10,163 --
Investments in other entities ...................................... (9,939) (4,052)
--------- ---------
Net cash (used) provided by investing activities ..................... (83,640) 29,433
--------- ---------
FINANCING ACTIVITIES:
Net repayments under bank lines of credit .......................... (87,000) (54,000)
Principal payments on long-term debt ............................... (1,499) (2,520)
Net proceeds from issuance of common stock ......................... 106,339 25,447
Other items, net ................................................... (703) 602
--------- ---------
Net cash provided (used) by financing activities ..................... 17,137 (30,471)
--------- ---------
Effect of exchange rate changes on cash .............................. (11,376) --
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................ (54,593) (61,863)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 175,846 248,837
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 121,253 $ 186,974
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
QUALCOMM INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim condensed consolidated financial statements have
been prepared by QUALCOMM Incorporated (the "Company" or "QUALCOMM"), without
audit, in accordance with the instructions to Form 10-Q and, therefore, do not
necessarily include all information and footnotes necessary for a fair
presentation of its financial position, results of operations and cash flows in
accordance with generally accepted accounting principles. The condensed
consolidated balance sheet at September 27, 1998 was derived from the audited
consolidated balance sheet at that date which is not presented herein. The
Company operates and reports using a period ending on the last Sunday of each
month.
In the opinion of management, the unaudited financial information for the
interim periods presented reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation. These condensed
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 27, 1998. Operating results for interim periods are not necessarily
indicative of operating results for an entire fiscal year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue from communications systems and products is generally recognized at
the time the units are shipped and over the period during which message and
warranty services are provided, except for shipments under arrangements
involving significant acceptance requirements. Under such arrangements, revenue
is recognized when the Company has substantially met its performance
obligations. Other criteria considered for the purpose of revenue recognition
include the customer's financial condition, the amount and quality of financial
support provided by the customer's investors, and the political and economic
environment in which the customer operates. Revenue from long-term contracts and
revenue earned under license and development agreements with continuing
performance obligations is recognized using the percentage-of-completion method,
based either on costs incurred to date compared with total estimated costs at
completion or using a units of delivery methodology. Billings on uncompleted
contracts in excess of incurred cost and accrued profits are classified as
unearned revenue. Estimated contract losses are recognized when determined.
Non-refundable license fees are recognized when there is no material continuing
performance obligation under the agreement and collection is probable.
Royalty revenue is recorded as earned in accordance with the specific terms
of each license agreement when reasonable estimates of such amounts can be made.
Beginning with the second quarter of fiscal 1998, the Company began to accrue
its estimate of certain royalty revenues earned that previously could not be
reasonably estimated prior to being reported by its licensees.
Basic earnings (loss) per common share are calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
reporting period. Diluted earnings (loss) per common share reflect the potential
dilutive effect, determined by the treasury stock method, of additional common
shares that are issuable upon exercise of outstanding stock options and
warrants, as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options ........ -- 3,514 1,748 4,234
Warrants ....... -- 695 -- 704
----- ----- ----- -----
-- 4,209 1,748 4,938
===== ===== ===== =====
</TABLE>
7
<PAGE> 8
The computation of the diluted loss per share for the three months ended
March 28, 1999 excludes approximately 5,515,000 additional common shares that
are issuable upon exercise of outstanding stock options, calculated using the
treasury stock method, because the effect would be anti-dilutive. Options
outstanding during the three months ended March 28, 1999 and March 29, 1998 to
purchase approximately 77,000 and 4,181,000 shares of common stock,
respectively, and options outstanding during the six months ended March 28, 1999
and March 29, 1998 to purchase approximately 3,358,000 and 2,662,000 shares of
common stock, respectively, were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common stock during the period and, therefore, the effect would be
anti-dilutive. The conversion of the Trust Convertible Preferred Securities is
not assumed for all periods presented since its effect would be anti-dilutive.
The Company adopted Statement of Financial Accounting Standards No. 130
("FAS 130"), "Reporting Comprehensive Income," in the first quarter of fiscal
1999. As required by the statement, the Company displays the accumulated balance
of other comprehensive income or loss separately in the equity section of the
consolidated balance sheets. Prior year financial statements have been
reclassified to conform to the current period presentation. Total comprehensive
income (loss), which was comprised of net income (loss) and foreign currency
adjustments, amounted to approximately ($71.9) million and $25.8 million for the
three months ended March 28, 1999 and March 29, 1998, respectively, and ($23.8)
million and $62.4 million for the six months ended March 28, 1999 and March 29,
1998, respectively.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 ("FAS 131"), "Disclosures
about Segments of an Enterprise and Related Information," which the Company will
be required to adopt for fiscal year 1999. This statement establishes standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Under FAS 131, operating segments are to be determined consistent
with the way that management organizes and evaluates financial information
internally for making operating decisions and assessing performance. The Company
has not completed its determination of the impact of the adoption of this new
accounting standard on its consolidated financial statement disclosures.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which the Company will be required to adopt for fiscal year 2000.
This statement establishes a new model for accounting for derivatives and
hedging activities. Under FAS 133, all derivatives must be recognized as assets
and liabilities and measured at fair value. The Company has not determined the
impact of the adoption of this new accounting standard on its consolidated
financial position or results of operations.
NOTE 2 - SPIN-OFF OF LEAP WIRELESS INTERNATIONAL, INC.
On September 23, 1998, the Company completed the spin-off and distribution (the
"Distribution" or "Leap Wireless Spin-off") to its stockholders of shares of
Leap Wireless International, Inc., a Delaware corporation ("Leap Wireless") and
recorded a $17.1 million liability in connection with its agreement to transfer
its ownership interest in Telesystems of Ukraine ("TOU") and its working capital
loan receivable from TOU ("TOU assets") to Leap Wireless if certain events
occurred within 18 months of the Leap Wireless Spin-off. During the first six
months of fiscal 1999, the Company provided an additional $1.7 million working
capital loan to TOU and recorded 100% of the losses of TOU, net of eliminations,
because the other investors' equity interests are depleted. During March 1999,
the Company reassessed the recoverability of TOU assets in light of recent
developments affecting the TOU business and the disposition of other assets
related to the terrestrial CDMA wireless infrastructure business (Note 7). As a
result, the Company recorded a $15.1 million non-operating charge to write off
the TOU assets, as well as a $12.0 million charge to operations to write off
other assets related to the TOU contract (Note 7), and the adjusted liability to
transfer TOU to Leap Wireless of $15.1 million was reversed against equity as an
adjustment to the Distribution.
8
<PAGE> 9
In connection with the Distribution, Leap Wireless issued to QUALCOMM a
warrant to purchase 5,500,000 shares of Leap Wireless common stock at $6.10625
per share. The Company recorded the warrant at its predecessor basis of $24.2
million net of the related deferred tax liability. In March 1999, the Company
agreed to reduce the number of shares under warrant to 4,500,000 in exchange for
$3.0 million in consideration from Leap Wireless, resulting in a pre-tax loss of
$3.3 million. The cancellation was done to give further assurance that Leap
Wireless will meet the FCC criteria for designated entity status.
NOTE 3 - COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
ACCOUNTS RECEIVABLE (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 28, SEPTEMBER 27,
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable, net:
Trade, net of allowance for doubtful
accounts of $22,231 and $21,933,
respectively ................... $543,580 $459,324
Long-term contracts:
Billed .......................... 177,901 101,868
Unbilled ........................ 92,328 49,784
Other .............................. 404 1,233
-------- --------
$814,213 $612,209
======== ========
</TABLE>
Unbilled receivables represent costs and profits recorded in excess of
amounts billable pursuant to contract provisions and are expected to be realized
within one year.
FINANCE RECEIVABLES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 28, SEPTEMBER 27,
1999 1998
--------- ---------
<S> <C> <C>
Finance receivables ................ $ 420,430 $ 348,907
Allowance for doubtful receivables . (8,448) (4,955)
--------- ---------
411,982 343,952
Current maturities ................. 59,457 56,201
--------- ---------
Non-current finance receivables, net $ 352,525 $ 287,751
========= =========
</TABLE>
Finance receivables result from sales under arrangements in which the
Company has agreed to provide customers with long-term interest bearing debt
financing for the purchase of equipment and/or services. Such financing is
generally collateralized by the related equipment.
At March 28, 1999, commitments to extend long-term financing for possible
future sales to customers totaled approximately $276 million through fiscal
2003. Such commitments are subject to the customers meeting certain conditions
established in the financing arrangements. Commitments represent the estimated
amounts to be financed under these arrangements; actual financing may be in
lesser amounts. These commitments will be included in the total finance
commitments provided in connection with the disposition of assets (Note 7).
INVENTORIES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 28, SEPTEMBER 27,
1999 1998
-------- --------
<S> <C> <C>
Inventories, net:
Raw materials ................. $152,067 $180,957
Work-in-progress .............. 74,246 81,479
Finished goods ................ 28,164 124,100
-------- --------
$254,477 $386,536
======== ========
</TABLE>
9
<PAGE> 10
NOTE 4 - INVESTMENTS IN OTHER ENTITIES
In November 1998, the Company and Microsoft Corporation entered into a joint
venture agreement pursuant to which each company obtained a 50% ownership
interest in a newly formed development stage entity, Wireless Knowledge LLC, a
Delaware limited liability company. Wireless Knowledge intends to form strategic
partnerships with computing, software and telecommunications companies, as well
as with wireless carriers, for the purpose of enabling secure and
airlink-independent internet access to mobile users. Pursuant to the joint
venture agreement, QUALCOMM made a capital contribution of $7.5 million during
the first quarter of fiscal 1999 and will be required to provide $17.5 million
in additional equity contributions through June 2000.
In January 1999, Canbra Holdings S.A. ("Canbra"), a Brazilian company formed
by a consortium, comprised of Bell Canada International Ltd., WLL International,
SLI Wireless S.A., Taquari Participacoes S.A., and the Company, won a bid for an
operating license to provide wireless and wireline telephone services in the
northern region of Brazil. The Company invested $2.4 million during the second
quarter of fiscal 1999 in connection with its 16.2% ownership interest in
Canbra. The Company expects to make additional equity contributions of
approximately $46 million over the next three years.
During the first six months of fiscal 1999, the Company recognized a gain of
$5.7 million from the sale of available-for-sale securities.
NOTE 5 - BANK LINES OF CREDIT
On March 11, 1998, the Company and a group of banks entered into a $400
million unsecured revolving credit agreement ("Credit Facility I") under which
the banks are committed to make loans to the Company and to extend letters of
credit on behalf of the Company. Credit Facility I expires in March 2001 and may
be extended on an annual basis thereafter, subject to approval of a requisite
percentage of the lenders. At the Company's option, interest is at the
applicable LIBOR rate or the greater of the administrative agent's reference
rate or 0.5% plus the Federal Funds effective rate, each plus an applicable
margin. The amount available for borrowing is reduced by letters of credit
outstanding. The Company is currently obligated to pay commitment fees equal to
0.2% per annum on the unused amount of the $400 million credit commitment.
Credit Facility I includes certain restrictive financial and operating
covenants. As of March 28, 1999, there were $7.7 million letters of credit
issued, and no amounts outstanding, under Credit Facility I.
On March 4, 1999, the Company and a group of banks entered into a $200
million unsecured revolving credit agreement ("Credit Facility II") under which
the banks are committed to make loans to the Company. Credit Facility II expires
in March 2000. At the Company's option, amounts outstanding in March 2000 may be
converted to a one-year term loan with a final maturity of March 2001. Interest
is payable at the greater of the administrative agent's reference rate or 0.5%
plus the Federal Funds effective rate, each plus an applicable margin. The
Company is currently obligated to pay commitment fees equal to 0.2% per annum on
the unused amount of the $200 million credit commitment. Credit Facility II
includes certain restrictive financial and operating covenants. As of March 28,
1999, there were no amounts outstanding under Credit Facility II.
NOTE 6 - RESTRUCTURING
During January 1999, the Company completed a review of its operating
structure to identify opportunities to improve operating effectiveness. As a
result of this review, management approved a formal restructuring plan, and the
Company recorded a pretax restructuring charge to operations of $14.6 million.
The restructuring charge was comprised of employee termination benefits and
facility exit costs resulting primarily from the Company's plan to exit certain
activities in its infrastructure business. Facility exit costs include $3.5
million of asset impairments and $0.9 million of estimated net losses on
subleases or lease cancellation penalties.
The employee termination benefits included in the restructuring charge
reflect the immediate elimination of approximately 650 positions identified in
the restructuring plan. Severance payments will continue beyond the end of the
second quarter of fiscal 1999 due to the provisions of the severance program.
10
<PAGE> 11
The restructuring plan specifically identified seven facilities to be
closed, including one administrative office and six international sales offices.
The Company expects to complete implementation of the plan by the end of the
second quarter of fiscal 2000.
The following table sets forth the restructuring provision and related
activity as of March 28, 1999 (in thousands):
<TABLE>
<CAPTION>
ACTIVITY TO DATE
- ----------------------------------------------------------------------------------
PROVISION COSTS ACCRUAL AS OF
RECORDED INCURRED MARCH 28, 1999
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee
termination
benefits $ 10,162 $ (7,982) $ 2,180
Facility exit
costs 4,397 (3,526) 871
- ----------------------------------------------------------------------------------
Total $ 14,559 $(11,508) $ 3,051
- ----------------------------------------------------------------------------------
</TABLE>
NOTE 7 - DISPOSITION OF ASSETS AND OTHER CHARGES
On March 24, 1999 the Company and Telefonaktiebolaget LM Ericsson
("Ericsson") entered into an Asset Purchase Agreement (the "Agreement") for the
sale by the Company to Ericsson of certain assets related to the Company's
terrestrial CDMA wireless infrastructure business. The Company and Ericsson also
entered into various license and settlement agreements in connection therewith,
all of which are effective upon the closing of the sale (the "Closing"). The
Closing is subject to certain customary closing conditions. The Company recorded
a charge of $60.4 million in other operating expenses to reflect the difference
between the carrying value of the net assets and the consideration to be
received from Ericsson, less costs to sell. The estimated loss before income
taxes for the business to be disposed of included in the results of operations
for the six months ended March 28, 1999 was approximately $110 million.
In addition, the Company and Ericsson agreed to jointly support a single
worldwide CDMA standard with three optional modes for the next generation of
wireless communications and have agreed to settle all of the existing litigation
between the companies and enter into cross-licenses for portions of their
respective CDMA patent portfolios. As part of the agreements, the Company and
Ericsson will each commit to the International Telecommunication Union ("ITU")
and to other standard bodies to license their essential patents for the single
CDMA standard or any of its modes to the rest of the industry on a fair and
reasonable basis free from unfair discrimination.
Pursuant to the Agreement, the Company will extend up to $400 million in
financing for possible future sales by Ericsson of cdmaOne or cdma2000
infrastructure equipment and related services to specific customers in certain
geographic areas, including Brazil, Chile, Russia, and Mexico or in other areas
selected by Ericsson. Such commitments are subject to the customers meeting
certain conditions established in the financing arrangements and, in most cases,
to Ericsson also financing a portion of such cdmaOne or cdma2000 sales.
Commitments represent the estimated amounts to be financed under these
arrangements, however, actual financing may be in lesser amounts.
As a result of the Ericsson transaction, the Company reassessed the
recoverability of the carrying value of remaining assets relating to its
terrestrial CDMA wireless infrastructure business. The Company recorded a charge
of $20.8 million in other operating expenses to reduce the carrying value of
certain other assets to their approximate net realizable value, including $12.0
million in other assets related to the TOU contract (Note 2). The Company also
recorded $52.5 million in non-operating charges, including $37.4 million in
reserves provided for financial guarantees on projects which the Company will no
longer pursue as a result of the Ericsson transaction and $15.1 million related
to the write-off of TOU assets (Note 2). The Company estimates that additional
charges in the third quarter of fiscal 1999 relating to the disposition of the
terrestrial CDMA wireless infrastructure business will total approximately $100
million (Note 10).
11
<PAGE> 12
NOTE 8 - INCOME TAXES
The Company's income tax provision for the six months ended March 28, 1999
reflects an adjustment for the retroactive reinstatement of the R&D tax credit
in the first quarter of fiscal 1999. Excluding this adjustment, the Company
currently estimates its annual effective income tax rate to be approximately 35%
for fiscal 1999.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LITIGATION
On September 23, 1996, Ericsson Inc. and Telefonaktiebolaget LM Ericsson
("Ericsson") filed suit against the Company in Marshall, Texas and on December
17, 1996, Ericsson also filed suit against the Company's subsidiary QUALCOMM
Personal Electronics ("QPE") in Dallas, Texas with both complaints alleging that
the Company's or QPE's CDMA products infringe one or more patents owned by
Ericsson. The suits were later amended to include a total of eleven Ericsson
patents. By order dated July 24, 1998, the Dallas action was transferred to
Marshall, Texas. In December 1996, QUALCOMM filed a countersuit alleging, among
other things, breach of a nondisclosure agreement by Ericsson and a pattern of
conduct intended to impede the acceptance and commercial deployment of
QUALCOMM's CDMA technology and is seeking a judicial declaration that certain of
Ericsson's patents are not infringed by QUALCOMM and are invalid. That
countersuit has been consolidated with the Marshall, Texas action. On September
10, 1996, OKI America, Inc. ("OKI") filed a complaint against Ericsson seeking a
judicial declaration that certain of OKI's CDMA subscriber products do not
infringe nine patents of Ericsson and that such patents are invalid. The nine
patents are among the eleven patents at issue in the litigation between the
Company and Ericsson. The OKI case has not yet been set for trial. On October
14, 1998, Ericsson filed a dismissal with prejudice of all of its claims under
three of the patents at issue in the Marshall, Texas case. On March 24, 1999,
the Company and Ericsson entered into an Asset Purchase Agreement (Note 7) for
the sale by the Company to Ericsson of certain assets related to the Company's
terrestrial CDMA wireless infrastructure business and also entered into various
license and settlement agreements in connection therewith, all of which are
effective upon the Closing. The Closing is subject to certain customary closing
conditions, including receipt of required regulatory approvals. Upon the
Closing, the Company, QPE and Ericsson will dismiss with prejudice all of their
respective claims and counterclaims against each other. Pending the Closing, the
Company and Ericsson have agreed to a stay of all litigation effective March 25,
1999. In the event the Closing does not occur by July 25, 1999, the stay will be
lifted.
On March 5, 1997, the Company filed a complaint against Motorola, Inc.
("Motorola"). The complaint was filed in response to allegations by Motorola
that the Company's then, recently announced, Q phone infringes design and
utility patents held by Motorola as well as trade dress and common law rights
relating to the appearance of certain Motorola wireless telephone products. The
complaint denies such allegations and seeks a judicial declaration that the
Company's products do not infringe any patents held by Motorola. On March 10,
1997, Motorola filed a complaint against the Company (the "Motorola Complaint"),
alleging claims based primarily on the above-alleged infringement. The Company's
motion to transfer the Motorola Complaint to the U.S. District Court for the
Southern District of California was granted on April 3, 1997. On April 24, 1997,
the court denied Motorola's motion for a preliminary injunction thereby
permitting the Company to continue to manufacture, market and sell the Q phone.
On April 25, 1997, Motorola appealed the denial of its motion for a preliminary
injunction. On January 16, 1998 the U.S. Court of Appeals for the Federal
Circuit denied Motorola's appeal and affirmed the decision of the U.S. District
Court for the Southern District of California refusing Motorola's request to
enjoin QUALCOMM from manufacturing and selling the Q phone. On June 4, 1997,
Motorola filed another lawsuit alleging infringement by QUALCOMM of 4 patents.
Three of the patents had already been alleged in previous litigation between the
parties. On August 18, 1997, Motorola filed another complaint against the
Company alleging infringement by the Company of 7 additional patents. All of the
Motorola cases have been consolidated for pretrial proceedings. The cases have
been set for a final pretrial conference on August 1, 1999. Although there can
be no assurance that an unfavorable outcome of the dispute would not have a
material adverse effect on the Company's results of operations, liquidity or
financial position, the Company believes Motorola's claims are without merit and
will continue to vigorously defend the action.
On October 27, 1998, the Electronics and Telecommunications Research
Institute of Korea ("ETRI") submitted to the International Chamber of Commerce a
Request for Arbitration (the "Request") of a dispute with the Company
12
<PAGE> 13
arising out of a Joint Development Agreement dated April 30, 1992 ("JDA")
between ETRI and the Company. In the Request, ETRI alleges that the Company has
breached certain provisions of the JDA and seeks monetary damages and an
accounting. The Company filed an answer and counterclaims denying the
allegations, seeking a declaration establishing the termination of the JDA, and
for monetary damages and injunctive relief against ETRI. In accordance with the
JDA, the arbitration will take place in San Diego. No schedule for the
arbitration proceedings has been established. Although the ultimate resolution
of this dispute is subject to the uncertainties inherent in litigation or
arbitration, the Company does not believe that the resolution of these claims
will have a material adverse effect on the Company's results of operations,
liquidity or financial position. The Company believes that ETRI's claims are
without merit and will vigorously defend the action.
On February 26, 1999, the Lemelson Medical, Education & Research Foundation,
Limited Partnership ("Lemelson"), filed an industry-wide action in the United
States District Court for the District of Arizona. The complaint names a total
of 88 parties, including the Company, as defendants and purports to assert
claims for infringement of 15 patents. The complaint alleges that application
specific integrated circuit ("ASIC") devices sold by the Company, or the
processes by which such devices are manufactured, infringe the asserted patents.
Because all of the ASICs sold by the Company are manufactured for the Company by
others, the Company will likely be entitled to be defended and indemnified by
its vendors with respect to many, and perhaps all, of its ASIC products. The
Company believes that the Lemelson claims will not have a material adverse
effect on the Company's results of operations, liquidity or financial position.
The Company believes the Lemelson claims are without merit and will vigorously
defend the action.
On May 6, 1999, Thomas Sprague, an employee of the Company, filed a putative
class action against the Company, ostensibly on behalf of himself and those of
the Company's employees who have been offered employment with Ericsson in
conjunction with the sale to Ericsson of certain of the Company's infrastructure
division assets and liabilities (Note 7) and who have elected not to participate
in a Retention Bonus Plan being offered to such employees. The complaint was
filed in California Superior Court in and for the County of San Diego and
purports to state eight causes of action arising primarily out of alleged
breaches of the terms of the Company's 1991 Stock Option Plan, as amended from
time to time. The putative class seeks to include employees of the Company who
(among other things) "have not or will not execute the Bonus Retention Plan and
accompanying full and complete release of QUALCOMM." The complaint seeks an
order accelerating all unvested stock options for the members of the class. As
of May 7, 1999, 94 percent or more of the 1,053 transitioning employees who have
unvested stock options had chosen not to join the lawsuit and to participate
instead in the Retention Bonus Plan offered by QUALCOMM and Ericsson, which
provides several benefits including cash compensation based upon a portion of
the value of their unvested options. Although the Company believes the complaint
has no merit and intends to defend the action vigorously, there can be no
assurance that an unfavorable outcome of the action would not have a material
adverse impact on the Company's results of operations, liquidity or financial
position.
The Company is engaged in other legal actions arising in the ordinary course
of its business and believes that the ultimate outcome of these actions will not
have a material adverse effect on its results of operations, liquidity or
financial position.
LETTERS OF CREDIT AND FINANCIAL GUARANTEES
The Company has issued a letter of credit on behalf of its equity investee
Globalstar, L.P. ("Globalstar") to support a guarantee of up to $22.5 million of
borrowings under an existing bank financing agreement. The guarantee will expire
in December 2000. The letter of credit is collateralized by a commensurate
amount of the Company's investments in debt securities. As of March 28, 1999,
Globalstar had no borrowings outstanding under the existing bank financing
agreement.
In addition to the letter of credit on behalf of Globalstar, the Company has
$33.0 million of letters of credit and $4.7 million of other financial
guarantees outstanding, excluding those against which a reserve has been taken
as of March 28, 1999, none of which are collateralized.
PERFORMANCE GUARANTEES
The Company and its subsidiary, QPE, have entered into contracts that
provide for performance guarantees to protect customers against late delivery or
failure to perform. These performance guarantees, and any future commitments for
performance guarantees, are obligations entered into separately, and in some
cases jointly, with partners to supply CDMA subscriber and infrastructure
equipment. Certain of these obligations provide for substantial performance
guarantees that accrue at a daily rate based on percentages of the contract
value to the extent the equipment is not delivered by scheduled delivery dates
or the systems fail to meet certain performance criteria by such dates. The
Company is dependent in part on the performance of its suppliers and strategic
partners in order to provide equipment, which is the subject of the guarantees.
Thus, the ability to timely deliver such equipment may be outside of the
Company's control. If the Company and QPE are unable to meet their performance
obligations, the payment of the performance guarantees could amount to a
significant portion of the contract value and would have a material adverse
effect on product margins and the Company's results of operations, liquidity or
financial position.
LEAP WIRELESS CREDIT FACILITY
The Company has a funding commitment to Leap Wireless in the form of a $265
million secured credit facility. The credit facility consists of two
sub-facilities. The first sub-facility enables Leap Wireless to borrow up to
$35.2
13
<PAGE> 14
million from QUALCOMM, solely to meet the normal working capital and operating
expenses of Leap Wireless, including salaries, overhead and credit facility
fees, but excluding, among other things, strategic capital investments in
wireless operators, substantial acquisitions of capital products, and/or the
acquisition of telecommunications licenses. The other sub-facility enables Leap
Wireless to borrow up to $229.8 million from QUALCOMM, solely to use as
investment capital to make certain identified portfolio investments. Amounts
borrowed under the credit facility will be due September 23, 2006. QUALCOMM will
have a first priority security interest in, subject to minor exceptions,
substantially all of the assets of Leap Wireless for so long as any amounts are
outstanding under the credit facility. Amounts borrowed under the credit
facility will bear interest at a variable rate equal to LIBOR plus 5.25% per
annum. Interest will be payable quarterly beginning September 30, 2001; and
prior to such time, accrued interest shall be added to the principal amount
outstanding. At March 28, 1999, $45.2 million is outstanding under this
facility.
NOTE 10 - SUBSEQUENT EVENTS
In April 1999, the Company announced that it will provide certain
compensation benefits to employees being transferred to Ericsson in connection
with the proposed sale of assets related to the Company's terrestrial CDMA
wireless infrastructure business (Note 7). The Company estimates that additional
charges in the third quarter of fiscal 1999 relating to the disposition of the
terrestrial CDMA wireless infrastructure business will total approximately $100
million, primarily related to employee compensation benefits. This estimate is
largely based on the fair market value of the Company's common stock, and
therefore is subject to market fluctuations.
On April 14, 1999, the Company's Board of Directors declared a two-for-one
stock split of the Company's common stock. The stock dividend will be
distributed on May 10, 1999 to stockholders of record on April 21, 1999. Pro
forma earnings (loss) per common share, giving retroactive effect to the stock
split, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic ............................. $ (0.29) $ 0.19 $ 0.04 $ 0.46
=========== =========== =========== ===========
Diluted ........................... $ (0.29) $ 0.18 $ 0.04 $ 0.43
=========== =========== =========== ===========
SHARES USED IN PER SHARE CALCULATION:
Basic ............................. 144,614 137,868 143,030 137,410
=========== =========== =========== ===========
Diluted ........................... 144,614 146,286 146,526 147,285
=========== =========== =========== ===========
</TABLE>
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This information should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included in Item 1 of
Part I of this Quarterly Report and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of Results
of Operations and Financial Condition for the year ended September 27, 1998
contained in the Company's 1998 Annual Report on Form 10-K.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. QUALCOMM Incorporated's ("QUALCOMM" or the "Company") future
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include, but are not specifically
limited to: risks relating to the closing of the proposed Ericsson transaction,
including the occurrence of required closing conditions; the ability to develop
and introduce cost effective new products in a timely manner, avoiding delays in
the commercial implementation of the Code Division Multiple Access ("CDMA")
technology; continued growth in the CDMA subscriber population and the scale-up
and operations of CDMA systems; risks relating to the success of the Globalstar
system; developments in current or future litigation; the Company's ability to
effectively manage growth and the intense competition in the wireless
communications industry; risks associated with vendor financing; timing and
receipt of license fees and royalties; failure to satisfy performance
obligations; as well as the other risks detailed in this section, in the
sections entitled Results of Operations and Liquidity and Capital Resources, and
in the Company's 1998 Annual Report on Form 10-K.
OVERVIEW
QUALCOMM is a leading provider of digital wireless communications products,
technologies and services. The Company generates revenues primarily from:
license fees and royalties paid by licensees of the Company's CDMA technology;
sales of CDMA subscriber, infrastructure and Application Specific Integrated
Circuits ("ASICs") products to domestic and international wireless
communications equipment suppliers and service providers; sales of OmniTRACS
terminals and related software and services to OmniTRACS users; and contract
development services, including the design and development of subscriber and
ground communications equipment for Globalstar L.P. ("Globalstar"), a
low-Earth-orbit satellite system utilizing CDMA technology (the "Globalstar
System"). In addition, the Company generates revenues from the design,
development, manufacture and sale of a variety of other communications products
and services.
The Company generates revenue from its CDMA licensees in the form of
up-front licenses as well as ongoing royalties based on worldwide sales by such
licensees of CDMA subscriber and infrastructure equipment. License fees are
generally nonrefundable and may be paid in one or more installments. Revenues
generated from license fees and royalties are subject to quarterly and annual
fluctuations. This is due to variations in the amount and timing of recognition
of CDMA license fees, pricing and amount of sales by the Company's licensees and
the Company's ability to estimate such sales, and the impact of currency
fluctuations, and risks associated with royalties generated from international
licensees.
The Company has manufactured CDMA infrastructure products for sale to
wireless network operators worldwide. On March 24, 1999, QUALCOMM and
Telefonaktiebolaget LM Ericsson ("Ericsson") entered into an Asset Purchase
Agreement for the sale by the Company to Ericsson of certain assets related to
the Company's terrestrial CDMA wireless infrastructure business, subject to
certain customary closing conditions, including receipt of required regulatory
approvals.
The Company manufactures its CDMA subscriber products primarily through
QUALCOMM Personal Electronics ("QPE"), a joint venture between the Company and a
subsidiary of Sony Electronics, Inc. The Company, through QPE, is one of the
largest manufacturers of CDMA handsets. The Company also generates substantial
revenue from the design and sale of CDMA ASICs to its licensees for
incorporation into their subscriber and infrastructure products.
15
<PAGE> 16
The Company generates revenues from its domestic OmniTRACS business by
manufacturing and selling OmniTRACS terminals and related application software
packages and by providing ongoing messaging and maintenance services to domestic
OmniTRACS users. The Company generates revenues from its international OmniTRACS
business through license fees, sales of network products and terminals, and
service fees. International messaging services are provided by service providers
that operate network management centers for a region under licenses granted by
the Company.
The Company has entered into a number of development and manufacturing
contracts involving the Globalstar System. The Company's development agreement
provides for the design and development of the ground communications stations
("gateways") and user terminals of the Globalstar System. Under the agreement,
the Company is reimbursed for its development services on a cost-plus basis. In
addition, in April 1997 the Company was awarded a contract to manufacture and
supply commercial gateways for deployment in the Globalstar System. In March
1998, the Company entered into an agreement with Globalstar to manufacture and
supply portable and fixed CDMA handsets that will operate on the Globalstar
System. The Globalstar system is still being deployed, and cannot begin
commercial operations until at least 32 satellites are working in orbit, the
necessary ground equipment and user terminals are in place and service providers
are licensed in the countries to be served. Satellite launches are risky, with
about 15% of attempts ending in failure. Globalstar has already had one launch
failure, and more failures may occur within the course of its launch campaign.
If another launch fails, the resulting increased costs, including those
associated with delay, could have a material adverse effect on the financial
condition and results of operations of Globalstar. The cost of installing the
Globalstar system has been revised upward from the original estimates, and
further increases are possible. Until the system is fully deployed and tested,
it is not certain that it will perform as designed. Even if the system operates
as it should, there is no certainty that the anticipated market will develop.
Barring unexpected adverse developments, Globalstar will need approximately
$600 million more capital before it can begin commercial service in September
1999 as planned. Any delay in raising the necessary funds will delay the start
of commercial service. If the start of service is significantly delayed, a
larger proportion of Globalstar's debt services requirements will become due
before Globalstar has positive cash flow, which will increase the amount of
money Globalstar needs.
The value of the Company's investment in and future business with
Globalstar, as well as its ability to collect outstanding receivables from
Globalstar, depends on the success of Globalstar and the Globalstar System.
Globalstar is a development stage company and has no operating history. From its
inception, Globalstar has incurred net losses and losses are expected to
continue at least until commercial operations of the Globalstar System commence,
which is expected to be in calendar 1999. A substantial shortfall in meeting
Globalstar's capital needs could prevent completion of the Globalstar System and
could materially and adversely affect the Company's results of operations,
liquidity and financial position. In addition, Globalstar can terminate its
development agreement with the Company if Globalstar abandons its efforts to
develop the Globalstar System.
The manufacture of wireless communications products is a complex and precise
process involving specialized material, manufacturing and testing equipment and
processes. The majority of the Company's products are manufactured based upon a
forecast of market demand. The Company cannot assure the accuracy of its market
forecast or that it will be able to effectively meet customer demand in a timely
manner. Factors that could materially and adversely affect the Company's ability
to meet customer demand include defects or impurities in the components or
materials used, delays in the delivery of such components or materials,
equipment failures or other difficulties. The Company may experience component
failures or defects which could require significant product recalls, reworks
and/or repairs which are not covered by warranty reserves and which could
consume a substantial portion of the Company's manufacturing capacity.
Revenues from customers outside of the U.S. accounted for approximately 32%
and 34% of total revenues for the six months ended March 28, 1999 and in fiscal
1998, respectively. Sales of subscriber, infrastructure and ASICs products,
internationally, are subject to a number of risks, including delays in opening
of foreign markets to new competitors, exchange controls, currency fluctuations,
investment policies, repatriation of cash, nationalization, social and political
risks, taxation and other factors, depending on the country in which such
opportunity arises.
16
<PAGE> 17
Wireless and satellite network operators, both domestic and international,
increasingly have required their suppliers to arrange or provide long-term
financing for them as a condition to obtaining or bidding on infrastructure
projects. In providing such financing, the Company is exposed to risk from
fluctuations in foreign currency and interest rates, which could impact the
Company's results of operations and financial condition. QUALCOMM's financing on
products and services is denominated in dollars and any significant change in
the value of the dollar against the national currency where QUALCOMM is lending
could result in the increase of costs to the debtors and could restrict the
debtors from fulfilling their contractual obligations. Any devaluation in the
local currency relative to the currencies in which such liabilities are payable
could have a material adverse effect on the Company. In some developing
countries, including Chile, Mexico, Brazil, and Russia, significant currency
devaluations relative to the U.S. dollar have occurred and may occur again in
the future. In such circumstances, the Company may experience economic loss with
respect to the collectability of its receivables and the value of inventories as
a result of exchange rate fluctuations.
During the commercial start-up of its system in Chile with Chilesat
Telefonia Personal, S.A. ("Chilesat PCS"), the Company's equipment experienced
certain problems relating to the performance of the system. As a result,
Chilesat PCS has claimed that the Company is in breach of warranty. The Company
has tested and delivered a processor upgrade, which the Company believes
resolves the claim. Although there can be no assurance that the Company's
processor upgrade will resolve the claim until the system is at specified
capacity, the Company does not believe that the resolution of this claim will
have a material adverse effect on the Company. Subsequent to quarter end,
Chilesat PCS became a wholly-owned subsidiary of Leap Wireless.
The Russian economic environment has experienced severe volatility, which
could negatively impact the Company's prospects and have a material adverse
effect on the Company's business, results of operations, liquidity and financial
position. The Company currently has approximately $17 million in Russian
receivables and an additional $26 million in products and deployment services
placed with carriers for which the Company has not yet recognized revenues. The
Company cannot guarantee that these carriers will have sufficient resources to
complete their planned projects. The failure of any of these emerging service
carriers to obtain sufficient financing to meet their regulatory obligations
could adversely affect the value of the Company's receivables and inventories
relating to these customers.
A review of the Company's current litigation is disclosed in the Notes to
Condensed Consolidated Financial Statements (see Notes to Condensed Consolidated
Financial Statements--Note 9 Commitments and Contingencies). The Company is also
engaged in other legal actions arising in the ordinary course of its business
and believes that the ultimate outcome of these actions will not have a material
adverse effect on its results of operations, liquidity or financial position.
RECENT DEVELOPMENTS
The Company's terrestrial CDMA wireless infrastructure business has
continued to incur losses, and the recent financial crisis in developing markets
has materially impacted infrastructure products sales in fiscal 1999. In January
1999, management approved a formal restructuring plan. As a result, the Company
recorded a pretax restructuring charge to operations of $15 million. The charge
was comprised of employee termination benefits and facility exit costs resulting
primarily from the Company's plan to exit certain activities in its
infrastructure business.
On March 24, 1999, QUALCOMM and Ericsson entered into an Asset Purchase
Agreement (the "Agreement") for the sale by the Company to Ericsson of certain
assets related to the Company's terrestrial CDMA wireless infrastructure
business. The Company and Ericsson also entered into various license and
settlement agreements in connection therewith, all of which are effective upon
the closing of the sale (the "Closing"). The Closing is subject to certain
customary closing conditions. The Closing is expected to occur during the
Company's third fiscal quarter of 1999. Under the Agreement, (a) QUALCOMM agreed
to sell certain assets relating to its terrestrial CDMA wireless infrastructure
business to Ericsson in exchange for cash and the assumption of certain
liabilities, (b) QUALCOMM and Ericsson agreed to jointly support a single
worldwide CDMA standard with three optional modes for the next generation of
wireless communications and (c) all of the existing litigation between the
companies will be settled and the companies will enter into royalty-bearing
cross-licenses for their respective CDMA patent portfolios.
17
<PAGE> 18
Pursuant to the Agreement, Ericsson will purchase certain assets of
QUALCOMM's terrestrial CDMA wireless infrastructure business, including its R&D
resources, located in San Diego, Calif. and Boulder, Colo., and will assume
selected customer commitments, including a portion of future vendor financing
obligations, related assets and personnel. The Company recorded a charge of $60
million to reflect the difference between the carrying value of the net assets
and the consideration to be received from Ericsson, less costs to sell. As part
of the Agreement, the Company agreed to jointly finance with Ericsson certain
sales by Ericsson of cdmaOne and cdma2000 infrastructure equipment and services
(the "cdmaOne/2000 Sales").
Pursuant to the Agreement, the Company will extend up to $400 million in
financing for possible future sales by Ericsson of cdmaOne or cdma2000
infrastructure equipment and related services to specific customers in certain
geographic areas, including Brazil, Chile, Russia, and Mexico, or in other areas
selected by Ericsson. Such commitments are subject to the customers meeting
certain conditions established in the financing arrangements and, in most cases
to Ericsson also financing a portion of such cdmaOne or cdma2000 sales.
Commitments represent the estimated amounts to be financed under these
arrangements, however, actual financing may be in lesser amounts.
Effective upon the closing, the Agreement will settle the litigation between
Ericsson and QUALCOMM and provide for cross-licensing of patents for all CDMA
technologies, including cdmaOne, WCDMA and cdma2000. The cross-licenses are
royalty bearing for CDMA subscriber units sold by Ericsson and QUALCOMM.
QUALCOMM also will receive rights to sublicense certain Ericsson patents,
including the patents asserted in the litigation, to QUALCOMM's Application
Specific Integrated Circuits ("ASIC") customers.
The Company expects to incur additional charges in the third quarter of
fiscal 1999 relating to the disposition of the terrestrial CDMA wireless
infrastructure business. The Company currently estimates these charges to be
approximately $100 million, primarily related to compensation for employees
being transferred to Ericsson in connection with the proposed sale of the
Company's terrestrial CDMA wireless infrastructure business. This estimate is
largely based on the fair market value of the Company's common stock, and
therefore is subject to market fluctuations.
As part of the Agreement, QUALCOMM and Ericsson have also agreed to jointly
support approval by the International Telecommunications Union ("ITU") and the
other standards bodies, including the U.S. Telecommunications Industry
Association ("TIA") and the European Telecommunications Standards Institute
("ETSI"), of a single CDMA third generation ("3G") standard that encompasses
three optional modes of operation: 1) direct sequence Frequency Division Duplex
("FDD"), 2) multi-carrier FDD, and 3) Time Division Duplex ("TDD"). Each mode
supports operation with both GSM MAP and ANSI-41 networks. The Company believes
that rapid adoption of the single CDMA standard is in the best interests of the
industry and will allow each operator to select which mode of operation to
deploy based on marketplace needs. As part of the Agreements, QUALCOMM and
Ericsson will each commit to the ITU and to other standards bodies to license
their essential patents for the single CDMA standard or any of its modes to the
rest of the industry on a fair and reasonable basis free from unfair
discrimination. Upon the Closing, each of the companies have agreed to notify
the ITU and other relevant standards bodies that any intellectual property
rights blocking currently in force will be immediately withdrawn.
There can be no assurance that the Closing will occur or that the
transactions contemplated under the Agreement will be consummated. There can be
no assurance that the industry or any country will adopt such a single CDMA
standard or that such a standard, if adopted, will be commercially deployed. The
extent to which it is commercially deployed may have a material affect on the
Company. The Company believes that its CDMA patent portfolio provides broad
coverage and is applicable to any commercially viable CDMA wireless system,
including modes of CDMA recommended for the proposed single CDMA 3G standard.
The Company has informed standards bodies, including the ITU, TIA, ETSI and the
Association of Radio Industries and Business ("ARIB"), that it holds essential
patents for third generation CDMA systems that have been submitted to such
standards bodies. Further, the Company intends to vigorously enforce and protect
its intellectual property position against any infringement. However, despite
the Company's position and the license agreements entered into by the Company
with Ericsson and others which provide for royalties payable to the Company for
certain products employing such CDMA standards, there can be no assurance that
the Company's CDMA patents will be determined to be applicable to any proposed
standard. The adoption of next generation CDMA standards, if any, which are
determined not to rely on the
18
<PAGE> 19
Company's intellectual property could have a material adverse effect on the
Company's business, results of operations, liquidity and financial position.
Upon consummation of the transaction with Ericsson, the Company will retain
certain terrestrial CDMA wireless infrastructure business contracts. Equipment
sales and deployment services under these contracts may be subcontracted to
Ericsson. The Company will no longer develop terrestrial infrastructure
products. Accordingly, the Company reassessed the recoverability of the carrying
value of remaining assets relating to its terrestrial CDMA wireless
infrastructure business.
The Company had intended to transfer its equity ownership interest in
Telesystems of Ukraine ("TOU") to Leap Wireless International ("Leap Wireless").
During March 1999, the Company reassessed the recoverability of its ownership
interest in TOU and its working capital receivable from TOU ("TOU assets") in
light of recent developments affecting the TOU business and the disposition of
other assets related to the terrestrial CDMA wireless infrastructure business.
As a result, the Company recorded a $15 million non-operating charge to write
off the TOU assets, as well as a $12 million charge to operations to write off
other assets related to the TOU contract.
The Company recorded a charge of $21 million during the second quarter to
reduce the carrying value of certain other assets to their approximate net
realizable value, including the $12 million in other assets related to the TOU
contract. The Company also recorded $52 million in non-operating charges,
including $37 million in reserves provided for financial guarantees on projects
which the Company will no longer pursue as a result of the Ericsson transaction
and $15 million related to the write-off of TOU assets.
19
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of total revenues represented by certain consolidated statements of operations
data:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Communications systems ................ 83% 82% 85% 84%
Contract services ..................... 9 9 9 8
License, royalty and development fees . 8 9 6 8
---- ---- ---- ----
Total revenues ............................ 100% 100% 100% 100%
---- ---- ---- ----
Operating expenses:
Communications systems ................ 61% 64% 62% 64%
Contract services ..................... 6 6 6 6
Research and development .............. 11 10 11 10
Selling and marketing ................. 6 8 7 7
General and administrative ............ 5 5 5 5
Other ................................. 10 -- 5 1
---- ---- ---- ----
Total operating expenses .................. 99% 93% 96% 93%
---- ---- ---- ----
Operating income .......................... 1 7 4 7
Interest income, net ...................... -- -- -- --
Net gain on sale of investments ............ -- -- -- --
Loss on cancellation of warrants ........... -- -- -- --
Other ...................................... (6) -- (3) --
Distributions on trust convertible preferred
securities of subsidiary trust ............ (1) (1) (1) (1)
Minority interest in income of consolidated
subsidiaries .............................. -- (3) -- (1)
Equity in losses of investees .............. (1) -- -- --
---- ---- ---- ----
Income (loss) before income taxes .......... (7) 3 -- 5
Income tax benefit (expense) ............... 2 -- -- (1)
---- ---- ---- ----
Net income (loss) .......................... (5)% 3% --% 4%
==== ==== ==== ====
Communications systems costs as a percentage
of communications systems revenues ....... 73% 78% 72% 76%
Contract services costs as a percentage
of contract services revenues .......... 68% 76% 70% 74%
</TABLE>
SECOND QUARTER OF FISCAL 1999 COMPARED TO SECOND QUARTER OF FISCAL 1998
Total revenues for the second quarter of fiscal 1999 were $932 million, an
increase of $171 million or 22% compared to total revenues of $761 million for
the second quarter of fiscal 1998. Revenue growth was primarily due to the
significant growth in the revenue related to communications systems.
Communications systems revenues were $774 million in the second quarter of
fiscal 1999, an increase of $148 million or 24% compared to $626 million for the
same period in fiscal 1998. The increase represents the higher volume of sales
of CDMA subscriber and ASICs products.
Contract services revenues for the second quarter of fiscal 1999 were $81
million, a 25% increase compared to $65 million for the same period in fiscal
1998. The dollar increase resulted primarily from revenues from the development
agreement with Globalstar.
20
<PAGE> 21
License, royalty and development fees for the second quarter of fiscal 1999
were $77 million, compared with revenues of $70 million for the same period in
fiscal 1998. In the second quarter of 1999, shipments of CDMA equipment by
licensees increased, resulting in increased royalty payments due to the Company.
The increase in royalties was partially offset by a decline in up-front license
payments. License, royalty and development fees may continue to fluctuate
quarterly due to the timing and amount of up-front fees on new licenses,
royalties from sales by the Company's licensees and changes in foreign currency
exchange rates. Beginning with the second quarter of fiscal 1998, the Company
began to accrue its estimate of certain royalty revenues earned that previously
could not be reasonably estimated prior to being reported by its licensees.
Costs of communications systems were $568 million or 73% of communications
systems revenues for the second quarter of fiscal 1999 compared to $485 million
or 78% of communications systems revenues for the second quarter of fiscal 1998.
Costs of communications systems for the second quarter of fiscal 1999 include
$10 million in non-recurring charges primarily related to additional
infrastructure equipment contract costs to be incurred as a result of the
Company's decision to sell its terrestrial CDMA wireless infrastructure
business. Costs of communications systems as a percentage of communications
systems revenues for the second quarter of fiscal 1999 decreased primarily as a
result of cost improvements related to ASICs products. Communications systems
costs as a percentage of communications systems revenues may fluctuate in future
quarters depending on mix of products sold, competitive pricing, new product
introduction costs and other factors.
Contract services costs for the second quarter of fiscal 1999 were $55
million or 68% of contract services revenues, compared to $49 million or 76% of
contract services revenues for the second quarter of fiscal 1998. The dollar
increase in contract services costs was primarily related to increased sales
under the Globalstar development contract. Contract service costs as a
percentage of contract services revenue decreased due to a change in the mix of
labor and materials incurred on the Globalstar development contract.
Research and development expenses were $103 million or 11% of revenues for
the second quarter of fiscal 1999, compared to $77 million or 10% of revenues
for the same period in fiscal 1998.
Selling and marketing expenses were $54 million or 6% of revenues for the
second quarter of fiscal 1999, compared to $60 million or 8% of revenues for the
same period in fiscal 1998. The dollar decline in selling and marketing expense
was due primarily to a decrease in marketing expense for infrastructure
products, including reduced headcount and proposal activity.
General and administrative expenses for the second quarter of fiscal 1999
were $51 million or 5% of revenues, compared to $38 million or 5% of revenues
for the second quarter of fiscal 1998. The dollar increase was attributable to
growth in personnel and associated overhead expenses necessary to support the
overall growth in the Company's operations and increased legal, patent, and
information technology expenses.
Other operating expenses for the second quarter of fiscal 1999 were $96
million. During the second quarter of fiscal 1999, the Company recorded a pretax
restructuring charge to operations of $15 million. The restructuring charge was
comprised of employee termination benefits and facility exit costs resulting
primarily from the Company's plan to exit certain activities in its
infrastructure business. In March 1999, the Company entered into the Agreement
with Ericsson to sell certain assets related to its terrestrial CDMA wireless
infrastructure business and various license and settlement agreements in
connection therewith. As a result, the Company recorded charges of $60 million
to reflect the difference between the carrying value of the net assets to be
sold and the consideration to be received, less costs to sell, and $21 million
to reduce the carrying value of certain other assets relating to its terrestrial
CDMA wireless infrastructure business.
Interest income was $8 million for the second quarter of fiscal 1999,
compared to $10 million for the same period in fiscal 1998 due to lower cash and
investment balances.
Interest expense was $5 million for the second quarter of fiscal 1999,
compared to $2 million for the same period in fiscal 1998. The higher interest
expense is due to higher average balances on the bank lines of credit.
21
<PAGE> 22
During the second quarter of fiscal 1999, the Company recorded a loss of $3
million in connection with the cancellation of warrants to purchase 1,000,000
common shares of Leap Wireless. The cancellation was done to give further
assurance that Leap Wireless will meet the FCC criteria for designated entity
status.
During the second quarter of fiscal 1999, the Company recorded $52 million
in non-operating charges, including $37 million in reserves provided for
financial guarantees on projects which the Company will no longer pursue as a
result of the Ericsson transaction and $15 million related to the write-off of
TOU assets.
Distributions on Trust Convertible Preferred Securities of $10 million for
the second quarter of fiscal 1999 and 1998 relate to the private placement of
$660 million of 5 3/4% Trust Convertible Preferred Securities by QUALCOMM in
February 1997.
The minority interest represents other parties' or stockholders' share of
the income or losses of consolidated subsidiaries, including QPE, a joint
venture with a subsidiary of Sony. The minority interest for the second quarter
of 1998 includes the impact of restructuring QPE.
The second quarter loss resulted in an income tax benefit of $23 million for
the second quarter of fiscal 1999 compared to an income tax expense of $0.2
million for the same period in fiscal 1998. The annual effective tax rate for
fiscal 1999 is currently estimated to be 35%, excluding the effect of the
reinstatement of the R&D tax credit, compared to 30% for fiscal 1998, excluding
an increase in certain estimated tax credits.
FIRST SIX MONTHS OF FISCAL 1999 COMPARED TO FIRST SIX MONTHS OF FISCAL 1998
Total revenues for the first six months of fiscal 1999 were $1,874 million,
an increase of $328 million or 21% over total revenues of $1,546 million for the
first six months of fiscal 1999.
Communications systems revenues for the first six months of fiscal 1999 were
$1,591 million, a 22% increase compared to revenues of $1,302 million for the
same period in fiscal 1998. The increase for the first six months of fiscal 1999
represents the higher volumes of sales of CDMA subscriber and ASICs products,
increased revenues from the expansion of the installed OmniTRACS base in the
U.S., and sales of commercial gateways for deployment in the Globalstar system.
Contract services revenues for the first six months of fiscal 1999 increased
to $161 million from $129 million for the same period in fiscal 1998, an
increase of 25%. The increase of $32 million resulted primarily from the
development agreement with Globalstar.
License, royalty and development fees for the first six months of fiscal
1999 were $121 million, compared to $115 million for the same period in fiscal
1998, an increase of 5%. The increase was driven by increased royalties
recognized in conjunction with the worldwide sales of subscriber units utilizing
the Company's CDMA technology by the Company's licensees, partially offset by
lower up front license fees. Beginning with the second quarter of fiscal 1998,
the Company began to accrue its estimate of certain royalty revenues earned that
previously could not be reasonably estimated prior to being reported by its
licensees.
Costs of communications systems for the first six months of fiscal 1999 were
$1,153 million or 72% of communications systems revenues, compared to $993
million or 76% of communications systems revenues for the same period in fiscal
1998. The dollar increase in costs primarily reflects increased shipments of
CDMA subscriber and ASICs products, and sales of commercial gateways.
Communications systems costs as a percentage of communications systems revenues
decreased primarily as a result of cost improvements related to ASICs products.
Communications systems costs as a percentage of communications systems revenues
may fluctuate in future quarters depending on the mix of products sold,
competitive pricing, new product introduction costs and other factors.
Contract services costs for the first six months of fiscal 1999 were $113
million or 70% of contract services revenues, compared to $95 million or 74% of
contract services revenues for the same period in fiscal 1998. The dollar
increase in contract services costs was primarily related to the Globalstar
development contract. Contract
22
<PAGE> 23
service costs as a percentage of contract services revenue decreased due to a
change in the mix of labor and materials incurred on the Globalstar development
contract.
For the first six months of fiscal 1999, research and development expenses
were $203 million or 11 % of revenues, compared to $152 million or 10% of
revenues for the first six months of fiscal 1998.
For the first six months of fiscal 1999, selling and marketing expenses were
$123 million or 7% of revenues, compared to $116 million or 7% of revenues for
the same period in fiscal 1998.
General and administrative expenses for the first six months of fiscal 1999
were $102 million or 5% of revenues, compared to $75 million or 5% of revenues
for the same period in fiscal 1998. The dollar increase for the first six months
of fiscal year 1999 was attributable to continued growth in personnel and
associated overhead expenses necessary to support the overall growth in the
Company's operations, increased litigation, patent and information technology
expenses.
During the first six months of fiscal 1999, other operating expenses were
$96 million, compared to $12 million for the same period in fiscal 1998. During
the first six months of fiscal 1999, the Company recorded a pretax restructuring
charge to operations of $15 million. The restructuring charge was comprised of
employee termination benefits and facility exit costs resulting primarily from
the Company's plan to exit certain activities in its infrastructure business. In
March 1999, the Company entered into the Agreement with Ericsson to sell certain
assets related to its terrestrial CDMA wireless infrastructure business, and
various license and settlement agreements in connection therewith. As a result,
the Company recorded charges of $60 million to reflect the difference between
the carrying value of the net assets to be sold and the consideration to be
received, less costs to sell, and $21 million to reduce the carrying value of
certain other assets relating to its terrestrial CDMA wireless infrastructure
business and various license and settlement agreements in connection therewith.
During the first six months of fiscal 1998, the Company acquired, for $10
million, substantially all of the assets of Now Software, Inc. In connection
with this asset purchase, acquired in-process research and development of $7
million, representing the fair value of software products still in the
development stage that had not yet reached technological feasibility, was
expensed at the acquisition date. This expense was included in other operating
expenses. Also during the same period, the Company recorded a $5 million
non-cash charge to operations relating to the impairment of leased manufacturing
equipment that is no longer used in the manufacturing process. The $5 million
charge represented the estimated total cost of related lease obligations, net of
estimated recoveries.
For the first six months of fiscal 1999, interest income was $14 million
compared to $22 million for the same period in fiscal 1998. The higher interest
income for the first six months of fiscal 1998 was related to the interest
earned on the proceeds from the private placement of Trust Convertible Preferred
Securities which occurred during February 1997.
For the first six months of fiscal 1999, interest expense was $9 million
compared to $4 million for the same period in fiscal 1998, as a result of the
interest charged on the higher average balances on the bank lines of credit.
During the first six months of fiscal 1999, the Company recognized a gain of
$6 million on the sale of available-for-sale securities, as compared to a net
gain of $3 million during the same period in fiscal 1998, from the sale of, and
other investing activities related to, investments in other entities.
During the first six months of fiscal 1999, the Company recorded a loss of
$3 million in connection with the cancellation of warrants to purchase 1,000,000
common shares of Leap Wireless. The cancellation was done to give further
assurance that Leap Wireless will meet the FCC criteria for designated entity
status.
During the first six months of fiscal 1999, the Company recorded $52 million
in non-operating charges, including $37 million in reserves provided for
financial guarantees on projects which the Company will no longer pursue as a
result of the Ericsson transaction and $15 million related to the write off of
TOU assets.
23
<PAGE> 24
Distributions on Trust Convertible Preferred Securities of $20 million for
the first six months of fiscal 1999 and 1998 relate to the private placement of
$660 million of 5 3/4% Trust Convertible Preferred Securities by QUALCOMM in
February 1997.
The minority interest represents other parties' or stockholders' share of
the income or losses of consolidated subsidiaries, including QPE, a joint
venture with a subsidiary of Sony.
Income tax expense was $0.1 million for the first six months of fiscal 1999
compared to $20 million for the same period in fiscal 1998, resulting primarily
from the non-recurring charges for the first six months of fiscal 1999. The
income tax expense for the first six months of fiscal 1999 reflects the benefit
for the reinstatement of the R&D tax credit retroactive to July 1, 1998. The
annual effective tax rate for fiscal 1999 is currently estimated to be 35%,
excluding the effect of the reinstatement of the R&D tax credit, compared to 30%
for fiscal 1998, excluding an increase in certain estimated tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that the cash and cash equivalents and investments
balances of $205 million at March 28, 1999, including interest earned thereon,
will be used to fund working and fixed capital requirements, financing for
customers of its CDMA infrastructure products and investment in joint ventures
or other companies and other assets to support the growth of its business. The
Company contemplates raising additional funds from a combination of sources
including potential debt and equity issuances. There can be no assurance that
additional financing will be available on acceptable terms or at all. In
addition, the Company's Credit Facilities as well as notes and indentures, place
restrictions on the Company's ability to incur additional indebtedness which
could adversely affect its ability to raise additional capital through debt
financing.
The Company has two unsecured credit facilities ("Credit Facilities") under
which banks are committed to make up to $400 million and $200 million in
revolving loans to the Company. The Credit Facilities expire in March 2001 and
2000, respectively. The $400 million facility may be extended on an annual basis
upon maturity. At the Company's option, amounts outstanding under the $200
million facility may be converted to a one year term loan with a final maturity
of March 2001. The Company is currently obligated to pay commitment fees equal
to 0.2% per annum on the unused amount of the Credit Facilities. The Credit
Facilities include certain restrictive financial and operating covenants. At
March 28, 1999, there were $8 million letters of credit issued, and no amounts
outstanding, under the Credit Facilities.
In the first six months of fiscal 1999, $23 million in cash was provided by
operating activities, compared to the use of $61 million for operating
activities the first six months of fiscal 1998. Cash used by operating
activities in the first six months of fiscal 1999 and 1998 includes $221 million
and $223 million, respectively, of net working capital requirements offset by
$244 million and $162 million, respectively, of net cash flow provided by
operations. Net working capital requirements of $221 million during the first
six months of fiscal 1999 primarily reflect increases in accounts receivable and
finance receivables and reductions in accounts payable and accrued liabilities,
offset by a decrease in inventories. The increase in accounts receivable and
finance receivables, and the decrease in accounts payable and accrued
liabilities, during the first six months of fiscal 1999 primarily reflects the
continued growth in products and component sales. The reduction in total
inventory is primarily the result of inventory management programs.
The Company has entered into strategic alliance agreements to support the
design and manufacture of CDMA infrastructure products. In one of these
agreements, in which QUALCOMM participates on a percentage basis with the prime
contractor, outstanding finance receivables of $20 million from the prime
contractor are being withheld subject to the end-customer's complete acceptance
of the total system. There is currently a dispute between the prime contractor
and the end-customer as to the contract language of the acceptance criteria. The
Company believes it has met its obligations and is entitled to payment under the
contract. The Company may be exposed to the extent the prime contractor is not
successful in obtaining the customer's acceptance or negotiates a reduced
payment.
24
<PAGE> 25
Investments in capital expenditures, intangible assets and other entities
totaled $105 million in the first six months of fiscal 1999, compared to $170
million in the same period of fiscal 1998. Significant components in the first
six months of fiscal 1999 consisted of the purchase of $95 million of capital
assets, and the investment of $10 million in newly formed development stage
entities. The Company expects to continue making investments in capital assets
throughout fiscal 1999.
In the first six months of fiscal 1999, the Company's financing activities
provided $17 million. The Company and QPE repaid net amounts of $80 million and
$7 million, respectively, on their outstanding credit facilities, and the
Company realized $106 million in proceeds from the issuance of common stock
under the Company's stock option and employee stock purchase plans. In the first
six months of fiscal 1998, the Company's financing activities used net cash of
$30 million. The first six months of fiscal 1998 included $25 million from the
issuance of common stock under the Company's stock option and employee stock
purchase plans, offset by $54 million in net repayments on outstanding bank
lines of credit.
During March 1998, the Company agreed to defer up to $100 million of
contract payments, with interest accruing at 5-3/4% capitalized quarterly, as
customer financing under its development contract with Globalstar. Financed
amounts outstanding as of January 1, 2000, will be repaid in eight equal
quarterly installments commencing as of that date, with final payment due
October 1, 2001, accompanied by all then unpaid accrued interest. At March 28,
1999, of approximately $105 million in interest bearing financed amounts and
approximately $246 million in accounts receivable, including $80 million not yet
billed, were outstanding from Globalstar.
At March 28, 1999, commitments to extend long-term financing for possible
future sales to customers totaled approximately $276 million through fiscal
2003. Such commitments are subject to the customers meeting certain conditions
established in the financing arrangements. Commitments represent the estimated
amounts to be financed under these arrangements; actual financing may be in
lesser amounts. Pursuant to the Ericsson Agreement, the Company will extend up
to $400 million in financing for possible future sales by Ericsson. Commitments
outstanding at March 28, 1999 will be included in the $400 million.
The Company has committed to provide a guarantee of a working capital bank
loan of $100 million to its customer, Pegaso Telecommunicaciones, S.A. de C.V.
("Pegaso"), to facilitate its network launch and purchase of equipment from the
Company. In April 1999, the Company provided a $10 million working capital loan
to Pegaso repayable within 30 days.
The Company has issued a letter of credit to support a guarantee of up to
$22.5 million of Globalstar borrowings under an existing bank financing
agreement. The guarantee will expire in December 2000. The letter of credit is
collateralized by a commensurate amount of the Company's investments in debt
securities. As of March 28, 1999, Globalstar had no borrowings outstanding under
the existing bank financing agreement.
As part of the Company's strategy of supporting the commercialization and
sale of its CDMA technology and products, the Company may from time to time
enter into strategic alliances with domestic and international emerging wireless
telecommunications operating companies. These alliances often involve the
investment by QUALCOMM of substantial equity in the operating company. At March
28, 1999, the Company has investments in Shinsegi Telecomm, Inc. (Korea) and
Canbra Holdings, S. A. (Brazil).
Canbra Holdings, S. A., a consortium comprised of Bell Canada International
Inc. (34.4%), QUALCOMM Incorporated (16.2%), SLI Wireless S.A. (12.5%), Taquari
Participaoes S.A. (2.5%) and WLL International (34.4%), announced on January 15,
1999 that it has won an operating license to provide wireless and wireline
telephone services in the northeast region of Brazil. QUALCOMM invested $2.4
million during the second quarter of fiscal 1999 and expects to make additional
equity contributions over the next three years in amounts approximating $46
million.
A second consortium comprised of Bell Canada International Inc. (35.3%),
QUALCOMM Incorporated (16.6%), SLI Wireless S.A. (12.8%), and WLL International
(34.3%) announced on April 23, 1999 that it has won an operating license to
provide wireless and wireline telephone services in the Sao Paulo State of
Brazil. QUALCOMM will invest approximately $8 million over the next two years
related to its interest in the consortium.
25
<PAGE> 26
In November 1998, the Company and Microsoft Corporation entered into a joint
venture agreement pursuant to which each company obtained a 50% ownership
interest in a newly formed development stage entity, Wireless Knowledge LLC, a
Delaware limited liability company. Wireless Knowledge intends to form strategic
partnerships with computing, software and telecommunications companies, as well
as with wireless carriers, for the purpose of enabling secure and
airlink-independent internet access to mobile users. Pursuant to the joint
venture agreement, QUALCOMM made a capital contribution of $7.5 million during
the first quarter of fiscal 1999 and will be required to provide an additional
$17.5 million in equity contributions through June 2000.
QUALCOMM has a substantial funding commitment to Leap Wireless in the form
of a $265 million secured credit facility. The credit facility consists of two
sub-facilities. The first sub-facility enables Leap Wireless to borrow up to
$35.2 million from QUALCOMM, solely to meet the normal working capital and
operating expenses of Leap Wireless, including salaries, overhead and credit
facility fees, but excluding, among other things, strategic capital investments
in wireless operators, substantial acquisitions of capital products, and/or the
acquisition of telecommunications licenses. The other sub-facility enables Leap
Wireless to borrow up to $229.8 million from QUALCOMM, solely to use as
investment capital to make certain identified portfolio investments. Amounts
borrowed under the credit facility will be due on September 23, 2006. QUALCOMM
will have a first priority security interest in, subject to minor exceptions,
substantially all of the assets of Leap Wireless for so long as any amounts are
outstanding under the credit facility. Amounts borrowed under the credit
facility will bear interest at a variable rate equal to LIBOR plus 5.25% per
annum. Interest will be payable quarterly beginning September 30, 2001; and
prior to such time, accrued interest shall be added to the principal amount
outstanding. At March 28, 1999, $45.2 million was outstanding under this
facility.
YEAR 2000 READINESS
The Year 2000 ("Y2K") issue relates to the way computer systems and programs
define calendar dates. A system could fail or miscalculate a date including "00"
to mean 1900 rather than 2000. Also, other systems and products that are not
typically recognized as computer or information technology related may contain
embedded hardware or software that would be affected by this issue.
The Company has been working on correcting Y2K problems since 1997. As part
of this strategy, a Y2K Program Office was formed consisting of a Program
Director and key individuals. In February 1999, the Company reorganized the
Program Office and it is now led by the Company's Chief Information Officer
("CIO"). It is sponsored by each division President and is composed of Senior IT
Managers / Directors within each division. These leaders are responsible for
working within their divisions to ensure Y2K readiness with a primary focus on
products and customers. Functional areas which support all divisions are also
members of the Program Office. These include Supply Chain, Corporate Human
Resources and Accounting, Logistics, Facilities, and certain elements of
Information Technology. All Program Office members are focusing attention and
required resources on the Company's Y2K issues. The Company has also engaged
outside consulting firms to assist with the effort. All Y2K efforts are being
tracked through the Program Office though plans have been developed and are
being executed at the division and functional area levels. This strategy is
expected to reduce the Company's level of uncertainty about the Y2K problem, and
in particular, about the Y2K readiness of the Company's critical customers and
suppliers. The Company believes that with the completion of the Project as
scheduled, the possibility of significant interruptions of normal operations
will be reduced.
As of March 28, 1999, the Company's Y2K Project ("Project"), designed to
minimize the impact of Y2K problems on operations, is proceeding on the revised
schedule. However, the Company is unable to completely determine at this time
whether the consequences of Y2K failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The failure
to correct a material Y2K problem could result in an interruption in, or a
failure of, certain normal business activities or operations. Such failures
could materially and adversely affect the Company's results of operations,
liquidity and financial condition. This is due to the general uncertainty
inherent in the Y2K problems, resulting in part from the uncertainty of the Y2K
readiness of third-party suppliers, customers and utility services.
The members of the Company's Y2K Program Office are addressing the issues
under four major sections: Internal Readiness, Supply Chain Assessment, Product
Readiness and Customer Readiness. Each section is evaluated
26
<PAGE> 27
through four phases: Discovery, Assessment, Remediation and Post-Remediation.
Discovery is the process of identifying potential Y2K issues throughout the
Company's critical business process. Assessment is the process of categorizing
issues that were identified in the Discovery phase into "ready," "not ready" or
"needs more study." Remediation is the process of fixing and testing those items
that must be ready for the Y2K. Post-Remediation is the process of addressing
Y2K issues that were not previously or not adequately corrected.
Internal Readiness addresses the computing and communications
infrastructure, the tools and systems used to develop products and run the
business, and internal service organizations. The Company has identified the
majority of the critical systems and non-computer related items that are
required to be Y2K ready. Using supplier data and internal discovery methods,
remediation or replacement efforts have begun. Those items considered most
critical to continuing operations are given the highest priority, and testing on
these items is scheduled to be complete by October 1999. The Company has
established a dedicated Y2K readiness testing lab for testing the Company's
computing and communications infrastructure as well as the Company's critical
business tools. The majority of non-ready critical systems are scheduled to be
retired, replaced, or repaired by October 1999. At this time, no critical issues
have been identified that will not be made ready by calendar year-end 1999.
Supply Chain Assessment involves evaluating the Y2K readiness of QUALCOMM's
suppliers and their ability to continue delivering materials and services after
1999. The Company has initiated formal communications with critical suppliers to
determine the Company's vulnerability to suppliers' Y2K issues. The Company has
requested that critical suppliers represent their products and services to be
Y2K ready and that they have a program to test for that readiness. The Company
has received initial Y2K readiness information from the majority of critical
suppliers. On-site visits of key suppliers for the purpose of verifying Y2K
readiness status are being conducted during the first two calendar quarters of
1999. Based on knowledge gained through communication with critical suppliers
and in parallel with the supplier assessment process, the Company is developing
contingency plans to ensure minimal interruption of supply. The Company is
scheduled to assess the majority of its critical suppliers' state-of-readiness
for Y2K by June 30, 1999. If the Company determines a critical supplier is not
on track to be Y2K ready, the Company will solidify contingency plans relevant
to those suppliers, while in parallel initiating a search for alternate
solutions to avoid supply chain interruptions. At this time, no critical
suppliers have been identified as not being Y2K ready, however, the assessment
is not complete. In addition, the Company is participating in the High
Technology Consortium - Year 2000 and Beyond, and leveraging that organization
and resource pool to augment the Company's efforts.
Product Readiness includes the review of QUALCOMM's products for Y2K
readiness. The Company's program office has been working with individual
business unit managers to review all QUALCOMM products for Y2K readiness. The
Company believes the majority of its products are Y2K ready with further formal
verification being initiated where required. The majority of testing for Y2K
product readiness is scheduled for completion by September 1999. The Company
expects to verify Y2K readiness for the majority of products and to have an
upgrade or migration path available for legacy products by November 1999.
Customer Readiness is the review of QUALCOMM's major customers for Y2K
readiness. The Program Office has organized a review targeted to cover a
significant portion of the Company's customers. Customer lists are being
generated and survey work has begun. The Company does not currently have
sufficient information concerning the Y2K readiness status of major customers.
The Company is requesting information from customers to understand their state
of Y2K readiness and has scheduled this process for completion by September
1999.
While the Company expects these efforts will provide reasonable assurance
that material disruptions will not occur due to internal failure, the potential
for interruption still exists. The need for a contingency plan is recognized and
plans will be developed to deal with issues such as "at risk" suppliers and
interruption of utility and other services. The response of certain third
parties is beyond the control of the Company. If the Company does not receive
adequate Y2K readiness responses from its critical suppliers or customers prior
to June 1999, contingency plans will be developed by September 1999. Contingency
plans may include increasing inventory levels, securing alternate sources of
supply, adjusting alternate shutdown and start-up schedules and other
appropriate measures. At this time, the Company cannot estimate the additional
cost, if any, from the implementation of such contingency plans.
27
<PAGE> 28
The Company believes its critical systems will be Y2K ready by October 1999.
However, there is no guarantee that these results will be achieved. Specific
factors contributing to this uncertainty include failure to identify all
susceptible systems, non-readiness by third parties whose systems and operations
impact the Company and other similar uncertainties. A worst case scenario might
include one or more of the Company's internal systems, suppliers, products or
customers not being Y2K ready. An event such as this could result in a material
disruption to the Company's operations. Specifically, the Company could
experience software application, computer network, manufacturing products and
telephone system failures. Supply chain and product non-readiness could result
in the failure of the Company to perform on contracts, delayed delivery of
products to customers and inadequate customer service. Customer non-readiness
could result in delayed payments for products and services and build up of
inventories. Should a worst case scenario occur, it could, depending on its
duration, have a material adverse effect on the Company's business, results of
operations, liquidity and financial position.
To date the Company has spent an estimated $10 million on this Project.
Total budgeted cost at this time is estimated at $28 million. The funding for
this Project comes from operations and working capital. The Company does not
have a project tracking system that tracks the cost and time that its employees
spend on the Y2K project. However, the Company estimates the allocable time of
employees using average hourly rates for each class of employee. None of the
Company's other mission critical information projects have been delayed due to
the implementation of the Y2K Project.
FUTURE ACCOUNTING REQUIREMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related
Information," which the Company will be required to adopt for fiscal year 1999.
This statement establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under FAS 131, operating segments are to
be determined consistent with the way that management organizes and evaluates
financial information internally for making operating decisions and assessing
performance. The Company has not completed its determination of the impact of
the adoption of this new accounting standard on its consolidated financial
statement disclosures.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which the Company will be required to adopt for fiscal year 2000.
This statement establishes a new model for accounting for derivatives and
hedging activities. Under FAS 133, all derivatives must be recognized as assets
and liabilities and measured at fair value. The Company has not completed its
determination of the impact of the adoption of this new accounting standard on
its consolidated financial position or results of operations.
MARKET RISK
A complete discussion and analysis of the Company's market risks is
described in the Company's 1998 Annual Report on Form 10-K. Such risks include
unfavorable movements in interest rates, equity prices, and foreign currency
exchange rates. In regard to foreign exchange risk, foreign exchange financial
instruments that are subject to the effects of currency fluctuations which may
affect reported earnings include financial instruments which are not denominated
in the currency of the legal entity holding the instruments. Such risk exists in
connection with both equity investees and wholly-owned subsidiaries. Because of
the rapid ramp up in operations during the first six months of fiscal 1999 by
the Company's wholly-owned subsidiary, QUALCOMM do Brazil (QdB), accounts
payable and receivable not denominated in the currency of QdB have increased
dramatically since September 27, 1998. QdB uses the local currency, the
Brazilian real, as its functional currency. During the second quarter of fiscal
1999, a significant devaluation occurred in the Brazilian real. As a result, the
Company recorded a $29 million translation loss in equity. The Company also
recorded a $2 million transaction gain which affected earnings as a result of
local currency denominated price protection agreements. At March 28, 1999, the
Company has $1 million in net payables at QdB which are not denominated in the
local currency. The fair value of those net payables would increase by $0.1
million if the U.S. dollar were to depreciate against the Brazilian real by 10%.
This hypothetical amount is suggestive of the effect on fair value, but not on
future cash flows assuming that the Company does not
28
<PAGE> 29
sell QdB. At March 28, 1999, there have been no other material changes to the
market risks described at September 27, 1998. Additionally, the Company does not
anticipate any near-term changes in the nature of its market risk exposures or
in management's objectives and strategies with respect to managing such
exposures.
29
<PAGE> 30
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9 of Notes to Condensed Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held on
February 23, 1999. At the Annual Meeting, the stockholders of the Company (i)
elected five directors to hold office until the 2002 Annual Meeting of
Stockholders or until his/her successor is elected, as listed below; (ii)
approved the Company's 1991 Stock Option Plan, as amended; and (iii) ratified
the selection of PricewaterhouseCoopers LLP as the Company's independent
accountants for the fiscal year ending September 26, 1999. The Company had
70,864,528 shares of Common Stock outstanding as of December 28, 1998, the
record date for the Annual Meeting. At the Annual Meeting, holders of a total of
63,012,349 shares of Common Stock were present in person or represented by
proxy. The following sets forth information regarding the results of the voting
at the Annual Meeting:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
Shares Voting Shares
Director In Favor Withheld
-------- ------------- --------
<S> <C> <C>
Robert E. Kahn 62,864,307 148,921
Jerome S. Katzin 62,861,454 148,921
Duane A. Nelles 62,864,235 148,921
Frank Savage 62,863,974 148,921
Brent Scowcroft 62,863,170 148,921
</TABLE>
Directors whose term of office continued after the annual meeting are: Richard
C. Atkinson, Peter M. Sacerdote, Diana Lady Dougan, Marc I. Stern, Irwin Mark
Jacobs, Andrew J. Viterbi, Adelia A. Coffman, and Neil Kadisha.
Proposal 2: Approval of the 1991 Stock Option Plan, as Amended
Votes in favor: 52,188,524
Votes against: 10,628,365
Abstentions: 195,460
Broker non-votes: 0
Proposal 3: Ratification of Selection of Independent Accountants
Votes in favor: 62,856,912
Votes against: 73,717
Abstentions: 81,720
30
<PAGE> 31
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 - Asset Purchase Agreement between QUALCOMM Incorporated and
Telefonaktiebolaget LM Ericsson dated as of March 24, 1999. (1) (2)
10.1 - Credit Agreement dated as of March 4, 1999, among QUALCOMM
Incorporated, as Borrower, the Lender Parties, Bank of America
National Trust & Savings Association as Administrative Agent and
Syndication Agent, and Citibank N.A., as Documentation Agent and
Syndication Agent. (1)
10.2 - Multi-Product License Agreement between QUALCOMM Incorporated and
Telefonaktiebolaget LM Ericsson dated March 24, 1999. (1)
10.3 - Subscriber Unit License Agreement between QUALCOMM Incorporated and
Telefonaktiebolaget LM Ericsson dated March 24, 1999. (1)
10.4 - Settlement Agreement and Mutual Release between QUALCOMM Incorporated
and Telefonaktiebolaget LM Ericsson dated March 24, 1999.
10.5 - First Amendment to Revolving Credit Agreement between QUALCOMM
Incorporated, Bank of America National Trust & Savings Association,
et al, and Citibank N.A. dated March 24, 1999.
27.0 - Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
(1) Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment. Omitted portions will be filed separately with the
Securities and Exchange Commission.
(2) Schedules omitted pursuant to Rule 601(b)(2) of Regulation S-K of the
Securities and Exchange Commission. Registrant undertakes to furnish such
schedules and attachments thereto to the Securities and Exchange Commission
upon request.
31
<PAGE> 1
EXHIBIT 2.1
-------------------------------------------
*** Text Omitted and Filed Separately
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4), 200.83 and
240.24b-2
-------------------------------------------
- --------------------------------------------------------------------------------
-----------------------------------
ASSET PURCHASE AGREEMENT
-----------------------------------
between
QUALCOMM INCORPORATED
and
TELEFONAKTIEBOLAGET LM ERICSSON (publ)
Dated as of March 24, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS
SECTION 1.01. Certain Defined Terms.....................................................................2
SECTION 1.02. Other Defined Terms.......................................................................9
SECTION 1.03. Other Definitional Provisions............................................................10
ARTICLE II PURCHASE AND SALE
SECTION 2.01. Assets to Be Sold........................................................................10
SECTION 2.02. Assumption and Exclusion of Liabilities..................................................13
SECTION 2.03. Purchase Price...........................................................................14
SECTION 2.04. Closing..................................................................................15
SECTION 2.05. Closing Deliveries by the Seller.........................................................15
SECTION 2.06. Closing Deliveries by the Purchaser......................................................15
SECTION 2.07. Pre-Closing Adjustment of the Purchase Price.............................................16
SECTION 2.08. Post-Closing Adjustment of the Purchase Price............................................18
SECTION 2.09. Allocation of the Purchase Price.........................................................20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER
SECTION 3.01. Organization, Authority and Qualification of the Seller..................................21
SECTION 3.02. No Conflict .............................................................................21
SECTION 3.03. Governmental Consents and Approvals......................................................22
SECTION 3.04. Financial Information....................................................................22
SECTION 3.05. No Undisclosed Liabilities...............................................................22
SECTION 3.06. Receivables..............................................................................23
SECTION 3.07. Inventories..............................................................................23
SECTION 3.08. Sales and Purchase Order Backlog.........................................................24
SECTION 3.09. Customers................................................................................24
SECTION 3.10. Suppliers................................................................................24
SECTION 3.11. Products and Services....................................................................24
SECTION 3.12. Year 2000 Readiness......................................................................25
SECTION 3.13. Vendor Financing Obligations.............................................................25
SECTION 3.14. Litigation...............................................................................25
SECTION 3.15. Compliance with Laws.....................................................................26
SECTION 3.16. Conduct in the Ordinary Course; Absence of Certain Changes, Events and Conditions........26
SECTION 3.17. Permits and Licenses.....................................................................28
SECTION 3.18. Environmental Matters....................................................................28
SECTION 3.19. Material Contracts.......................................................................29
SECTION 3.20. Intellectual Property....................................................................30
</TABLE>
<PAGE> 3
ii
<TABLE>
<S> <C>
SECTION 3.21. Real Property............................................................................31
SECTION 3.22. Tangible Personal Property...............................................................32
SECTION 3.23. Right, Title and Interest in Assets......................................................33
SECTION 3.24. Employee Benefit Matters.................................................................33
SECTION 3.25. Labor Matters............................................................................36
SECTION 3.26. Key Employees............................................................................37
SECTION 3.27. Taxes....................................................................................37
SECTION 3.28. Insurance................................................................................37
SECTION 3.29. Brokers..................................................................................38
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.01. Organization and Authority of the Purchaser..............................................38
SECTION 4.02. No Conflict..............................................................................38
SECTION 4.03. Governmental Consents and Approval.......................................................39
SECTION 4.04. Litigation...............................................................................39
SECTION 4.05. Brokers..................................................................................39
ARTICLE V ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business Prior to the Closing.................................................39
SECTION 5.02. Access to Information....................................................................40
SECTION 5.03. Confidentiality..........................................................................41
SECTION 5.04. Regulatory and Other Authorizations; Notices and Consents................................42
SECTION 5.05. Notice of Developments...................................................................44
SECTION 5.06. No Solicitation or Negotiation...........................................................44
SECTION 5.07. Use of Intellectual Property.............................................................45
SECTION 5.08. Non-Competition..........................................................................45
SECTION 5.09. Excluded Liabilities.....................................................................47
SECTION 5.10. Bulk Transfer Laws.......................................................................47
SECTION 5.11. Tax Matters..............................................................................47
SECTION 5.12. Letters of Credit, Etc...................................................................48
SECTION 5.13. License of Excluded Intellectual Property................................................49
SECTION 5.14. Ancillary Agreements.....................................................................49
SECTION 5.15. Other Matters............................................................................49
SECTION 5.16. Provision of Subscriber Units............................................................50
SECTION 5.17. Joint Support of Third Generation Standard...............................................50
SECTION 5.18. Further Action...........................................................................50
ARTICLE VI EMPLOYEE MATTERS
</TABLE>
<PAGE> 4
iii
<TABLE>
<S> <C>
SECTION 6.01. Offer of Employment......................................................................51
SECTION 6.02. Transferred Employee Liabilities.........................................................51
SECTION 6.03. Participation in Certain Retirement Plans................................................51
SECTION 6.04. Executive Plan...........................................................................52
SECTION 6.05. Welfare Benefit Plans....................................................................52
SECTION 6.06. Service Credit...........................................................................53
SECTION 6.07. Indemnity................................................................................53
SECTION 6.08. Employee Information.....................................................................53
SECTION 6.09. Certain Other Employee-Related Costs.....................................................54
ARTICLE VII CONDITIONS TO CLOSING
SECTION 7.01. Conditions to Obligations of the Seller..................................................54
SECTION 7.02. Conditions to Obligations of the Purchaser. .............................................55
ARTICLE VIII INDEMNIFICATION
SECTION 8.01. Survival of Representations and Warranties...............................................57
SECTION 8.02. Indemnification by the Seller............................................................58
SECTION 8.03. Indemnification by the Purchaser.........................................................59
SECTION 8.04. Indemnification Procedures...............................................................59
SECTION 8.05. Tax Matters..............................................................................60
ARTICLE IX TERMINATION AND WAIVER
SECTION 9.01. Termination..............................................................................61
SECTION 9.02. Effect of Termination....................................................................61
SECTION 9.03. Waiver. ................................................................................61
ARTICLE X GENERAL PROVISIONS
SECTION 10.01. Expenses................................................................................62
SECTION 10.02. Notices.................................................................................62
SECTION 10.03. Public Announcements....................................................................63
SECTION 10.04. Headings................................................................................63
SECTION 10.05. Severability............................................................................63
SECTION 10.06. Entire Agreement........................................................................64
SECTION 10.07. Assignment..............................................................................64
SECTION 10.08. No Third Party Beneficiaries............................................................64
SECTION 10.09. Amendment...............................................................................64
SECTION 10.10. Governing Law...........................................................................64
SECTION 10.11. Counterparts............................................................................65
SECTION 10.12. Specific Performance....................................................................65
</TABLE>
<PAGE> 5
iv
Exhibits
- --------
A Form of the License Agreements
B Principal Terms of the ASICS Supply Agreements
C Form of Assumption Agreements
D Form of Bills of Sale and Assignment
E Principal Terms of the Infrastructure Supply Agreement
F Principal Terms of the Interim Services Agreement
G Principal Terms of the Lease Agreements
H Principal Terms of the Vendor Financing Agreement
2.01(a)(i) Transferred Customer Contracts
2.01(a)(iii) Other Transferred Contracts
2.01(a)(vi) Physical Assets
2.01(b)(i) Excluded Contracts
2.09 Allocation of Purchase Price
7.01(f)(i) Form of Opinion of the Purchaser's General Counsel
7.01(f)(ii) Form of Opinion of the Purchaser's U.S. Counsel
7.02(g) Form of Opinion of Seller's Counsel
<PAGE> 6
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of March 24, 1999, between
QUALCOMM INCORPORATED, a Delaware corporation (the "SELLER"), and
TELEFONAKTIEBOLAGET LM ERICSSON (publ), a company organized under the laws of
Sweden (the "PURCHASER").
W I T N E S S E T H:
WHEREAS, the Seller, through its Wireless Systems Division, is
engaged in the business of designing, developing, manufacturing, marketing,
selling and servicing CDMA terrestrial-based cellular, personal communications
services ("PCS"), and wireless local loop ("WLL") network infrastructure
products, at various locations in the United States and other countries (the
"BUSINESS");
WHEREAS, in connection with the conduct of the Business and other
businesses conducted by the Seller, the Purchaser and the Seller have engaged in
certain disputes relating to the use by the Seller of certain intellectual
property rights of the Purchaser and its subsidiaries;
WHEREAS, as a result of such disputes, the Seller and an affiliate
of the Seller and the Purchaser and an affiliate of the Purchaser are currently
engaged in litigation styled "Ericsson Inc. et al. v. QUALCOMM Inc. et al.",
Civil Action No. 2:96cv183-DF/HWM (Consolidated) in the United States District
Court for the Eastern District of Texas, Marshall Division (the "CURRENT
LITIGATION");
WHEREAS, the Seller and the Purchaser desire to resolve such
intellectual property disputes and to settle the Current Litigation;
WHEREAS, coincident with such settlement and the resolution of such
intellectual property disputes, concurrently with the execution and delivery of
this Agreement, the Seller and the Purchaser are entering into a Subscriber Unit
License Agreement and a Multi-Product License Agreement, in the respective forms
attached hereto as Exhibit A (the "LICENSE AGREEMENTS"), pursuant to which the
parties are agreeing to license certain intellectual property rights to each
other;
WHEREAS, the Seller and the Purchaser desire to jointly support the
adoption of a single CDMA third generation standard;
<PAGE> 7
2
WHEREAS, the Seller also desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Seller, a significant portion of the
Business, including, without limitation, all right, title and interest of the
Seller in and to certain properties and assets of the Business, and in
connection therewith the Purchaser is willing to assume certain liabilities of
the Seller relating thereto, all upon the terms and subject to the conditions
set forth herein; and
WHEREAS, in connection with the closing of the transactions
contemplated by this Agreement, the Seller and the Purchaser intend to enter
into certain other related agreements.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, and intending to be legally
bound hereby, the Purchaser and the Seller hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"ACTION" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority.
"ACQUIRED BUSINESS" means the Business as conducted by the Seller's
Wireless Systems Division as of the Closing Date, which shall be comprised of
the Assets, the Assumed Liabilities and the Transferred Customer Contracts but
which shall not include (a) the Excluded Contracts or Excluded Liabilities, (b)
chips or chipsets which the Seller has developed or is developing for sale to
other network infrastructure equipment licensees, nor the component designs,
mask sets and associated software and developmental hardware, (c) the design,
development, manufacture, marketing and sale of network infrastructure products
to United States governmental entities or for use in satellite-based
applications or (d) activities conducted by the Seller which are not part of the
Seller's Wireless Systems Division (including, without limitation, subscriber
units, OmniTRACs, etc.).
"AFFILIATE" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"AGREEMENT" or "THIS AGREEMENT" means this Asset Purchase Agreement,
dated as of March 24, 1999, between the Seller and the Purchaser (including the
Exhibits hereto and
<PAGE> 8
3
the Disclosure Schedule) and all amendments hereto made in accordance with the
provisions of Section 10.09.
"ANCILLARY AGREEMENTS" means the ASICS Supply Agreements, the
Assumption Agreements, the Bills of Sale, the Infrastructure Supply Agreement,
the Interim Services Agreement, the Lease Agreements, the License Agreements,
the Settlement Agreement and the Vendor Financing Agreement.
"ANNUAL FINANCIAL STATEMENTS" means the audited consolidated balance
sheets of the Seller as of September 30, 1997 and September 30, 1998, together
with the related statements of income and cash flows for the fiscal years then
ended, included in the Seller's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998.
"ASICS SUPPLY AGREEMENTS" means the ASICS Supply Agreements to be
entered into between the Seller and the Purchaser at the Closing containing the
principal terms set forth on Exhibit B.
"ASSUMPTION AGREEMENTS" means the Assumption Agreements to be
entered into between the Seller and the Purchaser or Affiliates of the Purchaser
at the Closing substantially in the form of Exhibit C.
"BILLS OF SALE" means the Bills of Sale and Assignment to be
executed by the Seller at the Closing substantially in the form of Exhibit D.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by Law to be closed in The
City of New York.
"BUSINESS EMPLOYEE" means any employee of the Seller who is employed
in the Business.
"CODE" means the Internal Revenue Code of 1986, as amended through
the date hereof.
"CONFIDENTIALITY AGREEMENT" means the letter agreement dated as of
July 27, 1998, between the Seller and the Purchaser.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee, personal
representative or executor, of the power to direct or cause the direction of the
affairs or management of a Person, whether through the ownership of voting
securities, as trustee, personal representative or executor, by contract or
otherwise, including, without limitation, the ownership, directly or indirectly,
of
<PAGE> 9
4
securities having the power to elect a majority of the board of directors or
similar body governing the affairs of such Person.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule, dated as of the
date hereof, delivered by the Seller to the Purchaser.
"ENCUMBRANCE" means any security interest, pledge, mortgage, lien,
charge, encumbrance, adverse claim, preferential arrangement, or restriction of
any kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
"ENVIRONMENTAL CLAIMS" means any and all administrative, regulatory
or judicial actions, suits, demands, claims, liens, notices of non-compliance or
violation, investigations, proceedings, consent orders or consent agreements
relating in any way to any Environmental Law or any permit under any
Environmental Law (hereinafter "Claims"), including, without limitation, (a) any
and all Claims by Governmental Authorities for enforcement, cleanup or other
actions or damages pursuant to any applicable Environmental Law and (b) any and
all Claims by any Person seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous Materials
or arising from alleged injury or threat of injury to health, safety or the
environment.
"ENVIRONMENTAL CONDITION" means a condition relating to or arising
or resulting from a failure to comply with any applicable Environmental Law or
any permit under any Environmental Law or a release or discharge of a Hazardous
Material into the environment.
"ENVIRONMENTAL LAW" means any Law, now or hereafter in effect and as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, health, safety or Hazardous Materials.
"GOVERNMENTAL AUTHORITY" means any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or arbitral
body.
"GOVERNMENTAL ORDER" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"HAZARDOUS MATERIALS" means (a) petroleum and petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
polychlorinated biphenyls, and radon gas, (b) any other chemicals, materials or
substances defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "toxic
<PAGE> 10
5
substances", "contaminants" or "pollutants", or words of similar import, under
any applicable Environmental Law, and (c) any other chemical, material or
substance exposure to which is regulated by any Governmental Authority. "HSR
ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
"INDEBTEDNESS" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with U.S. GAAP,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
Indebtedness of others referred to in clauses (a) through (f) above guaranteed
directly or indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (i) to pay or
purchase such Indebtedness or to advance or supply funds for the payment or
purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or
lessor) property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Indebtedness or to assure the holder
of such Indebtedness against loss, (iii) to supply funds to or in any other
manner invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such services are
rendered) or (iv) otherwise to assure a creditor against loss, and (h) all
Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness.
"INFRASTRUCTURE SUPPLY AGREEMENT" means the Infrastructure Supply
Agreement to be entered into between the Seller and the Purchaser at the Closing
containing the principal terms set forth on Exhibit E.
"INTERIM FINANCIAL STATEMENTS" means the unaudited consolidated
balance sheets of the Seller as of December 31, 1997 and December 31, 1998,
together with the related statements of income and cash flows for the fiscal
quarters then ended, included in the Seller's Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 1998.
<PAGE> 11
6
"INTERIM SERVICES AGREEMENT" means the Interim Services Agreement to
be entered into between the Seller and the Purchaser at the Closing containing
the principal terms set forth on Exhibit F.
"INTELLECTUAL PROPERTY" means the Seller's and its Affiliates' (a)
inventions, ideas and conceptions of inventions, whether or not patentable,
whether or not reduced to practice, and whether or not yet made the subject of a
pending patent application or applications, (b) all United States, international
and foreign statutory invention registrations, patents, patent registrations and
patent applications (including, without limitation, all reissues, divisions,
continuations, continuations-in-part, extensions and reexaminations thereof) and
all rights therein provided by international treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent or
application, (c) trademarks, service marks, certification marks, collective
marks, trade dress, logos, domain names, product configurations, trade names,
business names, corporate names and other source identifiers, whether or not
registered and whether or not currently in use, including all common law rights,
and registrations and applications for registration thereof, including, but not
limited to, all marks registered in the United States Patent and Trademark
Office or in any office or agency of any State or Territory thereof or of any
foreign country, and all rights therein provided by international treaties or
conventions, and all reissues, extensions and renewals of any of the foregoing,
(d) copyrighted works, copyrights, whether or not registered, and registrations
and applications for registration thereof in the United States and any foreign
country, and all rights therein provided by international treaties or
conventions, (e) moral rights (including, without limitation, rights of
paternity and integrity), and waivers of such rights by others, (f) computer
software, including, without limitation, source code, object code, objects,
comments, screens, user interfaces, report formats, templates, menus, buttons
and icons, and all files, data, documentation and other materials related
thereto, (g) confidential and proprietary information, including know-how, trade
secrets, manufacturing and production processes and techniques, research and
development information, technical data, financial, marketing and business data,
pricing and cost information, business and marketing plans, and customer and
supplier lists and information, (h) copies and tangible embodiments of all the
foregoing, in whatever form or medium, (i) all rights to obtain and rights to
register trademarks and copyrights, and (j) all rights to sue or recover and
retain damages and costs and attorneys' fees for past, present and future
infringement of any of the foregoing.
"INVENTORIES" means all inventory, merchandise, finished goods,
works in process, raw materials, packaging, supplies and other personal property
intended to be used in the Acquired Business, maintained, held or stored by or
for the Seller on the Closing Date and any prepaid deposits for any of the same.
"IRS" means the Internal Revenue Service of the United States.
<PAGE> 12
7
"LAW" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, requirement or rule of common law.
"LEASE AGREEMENTS" means (a) the Lease Agreements to be entered into
between the Seller and the Purchaser at the Closing containing the principal
terms set forth on Exhibit G and (b) the assignments and subleases of the leases
to be entered into pursuant to Section 2.01(a)(ii).
"LIABILITIES" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising under
any Law (including, without limitation, any Environmental Law), Action or
Governmental Order and those arising under any contract, agreement, arrangement,
commitment or undertaking.
"MATERIAL ADVERSE EFFECT" means any circumstance, change in, or
effect on, the Acquired Business that, individually or in the aggregate with any
other circumstances, changes in, or effects on, the Acquired Business is, or
could reasonably be expected to be, materially adverse to the Assets or Assumed
Liabilities or the operations, employee relationships, customer or supplier
relationships, results of operations or the condition (financial or otherwise)
of the Acquired Business. Notwithstanding the foregoing, in no event shall any
of the following constitute a Material Adverse Effect: (a) any circumstance,
change or effect generally affecting the industry in which the Seller operates
the Acquired Business or arising from changes in general business or economic
conditions, (b) any circumstance, change or effect (including, without
limitation, delays in customer orders, a reduction in sales, a disruption in
supplier, distributor or similar relationships or loss of employees) resulting
from the fact that the Purchaser (rather than another party) is the purchaser of
the Acquired Business, or (c) any circumstance, change or effect resulting from
actions taken by the Seller that are required by this Agreement or any of the
Ancillary Agreements.
"PERMITTED ENCUMBRANCES" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable; (b) Encumbrances imposed by Law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business securing obligations
that (i) are not overdue for a period of more than 30 days and (ii) are not in
excess of $100,000 in the case of a single property or $250,000 in the aggregate
at any time; (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or statutory
obligations; and (d) minor survey exceptions, reciprocal easement agreements and
other customary encumbrances on title to real property that (i) do not render
title to the property encumbered thereby unmarketable and (ii) do not,
individually or in the aggregate, materially adversely affect the value of such
property or the use of such property for its present purposes.
<PAGE> 13
8
"PERSON" means any individual, partnership, limited liability
company, firm, corporation, association, trust, unincorporated organization or
other entity, as well as any syndicate or group that would be deemed to be a
person under Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
"PURCHASER'S ACCOUNTANTS" means PricewaterhouseCoopers LLP,
independent accountants of the Purchaser.
"RECEIVABLES" means any and all accounts receivable (but not notes
receivable) arising from the conduct of the Business before the Closing Date,
whether or not in the ordinary course, together with any unpaid financing
charges accrued thereon.
"REGULATIONS" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"SELLER'S ACCOUNTANTS" means PricewaterhouseCoopers LLP, independent
accountants of the Seller.
"SETTLEMENT AGREEMENT" means the Settlement Agreement and Mutual
Release, dated as of the date hereof, among the Seller, Qualcomm Personal
Electronics, the Purchaser and Ericsson Inc.
"TAX" or "TAXES" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs' duties, tariffs, and
similar charges.
"U.S. GAAP" means United States generally accepted accounting
principles and practices in effect from time to time applied consistently by the
Seller throughout the periods involved.
"VENDOR FINANCING AGREEMENT" means the Vendor Financing Agreement to
be entered into between the Seller and the Purchaser at the Closing containing
the principal terms set forth on Exhibit H.
<PAGE> 14
9
SECTION 1.02. Other Defined Terms. The following terms shall have
the meanings defined for such terms in the Sections of this Agreement set forth
below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adjustment Threshold 2.07(b)(ii)
Assets 2.01(a)
Assumed Liabilities 2.02(a)
Business Recitals
Business Financial Statements 3.04
Business Intellectual Property 3.20(b)
Business Systems 3.12
Closing 2.04
Closing Date 2.04
Closing Net Book Value 2.08(a)
Closing Statement of Net Assets 2.08(a)
COBRA 6.05(c)
Competitive Activities 5.08(a)
Competitive Entity 5.08(a)
Current Litigation Recitals
Employee Amounts 6.09
ERISA 3.24(a)
Excluded Assets 2.01(b)
Excluded Contracts 2.01(b)(i)
Excluded Intellectual Property 2.01(b)(viii)
Excluded Liabilities 2.02(b)
FMLA 6.01
Independent Accounting Firm 2.07(b)(ii)
ITU 5.17
IP Licenses 3.20(e)
January Net Book Value 2.07(a)
January Statement of Net Assets 2.07(a)
Leased Real Property 3.21(b)
Leases 3.21(b)
License Agreements Recitals
Licensed Intellectual Property 3.20(b)
Loss 8.02(a)
Material Contracts 3.19(a)
Multiemployer Plan 3.24(b)
Multiple Employer Plan 3.24(b)
Owned Intellectual Property 3.20(a)
Owned Real Property 3.21(a)
</TABLE>
<PAGE> 15
10
<TABLE>
<S> <C>
PCS Recitals
Permits 3.17
Permitted Percentage 5.08(a)
Plans 3.24(a)
Purchase Price 2.03
Purchaser Preamble
Purchaser Non-Solicit Period 5.08(c)
Purchaser's DCP 6.04
Real Property 3.21(b)
Restricted Period 5.08(a)
Selected Business Employees 6.01
Seller Preamble
Seller Non-Solicit Period 5.08(b)
Seller's DCP 6.04
Single CDMA Standard 5.17
Supplier Systems 3.12
Tangible Personal Property 3.22
Third Party Claims 8.04
Transferred Customer Contracts 2.01(a)(i)
Transferred Employees 6.01
Vendor Financing Commitments 3.13
WARN 3.24(g)
WLL Recitals
Year 2000 Plan 3.12
Year 2000 Ready 3.12
</TABLE>
SECTION 1.03. Other Definitional Provisions. (a) The terms "dollars"
and "$" shall mean United States dollars.
(b) Terms defined in the singular shall have a comparable meaning
when used in the plural and vice versa.
ARTICLE II
PURCHASE AND SALE
<PAGE> 16
11
SECTION 2.01. Assets to Be Sold. (a) On the terms and subject to the
conditions of this Agreement, the Seller shall, on the Closing Date, sell,
assign, transfer, convey and deliver to the Purchaser, or cause to be sold,
assigned, transferred, conveyed and delivered to the Purchaser (or to one or
more Affiliates of the Purchaser designated by the Purchaser at or prior to the
Closing), and the Purchaser shall (or shall cause one or more Affiliates of the
Purchaser designated by the Purchaser at or prior to the Closing to) purchase
from the Seller, on the Closing Date, all the assets, properties, goodwill and
business of every kind and description and wherever located, whether tangible or
intangible, real, personal or mixed, directly or indirectly owned by the Seller
or to which it is directly or indirectly entitled and, in any case, primarily
used or intended to be primarily used in the Business as conducted by the Seller
as of the Closing Date, other than the Excluded Assets (the assets to be
purchased by the Purchaser or Affiliates of the Purchaser being referred to as
the "ASSETS"), including, without limitation, the following:
(i) all rights of the Seller in, to and under the contracts listed
on Exhibit 2.01(a)(i) (the "TRANSFERRED CUSTOMER CONTRACTS") (which, other
than the Transferred Customer Contracts with US West Wireless LLC and
Mauritius Telecom Limited, shall not include rights or obligations related
to the provision of handsets or other subscriber equipment);
(ii) all rights of the Seller in, to and under the leases to be
assigned or subleased pursuant to Exhibit G;
(iii) except for the Excluded Assets, all rights of the Seller under
all other contracts, agreements, leases, commitments, and sales and
purchase orders, and under all commitments, bids and offers (to the extent
such offers are transferable) to the extent primarily used or intended to
be primarily used in the Acquired Business, including, without limitation,
such items as are set forth on Exhibit 2.01(a)(iii);
(iv) all Inventories primarily used or intended to be used in the
Business, except for Inventories that cannot be used in connection with
the Transferred Customer Contracts without significant expense incurred
other than in the ordinary course of business;
(v) all Receivables to the extent related to the Acquired
Business;
(vi) all rights of the Seller in and to the furniture, equipment,
machinery, vehicles and other tangible personal property primarily used or
held for use by the Seller at the locations at which the Acquired Business
is conducted, or otherwise owned or held by the Seller primarily for use
in the conduct of the Acquired Business, including, without limitation,
the assets listed on Exhibit 2.01(a)(vi), other than such assets primarily
used or intended to be used in connection with the Excluded Contracts;
<PAGE> 17
12
(vii) all the Seller's right, title and interest in, to and under
the Business Intellectual Property;
(viii) all municipal, state and federal franchises, permits,
licenses, agreements, waivers and authorizations primarily held or used by
the Seller in connection with the Acquired Business, to the extent
transferable;
(ix) all claims, causes of action, choices in action, rights of
recovery and rights of set-off of any kind (including rights to insurance
proceeds and rights under and pursuant to all warranties, representations
and guarantees made by suppliers of products, materials or equipment, or
components thereof), primarily pertaining to or primarily arising out of
the Business, except to the extent any of the foregoing relates to the
Excluded Assets or the Excluded Liabilities;
(x) all books of account, general, financial, tax and personnel
records, invoices, shipping records, supplier lists, correspondence and
other documents, records and files and all computer software and programs
and any rights thereto primarily used in, or primarily relating to, the
Acquired Business;
(xi) all sales and promotional literature, customer lists and other
sales-related materials designed for and intended to be used in the
Acquired Business by the Seller;
(xii) the Acquired Business as a going concern and the goodwill of
the Seller relating to the Acquired Business; and
(xiii) except for the Excluded Assets, all the Seller's right, title
and interest in, to and under all other assets, rights and claims of every
kind and nature primarily used or intended to be primarily used in the
operation of the Acquired Business.
(b) The Assets shall exclude the following assets owned by the
Seller (the "EXCLUDED ASSETS"):
(i) all rights of the Seller in, to and under the contracts listed
on Exhibit 2.01(b)(i) and all other similar telecommunication system sales
and financing contracts with customers not included in the Transferred
Customer Contracts (the "EXCLUDED CONTRACTS");
(ii) all rights of the Seller in, to and under the Transferred
Customer Contracts (other than the Transferred Customer Contracts with US
West Wireless LLC and Mauritius Telecom Limited) to the extent related to
the provision of handsets or other subscriber equipment;
<PAGE> 18
13
(iii) all Owned Real Property;
(iv) all cash, cash equivalents and bank accounts owned by the
Seller;
(v) all Inventories not primarily used or intended to be used in
the Business and all Inventories that cannot be used in connection with
the Transferred Customer Contracts without significant expense incurred
other than in the ordinary course of business;
(vi) all Receivables not related to the Acquired Business;
(vii) the capital stock, notes and other securities of, and all
other interests of the Seller in, any Person, including, without
limitation, all subsidiaries of the Seller and all investments of the
Seller in telecommunications operators or other entities;
(viii) all right, title and interest of the Seller in or to (A) the
name "Qualcomm", (B) any Intellectual Property described in clause (a) or
(b) of the definition of Intellectual Property, (C) patent cross-license
agreements and other intellectual property licenses entered into as part
of such cross-license agreements or related to such cross-license
agreements, and (D) all Intellectual Property other than that described in
clauses (A), (B) and (C) used both in the Acquired Business and in
businesses of the Seller other than the Acquired Business (collectively,
the "EXCLUDED INTELLECTUAL PROPERTY");
(ix) all federal, state and local income and franchise tax credits
and tax refund claims (and any foreign equivalents thereof) relating to or
arising out of the Business prior to the Closing;
(x) all rights of the Seller under this Agreement and the
Ancillary Agreements; and
(xi) all the Seller's right, title and interest on the Closing Date
in, to and under all other assets, properties, goodwill and business of
every kind, wherever located, whether tangible or intangible, real,
personal or mixed, not primarily used or intended to be primarily used in
the operation of the Acquired Business.
(c) Subject to the Purchaser's right to assign its rights under
this Agreement in accordance with Section 10.07 of this Agreement, Assets (other
than Business Intellectual Property) located in the United States shall be
purchased by Ericsson Inc., a wholly owned subsidiary of the Purchaser (or
another Affiliate of the Purchaser incorporated in the United States and
designated by the Purchaser at or prior to the Closing), and Assets located
outside
<PAGE> 19
14
the United States shall be purchased by the Purchaser or an Affiliate of the
Purchaser incorporated outside the United States designated by the Purchaser at
or prior to the Closing.
SECTION 2.02. Assumption and Exclusion of Liabilities. (a) On the
terms and subject to the conditions of this Agreement, the Purchaser shall, on
the Closing Date, assume and shall pay, perform and discharge when due only the
following and no other Liabilities of the Seller as at the Closing Date, other
than the Excluded Liabilities (the "ASSUMED LIABILITIES"):
(i) Liabilities primarily arising out of or relating to the
Acquired Business to the extent such Liabilities are reflected on the
Closing Statement of Net Assets, including all accrued liabilities (other
than liabilities for accrued salary and benefits and accrued vacation) to
the extent reflected or reserved for on the Closing Statement of Net
Assets;
(ii) all Liabilities arising out of the Transferred Customer
Contracts, and other contracts, agreements, leases, commitments, sales and
purchase orders, bids and offers that are included in the Assets (whether
such obligations arise before or after the Closing Date);
(iii) those employment-related Liabilities expressly assumed by the
Purchaser pursuant to Article VI; and
(iv) all Liabilities for accounts payable for goods and services
received or rendered following the Closing Date.
(b) The Seller shall retain, and shall be responsible for paying,
performing and discharging when due, and the Purchaser shall not assume or have
any responsibility for, all Liabilities of the Seller as of the Closing Date
other than the Assumed Liabilities (the "EXCLUDED LIABILITIES"), including,
without limitation:
(i) all Taxes now or hereafter owed by the Seller or any Affiliate
of the Seller, or attributable to the Assets or the Business, relating to
any period, or any portion of any period, ending on or prior to the
Closing Date;
(ii) all Liabilities to the extent relating to or arising out of
the Excluded Assets;
(iii) those employment-related Liabilities expressly retained by the
Seller pursuant to Article VI; and
<PAGE> 20
15
(iv) all Liabilities for accounts payable for goods and services
received or rendered on or prior to the Closing Date.
SECTION 2.03. Purchase Price. Subject to the adjustments set forth
in Sections 2.07 and 2.08, if any, the purchase price for the Assets shall be
[*] (the "PURCHASE PRICE").
SECTION 2.04. Closing. Subject to the terms and conditions of this
Agreement, the sale and purchase of the Assets and the assumption of the Assumed
Liabilities contemplated by this Agreement shall take place at a closing (the
"CLOSING") to be held at the offices of Shearman & Sterling, 599 Lexington
Avenue, New York, New York at 9:00 A.M. New York time on the later to occur of
(i) May 24, 1999 or (ii) the third Business Day following the satisfaction or
waiver of all conditions to the obligations of the parties set forth in Article
VII, or at such other place or at such other time or on such other date as the
Seller and the Purchaser may mutually agree upon in writing (the day on which
the Closing takes place being the "CLOSING DATE").
SECTION 2.05. Closing Deliveries by the Seller. At the Closing, the
Seller shall deliver or cause to be delivered to the Purchaser:
(a) one or more Bills of Sale and such other instruments, in form
and substance reasonably satisfactory to the Purchaser, as may be requested by
the Purchaser to transfer the Assets to the Purchaser (or to Affiliates of the
Purchaser designated by the Purchaser) or to evidence such transfer on the
public records;
(b) an executed counterpart of one or more Assumption Agreements,
the ASICS Supply Agreements, the Infrastructure Supply Agreement, the Interim
Services Agreement, the Lease Agreements and the Vendor Financing Agreement;
(c) a receipt for the Purchase Price; and
(d) the opinions, certificates and other documents required to be
delivered pursuant to Section 7.02.
SECTION 2.06. Closing Deliveries by the Purchaser. At the Closing,
the Purchaser shall deliver or cause to be delivered to the Seller:
(a) the Purchase Price, as may be adjusted prior to the Closing
pursuant to Section 2.07, by wire transfer in immediately available funds to a
bank account in the United States to be designated by the Seller in a written
notice to the Purchaser at least two Business Days prior to the Closing;
* Confidential Treatment Requested
<PAGE> 21
16
(b) an executed counterpart of one or more Assumption Agreements,
the ASICS Supply Agreements, the Infrastructure Supply Agreement, the Interim
Services Agreement, the Lease Agreements and the Vendor Financing Agreement; and
(c) the opinions, certificates and other documents required to be
delivered pursuant to Section 7.01.
SECTION 2.07. Pre-Closing Adjustment of the Purchase Price. The
Purchase Price shall be subject to adjustment as specified in this Section 2.07:
(a) January Statement of Net Assets. The Seller has prepared and
delivered to the Purchaser an audited schedule of specified assets and
liabilities of the Acquired Business as of the close of business on January 24,
1999 (the "JANUARY STATEMENT OF NET ASSETS"), which the Seller represents was
prepared in accordance with U.S. GAAP applied on a basis consistent with the
preparation of the Annual Financial Statements and the Interim Financial
Statements, reflecting only the book value of the Assets and the Assumed
Liabilities (as the same shall exist as of January 24, 1999) and eliminating the
book value of the Excluded Assets and the Excluded Liabilities (as the same
shall exist as of January 24, 1999), together with a report thereon of the
Seller's Accountants stating that the January Statement of Net Assets fairly
presents the financial position of the Acquired Business as of January 24, 1999
in accordance with U.S. GAAP. The specified net assets of the Acquired Business
as of January 24, 1999 (the "JANUARY NET BOOK VALUE") shall be calculated as the
excess of the book value of the Assets as of January 24, 1999 over the book
value of the Assumed Liabilities as of January 24, 1999.
(b) Disputes. (i) Subject to clause (ii) of this Section 2.07(b),
the January Statement of Net Assets delivered by the Seller to the Purchaser
shall be deemed to be and shall be final, binding and conclusive on the parties
hereto.
(ii) The Purchaser may dispute any amounts reflected on the January
Statement of Net Assets to the extent the net effect of such disputed
amounts in the aggregate would affect the January Net Book Value reflected
on the January Statement of Net Assets by more than [*] (the "ADJUSTMENT
THRESHOLD"), but only on the basis that the amounts reflected on the
January Statement of Net Assets were not arrived at in accordance with
U.S. GAAP applied on a basis consistent with the preparation of the Annual
Financial Statements and Interim Financial Statements or that the amounts
reflected thereon do not properly adjust to include only the book value of
the Assets and the Assumed Liabilities and to eliminate the book value of
the Excluded Assets and the Excluded Liabilities; provided, however, that
the Purchaser shall have notified the Seller and the Seller's Accountants
in writing of each disputed item, specifying the amount thereof in dispute
and setting forth, in reasonable detail, the basis
* Confidential Treatment Requested
<PAGE> 22
17
for such dispute, within 15 Business Days of the date hereof. In the event
of such a dispute, the Seller's Accountants and the Purchaser's
Accountants shall attempt to reconcile their differences, and any
resolution by them as to any disputed amounts shall be final, binding and
conclusive on the parties hereto. If any such resolution by the
Purchaser's Accountants and the Seller's Accountants leaves in dispute
amounts the net effect of which in the aggregate would not affect the
January Net Book Value reflected on the January Statement of Net Assets by
more than the Adjustment Threshold, all such amounts remaining in dispute
shall then be deemed to have been resolved in favor of the January
Statement of Net Assets delivered by the Seller to the Purchaser. If the
Seller's Accountants and the Purchaser's Accountants are unable to reach a
resolution with such effect within ten Business Days after receipt by the
Seller and the Seller's Accountants of the Purchaser's written notice of
dispute, the Seller's Accountants and the Purchaser's Accountants shall
submit the items remaining in dispute for resolution to an independent
accounting firm of international reputation mutually acceptable to the
Purchaser and the Seller (such accounting firm being referred to herein as
the "INDEPENDENT ACCOUNTING FIRM"), which shall, within ten Business Days
after such submission, determine and report to the Purchaser and the
Seller upon such remaining disputed items, and such report shall be final,
binding and conclusive on the Seller and the Purchaser. The fees and
disbursements of the Independent Accounting Firm shall be allocated
between the Seller and the Purchaser in the same proportion that the
aggregate amount of such remaining disputed items so submitted to the
Independent Accounting Firm that is unsuccessfully disputed by each such
party (as finally determined by the Independent Accounting Firm) bears to
the total amount of such remaining disputed items so submitted.
(iii) In acting under this Agreement, the Purchaser's Accountants,
the Seller's Accountants and the Independent Accounting Firm shall be
entitled to the privileges and immunities of arbitrators.
(c) Purchase Price Adjustment. The January Statement of Net Assets
shall be deemed final for the purposes of this Section 2.07 upon the earlier of
(A) the failure of the Purchaser to notify the Seller of a dispute within 15
Business Days of the date hereof, (B) the resolution of all disputes, pursuant
to Section 2.07(b)(ii), by the Purchaser's Accountants and the Seller's
Accountants and (C) the resolution of all disputes, pursuant to Section
2.07(b)(ii), by the Independent Accounting Firm. Prior to the Closing, a
Purchase Price adjustment shall be made as follows:
(i) in the event that the January Net Book Value reflected on the
final January Statement of Net Assets exceeds the January Net Book Value
reflected on the January Statement of Net Assets delivered by the Seller
to the Purchaser by at least the Adjustment Threshold, then the Purchase
Price shall be adjusted upward in an amount equal to such excess over the
Adjustment Threshold; and
<PAGE> 23
18
(ii) in the event that the January Net Book Value reflected on the
January Statement of Net Assets delivered by the Seller to the Purchaser
exceeds the January Book Value reflected on the final January Statement of
Net Assets by at least the Adjustment Threshold, then the Purchase Price
shall be adjusted downward in an amount equal to such excess over the
Adjustment Threshold.
(d) If the January Statement of Net Assets is not deemed final in
accordance with Section 2.07(c) on or prior to the Closing, (i) the Purchase
Price shall be [*], and (ii) the Purchase Price shall be further adjusted
pursuant to Section 2.07(c) as soon as the January Statement of Net Assets is
deemed final in accordance with Section 2.07(c), with the Seller or the
Purchaser, as the case may be, making a cash payment to the other to reflect
such adjustment, by wire transfer in immediately available funds.
SECTION 2.08. Post-Closing Adjustment of the Purchase Price. The
Purchase Price shall be subject to adjustment after the Closing as specified in
this Section 2.08:
(a) Closing Statement Of Net Assets. As promptly as practicable,
but in any event within 45 calendar days following the Closing Date, the Seller
shall at its expense prepare and deliver to the Purchaser an audited schedule of
specified assets and liabilities of the Acquired Business as of the close of
business on the Closing Date (the "CLOSING STATEMENT OF NET ASSETS") prepared in
accordance with U.S. GAAP applied on a basis consistent with the preparation of
the January Statement of Net Assets (except that it shall include an appropriate
reserve for deferred costs or deferred revenues from vendor financing contracts,
if appropriate under U.S. GAAP), reflecting only the book value of the Assets
and the Assumed Liabilities (as the same shall exist as of the Closing) and
eliminating the book value of the Excluded Assets and the Excluded Liabilities
(as the same shall exist as of the Closing), together with (i) a report thereon
of the Seller's Accountants stating that the January Statement of Net Assets
fairly presents the financial position of the Acquired Business at the Closing
Date in accordance with U.S. GAAP, and (ii) a certification of the chief
financial officer or chief accounting officer of the Seller to the effect that
the Closing Statement of Net Assets has been prepared in compliance with the
requirements of this Section 2.08. The specified net assets of the Acquired
Business as of the Closing (the "CLOSING NET BOOK VALUE") shall be calculated as
the excess of the book value of the Assets reflected on the Closing Statement of
Net Assets over the book value of the Assumed Liabilities reflected on the
Closing Statement of Net Assets.
(b) Disputes. (i) Subject to clause (ii) of this Section 2.08(b),
the Closing Statement of Net Assets delivered by the Seller to the Purchaser
shall be deemed to be and shall be final, binding and conclusive on the parties
hereto.
* Confidential Treatment Requested
<PAGE> 24
19
(ii) The Purchaser may dispute any amounts reflected on the Closing
Statement of Net Assets to the extent the net effect of such disputed
amounts in the aggregate would affect the Closing Net Book Value reflected
on the Closing Statement of Net Assets by more than the Adjustment
Threshold, but only on the basis that the amounts reflected on the Closing
Statement of Net Assets were not arrived at in accordance with U.S. GAAP
applied on a basis consistent with the preparation of the January
Statement of Net Assets or that the amounts reflected thereon do not
properly adjust to include only the book value of the Assets and the
Assumed Liabilities and to eliminate the book value of the Excluded Assets
and the Excluded Liabilities; provided, however, that the Purchaser shall
have notified the Seller and the Seller's Accountants in writing of each
disputed item, specifying the amount thereof in dispute and setting forth,
in reasonable detail, the basis for such dispute, within 15 Business Days
of the Seller's delivery of the Closing Statement of Net Assets to the
Purchaser. In the event of such a dispute, the Seller's Accountants and
the Purchaser's Accountants shall attempt to reconcile their differences,
and any resolution by them as to any disputed amounts shall be final,
binding and conclusive on the parties hereto. If any such resolution by
the Purchaser's Accountants and the Seller's Accountants leaves in dispute
amounts the net effect of which in the aggregate would not affect the
Closing Net Book Value reflected on the Closing Statement of Net Assets by
more than the Adjustment Threshold, all such amounts remaining in dispute
shall then be deemed to have been resolved in favor of the Closing
Statement of Net Assets delivered by the Seller to the Purchaser. If the
Seller's Accountants and the Purchaser's Accountants are unable to reach a
resolution with such effect within ten Business Days after receipt by the
Purchaser and the Purchaser's Accountants of the Seller's written notice
of dispute, the Seller's Accountants and the Purchaser's Accountants shall
submit the items remaining in dispute for resolution to the Independent
Accounting Firm, which shall, within ten Business Days after such
submission, determine and report to the Purchaser and the Seller upon such
remaining disputed items, and such report shall be final, binding and
conclusive on the Seller and the Purchaser. The fees and disbursements of
the Independent Accounting Firm shall be allocated between the Seller and
the Purchaser in the same proportion that the aggregate amount of such
remaining disputed items so submitted to the Independent Accounting Firm
that is unsuccessfully disputed by each such party (as finally determined
by the Independent Accounting Firm) bears to the total amount of such
remaining disputed items so submitted.
(iii) In acting under this Agreement, the Purchaser's Accountants,
the Seller's Accountants and the Independent Accounting Firm shall be
entitled to the privileges and immunities of arbitrators.
(iv) No adjustment to the Purchase Price pursuant to Section
2.08(c) shall be made with respect to amounts disputed by the Purchaser
pursuant to this Section
<PAGE> 25
20
2.08(b), unless the net effect of the amounts successfully disputed by the
Purchaser in the aggregate is to decrease the Closing Net Book Value
reflected on the Closing Statement of Net Assets by at least the
Adjustment Threshold, in which case such adjustment shall only be made in
an amount equal to any excess over the Adjustment Threshold.
(c) Purchase Price Adjustment. The Closing Statement of Net Assets
shall be deemed final for the purposes of this Section 2.08 upon the earlier of
(A) the failure of the Purchaser to notify the Seller of a dispute within 15
Business Days of the Seller's delivery of the Closing Statement of Net Assets to
the Purchaser, (B) the resolution of all disputes, pursuant to Section
2.08(b)(ii), by the Purchaser's and the Seller's Accountants and (C) the
resolution of all disputes, pursuant to Section 2.08(b)(ii), by the Independent
Accounting Firm. Subject to the limitation set forth in Section 2.08(b)(iv),
within three Business Days of the Closing Statement of Net Assets being deemed
final, a Purchase Price adjustment shall be made as follows:
(i) in the event that the January Net Book Value reflected on the
final January Statement of Net Assets exceeds the Closing Net Book Value
by at least the Adjustment Threshold, then the Purchase Price shall be
adjusted downward in an amount equal to such excess over the Adjustment
Threshold, and the Seller shall, within three Business Days of such
determination, pay such amount, together with interest thereon, from the
Closing Date through the date of payment at the rate of interest publicly
announced by Citibank, N.A. or any successor thereto in New York, New York
from time to time as its reference rate from the Closing Date to the date
of such payment, to the Purchaser by wire transfer in immediately
available funds; and
(ii) in the event that the Closing Net Book Value exceeds the
January Net Book Value reflected on the final January Statement of Net
Assets by at least the Adjustment Threshold, then the Purchase Price shall
be adjusted upward in an amount equal to such excess over the Adjustment
Threshold and the Purchaser shall, within three Business Days of such
determination, pay the amount of such excess together with interest
thereon, from the Closing Date through the date of payment at the rate of
interest publicly announced by Citibank, N.A. or any successor thereto in
New York, New York from time to time as its reference rate from the
Closing Date to the date of such payment, to the Seller by wire transfer
in immediately available funds.
SECTION 2.09. Allocation of the Purchase Price. The sum of the
Purchase Price and the Assumed Liabilities shall be allocated among the Assets
as of the Closing Date in accordance with Exhibit 2.09. Any subsequent
adjustments to the sum of the Purchase Price and Assumed Liabilities shall be
reflected in the allocation hereunder in a manner consistent
<PAGE> 26
21
with Treasury Regulation Section 1.1060-1T(f). For all Tax purposes, the
Purchaser and the Seller agree to report the transactions contemplated in this
Agreement in a manner consistent with the terms of this Agreement, including the
allocation under Exhibit 2.09, and that neither of them will take any position
inconsistent therewith in any Tax return, in any refund claim, in any
litigation, or otherwise without the consent of the other party, which consent
shall not be unreasonably withheld or delayed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
As an inducement to the Purchaser to enter into this Agreement, the
Seller hereby represents and warrants to the Purchaser as follows:
SECTION 3.01. Organization, Authority and Qualification of the
Seller. The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all necessary corporate
power and authority to enter into this Agreement and the Ancillary Agreements,
to carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The Seller is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the Assets owned or leased by it or the operation of the Acquired Business makes
such licensing or qualification necessary, except to the extent that the failure
to be so licensed or qualified would not adversely affect (i) the ability of the
Seller to carry out its obligations under, and to consummate the transactions
contemplated by, this Agreement and the Ancillary Agreements and (ii) the
ability of the Seller to conduct the Acquired Business as it is currently being
conducted. The execution and delivery of this Agreement and the Ancillary
Agreements by the Seller, the performance by the Seller of its obligations
hereunder and thereunder and the consummation by the Seller of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
action on the part of the Seller. No approval of the stockholders of the Seller
is required in connection with the execution and delivery of this Agreement or
the Ancillary Agreements by the Seller, the performance by the Seller of its
obligations hereunder or thereunder or the consummation by the Seller of the
transactions contemplated hereby or thereby. This Agreement has been, and upon
their execution the Ancillary Agreements will be, duly executed and delivered by
the Seller, and (assuming due authorization, execution and delivery by the
Purchaser) this Agreement constitutes, and upon their execution the Ancillary
Agreements will constitute, legal, valid and binding obligations of the Seller
enforceable against the Seller in accordance with their respective terms, except
as enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
debtor relief or similar laws affecting the rights of creditors generally, and
(ii) general principles of equity, including specific performance, injunctive
relief and other equitable remedies.
<PAGE> 27
22
SECTION 3.02. No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in Section 3.03 have been obtained
and all filings and notifications listed in Section 3.03 of the Disclosure
Schedule have been made, the execution, delivery and performance of this
Agreement and the Ancillary Agreements by the Seller do not and will not (a)
violate, conflict with or result in the breach of any provision of the charter
or by-laws (or similar organizational documents) of the Seller, (b) conflict
with or violate (or cause an event which could have a Material Adverse Effect as
a result of) any Law or Governmental Order applicable to the Seller or the
Assets or the Acquired Business, or (c) except as set forth in Section 3.02(c)
of the Disclosure Schedule, conflict with, result in any breach of, constitute a
default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation or
cancellation of, or result in the creation of any Encumbrance on any of the
Assets pursuant to, any note, bond, mortgage or indenture, contract, agreement,
lease, sublease, license, permit, franchise or other instrument or arrangement
to which the Seller is a party or by which any of the Assets is bound or
affected, except, in the case of clauses (b) and (c), as would not have a
Material Adverse Effect and would not prevent or materially delay consummation
by the Seller of the transactions contemplated by this Agreement.
SECTION 3.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement and each Ancillary Agreement by the
Seller do not and will not require any consent, approval, authorization or other
order of, action by, filing with or notification to, any Governmental Authority,
except (a) as described in Section 3.03 of the Disclosure Schedule, (b) the
notification requirements of the HSR Act and (c) where the failure to obtain
such consent, approval, authorization or order would not have a Material Adverse
Effect and would not prevent or materially delay consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
SECTION 3.04. Financial Information. Section 3.04 of the Disclosure
Schedule contains true and complete copies of (i) the unaudited statements of
income of the Business for each of the two fiscal years ended as of September
30, 1997 and September 30, 1998 (the "BUSINESS FINANCIAL STATEMENTS") and (ii)
the January Statement of Net Assets. The Business Financial Statements and the
January Statement of Net Assets (i) were prepared in accordance with the books
of account and other financial records of the Business, (ii) present fairly the
financial condition and results of operations of the Business or the Acquired
Business, as the case may be, as of the dates thereof or for the periods covered
thereby, (iii) have been prepared in accordance with U.S. GAAP applied on a
basis consistent with the past practices of the Business throughout the periods
involved (except that the unaudited financial statements may not contain
footnotes) and (iv) include or will include all adjustments (consisting only of
normal recurring accruals) that are necessary for a fair presentation of the
financial condition of the Business or the Acquired Business, as the case may
be, and the
<PAGE> 28
23
results of the operations of the Business or the Acquired Business, as the case
may be, as of the dates thereof or for the periods covered thereby.
SECTION 3.05. No Undisclosed Liabilities. There are no Liabilities
of the Seller related to the Acquired Business other than Liabilities (i)
reflected or reserved against on the January Statement of Net Assets, (ii)
disclosed in Section 3.05 of the Disclosure Schedule, (iii) incurred since the
date of this Agreement in the ordinary course of business, consistent with past
practice, of the Business and which do not and could not reasonably be expected
to have a Material Adverse Effect, (iv) employment-related Liabilities expressly
assumed by the Seller pursuant to Article VI, or (v) arising in the ordinary
course under contracts assumed by the Purchaser under this Agreement. Reserves
are reflected on the January Statement of Net Assets against all Liabilities of
the Seller related to the Acquired Business, other than Liabilities relating to
the Excluded Assets and Excluded Liabilities, in amounts that have been
established on a basis consistent with the past practices of the Business and in
accordance with U.S. GAAP.
SECTION 3.06. Receivables. Section 3.06 of the Disclosure Schedule
is an aged list of the Receivables which are included in the Assets as of the
date of the January Statement of Net Assets. Except to the extent, if any,
reserved for on the January Statement of Net Assets, all Receivables reflected
on the January Statement of Net Assets arose from, and the Receivables existing
on the Closing Date will have arisen from, the sale of Inventory or services to
Persons not affiliated with the Seller and in the ordinary course of the
Business consistent with past practice and, except as reserved against on the
January Statement of Net Assets, constitute or will constitute, as the case may
be, only valid, undisputed claims of the Business not subject to valid claims of
set-off or other defenses or counterclaims other than normal cash discounts
accrued in the ordinary course of the Business consistent with past practice.
SECTION 3.07. Inventories. Subject to amounts reserved therefor on
the January Statement of Net Assets, the values at which all Inventories are
carried on the January Statement of Net Assets reflect the historical inventory
valuation policy of the Business of stating such Inventories at the lower of
cost (determined on the first-in, first-out method) or market value. The Seller
has good and marketable title to the Inventories free and clear of all
Encumbrances except Permitted Encumbrances. The Inventories are in good and
merchantable condition in all material respects, are suitable and usable for the
purposes for which they are intended and are in a condition such that they can
be sold in the ordinary course of the Business consistent with past practice.
The Inventories do not consist of, in any material amount, items that are
obsolete, damaged or slow-moving. The Inventories do not consist of any items
held on consignment. The Seller is not under any obligation or liability with
respect to accepting returns of items of Inventory or merchandise in the
possession of its customers, except to the extent consistent with past return
policies of the Business. No clearance or extraordinary sale of the Inventories
has been conducted since the date of the January
<PAGE> 29
24
Statement of Net Assets. The Seller has not acquired or committed to acquire or
manufactured Inventory for sale which is not of a quality and quantity usable in
the ordinary course of the Business within a reasonable period of time and
consistent with past practice nor has the Seller changed the price of any
Inventory except for (i) reductions to reflect any reduction in the cost thereof
to the Seller, (ii) reductions and increases responsive to normal competitive
conditions and consistent with the past sales practices of the Business, and
(iii) increases to reflect any increase in the cost thereof to the Seller.
Section 3.07 of the Disclosure Schedule contains a complete list of the
addresses of all warehouses and other facilities in which any significant
portion of the Inventories are located.
SECTION 3.08. Sales and Purchase Order Backlog. (a) As of March 22,
1999, open sales orders accepted by the Seller related to the Acquired Business
as to which the unshipped portion exceeds [*] (as measured by standard cost).
Section 3.08(a) of the Disclosure Schedule lists all such sales orders.
(b) As of March 17, 1999, open purchase orders (other than
purchase orders relating to deployment projects) issued by the Seller related to
the Business totaled [*]. As of March 18, 1999, open purchase orders relating to
deployment projects issued by the Seller related to the Business totaled [*].
Section 3.08(b) of the Disclosure Schedule lists all purchase orders (other than
purchase orders relating to deployment projects) relating to the Business
exceeding $100,000 per order, which have been issued by the Seller and which are
open as of March 17, 1999, and all purchase orders relating to deployment
projects relating to the Business, exceeding $100,000 per order, which have been
issued by the Seller and which are open as of March 18, 1999.
SECTION 3.09. Customers. Section 3.09 of the Disclosure Schedule
lists the five most significant customers (by revenue) of the Acquired Business
for the twelve-month period ended September 30, 1998 and the amount of such
revenues from each such customer during such period. Except as disclosed in
Section 3.09 of the Disclosure Schedule, as of the date hereof the Seller has
not received any notice and has no reason to believe that any significant
customer of the Acquired Business has ceased, or will cease, to use the
products, equipment, goods or services of the Acquired Business or has
substantially reduced, or will substantially reduce, the use of such products,
equipment, goods or services at any time.
SECTION 3.10. Suppliers. Section 3.10 of the Disclosure Schedule
lists the ten most significant suppliers of raw materials, supplies, merchandise
and other goods for the Acquired Business for the twelve-month period ended
September 30, 1998 and the amount of such raw materials, supplies, merchandise
and other goods received from each such supplier related to the Acquired
Business during such period. Except as disclosed in Section 3.10 of the
Disclosure Schedule, as of the date hereof the Seller has not received any
notice and has no reason to believe that any such supplier will not sell raw
materials, supplies, merchandise and other goods to the Acquired Business at any
time after the Closing Date on terms and
* Confidential Treatment Requested
<PAGE> 30
25
conditions similar to those imposed on current sales to the Acquired Business,
subject only to general and customary price increases.
SECTION 3.11. Products and Services. Except as described in Section
3.11 of the Disclosure Schedule, there is no material defect in design,
materials, manufacture or otherwise in any products designed, manufactured,
distributed or sold by the Business, or any material defect in repair to, or
replacement of, any such products. Section 3.11 of the Disclosure Schedule sets
forth a true and complete list of all products designed, manufactured, marketed
or sold by the Business that have been recalled or withdrawn (whether
voluntarily or otherwise) as of the date hereof. The aggregate expense of all
product recalls and withdrawals performed by the Business has not exceeded [*]
in any of the four fiscal quarters prior to the date hereof. The January
Statement of Net Assets includes, and the Closing Statement of Net Assets will
include, adequate reserves in accordance with U.S. GAAP for all product warranty
obligations of the Business.
SECTION 3.12. Year 2000 Readiness. The Seller has (i) undertaken an
assessment of all significant computer hardware, software, networks, systems and
equipment embedded within products of the Business and/or used in the conduct of
the Business as currently conducted ("BUSINESS SYSTEMS") that could be adversely
affected by a failure to accurately adapt, accommodate, process or respond to
the Year 2000 and thereafter ("YEAR 2000 READY"), (ii) developed a plan and time
line for rendering all significant Business Systems Year 2000 Compliant (the
"YEAR 2000 PLAN"), and (iii) to date, implemented such plan in accordance with
such timetable in all material respects. Assuming the Purchaser continues to
implement the Year 2000 Plan following the Closing in accordance with such
timetable, there are no Business Systems which will not be Year 2000 Ready in
all material respects. The Seller has also (i) requested all significant
suppliers to the Business to provide to the Seller assessments of the Year 2000
Readiness of all material computer hardware, software, networks, systems and
equipment of such suppliers used in providing products or services to the
Business ("SUPPLIER SYSTEMS"), (ii) is receiving assessments from all such
suppliers and (iii) based on such assessments to date, has no reason to believe
that any material Supplier Systems will not be Year 2000 Ready in all material
respects.
SECTION 3.13. Vendor Financing Obligations. Section 3.13 of the
Disclosure Schedule lists (i) all contracts or arrangements pursuant to which
the Seller has agreed to extend financing to any Person with respect to projects
in Mexico, Brazil Region 1, Chile and Russia (the "VENDOR FINANCING
COMMITMENTS"), (ii) the potential financing required in the next three months
under each Vendor Financing Commitment and (iii) the maximum financing
commitments of the Seller under each Vendor Financing Commitment. To the
Seller's best knowledge, the Seller has provided true and accurate information
to the Purchaser with respect to the financial condition and results of
operations of the borrower under each Vendor Financing Commitment.
* Confidential Treatment Requested
<PAGE> 31
26
SECTION 3.14. Litigation. Except as described in Section 3.14 of the
Disclosure Schedule, there are no Actions by or against the Seller relating to
the Acquired Business, or affecting or that could reasonably be expected to
affect any of the Assets or the Acquired Business, pending before any
Governmental Authority (or, to the best knowledge of the Seller, threatened in
writing to be brought by or before any Governmental Authority). None of the
matters disclosed in Section 3.14 of the Disclosure Schedule has had or could
<PAGE> 32
27
reasonably be expected to have a Material Adverse Effect or could affect the
legality, validity or enforceability of this Agreement or any Ancillary
Agreement or the consummation of the transactions contemplated hereby or
thereby. Except as set forth in Section 3.14 of the Disclosure Schedule, the
Seller is not subject to any Governmental Order relating to the Acquired
Business, or affecting or that could reasonably be expected to affect any of the
Assets or the Acquired Business (nor, to the best knowledge of the Seller, are
there any such Governmental Orders threatened in writing to be imposed by any
Governmental Authority).
SECTION 3.15. Compliance with Laws. The Seller has conducted and
continues to conduct the Business in all material respects in accordance with
all Laws and Governmental Orders applicable to the Seller, the Assets and the
Business (including, without limitation, the Foreign Corrupt Practices Act and
the anti-boycott laws and regulations promulgated under the Export
Administration Act of 1979), and the Seller is not in violation of any such Law
or Governmental Order in any material respect.
SECTION 3.16. Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. From the date of the January Statement of Net
Assets through the date hereof, except as disclosed in Section 3.16 of the
Disclosure Schedule, the Acquired Business has been conducted in the ordinary
course and consistent with past practice. Except as disclosed in Section 3.16 of
the Disclosure Schedule, from the date of the January Statement of Net Assets
through the date hereof, the Seller has not:
(i) made any material changes in the customary methods of
operations of the Acquired Business, including, without limitation,
practices and policies relating to manufacturing, purchasing, Inventories,
marketing, selling and pricing;
(ii) sold, transferred, leased or otherwise disposed of any assets
of the Acquired Business, other than the sale of Inventories or the
disposition of immaterial amounts of obsolete assets in the ordinary
course of the Business consistent with past practice;
(iii) acquired any material assets related to the Acquired Business
other than in the ordinary course of the Business consistent with past
practice;
(iv) permitted or allowed any of the assets of the Acquired
Business to be subjected to any Encumbrance, other than Permitted
Encumbrances and Encumbrances that will be released at or prior to the
Closing;
(v) except in the ordinary course of the Business consistent with
past practice, discharged or otherwise obtained the release of any
Encumbrance or paid or otherwise discharged any Liability, other than
current liabilities reflected on the January Statement of Net Assets and
current liabilities incurred in the ordinary course
<PAGE> 33
28
of the Business consistent with past practice since the date of the
January Statement of Net Assets;
(vi) written down or written up (or failed to write down or write
up in accordance with U.S. GAAP consistent with past practice) the value
of any Inventories or Receivables related to the Acquired Business or
revalued any assets of the Acquired Business other than in the ordinary
course of the Business consistent with past practice and in accordance
with U.S. GAAP;
(vii) made any change in any method of accounting or accounting
practice or policy used by the Business, other than such changes required
by U.S. GAAP and disclosed in Section 3.16 of the Disclosure Schedule;
(viii) made any capital expenditure or commitment for any capital
expenditure related to the Acquired Business in excess of [*];
(ix) incurred any indebtedness for borrowed money related to the
Acquired Business;
(x) other than in the ordinary course of Business, (A) granted any
increase, or announced any increase, in the wages, salaries, compensation,
bonuses, incentives, pension or other benefits payable by the Seller to
any employees of the Business, including, without limitation, any increase
or change pursuant to any Plan, (B) established or increased or promised
to increase any benefits under any Plan, in either case except as required
by Law or any collective bargaining agreement and involving ordinary
increases consistent with the past practice of the Business, or (C)
entered into any agreement, arrangement or transaction with any employees
of the Business;
(xi) terminated, discontinued, closed or disposed of any plant,
facility or other operation of the Acquired Business, or laid off any
employees of the Business or implemented any early retirement, separation
or program providing early retirement window benefits to employees of the
Business within the meaning of Section 1.401(a)-4 of the Regulations or
announced or planned any such action or program for the future;
(xii) suffered any material casualty loss or damage with respect to
any of the Assets;
(xiii) amended, modified or consented to the termination of any
Material Contract or the Seller's rights thereunder;
* Confidential Treatment Requested
<PAGE> 34
29
(xiv) suffered any Material Adverse Effect; or
(xv) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 3.16, except as expressly contemplated
by this Agreement and the Ancillary Agreements.
SECTION 3.17. Permits and Licenses. Except as disclosed in Section
3.17 of the Disclosure Schedule, the Seller currently holds all the health and
safety and other permits, licenses, authorizations, certificates, exemptions and
approvals of Governmental Authorities (collectively, "PERMITS") necessary or
proper for the current use, occupancy and operation of the Assets and the
conduct of the Acquired Business, except for such Permits the failure of which
to hold has not had and could not reasonably be expected to have a Material
Adverse Effect, and all such Permits are in full force and effect. The Seller
has not received any written notice from any Governmental Authority revoking,
cancelling, rescinding, materially modifying or refusing to renew any material
Permit or providing notice of material violations under any Law or Permit.
Except as disclosed in Section 3.17 of the Disclosure Schedule, the Seller is in
all material respects in compliance with the Permits. The Seller has no reason
to believe that any consent of any Governmental Authority required in order to
transfer any Permit to the Purchaser in the event of the consummation of the
transactions contemplated by this Agreement will not be obtained, or if not
obtained that the Purchaser will not be able to obtain a replacement or
substitute Permit sufficient to conduct the Acquired Business as it is currently
conducted.
SECTION 3.18. Environmental Matters. (a) Except as disclosed in
Section 3.18(a) of the Disclosure Schedule, (i) Hazardous Materials have not
been generated, used, treated, handled or stored on, or transported to or from,
or released or discharged on any Real Property; (ii) the Seller has disposed of
all wastes in compliance with all applicable Environmental Laws and permits
required under Environmental Laws; (iii) there are no past, pending or
threatened Environmental Claims against the Seller or any Real Property; (iv) no
Real Property is listed or proposed for listing on the National Priorities List
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, or on the Comprehensive Environmental Response,
Compensation and Liability Information System or any analogous state list of
sites requiring investigation or cleanup; and (v) the Seller has not transported
or arranged for the transportation of any Hazardous Materials to any location
that is listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or on the Comprehensive Environmental Response, Compensation and
Liability Information System or any analogous state list or which is the subject
of any Environmental Claim.
(b) Except as disclosed in Section 3.18(b) of the Disclosure
Schedule, there are no circumstances with respect to any Real Property or any
Asset or the operation of the
<PAGE> 35
30
Acquired Business which could reasonably be anticipated (i) to form
the basis of an Environmental Claim against the Seller or any Real Property or
Asset or (ii) to cause such Real Property or Asset to be subject to any
restrictions on ownership, occupancy, use or transferability under any
applicable Environmental Law.
SECTION 3.19. Material Contracts. (a) Section 3.19(a) of the
Disclosure Schedule lists each of the following contracts and agreements
(including, without limitation, oral and informal arrangements) of the Seller
related to the Acquired Business and that are in effect as of the date hereof,
other than Excluded Contracts (such contracts and agreements, together with the
Leases, the Transferred Customer Contracts, the Vendor Financing Commitments and
the IP Licenses, being "MATERIAL CONTRACTS"):
(i) each contract, agreement, invoice, purchase order, sales order
and other arrangement, for the purchase or sale of Inventory or other
products or equipment with any supplier or for the furnishing of services
by or to the Acquired Business under the terms of which the Seller: (A) is
obligated to pay or entitled to receive consideration of more than
$100,000 in the aggregate during the fiscal year ended September 30, 1999
or (B) is obligated to pay or entitled to receive consideration of more
than $100,000 in the aggregate over the remaining term of such contract;
(ii) all material broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contracts and agreements to which the
Seller is a party and which are primarily related to the Acquired
Business;
(iii) all material contracts with independent contractors or
consultants (or similar arrangements) to which the Seller is a party and
which are primarily related to the Acquired Business;
(iv) all contracts and agreements that involve Indebtedness of the
Seller in excess of $500,000 and that are related to the Acquired
Business;
(v) all contracts and agreements with any Governmental Authority
to which the Seller is a party and which are primarily related to the
Acquired Business;
(vi) all contracts and agreements that limit or purport to limit
the ability of the Seller to engage in any Competitive Activity in any
geographic area or during any period of time;
(vii) all contracts and agreements between or among the Seller or
any Affiliate of the Seller which are primarily related to the Acquired
Business; and
<PAGE> 36
31
(viii) all other contracts and agreements, whether or not made in
the ordinary course of the Business, which are material to the conduct of
the Acquired Business.
(b) The Seller has made available to the Purchaser true and
complete copies of all Material Contracts. Each Material Contract (i) is a
legal, valid and binding obligation of the Seller, and to the Seller's
knowledge, the other parties thereto, and is in full force and effect, (ii)
represents the entire agreement between the parties thereto with respect to the
subject matter thereof, (iii) is freely and fully assignable to the Purchaser
without penalty or other adverse consequences and (iv) upon consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements, except
in any case to the extent that any consents set forth in Section 3.02(c) of the
Disclosure Schedule are not obtained, shall continue in full force and effect
without penalty or other adverse consequence. Except as disclosed in Section
3.19(b) of the Disclosure Schedule, the Seller is not in breach of, or default
under, any Material Contract, and, to the best knowledge of the Seller, no event
has occurred that, with notice or lapse of time would constitute such a breach
or default or permit termination, modification or acceleration under any
Material Contract. The Seller has not received any notice of uncured breach or
default under, or termination of, any Material Contract. Except as disclosed in
Section 3.19(b) of the Disclosure Schedule, to the best knowledge of the Seller,
no other party to any Material Contract is in breach thereof or default
thereunder.
SECTION 3.20. Intellectual Property. (a) Section 3.20(a) of the
Disclosure Schedule sets forth a true and complete list of all trademarks,
service marks, trade names, registered copyrights and applications therefor
primarily used or intended to be primarily used in the conduct of the Acquired
Business as of the date hereof and which are owned by the Seller or subsidiaries
of the Seller, other than Excluded Intellectual Property (together with all
other Intellectual Property which exists on the Closing Date primarily used or
intended to be primarily used in the conduct of the Acquired Business and owned
by the Seller or subsidiaries of the Seller other than Excluded Intellectual
Property, the "OWNED INTELLECTUAL PROPERTY"). All Owned Intellectual Property is
owned by the Seller, free and clear of any Encumbrance other than Permitted
Encumbrances. Except for Excluded Contracts, the Seller has not granted any
license or other right to any other Person with respect to any material portion
of the Owned Intellectual Property.
(b) Section 3.20(b) of the Disclosure Schedule sets forth a true
and complete list of all trademarks, service marks, trade names, registered
copyrights and applications therefor and software primarily used or intended to
be primarily used in the conduct of the Acquired Business and which is licensed
or sublicensed by the Seller from a third party("IP LICENSES"), other than
Excluded Intellectual Property (the "LICENSED INTELLECTUAL PROPERTY", and,
together with the Owned Intellectual Property, the "BUSINESS INTELLECTUAL
PROPERTY").
<PAGE> 37
32
(c) The Business Intellectual Property and the Intellectual
Property to be licensed to the Purchaser pursuant to the License Agreements and
Section 5.13 constitute all the material Intellectual Property primarily used or
intended to be used in, and all such Intellectual Property necessary in the
conduct of, the Acquired Business and there are no other items of Intellectual
Property that are material to the Acquired Business.
(d) Except as disclosed in Section 3.02(c) of the Disclosure
Schedule, all rights of the Seller in each item of Business Intellectual
Property are transferable to the Purchaser as contemplated by this Agreement. As
a result of the transactions contemplated by this Agreement and the License
Agreements, upon the Closing, the Purchaser shall own, or have adequate and
enforceable licenses, sublicenses or other rights to use, without payment of any
fee other than fees payable to third party licensors under such licenses or fees
disclosed in the License Agreements, all the Business Intellectual Property.
(e) There are no contracts pursuant to which the Seller licenses
or sublicenses Owned Intellectual Property or Licensed Intellectual Property to
a third party, other than Excluded Contracts and Transferred Customer Contracts.
(f) Except as otherwise described in Section 3.20(f) of the
Disclosure Schedule, to the best knowledge of the Seller, the rights of the
Seller in or to the Business Intellectual Property do not infringe on the rights
of any other Person and the Seller has not received any written notice from any
Person to such effect. Except as otherwise described in Section 3.20(f) of the
Disclosure Schedule, no Actions have been made or asserted or are pending (nor,
to the best knowledge of the Seller has any such Action been threatened in
writing) against the Seller either (A) based upon or challenging or seeking to
deny or restrict the use by the Seller of any of the Business Intellectual
Property or (B) alleging that any services provided, or products manufactured or
sold by the Business are being provided, manufactured or sold in violation of
any patents or trademarks, or any other rights of any Person. To the best
knowledge of the Seller, no Person is using any copyrights, trademarks, service
marks, trade names, trade secrets or similar property that infringe upon the
Business Intellectual Property or upon the rights of the Seller therein.
(g) Except as set forth in Section 3.02(c) of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
and the License Agreements will not result in the termination or impairment of
any of the Business Intellectual Property.
SECTION 3.21. Real Property. (a) Section 3.21(a) of the Disclosure
Schedule lists the address of each plant, office, warehouse and other parcels of
real property at which significant Assets are located or from which the Acquired
Business is conducted and which are owned by the Seller or subsidiaries of the
Seller (together with all buildings and other structures, facilities or
improvements located thereon and all fixtures attached or appurtenant
<PAGE> 38
33
thereto, the "OWNED REAL PROPERTY") and the current use of each such parcel of
Owned Real Property.
(b) Section 3.21(b) of the Disclosure Schedule lists the address
of each plant, office, warehouse and other parcels of real property at which
significant Assets are located or from which the Acquired Business is conducted
and which are leased by the Seller or subsidiaries of the Seller as tenant
(together with all buildings and other structures, facilities or improvements
located thereon and all fixtures attached or appurtenant thereto, the "LEASED
REAL PROPERTY", and, together with the Owned Real Property, the "REAL PROPERTY")
and the current use of each such parcel of Leased Real Property and all
applicable lease agreements related thereto (collectively, the "LEASES").
(c) Except as described in Sections 3.21(c) of the Disclosure
Schedule, there is no material violation of any Law relating to any of the Real
Property. The Seller is in peaceful and undisturbed possession of each parcel of
Real Property and there are no contractual or legal restrictions that preclude
or restrict the ability to use the premises for the purposes for which they are
currently being used. All existing water, sewer, steam, gas, electricity,
telephone and other utilities required for the use, occupancy and operation of
the Real Property are adequate for the conduct of the Acquired Business as it
has been and currently is conducted. Except as set forth in Section 3.21(c) of
the Disclosure Schedule, the Seller has not leased or subleased any parcel or
any portion of any parcel of Real Property to any other Person, nor has the
Seller assigned its interest under any Lease to any third party.
(d) The real property set forth in Sections 3.21(a) and 3.21(b) of
the Disclosure Schedule constitutes all the real property used or intended to be
used by the Seller in, and all such real property necessary in the conduct by
the Seller of, the Acquired Business and there are no other parcels of real
property that are material to the Acquired Business. As a result of the
transactions contemplated by this Agreement and the Lease Agreements, upon the
Closing, the Purchaser shall possess adequate and enforceable leases or other
rights to use, without payment of any fee other than fees disclosed in the
Leases and the Lease Agreements, all the Real Property. To the best knowledge of
the Seller, there are no facts that would prevent the Real Property from being
occupied by the Purchaser after the Closing in the same manner as immediately
prior to the Closing.
SECTION 3.22. Tangible Personal Property. Exhibit 2.01(a)(vi) lists
each item or distinct group of machinery, equipment, tools, supplies, furniture,
fixtures, personalty, vehicles and other tangible personal property (the
"TANGIBLE PERSONAL PROPERTY") primarily used in the Acquired Business. Prior to
the Closing Date, the Seller will deliver to the Purchaser a revised list of
Tangible Personal Property, specifying the jurisdiction in which each group of
Tangible Personal Property is located.
<PAGE> 39
34
SECTION 3.23. Right, Title and Interest in Assets. (a) Except as
disclosed in Section 3.23(a) of the Disclosure Schedule, the Seller owns, leases
or has the legal right to use all the Assets and, with respect to rights under
contracts included within the Assets, is a party to and enjoys the right to the
benefits of all such contracts, agreements and other arrangements. The Seller
has good and marketable title to, or, in the case of leased or subleased Assets,
valid and subsisting leasehold interests in, all the Assets, free and clear of
all Encumbrances, except (i) as disclosed in the Disclosure Schedule and (ii)
Permitted Encumbrances.
(b) The Assets and the other assets and properties licensed to the
Purchaser under the License Agreements or made available to the Purchaser under
the Interim Services Agreement constitute all the properties, assets and rights
primarily used or intended to be primarily used in, and all such properties,
assets and rights as are necessary in the conduct of, the Acquired Business. All
the Assets are in good operating condition and repair (normal wear and tear
excepted) and are suitable for the purposes for which they are used and
intended.
(c) Except as set forth in the Disclosure Schedule, the Seller has
the complete and unrestricted power and unqualified right to sell, assign,
transfer, convey and deliver the Assets to the Purchaser without penalty or
other adverse consequences. Following the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements and the execution of
the instruments of transfer contemplated by this Agreement and the Ancillary
Agreements, the Purchaser will own, with good, valid and marketable title, or
lease, under valid and subsisting leases, or otherwise acquire the interests of
the Seller in the Assets, free and clear of any Encumbrances, other than
Permitted Encumbrances, and without incurring any penalty or other adverse
consequence, including, without limitation, any increase in rentals, royalties,
or license or other fees imposed as a result of, or arising from, the
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
SECTION 3.24. Employee Benefit Matters. (a) Plans and Material
Documents. Section 3.24(a) of the Disclosure Schedule lists (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, restricted stock, incentive, deferred compensation, retiree medical or
life insurance, supplemental retirement, severance or other benefit plans,
programs or arrangements, and all employment, termination, severance or other
contracts or agreements, whether legally enforceable or not, to which the Seller
is a party, with respect to which the Seller has any obligation or which are
maintained, contributed to or sponsored by the Seller for the benefit of any
current or former employee, officer or director of the Seller, (ii) each
employee benefit plan for which the Seller could incur liability under Section
4069 of ERISA in the event such plan has been or were to be terminated, (iii)
any plan in respect of which the Seller could incur liability under Section
4212(c) of ERISA and (iv) any contracts, arrangements or
<PAGE> 40
35
understandings between the Seller or any of its Affiliates and any employee of
the Seller including, without limitation, any contracts, arrangements or
understandings relating to a sale of the Business (collectively, the "PLANS").
Each Plan is in writing and the Seller has furnished the Purchaser with a true
and complete copy of each Plan and a true and complete copy of each material
document prepared in connection with each such Plan as follows: (i) a copy of
each trust or other funding arrangement, (ii) each summary plan description and
summary of material modifications, (iii) the most recently filed IRS Form 5500,
(iv) the most recently received IRS determination letter for each such Plan, and
(v) the most recently prepared actuarial report and financial statement in
connection with each such Plan. Except as disclosed on Section 3.24(a) of the
Disclosure Schedule, there are no other employee benefit plans, programs,
arrangements or agreements, whether formal or informal, whether in writing or
not, to which the Seller is a party, with respect to which the Seller has any
obligation or which are maintained, contributed to or sponsored by the Seller
for the benefit of any current or former employee, officer or director of the
Seller. The Seller has no express or implied commitment, whether legally
enforceable or not, (i) to create, incur liability with respect to or cause to
exist any other employee benefit plan, program or arrangement, (ii) to enter
into any contract or agreement to provide compensation or benefits to any
individual or (iii) to modify, change or terminate any Plan, other than with
respect to a modification, change or termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Plans is a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA)
(a "MULTIEMPLOYER PLAN") or a single employer pension plan (within the meaning
of Section 4001(a)(15) of ERISA) for which the Seller could incur liability
under Section 4063 or 4064 of ERISA (a "MULTIPLE EMPLOYER PLAN"). None of the
Plans is subject to Title IV of ERISA. None of the Plans provides for the
payment of separation, severance, termination or similar-type benefits to any
Person or obligates the Seller to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by this
Agreement and the Ancillary Agreements or as a result of a "change in the
ownership or effective control" or a "change in the ownership of a substantial
portion of the assets" of the Seller, within the meaning of such term under
Section 280G of the Code. None of the Plans provides for or promises retiree
medical, retiree disability or retiree life insurance benefits to any current or
former employee, officer or director of the Seller. Each of the Plans is subject
only to the laws of the United States or a political subdivision thereof.
(c) Compliance with Applicable Law. Each Plan is now and always
has been operated in all material respects in accordance with the requirements
of all applicable Laws, including, without limitation, ERISA and the Code, and
all persons who participate in the operation of such Plans and all Plan
"fiduciaries" (within the meaning of Section 3(21) of ERISA) have always acted
in material compliance with the provisions of all applicable Laws, including,
without limitation, ERISA and the Code. The Seller has performed all material
obligations required to be performed by it under, is not in any material respect
in default under or in violation of, and has no knowledge of any material
default or violation by any party to, any Plan. No Action is pending or
threatened with respect to any Plan (other than claims for
<PAGE> 41
36
benefits in the ordinary course) and no fact or event exists that could give
rise to any such Action.
(d) Qualification of Certain Plans. Each Plan which is intended to
be qualified under Section 401(a) of the Code or Section 401(k) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under Section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and, to the
knowledge of the Seller, no fact or event has occurred since the date of such
determination letter from the IRS to adversely affect the qualified status of
any such Plan or the exempt status of any such trust. Each trust maintained or
contributed to by the Seller which is intended to be qualified as a voluntary
employees' beneficiary association and which is intended to be exempt from
federal income taxation under Section 501(c)(9) of the Code has received a
favorable determination letter from the IRS that it is so qualified and so
exempt, and, to the knowledge of the Seller, no fact or event has occurred since
the date of such determination by the IRS to adversely affect such qualified or
exempt status.
(e) Absence of Certain Liabilities and Events. There has been no
material prohibited transaction (within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code) with respect to any Plan. The Seller has not
incurred any material liability for any excise tax arising under Section 4971,
4972, 4980 or 4980B of the Code and no fact or event exists which could give
rise to any such liability. The Seller has not incurred any liability under,
arising out of or by operation of Title IV of ERISA (other than liability for
premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course), including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee benefit plan subject to Title IV
of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer
Plan, and no fact or event exists which could give rise to any such liability.
(f) Plan Contributions and Funding. All contributions, premiums or
payments required to be made with respect to any Plan have been made on or
before their due dates. All such contributions have been fully deducted for
income tax purposes and no such deduction has been challenged or disallowed by
any Governmental Authority and, to the knowledge of the Seller, no fact or event
exists which could give rise to any such challenge or disallowance.
(g) Warn Act. The Seller is in compliance with the requirements of
the Worker Adjustment and Retraining Notification Act ("WARN") and has no
liabilities pursuant to WARN.
SECTION 3.25. Labor Matters. Except as set forth in Section 3.25 of
the Disclosure Schedule, (a) the Seller is not a party to any collective
bargaining agreement or
<PAGE> 42
37
other labor union contract applicable to any Business Employee, and currently
there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit; (b) there are no
controversies, strikes, slowdowns or work stoppages pending or, to the best
knowledge of the Seller, threatened between the Seller and any of the Business
Employees, and the Seller has not experienced any such controversy, strike,
slowdown or work stoppage within the past three years; (c) the Seller has not
breached or otherwise failed to comply with the provisions of any collective
bargaining or union contract covering Business Employees and there are no
grievances outstanding against the Seller under any such agreement or contract;
(d) there are no unfair labor practice complaints pending against the Seller
before the National Labor Relations Board or any other Governmental Authority or
any current union representation questions involving Business Employees; (e) the
Seller is currently in compliance with all applicable Laws relating to the
employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by the appropriate Governmental Authority and has withheld and paid to the
appropriate Governmental Authority or is holding for payment not yet due to such
Governmental Authority all amounts required to be withheld from Business
Employees and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing; (f) the Seller has paid in
full to all Business Employees or adequately accrued for in accordance with U.S.
GAAP consistently applied all wages, salaries, commissions, bonuses, benefits
and other compensation due to or on behalf of such employees; (g) there is no
claim with respect to payment of wages, salary or overtime pay that has been
asserted or is now pending or threatened before any Governmental Authority with
respect to any Persons currently or formerly employed by the Seller in the
Business; (h) the Seller is not a party to, or otherwise bound by, any consent
decree with, or citation by, any Governmental Authority relating to employees of
the Business or employment practices; (i) there is no charge or proceeding with
respect to a violation of any occupational safety or health standards that has
been asserted or is now pending or threatened with respect to the Seller; (j)
there is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted or is now pending or
threatened before the United States Equal Employment Opportunity Commission, or
any other Governmental Authority in any jurisdiction in which the Seller has
employed or currently employs any Person in the Business; (k) to the knowledge
of the Seller, the Seller has properly classified independent contractors to the
Business for federal income tax purposes; and (l) to the knowledge of the
Seller, no Business Employee is in violation of the terms of any employment
contract, nondisclosure agreement, noncompetition agreement or nonsolicitation
agreement by which such Business Employee is bound due to the activities in
which such Business Employee engages for the Seller.
SECTION 3.26. Key Employees. (a) Section 3.26(a) of the Disclosure
Schedule lists the name, the place of employment, the current annual salary
rates, bonuses, deferred or contingent compensation, pension, accrued vacation,
"golden parachute" and other like benefits paid or payable (in cash or
otherwise), the date of employment and job title of
<PAGE> 43
38
each current salaried employee, officer, director, consultant or agent of the
Business whose current annual compensation as of March 17, 1999 exceeded
$60,000.
(b) All Business Employees who are officers, management employees
or technical or professional employees are under written obligation to the
Seller to maintain in confidence all confidential or proprietary information
acquired by them in the course of their employment and to assign to the Seller
all inventions made by them within the scope of their employment during such
employment and for a reasonable period thereafter. All such agreements are
assignable by the Seller to the Purchaser without the consent of any Business
Employee.
SECTION 3.27. Taxes. (a) All returns and reports in respect of Taxes
required to be filed with respect to the Seller or the Acquired Business have
been timely filed; (b) all Taxes required to be shown on such returns and
reports or otherwise due have been timely paid; (c) all such returns and reports
are true, correct and complete in all material respects; (d) no adjustment
relating to such returns has been proposed formally or informally by any Tax
authority; (e) there are no pending or, to the best knowledge of the Seller,
threatened Actions for the assessment or collection of Taxes against the Seller
or (insofar as either relates to the activities or income of the Seller or the
Business or could result in liability of the Seller on the basis of joint and/or
several liability) any corporation that was includible in the filing of a return
with the Seller on a consolidated or combined basis; (f) no consent under
Section 341(f) of the Code has been filed with respect to the Seller; (g) there
are no Tax liens on any properties or assets of the Seller, including, without
limitation, the Assets and the Acquired Business; and (h) there are no proposed
reassessments of any property owned by the Seller that could increase the amount
of any Tax to which the Seller or the Business would be subject.
SECTION 3.28. Insurance. All material assets, properties and risks
of the Business and the Seller are, and for the past five years have been,
covered by valid and, except for policies that have expired under their terms in
the ordinary course, currently effective insurance policies or binders of
insurance (including, without limitation, general liability, property workers,
compensation, automobile liability, excess liability, fiduciary liability,
professional errors and omissions, directors and officers liability and fidelity
insurance) issued in favor of the Seller, in each case with responsible
insurance companies, in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of the Seller.
SECTION 3.29. Brokers. Except for Lehman Brothers, no broker, finder
or investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement or
the Ancillary Agreements based upon arrangements made by or on behalf of the
Seller. The Seller is solely responsible for the fees and expenses of Lehman
Brothers.
<PAGE> 44
39
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
As an inducement to the Seller to enter into this Agreement, the
Purchaser hereby represents and warrants to the Seller as follows:
SECTION 4.01. Organization and Authority of the Purchaser. The
Purchaser is a company duly organized and validly existing under the laws of
Sweden and has all necessary corporate power and authority to enter into this
Agreement and the Ancillary Agreements, to carry out its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Ancillary
Agreements by the Purchaser, the performance by the Purchaser of its obligations
hereunder and thereunder and the consummation by the Purchaser of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite action on the part of the Purchaser. This Agreement has been, and upon
their execution the Ancillary Agreements will be, duly executed and delivered by
the Purchaser (or Affiliates of the Purchaser in the case of Ancillary
Agreements), and (assuming due authorization, execution and delivery by the
Seller) this Agreement constitutes, and upon their execution the Ancillary
Agreements will constitute, legal, valid and binding obligations of the
Purchaser (or such Affiliates), enforceable against the Purchaser (or such
Affiliates) in accordance with their respective terms, except as enforceability
may be limited by (i) bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally, and (ii) general
principles of equity, including specific performance, injunctive relief and
other equitable remedies.
SECTION 4.02. No Conflict. Assuming compliance with the notification
requirements of the HSR Act and the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 4.03, except as may result from any facts or circumstances relating
solely to the Seller, the execution, delivery and performance of this Agreement
and the Ancillary Agreements by the Purchaser do not and will not (a) violate,
conflict with or result in the breach of any provision of the charter or by-laws
(or other organizational documents) of the Purchaser, (b) conflict with or
violate any Law or Governmental Order applicable to the Purchaser or (c)
conflict with, or result in any breach of, constitute a default (or event which
with the giving of notice or lapse of time, or both, would become a default)
under, require any consent under, or give to others any rights of termination,
amendment, acceleration, suspension, revocation or cancellation of, or result in
the creation of any Encumbrance on any of the assets or properties of the
Purchaser pursuant to, any note, bond, mortgage or indenture, contract,
agreement, lease, sublease, license, permit, franchise or other instrument or
arrangement to which the Purchaser is a party or by
<PAGE> 45
40
which any of such assets or properties is bound or affected, except, in the case
of clauses (b) and (c), as would not prevent or materially delay consummation by
the Purchaser of the transactions contemplated by this Agreement.
SECTION 4.03. Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement and each Ancillary Agreement to which
it is a party by the Purchaser do not and will not require any consent,
approval, authorization or other order of, action by, filing with, or
notification to, any Governmental Authority, except (a) the notification
requirements of the HSR Act and (b) where the failure to obtain such consent,
approval, authorization or order would not prevent or materially delay
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
SECTION 4.04. Litigation. No claim, action, proceeding or
investigation is pending or, to the best knowledge of the Purchaser, threatened
in writing, which seeks to delay or prevent the consummation of, or which would
be reasonably likely to materially adversely affect the Purchaser's ability to
consummate the transactions contemplated by this Agreement and the Ancillary
Agreements.
SECTION 4.05. Brokers. Except for Merrill Lynch & Co., no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Purchaser. The Purchaser is
solely responsible for payment of the fees and expenses of Merrill Lynch & Co.
ARTICLE V
ADDITIONAL AGREEMENTS
<PAGE> 46
41
SECTION 5.01. Conduct of Business Prior to the Closing. The Seller
covenants and agrees that, except (i) to the extent the Purchaser shall
otherwise consent in writing (which consent shall not be unreasonably withheld),
(ii) as set forth in Section 5.01 of the Disclosure Schedule, (iii) as permitted
or contemplated by this Agreement or the License Agreements, (iv) as may be
necessary or appropriate to carry out the transactions contemplated by this
Agreement or the License Agreements or (v) as may be required to facilitate
compliance with any legal requirement, between the date hereof and the Closing,
the Seller shall not conduct the Business other than in the ordinary course and
consistent with the Seller's past practice. Without limiting the generality of
the foregoing, the Seller shall (i) continue its advertising and promotional
activities, and pricing and purchasing policies, related to the Acquired
Business in accordance with past practice; (ii) not shorten or lengthen the
customary payment cycles for any of the payables or receivables of the Acquired
Business; (iii) use its reasonable best efforts to (A) preserve intact the
Assets and the organization of the Acquired Business, (B) keep available to the
Purchaser the services of the Selected Business Employees and (C) preserve the
Acquired Business' current relationships with its customers, suppliers and other
persons with which it has significant business relationships; and (iv) use its
reasonable best efforts to not engage in any practice, take any action, fail to
take any action or enter into any transaction which could reasonably be expected
to cause any representation or warranty of the Seller to be untrue or result in
a breach of any covenant made by the Seller in this Agreement. The Seller
covenants and agrees that, prior to the Closing, without the prior written
consent of the Purchaser, the Seller will not (x) do any of the things
enumerated in the second sentence of Section 3.16 or (y) enter into any new
Material Contract. Notwithstanding the preceding sentence, the Seller may enter
into contracts relating to Brazil Regions 1 and 3 without the Purchaser's
consent, provided, however, that such contracts shall not become Transferred
Customer Contracts unless the Purchaser has consented thereto, and if the
Purchaser does not so consent, the infrastructure equipment required thereunder
shall be manufactured and supplied by a third party and not by the Seller.
SECTION 5.02. Access to Information. (a) From the date hereof until
the Closing, upon reasonable notice, the Seller shall and shall cause each of
the Seller's officers, employees, agents, accountants and counsel to: (i) afford
the officers, employees and authorized agents, accountants, counsel and
representatives of the Purchaser reasonable access, during normal business
hours, to the offices, properties, plants, other facilities, books and records
of the Acquired Business and to those officers, employees, agents, accountants
and counsel of the Seller who have any knowledge relating to the Acquired
Business and (ii) furnish to the officers, employees and authorized agents,
accountants, counsel and representatives of the Purchaser such additional
financial and operating data and other information regarding the Acquired
Business as the Purchaser may from time to time reasonably request.
(b) In order to facilitate the resolution of any claims made
against or incurred by the Seller prior to or following the Closing, for a
period of seven years after the
<PAGE> 47
42
Closing, the Purchaser shall (i) retain the books and records of the
Seller which are transferred to the Purchaser pursuant to this Agreement
relating to periods prior to or following the Closing in a manner reasonably
consistent with the prior practices of the Seller and (ii) upon reasonable
notice, afford the officers, employees, authorized agents, accountants, counsel
and representatives of the Seller reasonable access (including the right to make
photocopies at the Seller's expense), during normal business hours, to such
books and records.
(c) In order to facilitate the resolution of any claims made by or
against or incurred by the Purchaser after the Closing, for a period of seven
years following the Closing, the Seller shall (i) retain all books and records
of the Seller which are not transferred to the Purchaser pursuant to this
Agreement and which relate to the Acquired Business for periods prior to the
Closing and which shall not otherwise have been delivered to the Purchaser and
(ii) upon reasonable notice, afford the officers, employees, authorized agents,
accountants, counsel and representatives of the Purchaser, reasonable access
(including the right to make photocopies at the Purchaser's expense), during
normal business hours, to such books and records.
SECTION 5.03. Confidentiality. (a) The Seller agrees to, and shall
cause its agents, representatives, Affiliates, employees, officers and directors
to: (i) treat and hold as confidential (and not disclose or provide access to
any Person to) all information relating to trade secrets, processes, patent or
trademark applications, product development, price, customer and supplier lists,
pricing and marketing plans, policies and strategies, operations methods,
product development techniques, business acquisition plans, new personnel
acquisition plans and any other confidential information with respect to the
Acquired Business, (ii) in the event that the Seller or any such agent,
representative, Affiliate, employee, officer or director becomes legally
compelled to disclose any such information, provide the Purchaser with prompt
written notice of such requirement so that the Purchaser may seek a protective
order or other remedy or waive compliance with this Section 5.03, (iii) in the
event that such protective order or other remedy is not obtained, or the
Purchaser waives compliance with this Section 5.03, furnish only that portion of
such confidential information which is legally required to be provided and
exercise its reasonable best efforts to obtain assurances that confidential
treatment will be accorded such information, and (iv) promptly furnish (prior
to, at, or as soon as practicable following, the Closing) to the Purchaser any
and all copies (in whatever form or medium) of all such confidential information
then in the possession of the Seller or any of its agents, representatives,
Affiliates, employees, officers and directors and destroy any and all additional
copies then in the possession of the Seller or any of its agents,
representatives, Affiliates, employees, officers and directors of such
information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
this sentence shall not apply to any information that, at the time of
disclosure, is available publicly and was not disclosed in breach of this
Agreement by the Seller, its agents, representatives, Affiliates, employees,
officers or directors; provided further that specific information shall not be
deemed to be within the foregoing exception
<PAGE> 48
43
merely because it is embraced in general disclosures in the public domain. In
addition, any combination of features shall not be deemed to be within the
foregoing exception merely because the individual features are in the public
domain unless the combination itself and its principle of operation are in the
public domain.
(b) The Purchaser agrees to, and shall cause its agents,
representatives, Affiliates, employees, officers and directors to: (i) treat and
hold as confidential (and not disclose or provide access to any Person to) all
information relating to trade secrets, processes, patent or trademark
applications, product development, price, customer and supplier lists, pricing
and marketing plans, policies and strategies, operations methods, product
development techniques, business acquisition plans, new personnel acquisition
plans and any other confidential information obtained by the Purchaser pursuant
to the Confidentiality Agreement and not related to the Acquired Business, (ii)
in the event that the Purchaser or any such agent, representative, Affiliate,
employee, officer or director becomes legally compelled to disclose any such
information, provide the Seller with prompt written notice of such requirement
so that the Seller may seek a protective order or other remedy or waive
compliance with this Section 5.03, (iii) in the event that such protective order
or other remedy is not obtained, or the Seller waives compliance with this
Section 5.03, furnish only that portion of such confidential information which
is legally required to be provided and exercise its reasonable best efforts to
obtain assurances that confidential treatment will be accorded such information,
and (iv) promptly furnish (prior to, at, or as soon as practicable following,
the Closing) to the Seller any and all copies (in whatever form or medium) of
all such confidential information then in the possession of the Purchaser or any
of its agents, representatives, Affiliates, employees, officers and directors
and destroy any and all additional copies then in the possession of the
Purchaser or any of its agents, representatives, Affiliates, employees, officers
and directors of such information and of any analyses, compilations, studies or
other documents prepared, in whole or in part, on the basis thereof; provided,
however, that this sentence shall not apply to any information that, at the time
of disclosure, is available publicly and was not disclosed in breach of this
Agreement by the Purchaser, its agents, representatives, Affiliates, employees,
officers or directors; provided further that specific information shall not be
deemed to be within the foregoing exception merely because it is embraced in
general disclosures in the public domain. In addition, any combination of
features shall not be deemed to be within the foregoing exception merely because
the individual features are in the public domain unless the combination itself
and its principle of operation are in the public domain.
(c) Each of the Seller and the Purchaser agrees and acknowledges
that remedies at Law for any breach of its obligations under this Section 5.03
are inadequate and that in addition thereto a party shall be entitled to seek
equitable relief, including injunction and specific performance, in the event of
any such breach, without the necessity of demonstrating the inadequacy of money
damages.
<PAGE> 49
44
(d) Upon consummation of the Closing, the Confidentiality
Agreement shall terminate without any further action on the part of the
Purchaser or the Seller.
SECTION 5.04. Regulatory and Other Authorizations; Notices and
Consents. (a) Each of the Seller and the Purchaser shall use its reasonable best
efforts to obtain all authorizations, consents, orders and approvals of all
Governmental Authorities and officials that may be or become necessary for its
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement and the Ancillary Agreements and will cooperate fully with the
other party in promptly seeking to obtain all such authorizations, consents,
orders and approvals. Each party hereto agrees to make an appropriate filing, if
necessary, pursuant to the HSR Act with respect to the transactions contemplated
by this Agreement as promptly as practicable, but in any event within ten
Business Days of the date hereof, and to supply as promptly as practicable to
the appropriate Governmental Authorities any additional information and
documentary material that may be requested pursuant to the HSR Act.
(b) The Seller shall give promptly such notices to third parties
and use its reasonable best efforts to obtain all such third party consents that
are necessary or desirable in connection with the transfer of the Material
Contracts. The Purchaser shall cooperate and use its reasonable best efforts to
assist the Seller in giving such notices and obtaining such consents; provided,
however, that the Purchaser shall have no obligation to give any guarantee or
other consideration of any nature in connection with any such notice or consent
or to consent to any change in the terms of any Material Contract which the
Purchaser in its sole discretion may deem adverse to the interests of the
Purchaser or the Acquired Business.
(c) The Seller and the Purchaser agree that, in the event any
consent, approval or authorization necessary or desirable to preserve for the
Acquired Business or the Purchaser any right or benefit under any lease,
license, contract, commitment or other agreement or arrangement to which the
Seller is a party is not obtained prior to the Closing, the Seller will,
subsequent to the Closing, cooperate with the Purchaser in attempting to obtain
such consent, approval or authorization as promptly thereafter as practicable.
If such consent, approval or authorization cannot be obtained, the Seller will
use its reasonable best efforts to provide the Purchaser with the rights and
benefits of the affected lease, license, contract, commitment or other agreement
or arrangement for the term of such lease, license, contract or other agreement
or arrangement, and, if the Seller provides such rights and benefits, the
Purchaser shall assume the obligations and burdens thereunder.
(d) The Seller and the Purchaser agree to cooperate with each
other (i) in providing to the Purchaser, on commercially reasonable terms and
for purposes of conducting the Acquired Business, the benefit of any asset or
right that is currently used in the Acquired Business and that is not
effectively transferred to the Purchaser under this Agreement or the Ancillary
Agreements and (ii) in providing to the Seller, on commercially reasonable terms
and for purposes of conducting the businesses of the Seller as of the date
hereof other than the
<PAGE> 50
45
Acquired Business, the benefit of any asset or right that is
currently used in such businesses and that is transferred to the Purchaser under
this Agreement or the Ancillary Agreements.
(e) The Seller and the Purchaser shall cooperate in preparing a
comprehensive list prior to the Closing of all Permits that are non-transferable
or which will require the consent of any Governmental Authority in order to be
transferred to the Purchaser in the event of the consummation of the
transactions contemplated by this Agreement.
SECTION 5.05. Notice of Developments. (a) Prior to the Closing, the
Seller shall promptly notify the Purchaser in writing of (i) all events,
circumstances, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be expected to result in any material breach of
a representation or warranty or covenant of the Seller in this Agreement or
which could reasonably be expected to have the effect of making any
representation or warranty of the Seller in this Agreement untrue or incorrect
in any material respect and (ii) all other material adverse developments
affecting the Assets, Liabilities, business, financial condition, operations,
results of operations, customer or supplier relations, employee relations,
projections or prospects of the Seller or the Business.
(b) Prior to the Closing, the Purchaser shall promptly notify the
Seller in writing of all events, circumstances, facts and occurrences arising
subsequent to the date of this Agreement which could reasonably be expected to
result in any material breach of a representation or warranty or covenant of the
Purchaser in this Agreement or which could reasonably be expected to have the
effect of making any representation or warranty of the Purchaser in this
Agreement untrue or incorrect in any material respect.
SECTION 5.06. No Solicitation or Negotiation. The Seller agrees that
between the date of this Agreement and the earlier of (i) the Closing and (ii)
the termination of this Agreement, neither the Seller nor any of its respective
Affiliates, officers, directors, representatives or agents will (a) solicit,
initiate, consider, encourage or accept any other proposals or offers from any
Person relating to any acquisition or purchase of all or any portion of the
Assets or the Acquired Business (other than (i) Inventory to be sold in the
ordinary course of the Business consistent with past practice and (ii) proposals
or offers related to the acquisition of all or substantially all of the assets
or capital stock of the Seller in a transaction subject to the prior rights of
the Purchaser under this Agreement related to the acquisition of the Assets and
the Acquired Business), or (b) participate in any discussions, conversations,
negotiations or other communications regarding, or furnish to any other Person
any information with respect to, or otherwise cooperate in any way, assist or
participate in, facilitate or encourage any effort or attempt by any other
Person to seek to do any of the foregoing. The Seller immediately shall cease
and cause to be terminated all existing discussions, conversations, negotiations
and other communications with any Persons conducted heretofore with respect to
any of the foregoing. Subject to confidentiality agreements binding upon the
Seller as of the date hereof, the Seller shall notify the Purchaser promptly if
any such
<PAGE> 51
46
proposal or offer, or any inquiry or other contact with any Person with respect
thereto, is made and shall, in any such notice to the Purchaser, indicate in
reasonable detail the identity of the Person making such proposal, offer,
inquiry or contact and the material terms and conditions of such proposal,
offer, inquiry or other contact. The Seller agrees not to, without the prior
written consent of the Purchaser, release any Person from, or waive any
provision of, any confidentiality or standstill agreement to which the Seller is
a party and which is primarily related to a potential acquisition of all or any
portion of the Assets or the Acquired Business, and the Seller agrees to send,
promptly after the date of this Agreement, requests to all parties under such
agreements to return or destroy confidential information obtained from the
Seller thereunder related to the Assets or the Business.
SECTION 5.07. Use of Intellectual Property. (a) Except as reasonably
necessary for the Seller to commercially exploit the Excluded Assets or to
fulfill its obligations under the Excluded Liabilities and Excluded Contracts,
from and after the Closing, the Seller shall not use any of the Business
Intellectual Property (other than software not customized for the Acquired
Business), other than as contemplated pursuant to the Ancillary Agreements. The
Purchaser hereby grants to the Seller a perpetual, royalty-free license to use
such Business Intellectual Property as it exists at the Closing Date to
commercially exploit the Excluded Assets and to fulfill its obligations under
the Excluded Liabilities and Excluded Contracts.
(b) The Seller shall not use or put into use after the Closing any
materials that bear any trademark, service mark, trade dress, logo or trade name
contained in the Business Intellectual Property transferred to the Purchaser
pursuant to this Agreement or any trademark, service mark, trade dress, logo or
trade name similar or related thereto.
(c) After the Closing, the Purchaser shall not use any advertising
or promotional materials or other paper goods or supplies that state or
otherwise indicate thereon that the Acquired Business is a division or unit of
the Seller; provided, that to the extent that any such materials or supplies
included in the Assets so indicate, the Purchaser may use such materials and
supplies for a period of six months after the Closing Date.
SECTION 5.08. [*]
* Confidential Treatment Requested
<PAGE> 52
47
[*]
* Confidential Treatment Requested
<PAGE> 53
48
[*]
SECTION 5.09. Excluded Liabilities. The Seller shall pay and
discharge the Excluded Liabilities as and when the same become due and payable.
SECTION 5.10. Bulk Transfer Laws. The Purchaser hereby acknowledges
that the Seller has not taken, and does not intend to take, any action required
to comply with any applicable bulk sale or bulk transfer laws or similar laws,
and the Purchaser hereby waives compliance by the Seller with any applicable
bulk sale or bulk transfer laws of any jurisdiction in connection with the sale
of the Assets to the Purchaser (other than any obligations with respect to the
application of the proceeds herefrom). Pursuant to Article VIII, the Seller has
agreed to indemnify the Purchaser against any and all liabilities which may be
asserted by third parties (including with respect to Taxes) against the
Purchaser as a result of the Seller's noncompliance with any such law.
SECTION 5.11. Tax Matters. (a) The Seller agrees to indemnify and
hold harmless the Purchaser against any loss, damage, liability or expense,
including reasonable fees for attorneys and other outside consultants, incurred
in contesting or otherwise in connection with Taxes imposed on the Seller or the
Acquired Business with respect to taxable periods or portions thereof ending on
or before the Closing Date and Taxes imposed on the Purchaser as a result of any
breach of warranty or misrepresentation under Section 3.27 of this Agreement.
(b) Payment by the Seller of any amounts due under this Section
5.11 in respect of Taxes shall be made (i) at least three Business Days before
the due date of the
* Confidential Treatment Requested
<PAGE> 54
49
applicable estimated or final tax return required to be filed by the Purchaser
on which is required to be reported income for a period ending after the Closing
Date for which the Seller is responsible under Section 5.11(a) without regard to
whether the tax return shows overall net income or loss for such period, and
(ii) within three Business Days following an agreement between the Seller and
the Purchaser that an indemnity amount is payable, an assessment of a Tax by a
taxing authority, or a "determination" as defined in Section 1313(a) of the
Code. If liability under this Section 5.11 is in respect of costs or expenses
other than Taxes, payment by the Seller of any amounts due under this Section
5.11 shall be made within five Business Days after the date when the Seller has
been notified by the Purchaser that the Seller has a liability for a
determinable amount under this Section 5.11 and is provided with calculations or
other materials supporting such liability.
(c) The Seller and the Purchaser shall share equally any real
property transfer or gains, sales, use, transfer, value added, stock transfer,
and stamp taxes, any transfer, recording, registration, and other fees, and any
similar Taxes which become payable in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements. The Seller, after
review and consent by the Purchaser, shall file such applications and documents
as shall permit any such Tax to be assessed and paid on or prior to the Closing
Date in accordance with any available pre-sale filing procedure. The Purchaser
shall execute and deliver all instruments and certificates necessary to enable
the Seller to comply with the foregoing. The Purchaser shall complete and
execute a resale or other exemption certificate with respect to the inventory
items sold hereunder, and shall provide the Seller with an executed copy
thereof. The Seller shall provide to the Purchaser such information regarding
the location of tangible property of the Acquired Business sufficient to support
the filing of complete and accurate Tax returns and reports by the Purchaser.
(d) At the request of the Purchaser, the Seller shall file with
all applicable Tax authorities any statements, certificates or forms provided
for under federal, state, local or foreign Tax laws to prevent the Purchaser
from being liable as a transferee for Taxes of the Seller.
(e) The Seller and the Purchaser agree to treat all payments made
by either to or for the benefit of the other under this Section 5.11 and any
other indemnity provisions of this Agreement and for any misrepresentations or
breach of warranties or covenants, as adjustments to the Purchase Price for Tax
purposes and that such treatment shall govern for purposes hereof except to the
extent that the laws of a particular jurisdiction provide otherwise, in which
case such payments shall be made in an amount sufficient to indemnify the
relevant party on an after-Tax basis.
(f) The Seller shall, on or before September 30, 1999, provide to
the Purchaser such information and substantiating documentation, as required
under Section 41(f)(3) of the Code, regarding "qualified research expense" and
"gross receipts" of the
<PAGE> 55
50
Acquired Business for purposes of computing the credit for increasing research
activities under Section 41 of the Code.
SECTION 5.12. Letters of Credit, Etc. (a) Set forth on Section 5.12
of the Disclosure Schedule is a true and complete list of all letters of credit,
performance bonds and similar obligations arising under any Transferred Customer
Contracts. The Purchaser shall use all reasonable efforts to cause the Seller to
be released, as of or as promptly as practicable following the Closing, from all
such letters of credit, performance bond and similar obligations (whether
through the provision of a replacement letter of credit, guaranty or otherwise).
(b) The Seller shall use all reasonable efforts to cause the
Purchaser to receive the benefits following the Closing of all letters of
credit, performance bonds and similar obligations that have been issued in favor
of or for the benefit of the Seller under any Transferred Customer Contracts
(whether through the assignment thereof, the issuance of a replacement letter of
credit, guaranty or otherwise).
SECTION 5.13. License of Excluded Intellectual Property. The Seller
hereby grants to the Purchaser a perpetual, exclusive (subject to license
agreements existing as of the date hereof) royalty-free license to use the
Intellectual Property described in clause (D) of the definition of Excluded
Intellectual Property as it exists at the Closing Date in the conduct of the
Acquired Business.
SECTION 5.14. Ancillary Agreements. The parties shall cooperate in
good faith to prepare, negotiate and finalize the Ancillary Agreements as
promptly as practicable after the date hereof. Notwithstanding anything to the
contrary contained in this Agreement, in the event the parties cooperate in good
faith but are nevertheless unable to finalize any Ancillary Agreement by the
time otherwise scheduled for the Closing, the term sheet attached hereto which
sets forth the principal terms of such Ancillary Agreement shall be binding on
the parties and shall govern the relationship of the parties following the
Closing with respect to the matters covered thereby until such time as the
parties shall execute and deliver the applicable Ancillary Agreement.
SECTION 5.15. Other Matters. (a) The Purchaser agrees that San Diego
shall be the Purchaser's principal research and development center for IS-95 and
CDMA 2000 applications for the foreseeable future.
(b) The Seller shall, to the extent and in the manner it deems
commercially reasonable, cause wireless system operators in which it has an
existing equity investment to purchase their IS-95 and CDMA 2000 infrastructure
products from the Purchaser if the Purchaser offers products competitive as to
quality and price with other products then available in the market.
<PAGE> 56
51
(c) The Purchaser agrees to actively promote and support
IS-95-based products, to the extent and in the manner it deems commercially
reasonable. The Purchaser represents to the Seller that it will exercise
commercially reasonable efforts to sell IS-95 equipment under the Transferred
Customer Contracts.
(d) The Purchaser and the Seller each agree to actively promote
the high data rate project currently under development by the Seller as each
deems commercially reasonable.
SECTION 5.16. Provision of Subscriber Units. In order for the
Purchaser to comply with its obligations to provide subscriber units under the
Transferred Customer Contracts with US West Wireless LLC and Mauritius Telecom
Limited, the Seller shall, if the Purchaser so requests, sell subscriber units
to the Purchaser in the quantities required by such Transferred Customer
Contracts and on the other terms set forth therein, [*].
SECTION 5.17. Joint Support of Third Generation Standard. The Seller
and the Purchaser hereby agree to jointly support approval by the International
Telecommunications Union (the "ITU") and other standards bodies, including the
U.S. Telecommunications Industry Association and the European Telecommunication
Standards Institute, of a single CDMA third generation standard that encompasses
three optional modes of operation: (i) direct sequence FDD, (2) multi-carrier
FDD and (3) TDD (the "SINGLE CDMA STANDARD"). Each mode supports operation with
both GSM MAP and ANSI-41 networks. The Seller and the Purchaser believe that
rapid adoption of the Single CDMA Standard is in the best interests of the
industry and allows each operator to select which mode of operation to deploy
based on marketplace needs. The Seller and the Purchaser shall commit to the ITU
and to other standards bodies to license their essential patents for the single
CDMA Standard or any of its modes on a fair and reasonable basis free from
unfair discrimination. Accordingly, both parties shall, on the Closing Date,
notify the ITU and other relevant standards bodies that any intellectual
property rights blocking currently in force will be immediately withdrawn.
SECTION 5.18. Further Action. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action, do
or cause to be done all things necessary, proper or advisable under applicable
Laws, and execute and deliver such documents and other papers, as may be
required to carry out the provisions of this Agreement and consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, delivering, or causing to be delivered, the certificates, opinions
and other documents to be delivered to the other party as a condition to such
other party's obligations under Article VII of this Agreement.
* Confidential Treatment Requested
<PAGE> 57
52
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.01. Offer of Employment. Section 6.01 of the Disclosure
Schedule sets forth a list of the Business Employees as of the date of this
Agreement. On or prior to the 30th calendar day after the date of this
Agreement, the Purchaser shall deliver to the Seller a list of Business
Employees to which it intends to extend an offer of employment (the "SELECTED
BUSINESS EMPLOYEES"), [*]. On the Closing Date, the Purchaser shall offer to
employ on an "at-will" basis and subject to the Purchaser's standard terms,
conditions and policies of employment, each of the Selected Business Employees
on the same basis (i.e., full- or part-time) as such Selected Business Employees
were employed by the Seller immediately prior to the Closing Date; provided,
however, that any Selected Business Employee who is on vacation at the Closing
Date shall be offered employment only if his return date is within 30 days of
the Closing Date; provided, further, however, that any Selected Business
Employee who is on short-term disability or on an approved leave of absence
shall be offered employment hereunder upon the employee obtaining a medical
release or other documentation reasonably satisfactory to the Purchaser which
evidences the employee's ability to perform the essential functions of his
regular work, with or without reasonable accommodation, and the employee returns
to active employment with the Purchaser (i) if on short-term disability or on an
approved leave of absence under the Family Medical Leave Act of 1993, as amended
("FMLA"), no later than the last day on which the employee may return to work
under the provisions of the applicable Seller short-term disability plan or
FMLA, or (ii) for all other approved leaves of absence, within 30 days of the
Closing Date. Those Selected Business Employees who accept such offers prior to
the Closing Date shall become employees of the Purchaser as of the Closing Date,
or, for individuals on leave, as of their return from leave as described in the
previous sentence (the "TRANSFERRED EMPLOYEES"). The Purchaser shall be
responsible for obtaining any necessary visas for Transferred Employees.
SECTION 6.02. Transferred Employee Liabilities. Except as otherwise
provided herein, the Purchaser shall assume all employer or employment related
obligations to the Transferred Employees arising after the Closing Date. The
Seller shall retain, and the Purchaser shall not assume, all obligations (i)
relating to any Business Employees who do not become Transferred Business
Employees and (ii) relating to any Business Employees arising on or prior to the
Closing Date.
SECTION 6.03. Participation in Certain Retirement Plans. All
Transferred Employees shall be eligible to participate in the Purchaser's CAP &
Savings Plan and the Purchaser's defined benefit pension plan as of the Closing
Date, or, for individuals on leave as of the Closing Date, as of the date such
individuals become Transferred Employees in
* Confidential Treatment Requested
<PAGE> 58
53
accordance with Section 6.01, and service credit under such plans shall be
provided pursuant to Section 6.06.
SECTION 6.04. Executive Plan. Prior to the Closing Date, the
Purchaser shall have established a separate non-qualified deferred compensation
plan (the "PURCHASER'S DCP") providing for the payment of deferred benefits to
the executives of the Business who are Transferred Employees who have previously
deferred income under the terms of the Seller's Voluntary Executive Retirement
Contribution Plan (the "SELLER'S DCP"). On the Closing Date, the Seller shall
transfer the benefit obligations to Transferred Employees under Seller's DCP to
Purchaser's DCP and shall transfer the assets in any trusts established to fund
the Seller's obligations under the Seller's DCP to trusts established for this
purpose by the Purchaser. The Purchaser's DCP shall contain substantially
identical provisions to the Seller's DCP, provided that (i) the Purchaser shall
not be obligated to provide identical investment opportunities to participants
and (ii) the Purchaser's DCP shall be maintained on a frozen basis after the
Closing Date (i.e., no further participant deferrals or employer matching
contributions shall be permitted). The Purchaser agrees that it shall honor the
terms of the distribution elections previously made by Transferred Employees who
are participants in the Seller's DCP. The Purchaser shall indemnify and hold the
Seller harmless in respect of all obligations to pay benefits under the Seller's
DCP that have been transferred to the Purchaser under the Purchaser's DCP.
SECTION 6.05. Welfare Benefit Plans. (a) Benefits related to any
Transferred Employee or an eligible dependent under any Seller-sponsored welfare
benefit plan in which the employee or eligible dependent participated prior to
the Closing Date shall cease as of the Closing Date; provided, however, that
liabilities relating to claims of Transferred Employees or eligible dependents
for medical benefits incurred for medical services rendered to, and purchases of
prescription drugs and other health care products made by, such persons while
actively employed by the Seller (or while an eligible dependent of such a
person) shall be retained by the Seller (including but not limited to the cost
of hospitalization and any related charges for any such person hospitalized
before the Closing Date and who remains continuously hospitalized after the
Closing Date, until such persons's date of discharge from the hospital). The
Purchaser agrees to recognize any deductibles and co-payments paid by
Transferred Employees and their eligible dependents under the Seller's welfare
benefit plans in the calendar year in which the Closing Date occurs toward any
applicable calendar year deductibles and co-payments under the Purchaser's
welfare benefit plans.
(b) All Transferred Employees and their eligible dependents who
are participating in the Seller's welfare benefit plans on the Closing Date
shall become participants in the Purchaser's welfare benefit plans on the
Closing Date. The Purchaser agrees to waive any pre-existing medical condition
restrictions and similar restrictions contained in the Purchaser's welfare
benefit plans. The Purchaser further agrees to permit all dependents of
Transferred Employees who were participating in any Seller-sponsored welfare
benefit plan on
<PAGE> 59
54
the Closing Date to participate in the Purchaser's welfare benefit plans on the
Closing Date, regardless of whether such dependents are currently eligible to
participate in the Purchaser's welfare benefit plans under their terms of
dependent eligibility. The eligibility of all other dependents of Transferred
Employees to participate in the Purchaser's welfare benefit plans will be
determined in accordance with the dependent eligibility provisions of such
plans. The Purchaser shall, as of the Closing Date, be solely responsible for
the cost of any and all benefits to which Transferred Employees and their
eligible dependents become entitled under the terms of the Purchaser's welfare
benefit plans, as in effect from time to time.
(c) The Seller agrees that it shall be and remain liable for
continuing group health benefits under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), for all Business Employees
(and their "qualified beneficiaries" as defined in COBRA) who do not become
Transferred Employees. The Purchaser shall assume all liability under COBRA in
respect of all Transferred Employees, including, without limitation, any COBRA
liability arising as a result of the termination of a Transferred Employee's
employment with the Seller on the Closing Date.
SECTION 6.06. Service Credit. Transferred Employees shall receive
credit for their service with the Seller or any of its Affiliates (including
service with any predecessor company) for all purposes under the Purchaser's
employee plans, programs and arrangements (other than for purposes of benefit
accrual under the Purchaser's defined benefit pension plans).
SECTION 6.07. Indemnity. Without limiting in any way the scope of
Article VIII or the applicability of such Article to employment-related and
benefit-related matters, the Seller shall indemnify and hold harmless the
Purchaser from any and all claims (including reasonable attorneys' fees and
expenses incurred in defending such claims) against the Purchaser by Transferred
Employees or other Business Employees (including former Business Employees) (i)
that arise from representations made by the Seller to such employees regarding
their future employment, (ii) that pertain to the payment of any bonus or other
incentive compensation accrued or earned by any Transferred Employee prior to
the Closing Date or (iii) that arise from the termination of employment (through
layoff or otherwise) of any Business Employee prior to the Closing Date. The
Seller shall further indemnify and hold harmless the Purchaser against any and
all claims against the Purchaser by any Selected Business Employee who does not
accept the Purchaser's offer of employment or who otherwise fails to become a
Transferred Employee.
SECTION 6.08. Employee Information. No later than 10 calendar days
after the Closing Date, the Seller shall furnish to the Purchaser the following
information with respect to each Transferred Employee, as applicable:
(a) social security number;
<PAGE> 60
55
(b) accrued and unused vacation as of the Closing Date;
(c) years and months of service as of the Closing Date; and
(d) base salary and bonus for the three calendar years immediately
preceding the Closing Date and current base salary.
SECTION 6.09. Certain Other Employee-Related Costs. Within five
Business Days after the Closing Date, the Seller shall provide the Purchaser
with a complete and accurate statement of any amounts expected to be payable by
the Purchaser following the Closing that relate to any service by any
Transferred Employee with the Seller through the Closing Date, including,
without limitation, any salary or wages, any accrued vacation, sick or personal
days or any bonuses, except to the extent that such amounts will be reflected as
Liabilities on the Closing Statement of Net Assets (the "EMPLOYEE AMOUNTS"). The
Seller shall retain liability for the Employee Amounts and shall pay an amount
of cash to the Purchaser equal to the Employee Amounts within ten Business Days
after the Closing Date.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.01. Conditions to Obligations of the Seller. The
obligations of the Seller to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Purchaser contained in this Agreement that are not qualified
as to materiality shall be true and correct in all material respects, and the
representations and warranties of the Purchaser contained in this Agreement that
are qualified as to materiality shall be true and correct, in each case of the
date of this Agreement and, except to the extent that such representations and
warranties speak specifically as of an earlier date, as of the Closing Date as
though made on and as of the Closing Date, and the Seller shall have received a
certificate from the Purchaser to such effect signed by a duly authorized
officer thereof;
(b) Covenants. The covenants and agreements contained in this
Agreement to be complied with by the Purchaser on or before the Closing shall
have been complied with in all material respects, and the Seller shall have
received a certificate from the Purchaser to such effect signed by a duly
authorized officer thereof;
<PAGE> 61
56
(c) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Assets contemplated by this
Agreement shall have expired or shall have been terminated;
(d) No Proceeding or Litigation. No Action shall have been
commenced by or before any Governmental Authority against either the Seller or
the Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated by this Agreement which is likely to render it
impossible or unlawful to consummate such transactions; provided, however, that
the provisions of this Section 7.01(d) shall not apply if the Seller has
directly or indirectly solicited or encouraged any such Action;
(e) Incumbency Certificate. The Seller shall have received a
certificate of the Secretary or an Assistant Secretary of the Purchaser
certifying the names and signatures of the officers of the Purchaser authorized
to sign this Agreement and the Ancillary Agreements to which it is a party and
the other documents to be delivered hereunder and thereunder;
(f) Legal Opinion. The Seller shall have received from the General
Counsel of the Purchaser and Shearman & Sterling legal opinions, addressed to
the Seller and dated the Closing Date, covering the matters set forth in Exhibit
7.01(f)(i) and Exhibit 7.01(f)(ii), respectively; and
(g) Ancillary Agreements. The Purchaser shall have executed and
delivered to the Seller each of the Ancillary Agreements to which it is a party
and all Ancillary Agreements shall be in force and effect (or, in the event all
Ancillary Agreements have not been executed and delivered, the Purchaser shall
have complied with its obligations under Section 5.14).
SECTION 7.02. Conditions to Obligations of the Purchaser. The
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Seller contained in this Agreement shall be true and correct,
in each case of the date of this Agreement and, except to the extent that such
representations and warranties speak specifically as of an earlier date, as of
the Closing Date as though made on and as of the Closing Date (in each case
determined without respect to any qualification as to "materiality," "Material
Adverse Effect" or similar qualification), in all such respects as would not,
individually or in the aggregate, have a Material Adverse Effect, and the
Purchaser shall have received a certificate from the Seller to such effect
signed by a duly authorized officer thereof;
<PAGE> 62
57
(b) Covenants. The covenants and agreements contained in this
Agreement to be complied with by the Seller on or before the Closing (other than
Section 5.01) shall have been complied with in all material respects, the
covenants and agreements contained in Section 5.01 shall have been complied with
in all respects as would not, individually or in the aggregate, have a Material
Adverse Effect, and the Purchaser shall have received a certificate from the
Purchaser to such effect signed by a duly authorized officer thereof;
(c) HSR Act. Any waiting period (and any extension thereof) under
the HSR Act applicable to the purchase of the Assets contemplated hereby shall
have expired or shall have been terminated;
(d) No Proceeding or Litigation. No Action shall have been
commenced by or before any Governmental Authority against either the Seller or
the Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated hereby which is likely to render it impossible or
unlawful to consummate the transactions contemplated by this Agreement or which
could reasonably be expected to have a Material Adverse Effect; provided,
however, that the provisions of this Section 7.02(d) shall not apply if the
Purchaser has solicited or encouraged any such Action;
(e) Resolutions of the Seller. The Purchaser shall have received a
true and complete copy, certified by the Secretary or an Assistant Secretary of
the Seller, of the resolutions duly and validly adopted by the Board of
Directors of the Seller evidencing its authorization of the execution and
delivery of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby;
(f) Incumbency Certificate. The Purchaser shall have received a
certificate of the Secretary or an Assistant Secretary of the Seller certifying
the names and signatures of the officers of the Seller authorized to sign this
Agreement and the Ancillary Agreements and the other documents to be delivered
hereunder and thereunder;
(g) Legal Opinion. The Purchaser shall have received from Cooley
Godward LLP a legal opinion, addressed to the Purchaser and dated the Closing
Date, covering the matters set forth in Exhibit 7.02(g);
(h) Consents and Approvals. The Purchaser and the Seller shall
have received, each in form and substance reasonably satisfactory to the
Purchaser, all authorizations, consents, orders and approvals of all
Governmental Authorities and officials reasonably necessary for the consummation
of the transactions contemplated by
<PAGE> 63
58
this Agreement and the Ancillary Agreements, other than such authorizations,
consents, orders, approvals or consents the absence of which could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect (taking into account in any such determination any rights or
benefits conveyed on the Purchaser pursuant to Sections 5.04(c) and (d));
(i) Ancillary Agreements. The Seller shall have executed and
delivered to the Purchaser each of the Ancillary Agreements to which it is a
party and all Ancillary Agreements shall be in force and effect (or, in the
event all Ancillary Agreements have not been executed and delivered, the Seller
shall have complied with its obligations under Section 5.14);
(j) No Material Adverse Effect. No circumstance, change in, or
effect on the Acquired Business shall have occurred which has a Material Adverse
Effect as of the Closing Date; and
(k) Certificate of Non-Foreign Status. The Purchaser shall have
received a certificate from the Seller (which complies with Section 1445 of the
Code) of non-foreign status executed in accordance with the provisions of the
Foreign Investment in Real Property Tax Act.
<PAGE> 64
59
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Survival of Representations and Warranties. The
representations and warranties of the Seller contained in this Agreement shall
survive the Closing [*]. Neither the period of survival nor the liability of the
Seller with respect to the Seller's representations and warranties shall be
reduced by any investigation made at any time by or on behalf of the Purchaser.
If written notice of a claim has been given prior to the expiration of the
applicable representations and warranties, then the relevant representations and
warranties shall survive as to such claim until the claim has been finally
resolved.
SECTION 8.02. Indemnification by the Seller. (a) Following the
Closing, the Purchaser and its Affiliates, officers, directors, employees,
agents, successors and assigns shall be indemnified and held harmless by the
Seller for any and all Liabilities, losses, damages, diminution in value,
claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, attorneys' and consultants' fees and expenses)
actually suffered or incurred by them (including, without limitation, any Action
brought or otherwise initiated by any of them) (hereinafter a "LOSS"), arising
out of or resulting from:
(i) the breach of any representation or warranty made by the
Seller contained in this Agreement (provided that solely for purposes of
this Article VIII, each such representation and warranty shall be read as
if all qualifications as to materiality, "Material Adverse Effect" and
similar qualifications were deleted therefrom); or
(ii) the breach of any covenant or agreement by the Seller
contained in this Agreement; or
* Confidential Treatment Requested
<PAGE> 65
60
(iii) Liabilities of the Seller, whether arising before or after the
Closing Date, that are not expressly assumed by the Purchaser pursuant to
this Agreement, including, without limitation: (A) Liabilities arising
from or related to any failure to comply with laws relating to bulk
transfers or bulk sales with respect to the transactions contemplated by
this Agreement (notwithstanding the waiver contained in Section 5.10); and
(B) the Excluded Liabilities.
To the extent that the Seller's undertakings set forth in this
Section 8.02 may be unenforceable, the Seller shall contribute the maximum
amount that it is permitted to contribute under applicable Law to the payment
and satisfaction of all Losses incurred by the Purchaser.
(b) Notwithstanding anything to the contrary contained in this
Agreement, (i) the maximum aggregate amount of indemnifiable Losses which may be
recovered from the Seller arising out of or resulting from the causes enumerated
in Section 8.02(a)(i), or in Section 8.02(a)(ii) with respect to covenants and
agreements which by their terms are required to be complied with by the Seller
on or prior to the Closing Date, shall be an amount equal to [*] and (ii) the
Seller shall not be liable to indemnify the Purchaser for any indemnifiable
Losses otherwise payable thereunder until such time as all such indemnifiable
Losses shall aggregate to more than [*], after which time the Seller shall be
liable to indemnify the Purchaser only for the aggregate amount of all Losses in
excess of [*].
SECTION 8.03. Indemnification by the Purchaser. (a) Following the
Closing, the Seller and its Affiliates, officers, directors, employees, agents,
successors and assigns shall be indemnified and held harmless by the Purchaser
for any and all Losses, arising out of or resulting from:
(i) the breach of any representation or warranty made by the
Purchaser contained in this Agreement (provided that solely for purposes
of this Article VIII, each such representation and warranty shall be read
as if all qualifications as to materiality and similar qualifications were
deleted therefrom); or
(ii) the breach of any covenant or agreement by the Purchaser
contained in this Agreement; or
(iii) the Assumed Liabilities.
To the extent that the Purchaser's undertakings set forth in this
Section 8.03 may be unenforceable, the Purchaser shall contribute the maximum
amount that it is permitted to contribute under applicable Law to the payment
and satisfaction of all Losses incurred by the Seller.
* Confidential Treatment Requested
<PAGE> 66
61
(b) Notwithstanding anything to the contrary contained in this
Agreement, (i) the maximum aggregate amount of indemnifiable Losses which may be
recovered from the Purchaser arising out of or resulting from the causes
enumerated in Section 8.03(a)(i), or in Section 8.03(a)(ii) with respect to
covenants and agreements which by their terms are required to be complied with
by the Purchaser on or prior to the Closing Date, shall be an amount equal to
[*] and (ii) the Purchaser shall not be liable to indemnify the Seller for any
indemnifiable Losses otherwise payable thereunder until such time as all such
indemnifiable Losses shall aggregate to more than [*], after which time the
Purchaser shall be liable to indemnify the Seller only for the aggregate amount
of all Losses in excess of $[*].
SECTION 8.04. Indemnification Procedures. An indemnified party shall
give the indemnifying party notice of any matter which an indemnified party has
determined has given or could give rise to a right of indemnification under this
Agreement, within 60 days of such determination, stating the amount of the Loss,
if known, and method of computation thereof, and containing a reference to the
provisions of this Agreement in respect of which such right of indemnification
is claimed or arises. The obligations and Liabilities of the indemnifying party
under this Article VIII with respect to Losses arising from claims of any third
party which are subject to the indemnification provided for in this Article VIII
("THIRD PARTY CLAIMS") shall be governed by and contingent upon the following
additional terms and conditions: if an indemnified party shall receive notice of
any Third Party Claim, the indemnified party shall give the indemnifying party
notice of such Third Party Claim within 30 days of the receipt by the
indemnified party of such notice; provided, however, that the failure to provide
such notice shall not release the indemnifying party from any of its obligations
under this Article VIII except to the extent the indemnifying party is
materially prejudiced by such failure and shall not relieve the indemnifying
party from any other obligation or liability that it may have to any indemnified
party otherwise than under this Article VIII. If the indemnifying party
acknowledges in writing its obligation to indemnify the indemnified party
hereunder against any Losses (subject to the limitations in Section 8.02(b) or
8.03(b), as appropriate) that may result from such Third Party Claim, then the
indemnifying party shall be entitled to assume and control the defense of such
Third Party Claim at its expense and through counsel of its choice if it gives
notice of its intention to do so to the indemnified party within five days of
the receipt of such notice from the indemnified party; provided, however, that
if there exists or is reasonably likely to exist a conflict of interest that
would make it inappropriate in the judgment of the indemnified party for the
same counsel to represent both the indemnified party and the indemnifying party,
then the indemnified party shall be entitled to retain its own counsel, in each
jurisdiction for which the indemnified party determines counsel is required, at
the expense of the indemnifying party. In the event the indemnifying party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the indemnified party shall cooperate with the
indemnifying party in such defense and make available to the indemnifying party,
at the indemnifying party's expense, all witnesses, pertinent records, materials
and information in the indemnified party's possession or
* Confidential Treatment Requested
<PAGE> 67
62
under the indemnified party's control relating thereto as is reasonably required
by the indemnifying party. Similarly, in the event the indemnified party is,
directly or indirectly, conducting the defense against any such Third Party
Claim, the indemnifying party shall cooperate with the indemnified party in such
defense and make available to the indemnified party, at the indemnifying party's
expense, all such witnesses, records, materials and information in the
indemnifying party's possession or under the indemnifying party's control
relating thereto as is reasonably required by the indemnified party. No such
Third Party Claim may be settled by the indemnifying party without the written
consent of the indemnified party, unless such settlement only requires payment
of money damages which will be indemnified.
SECTION 8.05. Tax Matters. Anything in this Article VIII (except for
the specific reference to Tax matters in Section 8.01) to the contrary
notwithstanding, the rights and obligations of the parties with respect to
indemnification for any and all Tax matters shall be governed by Section 5.11.
ARTICLE IX
TERMINATION AND WAIVER
SECTION 9.01. Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by the Purchaser if, between the date hereof and the time
scheduled for the Closing: (i) an event or condition occurs that has resulted in
or that could reasonably be expected to result in a Material Adverse Effect; or
(ii) the Seller makes a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against the Seller seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts under
any Law relating to bankruptcy, insolvency or reorganization; or
(b) by either the Seller or the Purchaser if the Closing shall not
have occurred by July 31, 1999; provided, however, that the right to terminate
this Agreement under this Section 9.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement shall have been the
cause of, or shall have resulted in, the failure of the Closing to occur on or
prior to such date; or
(c) by either the Purchaser or the Seller in the event that any
Governmental Authority shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this
<PAGE> 68
63
Agreement and such order, decree, ruling or other action shall have become final
and nonappealable; or
(d) by the mutual written consent of the Seller and the Purchaser.
SECTION 9.02. Effect of Termination. In the event of termination of
this Agreement as provided in Section 9.01, this Agreement shall forthwith
become void and there shall be no liability on the part of either party hereto
except (a) as set forth in Section 5.03 and Article X and (b) that nothing
herein shall relieve either party from liability for any breach of this
Agreement.
SECTION 9.03. Waiver. Either party to this Agreement may (a) extend
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.
SECTION 10.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by telecopy or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 10.02):
(a) if to the Seller:
<PAGE> 69
64
QUALCOMM Incorporated
6455 Lusk Boulevard
San Diego, California 92121
Telecopy: (619) 658-2500
Attention: General Counsel
with a copy to:
Cooley Godward LLP
4365 Executive Drive
Suite 1100
San Diego, CA 92121-2128
Telecopy: (619) 453-3555
Attention: Frederick T. Muto
<PAGE> 70
65
(b) if to the Purchaser:
Telefonaktiebolaget LM Ericsson
Telefonvagen 30
S-126 25 Stockholm
Sweden
Telecopy: (46-8) 719-9527
Attention: General Counsel
with copies to:
Ericsson Inc.
740 East Campbell Road
Richardson, Texas 75081
Telecopy: (972) 583-1839
Attention: General Counsel
and
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telecopy: (212) 848-7179
Attention: Spencer D. Klein
SECTION 10.03. Public Announcements. No party to this Agreement
shall make, or cause to be made, any press release or public announcement in
respect of this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without the prior written consent of the other
party (which consent shall not be unreasonably withheld), and the parties shall
cooperate as to the timing and contents of any such press release or public
announcement. Notwithstanding the foregoing, following the announcement of the
execution of this Agreement, either party may disclose the contents of Section
5.17.
SECTION 10.04. Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 10.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not
<PAGE> 71
66
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
SECTION 10.06. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
between the Seller and the Purchaser with respect to the subject matter hereof,
including, without limitation, the Confidentiality Agreement.
SECTION 10.07. Assignment. This Agreement may not be assigned by
operation of Law or otherwise without the express written consent of the Seller
and the Purchaser (which consent may be granted or withheld in the sole
discretion of the Seller and the Purchaser); provided, however, that (i) the
Purchaser may assign this Agreement in whole or in part, or any of its rights
hereunder, to an Affiliate of the Purchaser, without the consent of the Seller
(provided that the Purchaser shall nevertheless remain obligated to perform its
obligations hereunder following any such assignment), and (ii) the Seller may
assign this Agreement, in whole and not in part, to a Person who acquires all or
substantially all of the capital stock or assets and liabilities of the Seller,
without the consent of the Purchaser.
SECTION 10.08. No Third Party Beneficiaries. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person, including, without limitation, any union or
any employee or former employee of the Seller, any legal or equitable right,
benefit or remedy of any nature whatsoever, including, without limitation, any
rights of employment for any specified period, under or by reason of this
Agreement.
SECTION 10.09. Amendment. This Agreement may not be amended or
modified except (a) by an instrument in writing signed by, or on behalf of, the
Seller and the Purchaser or (b) by a waiver in accordance with Section 9.03.
SECTION 10.10. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York, applicable
to contracts executed in and to be performed entirely within that state. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any New York state or federal court sitting in the City
of New York.
<PAGE> 72
67
SECTION 10.11. Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 10.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at Law or equity, without the necessity of demonstrating the inadequacy
of money damages.
<PAGE> 73
68
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
QUALCOMM INCORPORATED
/s/ illegible
By_______________________________________
Name:
Title:
TELEFONAKTIEBOLAGET LM ERICSSON (publ)
/s/ illegible
By_______________________________________
Name:
Title:
/s/ illegible
By_______________________________________
Name:
Title:
<PAGE> 74
EXHIBIT A
FORMS OF THE LICENSE AGREEMENTS
<PAGE> 75
EXHIBIT B
PRINCIPAL TERMS OF THE ASICS SUPPLY AGREEMENTS
CONTRACT: The parties shall enter into an Infrastructure ASIC Supply
Agreement and a Subscriber Unit ASIC Supply Agreement
containing normal and customary terms and conditions to be
mutually agreed to and not otherwise inconsistent with this
Term Sheet (the "Agreements"). The Purchaser shall have the
right to purchase infrastructure ASICs and subscriber unit
ASICs under the Agreements, which shall be used in CDMA
infrastructure equipment and CDMA subscriber unit equipment,
respectively, manufactured and sold by Ericsson.
PRICING: [*]
TERM: Five years.
PAYMENT TERMS: Cash, net 30 days from date of invoice.
CURRENCY: United States Dollars
* Confidential Treatment Requested
<PAGE> 76
EXHIBIT C
FORM OF ASSUMPTION AGREEMENTS
ASSUMPTION AGREEMENT, dated as of [________], 1999 (this "ASSUMPTION
AGREEMENT"), between QUALCOMM INCORPORATED, a Delaware corporation (the
"SELLER"), and [__], a [_____] corporation (the "PURCHASER").
W I T N E S S E T H:
WHEREAS, the Seller and [the Purchaser] [Telefonaktiebolaget LM
Ericsson] have entered into an Asset Purchase Agreement, dated as of March 24,
1999 (the "ASSET PURCHASE AGREEMENT"; unless otherwise defined herein,
capitalized terms shall be used herein as defined in the Asset Purchase
Agreement);
WHEREAS, pursuant to the Asset Purchase Agreement, the Purchaser has
agreed to assume certain liabilities and obligations of the Seller with respect
to the Business; and
WHEREAS, the execution and delivery of this Assumption Agreement by
the Purchaser is a condition to the obligations of the Seller to consummate the
transactions contemplated by the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants set forth herein and in the Asset Purchase Agreement,
and intending to be legally bound hereby, the Purchaser and the Seller hereby
agree as follows:
1. Assumption of Liabilities. Subject to Section 2 hereof, the
Purchaser hereby assumes and agrees to pay, perform and discharge when due
only the following and no other Liabilities of the Seller as at the date
hereof, other than the Excluded Liabilities (the "ASSUMED LIABILITIES"):
(i) Liabilities primarily arising out of or relating to the
Acquired Business to the extent such Liabilities are reflected on
the Closing Statement of Net Assets, including all accrued
liabilities (other than liabilities for accrued salary and benefits
and accrued vacation) to the extent reflected or reserved for on the
Closing Statement of Net Assets;
(ii) all Liabilities arising out of the Transferred Customer
Contracts, and other contracts, agreements, leases, commitments,
sales and purchase
<PAGE> 77
orders, bids and offers that are included in the Assets (whether
such obligations arise before or after the date hereof);
(iii) those employment-related Liabilities expressly assumed
by the Purchaser pursuant to Article VI of the Asset Purchase
Agreement; and
(iv) all Liabilities for accounts payable for goods and
services received or rendered following the date hereof.
2. Excluded Liabilities. Notwithstanding the provisions of
Section 1 hereof, the Seller shall retain, and shall be responsible for
paying, performing and discharging when due, and the Purchaser shall not
assume or have any responsibility for, all Liabilities of the Seller as of
the date hereof other than the Assumed Liabilities (the "EXCLUDED
LIABILITIES"), including, without limitation:
(i) all Taxes now or hereafter owed by the Seller or any
Affiliate of the Seller, or attributable to the Assets or the
Business, relating to any period, or any portion of any period,
ending on or prior to the date hereof (as provided in Section 7.01
of the Asset Purchase Agreement);
(ii) all Liabilities to the extent relating to or arising out
of the Excluded Assets;
(iii) those employment-related Liabilities expressly retained
by the Seller pursuant to Article VI of the Asset Purchase
Agreement; and
(iv) all Liabilities for accounts payable for goods and
services received or rendered on or prior to the date hereof.
3. No Third Party Beneficiaries. This Assumption Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and
their permitted assigns and nothing herein, express or implied, is
intended to or shall confer upon any other Person any legal or equitable
right, benefit or remedy of any nature whatsoever, under or by reason of
this Assumption Agreement.
4. Assignment. This Assumption Agreement may not be assigned by
operation of Law or otherwise without the express written consent of the
Seller and the Purchaser (which consent may be granted or withheld in the
sole discretion of the Seller or the Purchaser).
5. Counterparts. This Assumption Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which
<PAGE> 78
3
when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
6. Governing Law. This Assumption Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York,
applicable to contracts executed in and to be performed entirely within
that state.
<PAGE> 79
4
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Assumption Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
QUALCOMM INCORPORATED
By_______________________________________
Name:
Title:
[ ]
By_______________________________________
Name:
Title:
<PAGE> 80
EXHIBIT D
FORM OF BILLS OF SALE AND ASSIGNMENT
BILL OF SALE AND ASSIGNMENT, dated as of [_______], 1999 (this "BILL
OF SALE AND ASSIGNMENT"), from [QUALCOMM INCORPORATED, a Delaware corporation]
(the "SELLER"), to [ ], a [__________] corporation (the "PURCHASER").
W I T N E S S E T H:
WHEREAS, the Seller and [the Purchaser] [Telefonaktiebolaget LM
Ericsson] have entered into an Asset Purchase Agreement, dated as of March 24,
1999 (the "ASSET PURCHASE AGREEMENT"; unless otherwise defined herein,
capitalized terms shall be used herein as defined in the Asset Purchase
Agreement); and
WHEREAS, the execution and delivery of this Bill of Sale and
Assignment by the Seller is a condition to the obligations of the Purchaser to
consummate the transactions contemplated by the Asset Purchase Agreement.
NOW, THEREFORE, for good and valuable consideration to the Seller,
the receipt and sufficiency of which is hereby acknowledged, and pursuant to the
Asset Purchase Agreement, the Seller, intending to be legally bound hereby, does
hereby agree as follows:
1. Sale and Assignment of Assets and Properties. (a) The Seller
does hereby sell, assign, transfer, convey, grant, bargain, set over,
release, deliver, vest and confirm unto the Purchaser, its successors and
assigns, forever, the entire right, title and interest of the Seller in
and to all the assets, properties, goodwill and business of every kind and
nature and wherever located, whether tangible or intangible, real,
personal or mixed, directly or indirectly owned by the Seller or to which
it is directly or indirectly entitled and, in any case, primarily used or
intended to be used in the Business as conducted by the Seller as of the
date hereof, other than the Excluded Assets (as defined below), including,
without limitation, the following property and assets (the "ASSETS"):
[TO BE CONFORMED TO SECTION 2.01(a) OF ASSET PURCHASE AGREEMENT]
The Seller warrants that upon delivery to the Purchaser of the Assets
sold, assigned, transferred, conveyed, granted, bargained, set over,
released, delivered, vested and confirmed from the Seller to the Purchaser
pursuant to this Bill of Sale and Assignment, the Purchaser will own, with
good and marketable title, or lease, under valid and
<PAGE> 81
2
subsisting leasehold interests, the Assets, free and clear of all
Encumbrances, except as expressly contemplated by the Asset Purchase
Agreement, including, without limitation, the Exhibits and the Disclosure
Schedule that are a part thereof.
2. Assets and Properties Not Sold and Assigned. The Assets shall
exclude the following assets owned by the Seller (the "EXCLUDED ASSETS"):
[TO BE CONFORMED TO SECTION 2.01(b) OF ASSET PURCHASE AGREEMENT]
3. Power of Attorney. The Seller hereby constitutes and appoints
the Purchaser, its successors and assigns, the true and lawful attorney
and attorneys of the Seller, with full power of substitution, in the name
of the Purchaser or in the name and stead of the Seller, but on behalf of,
for the benefit and at the expense of the Purchaser, its successors and
assigns:
(i) to collect, demand and receive any and all Assets hereby
sold and assigned to the Purchaser or intended so to be and to give
receipts and releases for and in respect of the same;
(ii) to institute and prosecute any and all actions, suits or
proceedings, at law, in equity or otherwise, which the Purchaser may
deem proper in order to collect, assert or enforce any claim, right
or title of any kind in or to the Assets hereby sold and assigned to
the Purchaser or intended so to be, to defend or compromise any and
all actions, suits or proceedings in respect of any of the Assets,
and to do all such acts and things in relation thereto as the
Purchaser shall deem advisable;
(iii) to take any and all other reasonable action designed to
vest more fully in the Purchaser the Assets hereby sold and assigned
to the Purchaser or intended so to be and in order to provide for
the Purchaser the benefit, use, enjoyment and possession of such
Assets; and
(iv) to do all reasonable acts and things in relation to the
Assets hereby sold and assigned.
The Seller acknowledges that the foregoing powers are coupled with an
interest and shall be irrevocable by it or upon its subsequent dissolution
or in any manner or for any reason. The Purchaser shall be entitled to
retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest with respect thereto.
The Seller shall from time to time pay to the Purchaser, when received,
any amounts which shall be received directly or indirectly by the Seller
<PAGE> 82
3
(including amounts received as interest) in respect of any Assets sold and
assigned to the Purchaser pursuant hereto.
4. Obligations and Liabilities Not Assumed. Nothing expressed or
implied in this Bill of Sale and Assignment shall be deemed to be an
assumption by the Purchaser of any Liabilities of the Seller. The
Purchaser does not by this Bill of Sale and Assignment assume or agree to
pay, perform or discharge any Liabilities of the Seller of any nature,
kind or description whatsoever. The terms and provisions of the assumption
of Liabilities by the Purchaser are set forth in the Assumption Agreement
dated as of the date hereof between the Purchaser and the Seller.
5. No Third Party Beneficiaries. This Bill of Sale and Assignment
shall be binding upon and inure solely to the benefit of the parties
hereto and their permitted assigns and nothing herein, express or implied,
is intended to or shall confer upon any other Person any legal or
equitable right, benefit or remedy of any nature whatsoever, under or by
reason of this Bill of Sale and Assignment.
6. Assignment. This Bill of Sale and Assignment may not be
assigned by operation of Law or otherwise without the express written
consent of the Seller and the Purchaser (which consent may be granted or
withheld in the sole discretion of the Seller or the Purchaser); provided,
however, that the Purchaser may assign this Bill of Sale and Assignment to
an Affiliate of the Purchaser without the consent of the Seller.
7. Governing Law. This Bill of Sale and Assignment shall be
governed by, and construed in accordance with, the laws of the State of
New York.
<PAGE> 83
4
IN WITNESS WHEREOF, the Seller has caused this Bill of Sale and
Assignment to be executed as of the date first written above by its officer
thereunto duly authorized.
[QUALCOMM INCORPORATED]
By_______________________________________
Name:
Title:
[NEW YORK] )
) ss.:
COUNTY OF [NEW YORK] )
On that __________ day of __________ 1999, before me personally came
[name of executing officer] to me known, who, being by me duly sworn, did depose
and say he resides at [address of executing officer]; and that he is [title of
executing officer] of [QUALCOMM Incorporated, a Delaware corporation] and the
corporation described in and which executed the foregoing instrument, and that
he had the authority to sign his name thereto on behalf of said corporation.
---------------------------------------------
Notary Public
[Notarial Seal]
<PAGE> 84
EXHIBIT E
PRINCIPAL TERMS OF THE INFRASTRUCTURE SUPPLY AGREEMENT
CONTRACT: The parties shall enter into an infrastructure equipment and
services supply agreement containing normal and customary
terms and conditions to be mutually agreed to and not
otherwise inconsistent with this Term Sheet (the
"Agreement").
EQUIPMENT: Equipment that may be procured under the Agreement includes
any cdmaOne or CDMA 2000 infrastructure equipment
manufactured and sold by Ericsson at such time including:
(i) cdmaOne and CDMA 2000 base station transceiver
subsystems ("BTSs"), (ii) base station controllers ("BSCs"),
(iii) mobile switches ("MSCs") and (iv) subassemblies and
field replaceable units for BTSs, BSCs and MSCs.
SERVICES: Services that may be procured under the Agreement include
(i) normal and customary design, engineering, configuration,
installation, testing and optimization services relating to
the deployment of wireless terrestrial telecommunications
systems, (ii) warranty support for equipment and software
for such systems, (iii) "hotline" support for equipment and
software, (iv) software maintenance support under software
maintenance agreements, and (v) in general, such other
services as QUALCOMM is obligated to perform with respect to
"Category II" customers.
AVAILABILITY OF
EQUIPMENT AND [*]
SERVICES:
* Confidential Treatment Requested
<PAGE> 85
2
[*]
PRICING: [*]
* Confidential Treatment Requested
<PAGE> 86
3
TERM: The term shall extend as long as obligations exist on the
part of QUALCOMM to supply such equipment and to perform
such services.
PAYMENT TERMS: Cash, net 30 days from date of invoice.
CURRENCY: United States Dollars.
WARRANTY: One year for workmanship (but not for design).
<PAGE> 87
EXHIBIT F
PRINCIPAL TERMS OF THE INTERIM SERVICES AGREEMENT
TERM: QUALCOMM shall provide Ericsson with the Services (as
defined below) for a period of between six (6) and twelve
(12) months (depending on the nature of the Service, which
time frame for any given Service shall be specified in
greater detail in the subject agreement), or for that longer
period of time as is mutually agreed to by the parties or
that shorter period of time as is directed by Ericsson for
any particular Service (the "Term").
SERVICES: The type and scope of such services which QUALCOMM shall
make available to Ericsson shall consist of those services
which QUALCOMM currently provides in support of the Acquired
Business (except to the extent providing such services
compromises or could reasonably be expected to compromise
QUALCOMM's confidential information), including the
following services and technical support (collectively, the
"Services"):
Manufacturing: QUALCOMM may provide services relating to the
manufacture and assembly of infrastructure equipment.
MIS Services: QUALCOMM may provide management information
services to Ericsson related to the Acquired Business,
including coordination of procurement of hardware and
software and software development and sales and
manufacturing.
Accounting Services: QUALCOMM may provide bookkeeping,
accounting services, internal audit and financial analytical
support services, each as related to the Acquired Business.
Human Resources and Payroll Services: QUALCOMM may provide
services related to human resources as well as
administration of employee payroll matters and maintenance
of general employee insurance and benefit obligations and
advice on employee relations and similar issues, each as
related to the Acquired Business.
Facilities Services: QUALCOMM may provide services related
to facilities to be leased by Ericsson from QUALCOMM such as
security, mail services, etc.
<PAGE> 88
2
Engineering Services: QUALCOMM may provide engineering and
technical services (for example, RF testing services).
Upon the earlier to occur of May 15, 1999 and the closing of
the transactions contemplated by the Asset Purchase
Agreement, Ericsson shall have designated to QUALCOMM the
specific type and scope of the Services requested by
Ericsson.
PERFORMANCE OF
SERVICES: QUALCOMM shall provide the Services on an ongoing basis
during the Term.
CHARGE FOR
SERVICES: [*]
OTHER TERMS: The Interim Services Agreement shall contain other customary
terms and conditions.
* Confidential Treatment Requested
<PAGE> 89
EXHIBIT G
PRINCIPAL TERMS OF THE LEASE AGREEMENTS
Leased Facilities: Ericsson agrees to lease or sublease, as the case may be,
certain facilities "as-is" from QUALCOMM as follows
(collectively, the "Leases") for use by Ericsson in
continuing the Acquired Business:
[*]
[*]
[*]
* Confidential Treatment Requested
<PAGE> 90
2
[*]
SPACE
DETERMINATION: The foregoing list of properties represents the
parties' current expectations and may change to the
extent set forth in the following sentence based on
the personnel plan finally developed by Ericsson. Upon
the parties' mutual agreement, this list may be
adjusted to exclude Building CC.
LEASE TERM: Other than for the six above-referenced
foreign office leases ("Offshore Leases"), each of the
foregoing facilities leases or subleases shall have an
initial term of [*] (unless the master lease has a
shorter term, in which case the term shall be
concurrent with the master lease), commencing on
consummation of the sale of the Acquired Business;
provided, however, that in the event the sale
transaction does not close, QUALCOMM and Ericsson
shall be under no obligation to lease the facilities
or enter into subleases. As used herein, the term
"Facilities Leases" shall refer to the
above-referenced domestic leases located in Boulder
and San Diego.
* Confidential Treatment Requested
<PAGE> 91
3
OFFSHORE LEASES: QUALCOMM shall sublease the Offshore Leases to
Ericsson. Each sublease shall contain customary terms
and conditions consistent with the sublease of
commercial property.
[*] [*]
LEASE RATE: [*]
DEFAULTS; REMEDIES: Each Lease shall contain customary default
provisions, including without limitation, failure to
pay rent, failure to perform the terms of the Leases,
bankruptcy of Ericsson. In addition, each Lease shall
contain customary remedies for defaults, including the
right to terminate Ericsson's possession of the leased
premises and the right to seek damages.
ASSIGNMENT: None of the Leases shall be assigned by Ericsson
(except to Ericsson's subsidiaries or affiliates as
long as Ericsson agrees to remain primarily liable for
the Lease payments) without the prior written consent
of QUALCOMM, which consent shall not be unreasonably
withheld.
SUBLEASING: None of the Leases for facilities located in
San Diego shall be subleased by Ericsson (except to
Ericsson's subsidiaries or affiliates as long as
Ericsson agrees to remain primarily liable for the
Lease payments) during the first three years of the
initial lease term, without the prior written consent
of QUALCOMM, which consent shall not be unreasonably
withheld. The Leases for facilities located outside
San Diego can be subleased by
* Confidential Treatment Requested
<PAGE> 92
4
Ericsson without obtaining the consent of QUALCOMM.
OTHER TERMS: Each Lease shall contain a requirement that E maintain
adequate insurance and other customary terms and
conditions consistent with the lease of commercial
property.
<PAGE> 93
EXHIBIT H
PRINCIPAL TERMS OF THE VENDOR FINANCING AGREEMENT
ITEMS SUBJECT TO
FINANCING: cdmaOne basestation equipment, CDMA 2000 basestation
equipment and related infrastructure equipment (the
"Equipment"), together with associated services
("Services"), in each instance (i) supplied or
provided by Ericsson to the customers specified below,
(ii) as to whom Ericsson has assumed the contract
obligation as prime contractor, and (iii) as to which
Ericsson invoices the subject customer(s) for
Ericsson's account. With respect to the financing of
Equipment and Services for projects as to which there
are no current procurement arrangements, the relative
proportion of Equipment and Services to be financed
shall be substantially the same as the relative
proportion of Equipment and Services financed under
the subject current procurement arrangements.
STRUCTURE OF FINANCING
PROVIDED: As to those financing facilities pursuant to which
QUALCOMM and Ericsson are both providing financing,
the structure shall be mutually agreed to by QUALCOMM
and Ericsson on a case by case basis (for example, (i)
as co-lenders under a credit facility; (ii) by means
of assignments of loans for cash under a credit
facility, and/or (iii) by means of sales of
participation interests for cash under a credit
facility). Related intercreditor arrangements and
collateral sharing arrangements shall be mutually
agreed to on a case by case basis as to such
facilities. As to those financing facilities pursuant
to which only QUALCOMM is providing financing [*],
QUALCOMM can structure the financing in QUALCOMM's
reasonable discretion.
ECONOMIC TERMS AND
CONDITIONS: As to those financing facilities pursuant to which
QUALCOMM and Ericsson are both providing financing,
the economic terms and conditions of such financing
shall be mutually agreed to by QUALCOMM and Ericsson
on a case by case basis, but in any case on reasonable
terms and conditions for vendor financing transactions
of a similar nature. As to those financing facilities
pursuant to which only QUALCOMM is providing financing
[*], the economic terms and conditions of such
financing shall be in QUALCOMM's reasonable
discretion.
* Confidential Treatment Requested
<PAGE> 94
2
PARI PASSU;
RISK OF LOSS SHARING: For any particular project, the Equipment and Services
financing provided by QUALCOMM shall rank pari passu
with the corresponding financing, if any, provided by
Ericsson. The financing shall be structured such that
both QUALCOMM and Ericsson shall have immediate
concurrent risk of loss (in their relative
percentages), without either party having a "first
loss" exposure and without either party providing its
relative percentage by means of a back-up guaranty or
other "make-whole" arrangement.
QUALIFIED PROJECTS;
AMOUNT: [*]
* Confidential Treatment Requested
<PAGE> 95
3
[*]
* Confidential Treatment Requested
<PAGE> 1
EXHIBIT 10.1
*** Text Omitted and Filed Separately
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4), 200.83 and
240.24b-2
================================================================================
U.S. $200,000,000
Credit Agreement
(364-Day)
Dated as of March 4, 1999
Among
QUALCOMM Incorporated
as Borrower
and
The Initial Lenders Named Herein
as Initial Lenders
and
Bank of America NATIONAL TRUST & SAVINGS ASSOCIATION
as Administrative Agent and Syndication Agent
and
Citibank, N.A.
as Syndication Agent and Documentation Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C> <C>
SECTION 1.01. Certain Defined Terms......................................................1
SECTION 1.02. Computation of Time Periods...............................................18
SECTION 1.03. Accounting Terms..........................................................18
SECTION 1.04. Other Interpretive Provisions.............................................19
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances..............................................................19
SECTION 2.02. Making the Advances.......................................................20
SECTION 2.03. Reserved..................................................................21
SECTION 2.04. Fees......................................................................21
SECTION 2.05. Termination or Reduction of the Commitments...............................21
SECTION 2.06. Repayment.................................................................22
SECTION 2.07. Interest..................................................................22
SECTION 2.08. Interest Rate Determination...............................................22
SECTION 2.09. Optional Conversion of Advances...........................................23
SECTION 2.10. Optional Prepayments......................................................24
SECTION 2.11. Increased Costs...........................................................24
SECTION 2.12. Illegality................................................................25
SECTION 2.13. Payments and Computations.................................................25
SECTION 2.14. Taxes.....................................................................26
SECTION 2.15. Sharing of Payments, Etc..................................................28
SECTION 2.16. Use of Proceeds...........................................................29
SECTION 2.17. Extension of Termination Date.............................................29
SECTION 2.18. Substitution of Lenders...................................................29
SECTION 2.19. Evidence of Debt..........................................................30
SECTION 2.20. Additional Interest on Eurodollar Rate Advances...........................30
SECTION 2.21. Presentation of Claims; Certificates......................................31
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01.....................31
SECTION 3.02. Conditions Precedent to Each Borrowing....................................32
SECTION 3.03. Determinations Under Section 3.01.........................................33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower............................33
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants.....................................................38
SECTION 5.02. Negative Covenants........................................................41
SECTION 5.03. Financial Covenants.......................................................50
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default.........................................................51
ARTICLE VII
THE AGENTS
SECTION 7.01. Appointment and Authorization; "Agent"....................................54
SECTION 7.02. Delegation of Duties......................................................54
SECTION 7.03. Liability of the Agents...................................................54
SECTION 7.04. Reliance by the Agents....................................................55
SECTION 7.05. Notice of Default.........................................................56
SECTION 7.06. Lender Party Credit Decision..............................................56
SECTION 7.07. Indemnification of Agents.................................................56
SECTION 7.08. Agent in Individual Capacity..............................................57
SECTION 7.09. Successor Agent...........................................................57
SECTION 7.10. Co-Agents.................................................................58
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc...........................................................58
SECTION 8.02. Notices, Etc..............................................................58
SECTION 8.03. No Waiver; Remedies.......................................................59
SECTION 8.04. Costs and Expenses........................................................59
SECTION 8.05. Right of Set-off..........................................................61
SECTION 8.06. Binding Effect; Entire Agreement..........................................61
SECTION 8.07. Assignments and Participations............................................61
SECTION 8.08. Confidentiality...........................................................64
SECTION 8.09. Reserved..................................................................64
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8.10. Governing Law.............................................................64
SECTION 8.11. Execution in Counterparts.................................................64
SECTION 8.12. Jurisdiction, Etc.........................................................64
SECTION 8.13. Waiver of Jury Trial......................................................66
</TABLE>
iii
<PAGE> 5
Schedules
Schedule I - List of Commitments and Applicable Lending Offices
Schedule 4.01(b) - Restricted and Unrestricted Subsidiaries
Schedule 4.01(d) - Required Authorizations and Approvals
Schedule 4.01(s) - Intellectual Property
Schedule 4.01(t) - Real Property
Schedule 4.01(u) - Existing Debt
Schedule 4.01(v) - Existing Equity Capital Investments
Schedule 5.02(a) - Existing Liens
Exhibits
Exhibit A - Form of Promissory Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Opinion of Counsel for the Borrower
Exhibit E - Form of Compliance Certificate
iv
<PAGE> 6
CREDIT AGREEMENT
Dated as of March 4, 1999
QUALCOMM Incorporated, a Delaware corporation (the "Borrower"), the
banks, financial institutions and other institutional lenders (the "Initial
Lenders") listed on the signature pages hereof, Bank of America NATIONAL TRUST &
SAVINGS ASSOCIATION ("Bank of America"), as administrative agent (the
"Administrative Agent") and syndication agent, and Citibank, N.A. ("Citibank"),
as documentation agent (the "Documentation Agent") and syndication agent
(together with Bank of America, the "Syndication Agents"), for the Lender
Parties (as hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms.
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Administrative Agent" has the meaning specified in the recitals
of parties to this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at Bank of
America National Trust and Savings Association with its office at 1850
Gateway Blvd. Concord, California 94520, ABA No. 1210-0035-8, Attention:
Agency Administrative Services #5596 For Credit to Bancontrol A/C No.
12332-16560 QUALCOMM Incorporated.
"Advance" means a Revolving Credit Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person. For
purposes of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") of a
Person means the possession, direct or indirect, of the power to vote
10% or more of the Voting Stock of such Person or to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of Voting Stock, by contract or otherwise.
"Agent Related Persons" means each of Bank of America and
Citibank and any successor agent arising under Section 7.09 hereunder,
together with their respective Affiliates (including, in the case of
each of Bank of America and Citibank, the Lead Arrangers), and the
officers, directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
1
<PAGE> 7
"Agents" means each of the Administrative Agent, the
Documentation Agent and the Syndication Agents.
"Agreement" means this Credit Agreement.
"Applicable Lending Office" means, with respect to each Lender
Party, such Lender Party's Domestic Lending Office in the case of a Base
Rate Advance and such Lender Party's Eurodollar Lending Office in the
case of a Eurodollar Rate Advance.
"Applicable Margin" means, as of any date of determination, a
percentage per annum determined by reference to the Public Debt Rating
(which, on the date hereof, is BB-) and the Leverage Ratio in effect on
such date (which, until delivery of the first financial statements
pursuant to Section 5.01(i), shall be deemed to be less than 1.5:1.0) as
set forth below:
<TABLE>
<CAPTION>
=================================================================================================
Public Debt
Rating Applicable Margin for Applicable Margin for
S&P/Moody's Base Rate Advances Eurodollar Rate Advances
- -------------------------------------------------------------------------------------------------
Leverage Ratio Leverage Ratio
- -------------------------------------------------------------------------------------------------
Less Equal Equal Equal Less Equal Equal Equal
than to or to or to or than to or to or to or
1.5:1.0 greater greater greater 1.5:1.0 greater greater greater
than than than than than than
1.5:1.0 2.0:1.0 2.5:1.0 1.5:1.0 2.0:1.0 2.5:1.0
but but but but
less less less less
than than than than
2.0:1.0 2.5:1.0 2.0:1.0 2.5:1.0
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Level 1
- -------
At least BBB- [*] [*] [*] [*] [*] [*] [*] [*]
or Baa3
- -------------------------------------------------------------------------------------------------
Level 2
- -------
At least BB+ or
Ba1 but less [*] [*] [*] [*] [*] [*] [*] [*]
than Level 1
- -------------------------------------------------------------------------------------------------
Level 3
- -------
At least BB or
Ba2 but less [*] [*] [*] [*] [*] [*] [*] [*]
than Level 2
- -------------------------------------------------------------------------------------------------
Level 4
- -------
At least BB-
and Ba3 but [*] [*] [*] [*] [*] [*] [*] [*]
less than
Level 3
- -------------------------------------------------------------------------------------------------
Level 5
- -------
Less than Level [*] [*] [*] [*] [*] [*] [*] [*]
4 or no rating
=================================================================================================
</TABLE>
* Confidential Treatment Requested
2
<PAGE> 8
"Applicable Percentage" means, as of any date of determination,
a percentage per annum determined by reference to the Public Debt Rating
in effect on such date (which, at the date hereof, is BB-) as set forth
below:
<TABLE>
<CAPTION>
=====================================
Public Debt Rating Applicable
S&P/Moody's Percentage
-------------------------------------
<S> <C>
Level 1
At least BBB- or 0.150%
Baa3
-------------------------------------
Level 2
At least BB+ or
Ba1 but less than 0.175%
Level 1
-------------------------------------
Level 3
At least BB or
Ba2 but less than 0.200%
Level 2
-------------------------------------
Level 4
At least BB- and
Ba3 but less than 0.300%
Level 3
-------------------------------------
Level 5
Less than Level 4 0.375%
or no rating
=====================================
</TABLE>
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender Party and an Eligible Assignee, and accepted by
the Administrative Agent, in substantially the form of Exhibit C hereto.
"Attorney Costs" means and includes all reasonable fees and
services of any law firm or other external counsel.
"Bank of America" has the meaning specified in the recital of
parties to this Agreement.
"Base Rate" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by Bank
of America in San Francisco, California, as its "reference rate", or, if
announced, its "prime rate". The "reference rate" or, as applicable, the
prime rate, is a rate set by Bank of America based upon various factors
including Bank of America's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such
announced rate.) Any change in the reference rate or prime rate
announced by Bank of America shall take effect at the opening of
business on the day specified in the public announcement of such change.
"Base Rate Advance" means an Advance that bears interest as
provided in Section 2.07(a)(i).
"Borrower's Designated Account" has the meaning set forth in
Section 2.02(a).
"Borrowing" means a borrowing consisting of Revolving Credit
Advances of the same Type made on the same day by the Lenders.
3
<PAGE> 9
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City or San Francisco
and, if the applicable Business Day relates to any Eurodollar Rate
Advances, on which dealings are carried on in the London interbank
market.
"Capitalized Leases" has the meaning set forth in the definition
of "Debt".
"Cash Equivalents" means: (a) direct obligations of the
Government of the United States or any agency or instrumentality thereof
or obligations unconditionally guaranteed by the full faith and credit
of the Government of the United States, (b) money market funds with
assets in excess of $1,000,000,000, (c) certificates of deposit ("CDs"),
bankers acceptances, eurodollar CDs or Yankee CDs with (i) U.S.
commercial banks with capital of at least $200,000,000 and a senior
long-term dollar denominated debt rating of at least "A" by Moody's and
S&P or (ii) foreign commercial banks with assets of at least
$1,000,000,000 and a Thompson Bankwatch rating of at least TBW-1, (d)
eurodollar time deposits with the Nassau or Cayman offshore branches of
U.S. commercial banks with capital of at least $200,000,000 and a senior
long-term dollar denominated debt rating of at least "A" by Moody's and
S&P, (e) commercial paper rated at least "P2" by Moody's and "A2" by
S&P, (f) medium term, fixed or floating rate notes issued by U.S.
corporations in offerings of at least $100,000,000 with a maximum tenor
of five years and a senior long-term dollar denominated debt rating of
at least "A" by Moody's and S&P, and (g) repurchase agreements, provided
that (w) the market value of the collateral securing any such repurchase
agreement must be equal to at least 102% of the repurchase value plus
accrued interest, (x) the collateral (A) has a maturity of three years
or less, (B) is issued by the Government of the United States or any
agency or instrumentality thereof or U.S. commercial banks with capital
of at least $200,000,000 and a senior long-term dollar denominated debt
rating of at least "A" by Moody's and S&P and (C) has pricing
information that is available on the Bloomberg Reporting Service, (y)
must be executed with primary dealers listed by the New York Federal
Reserve Board and rated at least "P1" by Moody's and "A1" by S&P, and
(z) such collateral must be delivered to the Borrower's custodian.
"Co-Agents" means ABN AMRO Bank N.V., The Bank of New York,
Banque Nationale de Paris, and Fleet National Bank.
"Commitment" means a Revolving Credit Commitment.
"Compliance Certificate" means a certificate from a Responsible
Officer of the Borrower, in the form of Exhibit E hereto, setting forth
in reasonable detail the calculations necessary to demonstrate pro forma
or actual, as applicable, compliance with Section 5.03 and duly
certifying as to the truth and accuracy of such information.
"Confidential Information" means information that the Borrower
furnishes to any Agent or any Lender Party in a writing designated as
confidential, but does not include any such information that is or
becomes generally available to the public or that is or becomes
available to any Agent or such Lender from a source other than the
Borrower.
4
<PAGE> 10
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.08 or 2.09.
"Convertible Subordinated Debt Securities" means the 5 3/4%
Convertible Subordinated Debentures due February 24, 2012 issued by the
Borrower, as amended, supplemented or otherwise modified from time to
time, to the extent permitted in accordance with the Loan Documents.
"Convertible Subordinated Debt Securities Indenture" means the
Indenture dated as of February 25, 1997, between the Borrower and
Wilmington Trust Company, as Trustee for the holders of the Convertible
Subordinated Debt Securities issued pursuant thereto.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money (including, without
limitation, the Convertible Subordinated Debt Securities, indebtedness
incurred in connection with securitizations or sale and leaseback
transactions), (b) all payment obligations, contingent or otherwise, of
such Person for the deferred purchase price of property or services
(other than trade payables not overdue by more than 60 days incurred in
the ordinary course of such Person's business), (c) all payment
obligations, contingent or otherwise, of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all payment
obligations, contingent or otherwise, of such Person created or arising
under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
payment obligations, contingent or otherwise, of such Person as lessee
under leases that have been or should be, in accordance with GAAP,
recorded as capital leases ("Capitalized Leases"), (f) all payment
obligations, contingent or otherwise, of such Person in respect of
acceptances, letters of credit or similar extensions of credit, (g) all
payment obligations, contingent or otherwise, of such Person in respect
of Hedge Agreements, (h) all payment obligations, contingent or
otherwise, of such Person to purchase, redeem, retire, defease or
otherwise make any payment in respect of capital stock or other
ownership or profit interest in such Person or any other Person or any
warrants, rights or options to acquire such capital stock, valued, in
the case of redeemable preferred stock, at the greater of its voluntary
or involuntary liquidation preference plus accrued and unpaid dividends,
(i) all Debt of others referred to in clauses (a) through (h) above or
clause (j) below guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (1) to pay or purchase such Debt or to advance or
supply funds for the payment or purchase of such Debt (other than an
obligation to acquire, purchase or advance or supply funds for the
payment or purchase of such Debt which constitutes an indirect
obligation to provide vendor financing to a customer), (2) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make
payment of such Debt or to assure the holder of such Debt against loss,
(3) to supply funds to or in any other manner invest in the debtor in
connection with the Debt
5
<PAGE> 11
guaranteed, or in effect, guaranteed under such agreement or (4)
otherwise to assure a creditor against loss to the extent of the Debt
guaranteed, or in effect, guaranteed, and (j) all Debt referred to in
clauses (a) through (i) above secured by (or for which the holder of
such Debt has an existing right, contingent or otherwise, to be secured
by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Defaulting Lender" means at any time any Lender with respect to
which a Lender Default is in effect at such time.
"Documentation Agent" shall have the meaning specified in the
recital of parties to this Agreement.
"Domestic Lending Office" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Domestic
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party, or
such other office of such Lender Party as such Lender Party may from
time to time specify to the Borrower and the Administrative Agent.
"EBITDA" means, for any period, an amount equal to Consolidated
net income (or net loss) of the Borrower and its Restricted Subsidiaries
(determined without giving effect to extraordinary non-cash gains or
losses) plus the sum of (a) Interest Expense, (b) income tax expense,
(c) depreciation expense and (d) amortization expense, in each case of
the Borrower and its Restricted Subsidiaries to the extent deducted in
computing such net income or loss, and in each case determined in
accordance with GAAP for such period.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means with respect to the Revolving Credit
Facility, (i) a commercial bank organized under the laws of the United
States, or any state thereof, (ii) a commercial bank organized under the
laws of any other country which is a member of the Organization for
Economic Cooperation and Development (the "OECD"), or a political
subdivision of any such country, which is acting through a branch or
agency located in the United States; which, in each case (under clauses
(i) and (ii) above) has a combined capital and surplus of at least two
hundred million dollars ($200,000,000); (iii) a Person that is primarily
engaged in the business of commercial banking and that is (x) a
Subsidiary of a Lender, (y) a Subsidiary of a Person of which a Lender
is a Subsidiary, or (z) a Person of which a Lender is a Subsidiary, (iv)
a Lender, or (v) a finance company, financial institution, fund or any
other Person that has a combined capital and surplus of at least two
hundred million dollars ($200,000,000) and is approved in writing by the
Administrative Agent and the Borrower (which approval shall not be
unreasonably
6
<PAGE> 12
withheld or delayed); provided, however, that neither the Borrower nor
an Affiliate of the Borrower shall qualify as an Eligible Assignee.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any violation of an
Environmental Law, violation of an Environmental Permit or Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment, including, without limitation, (a) by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment, decree
or judicial or agency interpretation, policy or guidance that has the
force or effect of law relating to pollution or protection of the
environment, health, safety or natural resources, including, without
limitation, those relating to the use, handling, transportation,
treatment, storage, disposal, release or discharge of Hazardous
Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV
of ERISA is a member of the Borrower's controlled group, or under common
control with the Borrower, within the meaning of Section 414 of the
Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to any
Plan unless the 30-day notice requirement with respect to such event has
been waived by the PBGC, or (ii) the requirements of subsection (1) of
Section 4043(b) of ERISA are met with respect to a contributing sponsor,
as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event
described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c)
of ERISA is reasonably expected to occur with respect to such Plan
within the following 30 days but only if the PBGC has not waived the
requirements of Section 4043(b) of ERISA with respect to a contributing
sponsor; (b) the application for a minimum funding waiver with respect
to a Plan; (c) the provision by the administrator of any Plan of a
notice of intent to terminate such Plan in a distress termination
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA);
(d) the cessation of operations at a facility of the Borrower or any
ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA; (e) the withdrawal by the Borrower or any ERISA Affiliate from a
Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in
7
<PAGE> 13
Section 4001(a)(2) of ERISA; (f) the conditions for the imposition of
a lien under Section 302(f) of ERISA shall have been met with respect to
any Plan; (g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA; or
(h) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition described in Section 4042 of ERISA that constitutes grounds
for the termination of, or the appointment of a trustee to administer, a
Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term
in Regulation D of the FRB, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender
Party, the office of such Lender Party specified as its "Eurodollar
Lending Office" opposite its name on Schedule I hereto or in the
Assignment and Acceptance pursuant to which it became a Lender Party
(or, if no such office is specified, its Domestic Lending Office), or
such other office of such Lender Party as such Lender Party may from
time to time specify to the Borrower and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Borrowing, an
interest rate per annum (rounded upward to the nearest 1/100th of 1%)
equal to the rate for deposits in Dollars for the period commencing on
the first day of such Interest Period and ending on the last day of such
Interest Period which appears on Telerate Page 3750 as of 11:00 A.M.,
London time, two Business Days prior to the beginning of such Interest
Period. If at least two rates appear on such Telerate Page for such
Interest Period, the "Eurodollar Rate" shall be the arithmetic mean of
such rates. If the "Eurodollar Rate" cannot be determined in accordance
with the immediately preceding sentences with respect to any Interest
Period, the "Eurodollar Rate" with respect to each day during such
Interest Period shall be determined by reference to such other publicly
available service for displaying eurodollar rates as may be agreed upon
by the Administrative Agent and the Borrower or, in the absence of such
agreement, the "Eurodollar Rate" shall instead be the rate per annum
equal to the arithmetic mean (rounded upwards to the nearest 1/100th of
1%) of the respective rates notified to the Administrative Agent by each
of the Reference Lenders as the rate at which such Reference Lender is
offered Dollar deposits at or about 11:00 A.M., San Francisco time, two
Business Days prior to the beginning of such Interest Period in the
interbank eurodollar market where the eurodollar and foreign currency
and exchange operations in respect of its Eurodollar Loans are then
being conducted for delivery on the first day of such Interest Period
for the number of days comprised therein and in an amount comparable to
the amount of its Eurodollar Rate Advance to be outstanding during such
Interest Period.
"Eurodollar Rate Advance" means an Advance that bears interest
as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" of any Lender for any
Interest Period for any Eurodollar Rate Advance means the reserve
percentage applicable during such Interest Period (or if more than one
such percentage shall be so applicable, the daily
8
<PAGE> 14
average of such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) under
regulations issued from time to time by the FRB for determining the
maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such
Lender with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Credit Agreement" means the U.S. $400,000,000 Credit
Agreement dated as of March 11, 1998 among the Borrower, the initial
lenders named therein, Bank of America National Trust & Savings
Association as Administrative Agent, and Syndication Agent and Citibank,
N.A. as Syndication Agent and Documentation Agent, and as amended by the
First Amendment thereto of even date herewith.
"Existing Debt" means Debt of the Borrower and its Subsidiaries
outstanding immediately before the effectiveness of the Existing Credit
Agreement.
"Facility" means the Revolving Credit Facility.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York
(including any such successor, "H.15(519)") for such day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such
rate is not yet published in H.15(519), the rate for such day will be
the rate set forth in the daily statistical release designated as the
Composite 3:30 P.M. Quotations for U.S. Government Securities, or any
successor publication, published by the Federal Reserve Bank of New York
(including any such successor, the "Composite 3:30 P.M. Quotation") for
such day under the caption "Federal Funds Effective Rate." If on any
relevant day the appropriate rate for such day is not yet published in
either H.15(519) or the Composite 3:30 P.M. Quotations, the rate for
such day will be the arithmetic mean of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 A.M. (New
York City time) on that day by each of three leading brokers of Federal
funds transactions in New York City selected by the Administrative
Agent.
"FRB" means the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal
functions.
"Further Taxes" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or
similar charges (excluding net income taxes and franchise taxes), and
all liabilities with respect thereto, imposed by any jurisdiction on
account of amounts payable or paid pursuant to Section 2.14.
"GAAP" has the meaning specified in Section 1.03.
"Hazardous Materials" means (a) petroleum and petroleum products,
byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or
9
<PAGE> 15
substances designated, classified or regulated as hazardous or toxic or
as a pollutant or contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"Indemnified Liabilities" has the meaning specified in Section
8.04.
"Information Memorandum" means the information memorandum dated
February 1999 used by the Syndication Agents in connection with the
syndication of the Commitments.
"Initial Lenders" has the meaning specified in the recital of
parties to this Agreement.
"Insufficiency" means, with respect to any Plan, the amount, if
any, of its unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA.
"Interest Expense" means, for any period, the excess, if any, of
(i) all interest expense determined on a Consolidated basis for the
Borrower and its Restricted Subsidiaries determined for such period in
accordance with GAAP, including in any event, without duplication or
limitation, amortization of debt discount, commitment fees and letter of
credit fees, interest and commitment fees paid in connection with a
securitization, and distributions paid or accrued in respect of the
Trust Convertible Preferred Securities determined in accordance with
GAAP, over (ii) cash interest income determined on a Consolidated basis
for the Borrower and its Restricted Subsidiaries determined for such
period in accordance with GAAP.
"Interest Period" means, as to any Eurodollar Rate Advance, the
period commencing on the date of such Eurodollar Rate Advance or on the
date of Conversion of any Base Rate Advance into such Eurodollar Rate
Advance, and ending on the date one, two, three or six months thereafter
(and any other period that is 12 months or less and is consented to by
the Required Lenders in the given instance) as selected by the Borrower
in its Notice of Borrowing or notice of Conversion and, thereafter, each
subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period
selected by the Borrower pursuant to the provisions below;
provided that:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless, in the case of a
Eurodollar Rate Advance, the result of such extension would be to
carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business
Day;
10
<PAGE> 16
(ii) any Interest Period pertaining to a Eurodollar Rate
Advance that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall
end on the last Business Day of the calendar month at the end of
such Interest Period;
(iii) no Interest Period shall end after the Termination
Date;
(iv) no Interest Period commencing before the Maturity
Date shall end after the Maturity Date; and
(v) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Borrowing
shall be of the same duration.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Investment" in any Person, means any loan or advance to such
Person, any purchase or other acquisition of all or substantially all of
the assets of such Person or a business unit of such Person or any
capital stock or other ownership or profit interest, warrants, rights,
options, obligations or other securities of such Person, any capital
contribution to such Person or any other investment in such Person,
including, without limitation, any arrangement pursuant to which the
investor incurs Debt of the types referred to in clause (i) or (j) of
the definition of "Debt" in respect of such Person.
"Lead Arrangers" means each of NationsBanc Montgomery Securities,
LLC and Salomon Smith Barney Inc.
"Lender Default" means (i) the failure of any Lender to make any
Advance it is obligated to make under the terms of this Agreement, or
(ii) the appointment of a receiver or conservator with respect to such
Lender at the direction or request of any regulatory agency or
authority.
"Lender Party" means any Lender.
"Lenders" means the Initial Lenders and each Person that shall
become a party hereto pursuant to Section 8.07.
"Leverage Ratio" means, at any time of determination, the ratio
of (a) Total Debt as at the date of the most recent financial statements
delivered to the Lender Parties pursuant to Section 5.01(i) to (b)
EBITDA for the four quarter period ended on such date.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
11
<PAGE> 17
"Loan Documents" means this Agreement and the Notes, if any, in
each case as amended, supplemented or otherwise modified from time to
time.
"Material Adverse Change" means any material adverse change in
the business, condition (financial or otherwise), operations,
performance or properties of the Borrower or the Borrower and its
Restricted Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a)
the business, condition (financial or otherwise), operations,
performance or properties of the Borrower or the Borrower and its
Restricted Subsidiaries taken as a whole, (b) the legality, validity,
binding effect, or enforceability of this Agreement or any Note, if any,
or (c) the ability of the Borrower to perform its obligations in any
material respect under any Loan Document.
"Maturity Date" means March 3, 2000.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
the Borrower or any ERISA Affiliate and at least one Person other than
the Borrower and the ERISA Affiliates or (b) was so maintained and in
respect of which the Borrower or any ERISA Affiliate could have
liability under Section 4064 or 4069 of ERISA in the event such plan has
been or were to be terminated.
"Note" has the meaning specified in Section 2.19.
"Notice of Borrowing" has the meaning specified in Section 2.02.
"Other Taxes" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Debt" means Debt consisting of (a) surety bonds and
standby letters of credit to the extent issued in connection with the
Borrower's competitive bidding for commercial business (including
reimbursement obligations in respect thereof); (b) trade letters of
credit (including reimbursement obligations in respect thereof) and
bankers' acceptances incurred in the ordinary course of business; (c)
guaranty obligations or letters of credit to the extent incurred in
connection with the performance by the Borrower or
12
<PAGE> 18
any of its Restricted Subsidiaries under commercial vendor contracts to
which the Borrower or any of its Restricted Subsidiaries are parties;
(d) guaranty obligations and letters of credit issued in respect of
indebtedness of customers for borrowed money but only to the extent that
the proceeds of such customers' indebtedness are used to finance (i) a
telecommunications project for which the Borrower or a Restricted
Subsidiary is a primary contractor, (ii) a wireless infrastructure or
(iii) a supplier of handsets; (e) guaranty obligations to the extent
incurred in connection with the sale, transfer or other disposition of
Vendor Loans, provided that such guaranty and any agreement entered into
in connection therewith or instrument issued in connection therewith
provides that concurrently upon payment by the Borrower of such
guaranteed obligations, such Vendor Loans shall be returned or assigned
to the Borrower, as guarantor, and (f) Debt consisting of payment
obligations for licenses granted by the Federal Communications
Commission or other governmental agencies, in which licenses the
Borrower or any of its Restricted Subsidiaries have an interest.
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) Liens for taxes, assessments and governmental
charges or levies to the extent not required to be paid under Section
5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing obligations
that (i) are not overdue for a period of more than 90 days or (ii) that
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
property or asset subject to such lien, and for which adequate reserves
(in the good faith judgment of the Borrower) have been established; (c)
pledges or deposits to secure obligations under workers' compensation
laws, unemployment insurance laws or similar legislation or to secure
public or statutory obligations; (d) easements, rights of way and other
encumbrances on title to real property that do not render title to the
property encumbered thereby unmarketable or materially adversely affect
the use of such property for its present purposes; (e) good faith
deposits in connection with bids, tenders, contracts or leases to which
such Person is a party; (f) deposits or United States government bonds
to secure surety or appeal bonds; (g) deposits as security for import
duties or for the payment of rent, in each case in the ordinary course
of business; (h) Liens in favor of issuers of surety bonds or letters of
credit issued pursuant to the request of and for the account of such
issuers in the ordinary course of business; (i) Liens securing payments
for licenses granted by the Federal Communications Commission or other
governmental agencies, in which licenses the Borrower or any of its
Restricted Subsidiaries have rights; (j) Liens securing rights to
payments or otherwise and in respect of any obligations of the
applicable counterparty arising under or in connection with Hedge
Agreements permitted hereunder; (k) bankers' Liens and similar Liens
(including set-off rights) in respect of bank deposits; and (l) Liens on
insurance proceeds in favor of insurance companies with respect to the
financing of premiums.
"Person" means an individual, partnership, corporation (including
a business trust), joint stock company, trust, unincorporated
association, joint venture, limited liability company or other entity,
or a government or any political subdivision or agency thereof.
13
<PAGE> 19
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Preferred Share Purchase Rights Plan" means the Borrower's
Preferred Share Purchase Rights Plan dated as of September 27, 1995.
"Pro Rata Share" means, as to any Lender at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of such Lender's Revolving Credit Commitment
divided by the aggregate Revolving Credit Commitments, or, if the
Revolving Credit Commitments have expired or been terminated, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of the outstanding amount of such Lender's
Advances divided by the aggregate outstanding amount of all Advances.
"Public Debt Rating" means, as of any date, the lowest rating
that has been most recently announced by either S&P or Moody's, as the
case may be, for any class of non-credit enhanced long-term senior
unsecured debt issued by the Borrower. For purposes of the foregoing,
(a) if only one of S&P and Moody's shall have in effect a Public Debt
Rating, the Applicable Margin and the Applicable Percentage shall be
determined by reference to the available rating; (b) if neither S&P nor
Moody's shall have in effect a Public Debt Rating, the Applicable Margin
and the Applicable Percentage will be set in accordance with Level 5
under the definition of "Applicable Margin" or "Applicable Percentage",
as the case may be; (c) if the ratings established by S&P and Moody's
shall fall within levels that are one level apart, the Applicable Margin
and the Applicable Percentage shall be based upon the higher rating; (d)
if the ratings established by S&P and Moody's shall fall within levels
that are more than one level apart, the Applicable Margin and the
Applicable Percentage shall be set at the level that is one level below
the level for the higher of the two ratings; (e) if any rating
established by S&P or Moody's shall be changed, such change shall be
effective as of the date on which such change is first announced
publicly by the rating agency making such change; and (f) if S&P or
Moody's shall change the basis on which ratings are established, each
reference to the Public Debt Rating announced by S&P or Moody's, as the
case may be, shall refer to the then equivalent rating by S&P or
Moody's, as the case may be.
"Reference Lenders" means Bank of America and Citibank or each
such other Lender Party as may be agreed by the Borrower and the
Administrative Agent from time to time.
"Register" has the meaning specified in Section 8.07(d).
"Related Documents" means the Preferred Share Purchase Rights
Plan, the Convertible Subordinated Debt Securities, the Convertible
Subordinated Debt Securities Indenture, the Trust Convertible Preferred
Securities and the Amended and Restated Declaration of Trust.
"Required Lenders" means at any time (a) for all purposes
hereunder except Section 2.08(b), Lenders owed at least a majority in
interest of the then aggregate unpaid principal amount of the Advances
owing to Lenders, or, if no such principal amount is
14
<PAGE> 20
then outstanding, Lenders having at least a majority in interest of the
Commitments and (b) solely for purposes of Section 2.08(b) of this
Agreement, Lenders holding at least 66G% of the then aggregate unpaid
principal amount of the Advances owing to such Lenders, or, if no such
principal amount is then outstanding, Lenders holding at least 66G% of
the Commitments.
"Responsible Officer" means the chief financial officer,
treasurer or controller of the Borrower.
"Restricted Subsidiary" means, as of the Effective Date (as
defined in the Existing Credit Agreement), the Subsidiaries of the
Borrower listed on Schedule 4.01(b) hereto and thereafter all other
Subsidiaries of the Borrower other than the Unrestricted Subsidiaries,
provided, however, that no Restricted Subsidiary shall be a Subsidiary
of an Unrestricted Subsidiary.
"Revolving Credit Advance" has the meaning specified in Section
2.01(a).
"Revolving Credit Commitment" means, with respect to any Lender
at any time, the amount set forth opposite such Lender's name on
Schedule I hereto under the caption "Revolving Credit Commitment" or, if
such Lender has entered into one or more Assignments and Acceptances,
set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 8.07(d) as such Lender's
"Revolving Credit Commitment", as such amount may be reduced at or prior
to such time pursuant to Section 2.05.
"Revolving Credit Facility" means, at any time, the aggregate
amount of the Lenders' Revolving Credit Commitments at such time.
"SEC" means the Securities and Exchange Commission.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.
"Single Employer Plan" means a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
the Borrower or any ERISA Affiliate and no Person other than the
Borrower and the ERISA Affiliates or (b) was so maintained and in
respect of which the Borrower or any ERISA Affiliate could have
liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
"Special Event of Default" means the occurrence or continuance of
any of the following events: (i) any proceeding shall be instituted by
or against the QUALCOMM Financial Trust I seeking a voluntary or
involuntary liquidation, termination, winding-up or dissolution of the
QUALCOMM Financial Trust I or the Borrower shall take any corporate
action to authorize any of the actions set forth above; or (ii) any
event of default under the Convertible Subordinated Debt Securities
Indenture shall have occurred or be continuing.
15
<PAGE> 21
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall or
might have voting power upon the occurrence of any contingency), (b) the
interest in the capital or profits of such limited liability company,
partnership or joint venture or (c) the beneficial interest in such
trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Syndication Agents" has the meaning specified in the recital of
parties to this Agreement.
"Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the
case of each Lender Party and each Agent, respectively, taxes imposed on
or measured by its overall net income by the jurisdiction (or any
political subdivision thereof) under the laws of which such Lender Party
or such Agent, as the case may be, is organized and, in the case of each
Lender Party, where an Applicable Lending Office is maintained.
"Termination Date" means the earlier of (a) the date of
termination in whole of the aggregate Commitments pursuant to Section
2.05 or 6.01 and (b) the Maturity Date or, if extended pursuant to
Section 2.17, the date that is one year after the Maturity Date.
"Total Capitalization" of the Borrower and its Restricted
Subsidiaries means, at any time, the sum of (i) Total Debt, (ii) the
aggregate principal amount (including, without limitation, capitalized
or paid-in-kind interest) of the Trust Convertible Preferred Securities
or similar instruments to the extent not included in Total Debt, and
(iii) the Consolidated shareholders' equity (including preferred stock)
in each case of the Borrower and its Restricted Subsidiaries determined
in accordance with GAAP.
"Total Debt" means, at any time of determination, (a) all Debt of
the Borrower and its Restricted Subsidiaries at such time less (b) the
sum of (i) so long as no Special Event of Default shall have occurred
and be continuing at such time, the Trust Convertible Preferred
Securities outstanding at such time, (ii) cash and Cash Equivalents to
the extent beneficially owned by the Borrower or any of its Restricted
Subsidiaries and held in U.S. deposit or investment accounts free and
clear of any Liens at such time, (iii) cash and Cash Equivalents to the
extent beneficially owned by the Borrower or any of its Restricted
Subsidiaries and held in U.S. deposit or investment accounts subject to
a Lien or Liens at such time less the excess of (x) such cash and Cash
Equivalents over (y) the aggregate amount of Debt of the Borrower and
any of its Restricted Subsidiaries which such cash and Cash Equivalents
were pledged to secure, and (iv) to the extent otherwise included in the
definition of "Debt", Debt consisting of obligations of the Borrower and
its Restricted Subsidiaries to make capital contributions to a Person
other than the Borrower and its Restricted Subsidiaries, but only to the
extent permitted by
16
<PAGE> 22
Section 5.02(g) of this Agreement and solely in connection with such
Investments (other than any arrangement pursuant to which the investor
incurs Debt of the types referred to in clause (i) or (j) of the
definition of "Debt" in respect of such Person), in each case,
calculated on a Consolidated basis and determined in accordance with
GAAP.
"Total Tangible Assets" means total assets minus goodwill and
intangibles, in each case of the Borrower and its Restricted
Subsidiaries determined on a Consolidated basis in accordance with GAAP.
"Triggering Event" has the meaning specified in Section 2.21.
"Trust Convertible Preferred Securities" means the 5 3/4% Trust
Convertible Preferred Securities, guaranteed by the Borrower and
convertible into common stock of the Borrower, which represent preferred
undivided beneficial interests in the assets of "QUALCOMM Financial
Trust I", a statutory business trust created under the laws of Delaware,
and the shares of common stock, par value $10,000.00 per share of the
Borrower, issuable upon conversion of the 5 3/4% Trust Convertible
Preferred Securities, as amended, supplemented or otherwise modified
from time to time, to the extent permitted in accordance with the Loan
Documents.
"Type" refers to the distinction between Advances bearing
interest at the Base Rate and Advances bearing interest at the
Eurodollar Rate.
"Unrestricted Subsidiaries" means such Subsidiaries of the
Borrower as the Borrower shall designate as an Unrestricted Subsidiary
in writing to the Agents and the Lenders in accordance with the terms of
Section 5.02(j) and any Subsidiaries thereof; provided, however, that no
such Subsidiary shall own or hold any licenses, patents, trademarks or
intellectual property other than such as may be necessary to the conduct
of the business of such Subsidiary, and provided further that any such
items as may be shared with the Borrower or any Restricted Subsidiary
shall be owned and held by the Borrower or such Restricted Subsidiary.
"Unused Revolving Credit Commitment" means, with respect to any
Lender at any time,
(a) such Lender's Revolving Credit Commitment at such time
minus
(b) the aggregate principal amount of all Revolving Credit
Advances made by such Lender, in each case in its capacity as a
Lender, and outstanding at such time.
"Vendor Loans" means loans or other financing, directly or
indirectly, made or provided by the Borrower or any of its Restricted
Subsidiaries to its customers in the telecommunications industry,
provided that each such loan or other financing shall be evidenced by a
written agreement, note or other instrument issued in connection
therewith.
17
<PAGE> 23
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening
of such a contingency.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
"Year 2000 problem" has the meaning specified in subsection
4.01(w).
Section 1.02. Computation of Time Periods.
In this Agreement in the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including" and
the words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including".
Section 1.03. Accounting Terms.
(a) Unless the context otherwise clearly requires, all accounting terms
not expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made, in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of financial statements referred to in Section 4.01(f) ("GAAP"). If GAAP changes
during the term of this Agreement such that any covenants contained herein would
then be calculated in a different manner or with different components, the
Borrower, the Lender Parties and the Agents agree to negotiate in good faith to
amend this Agreement in such respects as are necessary to conform those
covenants as criteria for evaluating the Borrower's financial condition to
substantially the same criteria as were effective prior to such change in GAAP;
provided, however, that, until the Borrower, the Lender Parties and the
Administrative Agent have so amended this Agreement, all such covenants shall be
calculated in accordance with GAAP as in effect immediately prior to such
change.
(b) Hedge Agreements shall be valued (i) in good faith on a basis
consistently applied by the Board of Directors of the Borrower, (ii) at the
greater of (x) termination value, which is the amount, if any, that would be
payable to a counterparty in respect of agreement value as though such Hedge
Agreement were terminated on such date, calculated as provided in the
International Swap Dealers Association Inc. Code of Standard Working Assumptions
and Provisions for Swaps, 1992 Edition, and (y) mark-to-market, where the
unrealized gain or loss on such agreements is calculated as the amount by which
the present value of the future cash flows to be received exceeds (or is less
than) the present value of the future cash flows to be paid pursuant to such
agreements, and (iii) for purposes of Section 5.02(d) and 6.01(d), on a net
portfolio basis.
(c) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Borrower.
18
<PAGE> 24
Section 1.04. Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the singular
and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer to
this Agreement as a whole and not to any particular provision of this Agreement;
and subsection, Section, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation".
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms. Unless otherwise expressly provided,
any reference to any action of any Agent or the Lender Parties by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agents, the Borrower
and the other parties, and are the products of all parties. Accordingly, they
shall not construed against the Lender Parties or the Agents merely because of
the Agents' or Lender Parties' involvement in their preparation.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The Advances.
Revolving Credit Advances. Each Lender severally agrees, on the terms
and conditions hereinafter set forth, to make advances (each a "Revolving Credit
Advance") to the Borrower from time to time on any Business Day during the
period from the Effective Date until the Maturity Date in an aggregate amount
for each such Advance not to exceed such Lender's
19
<PAGE> 25
Unused Revolving Credit Commitment at such time. Each Borrowing shall be in an
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof and shall consist of Advances of the same Type made on the same day by
the Lenders ratably according to their respective Revolving Credit Commitments.
Within the limits of each Lender's Revolving Credit Commitment, the Borrower may
borrow under this Section 2.01(a), prepay pursuant to Section 2.10 and, until
the Maturity Date, reborrow under this Section 2.01(a).
Section 2.02. Making the Advances.
(a) Each Borrowing shall be made on notice, given not later than 10:00
A.M. (San Francisco time) on the third Business Day prior to the date of the
proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate
Advances, or the first Business Day prior to the date of the proposed Borrowing
in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to
the Administrative Agent, which shall give to each Lender prompt notice thereof
by telecopier or telex. Each such notice of a Borrowing (a "Notice of
Borrowing") shall be by telephone, confirmed promptly in writing, or telecopier
or telex, in substantially the form of Exhibit B hereto, specifying therein the
requested (i) date of such Borrowing, (ii) Type of Advances comprising such
Borrowing, (iii) aggregate amount of such Borrowing, (iv) in the case of a
Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for
each such Advance and (v) the Borrower's deposit account into which funds for
such Advance are to be deposited (the "Borrower's Designated Account"). Each
Lender shall, before 11:00 A.M. (San Francisco time) on the date of such
Borrowing, make available for the account of its Applicable Lending Office to
the Administrative Agent at the Administrative Agent's Account, in same day
funds, such Lender's ratable portion of such Borrowing in accordance with the
respective Commitments under the applicable Facility of such Lender and the
other Lenders. After the Administrative Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower in the
Borrower's Designated Account selected by the Borrower in the applicable Notice
of Borrowing.
(b) Anything in subsection (a) above to the contrary notwithstanding,
(i) the Borrower may not select Eurodollar Rate Advances for the initial
Borrowing hereunder (if the initial Borrowing occurs on, or within 3 Business
Days after, the Effective Date) or for any Borrowing if the aggregate amount of
such Borrowing is less than $5,000,000 or if the obligation of the Lenders to
make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08
or 2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of
more than 10 separate Borrowings.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any failure to fulfill on or before the date specified in such
Notice of Borrowing for such Borrowing the applicable conditions set forth in
Article III, including, without limitation, any actual loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund the Advance to be made by such Lender as part of
such Borrowing when such Advance, as a result of such failure, is not made on
such date.
20
<PAGE> 26
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such ratable portion available to the Administrative Agent, such
Lender and the Borrower severally agree to repay to the Administrative Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Administrative Agent, at (i) in the case
of the Borrower, the interest rate applicable at the time to Advances comprising
such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall repay to the Administrative Agent such corresponding amount,
such amount so repaid shall constitute such Lender's Advance as part of such
Borrowing for purposes of this Agreement and the Borrower's obligation to make
repayment in respect thereof shall terminate.
(e) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
Section 2.03. Reserved.
Section 2.04. Fees.
(a) Commitment Fees. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee, from the Effective Date
in the case of each Initial Lender and from the later of the Effective Date and
the effective date specified in the Assignment and Acceptance pursuant to which
it became a Lender in the case of each other Lender until the earlier of (a) the
date of termination in whole of the aggregate Commitments pursuant to Section
2.05 or Section 6.01 and (b) the Maturity Date at a rate per annum equal to the
Applicable Percentage in effect from time to time on the actual daily Unused
Revolving Credit Commitment of such Lender, payable in arrears quarterly on the
last day of each March, June, September and December, commencing March 31, 1999,
and on the earlier of (a) the date of termination in whole of the aggregate
Commitments pursuant to Section 2.05 or Section 6.01 and (b) the Maturity Date.
(b) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account such fees as may from time to time be
agreed between the Borrower and the Administrative Agent.
Section 2.05. Termination or Reduction of the Commitments.
The Borrower shall have the right, upon at least five Business Days'
notice to the Administrative Agent, to terminate in whole or reduce ratably in
part the unused portions of the
21
<PAGE> 27
respective Commitments of the Lenders; provided that each partial reduction (i)
shall be in the aggregate amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof and (ii) shall be made ratably among the Lenders in
accordance with their Commitments with respect to such Facility. Any Commitments
terminated under this Section 2.05 may not be reinstated.
Section 2.06. Repayment.
Revolving Credit Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Lenders on the Termination
Date (then in effect for such Lenders) the aggregate principal amount of the
Revolving Credit Advances then outstanding.
Section 2.07. Interest.
(a) Scheduled Interest. The Borrower shall pay interest on the unpaid
principal amount of each Advance owing to each Lender from the date of such
Advance until such principal amount shall be paid in full, at the following
rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a
Base Rate Advance, a rate per annum equal at all times to the sum of (x)
the Base Rate in effect from time to time plus (y) the Applicable Margin
in effect from time to time, payable in arrears quarterly on the last
day of each March, June, September and December during such periods.
(ii) Eurodollar Rate Advances. During such periods as such
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such Advance to the sum of (x) the
Eurodollar Rate for such Interest Period for such Advance plus (y) the
Applicable Margin in effect from time to time, payable in arrears on the
last day of such Interest Period and, if such Interest Period has a
duration of more than three months, on each day that occurs during such
Interest Period every three months from the first day of such Interest
Period and on the date such Eurodollar Rate Advance shall be Converted
or paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of
an Event of Default under Section 6.01(a), the Borrower shall pay interest on
(i) the unpaid principal amount of each Advance owing to each Lender, payable in
arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate
per annum equal at all times to 2% per annum above the rate per annum required
to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii)
to the fullest extent permitted by law, the amount of any interest, fee or other
amount payable hereunder that is not paid when due, from the date such amount
shall be due until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate per annum equal
at all times to 2% per annum above the rate per annum required to be paid on
Base Rate Advances pursuant to clause (a)(i) above.
Section 2.08. Interest Rate Determination.
(a) Each Reference Lender agrees to furnish to the Administrative Agent
timely information for the purpose of determining each Eurodollar Rate when
necessary to determine the Eurodollar Rate. If any one or more of the Reference
Lenders shall not furnish such timely
22
<PAGE> 28
information to the Administrative Agent for the purpose of determining any such
interest rate, the Administrative Agent shall determine such interest rate on
the basis of timely information furnished by the remaining Reference Lenders.
The Administrative Agent shall give prompt notice to the Borrower and the
Lenders of the applicable interest rate determined by the Administrative Agent
for purposes of Section 2.07(a)(i) or (ii), and the rate, if any, furnished by
each Reference Lender for the purpose of determining the interest rate under
Section 2.07(a)(ii).
(b) If, with respect to any Eurodollar Rate Advances, the Required
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to each
of such Required Lenders of making, funding or maintaining their respective
Eurodollar Rate Advances for such Interest Period, the Administrative Agent
shall forthwith so notify the Borrower and the Lenders, whereupon (i) each
Eurodollar Rate Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Base Rate Advance, and (ii) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
(c) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount of
Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment
or prepayment or otherwise, to less than $5,000,000, such Advances shall
automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any Event of
Default under Section 6.01(a), (i) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Lenders to make,
or to Convert Advances into, Eurodollar Rate Advances shall be suspended.
Section 2.09. Optional Conversion of Advances.
The Borrower may on any Business Day, upon notice given to the
Administrative Agent not later than 10:00 A.M. (San Francisco time) on the third
Business Day prior to the date of the proposed Conversion and subject to the
provisions of Sections 2.08 and 2.12, Convert all Advances of one Type
comprising the same Borrowing into Advances of the other Type; provided,
however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances
shall be made only on the last day of an Interest Period for such Eurodollar
Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate
Advances shall be in an amount not less than the minimum amount specified in
Section 2.02(b) and no Conversion of any Advances shall result in more separate
Borrowings than permitted under Section 2.02(b). Each such notice of a
Conversion shall, within the restrictions specified above, specify (i) the date
of such Conversion, (ii) the Advances to be Converted, and (iii) if such
Conversion is into Eurodollar Rate Advances,
23
<PAGE> 29
the duration of the initial Interest Period for each such Advance. Each notice
of Conversion shall be irrevocable and binding on the Borrower.
Section 2.10. Optional Prepayments.
The Borrower may, upon at least three Business Days' notice in the case
of Eurodollar Rate Advances and one Business Day's notice in the case of Base
Rate Advances, in each case to the Administrative Agent by no later than 10:00
A.M. (San Francisco time) stating the proposed date and aggregate principal
amount of the prepayment, and if such notice is given the Borrower shall, prepay
the outstanding principal amount of the Advances comprising part of the same
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided, however, that
in the event of any such prepayment of a Eurodollar Rate Advance, the Borrower
shall be obligated to reimburse the Lenders in respect thereof pursuant to
Section 8.04(d). Each such prepayment shall be applied ratably to the principal
installments thereof.
Section 2.11. Increased Costs.
(a) If, due to either (i) the introduction (after the date hereof) of or
any change (after the date hereof) in or in the interpretation of any law or
regulation or (ii) the compliance (required after the date hereof) with any
guideline or request from any central bank or other governmental authority
(whether or not having the force of law), there shall be any increase in the
cost to any Lender Party of agreeing to make or making, funding or maintaining
Eurodollar Rate Advances (excluding for purposes of this Section 2.11 any such
increased costs resulting from (i) Taxes or Other Taxes (as to which Section
2.14 shall govern) and (ii) changes in the basis of taxation of overall net
income or overall gross income by the United States or by the foreign
jurisdiction or state under the laws of which such Lender Party is organized or
has its Applicable Lending Office or any political subdivision thereof), then
the Borrower shall from time to time, promptly upon demand by such Lender Party
(with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender Party additional amounts
sufficient to compensate such Lender Party for such increased cost; provided,
however, that a Lender Party claiming additional amounts under this Section
2.11(a) agrees to use reasonable efforts (consistent with its internal policy
and legal regulatory restrictions) to designate a different Applicable Lending
Office if the making of such a designation would avoid the need for, or reduce
the amount of, such increased cost that may thereafter accrue and would not, in
the reasonable judgment of such Lender Party, be otherwise disadvantageous to
such Lender Party.
(b) If any Lender Party determines that compliance with any law or
regulation or any guideline enacted or promulgated after the date hereof or
request after the date hereof from any central bank or other governmental
authority (whether or not having the force of law) affects or would affect the
amount of capital required or expected to be maintained by such Lender Party or
any corporation controlling such Lender Party and that the amount of such
capital is increased by or based upon the existence of such Lender Party's
commitment to lend hereunder and other commitments of such type, then, promptly
upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender Party, from time to time as specified by such Lender
Party, additional amounts sufficient to compensate such Lender Party or such
corporation in the light of
24
<PAGE> 30
such circumstances, to the extent that such Lender Party reasonably determines
such increase in capital to be allocable to the existence of such Lender Party's
commitment to lend hereunder.
Section 2.12. Illegality.
Notwithstanding any other provision of this Agreement, if any Lender
Party shall notify the Administrative Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it unlawful,
or any central bank or other governmental authority asserts that it is unlawful,
for any Lender Party or its Eurodollar Lending Office to perform its obligations
hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar
Rate Advances hereunder, (i) each Eurodollar Rate Advance will automatically,
upon such demand, Convert into a Base Rate Advance and (ii) the obligation of
the Lender Parties to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended until the Administrative Agent shall notify the
Borrower and the Lender Parties that the circumstances causing such suspension
no longer exist.
Section 2.13. Payments and Computations.
(a) The Borrower shall make each payment, without setoff, counterclaim,
recoupment or other deduction, hereunder and under the Notes, if any, not later
than 11:00 A.M. (San Francisco time) on the day when due in U.S. dollars to the
Administrative Agent at the Administrative Agent's Account in same day funds.
The Administrative Agent will promptly thereafter cause to be distributed like
funds relating to the payment of principal or interest or commitment fees
ratably (other than amounts payable pursuant to Section 2.11, 2.14, 2.18, 2.20
or 8.04(d)) to the Lenders for the account of their respective Applicable
Lending Offices, and like funds relating to the payment of any other amount
payable to any Lender Party to such Lender Party for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 8.07(d), from and after the effective date specified in such Assignment
and Acceptance, the Administrative Agent shall make all payments hereunder and
under the Notes, if any, in respect of the interest assigned thereby to the
Lender Party assignee thereunder, and the parties to such Assignment and
Acceptance shall make all appropriate adjustments in such payments for periods
prior to such effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender Party, if and to the
extent payment owed to such Lender Party is not made when due hereunder or under
the Note, if any, held by such Lender Party, to charge from time to time against
any or all of the Borrower's accounts with such Lender Party any amount so due.
(c) All computations of interest based on the Base Rate and of fees,
including commitment fees under Section 2.04(a), shall be made by the
Administrative Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Eurodollar Rate or the Federal
Funds Rate shall be made by the Administrative Agent on the basis of a year of
360 days, in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest,
fees or commissions are
25
<PAGE> 31
payable. Each determination by the Administrative Agent of an interest rate, fee
or commission hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(d) Whenever any payment hereunder or under the Notes, if any, shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or commitment fee, as
the case may be; provided, however, that, if such extension would cause payment
of interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent the Borrower
shall not have so made such payment in full to the Administrative Agent, each
Lender shall repay to the Administrative Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from the
date such amount is distributed to such Lender until the date such Lender repays
such amount to the Administrative Agent, at the Federal Funds Rate.
Section 2.14. Taxes.
(a) Except as provided in Section 2.14(f), any and all payments by the
Borrower under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for, any Taxes. In addition, the
Borrower shall pay all Other Taxes.
(b) Except as provided in Section 2.14(f), if the Borrower shall be
required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes
from or in respect of any sum payable hereunder to any Lender Party or any
Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section), such Lender Party or such Agent, as the case may be,
receives and retains an amount equal to the sum it would have received
and retained had no such deductions or withholdings been made;
(ii) the Borrower shall make such deductions and withholdings;
and
(iii) the Borrower shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law.
(c) Except as provided in Section 2.14(f), the Borrower agrees to
indemnify and hold harmless each Lender Party and each Agent for the full amount
of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes imposed on or paid by
such Lender Party or such Agent (as the case may be) and any liability
(including penalties, interest, additions to tax and expenses) arising therefrom
or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes
were
26
<PAGE> 32
correctly or legally asserted. Payment under this indemnification shall be made
within 30 days after the date such Lender Party or such Agent makes written
demand therefor.
(d) Within 60 days after the date of any payment by the Borrower of
Taxes, Other Taxes or Further Taxes, the Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 8.02, the original
or a certified copy of a receipt evidencing payment thereof, or other evidence
of payment satisfactory to such Administrative Agent. In the case of any payment
hereunder by or on behalf of the Borrower through an account or branch outside
the United States or by or on behalf of the Borrower by a payor that is not a
United States person, if the Borrower determines that no Taxes are payable in
respect thereof, the Borrower shall furnish, or cause such payor to furnish, to
the Administrative Agent, at such address, an opinion of counsel acceptable to
the Administrative Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) Each Lender Party organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Initial Lender, and on the date of the Assignment
and Acceptance pursuant to which it becomes a Lender Party in the case of each
other Lender Party, and from time to time thereafter as requested in writing by
the Borrower and within 60 days of such written request (but only so long as
such Lender Party remains lawfully able to do so), shall provide each of the
Administrative Agent and the Borrower with two original Internal Revenue Service
Forms 1001 or 4224, as appropriate, or any successor or other form prescribed by
the Internal Revenue Service (including, without limitation, a Form W-8)
certifying that such Lender Party is exempt from or entitled to a reduced rate
of United States withholding tax on payments pursuant to this Agreement or the
Notes, if any. If the form provided by a Lender Party at the time such Lender
Party first becomes a party to this Agreement indicates a United States interest
withholding tax rate in excess of zero, withholding tax at such rate shall be
considered excluded from Taxes unless and until such Lender Party provides the
appropriate forms certifying that a lesser rate applies, whereupon withholding
tax at such lesser rate only shall be considered excluded from Taxes for periods
governed by such form; provided, however, that, if at the date of the Assignment
and Acceptance pursuant to which a Lender Party assignee becomes a party to this
Agreement, the Lender Party assignor was entitled to payments under subsection
(a) in respect of United States withholding tax with respect to interest paid at
such date, then, to such extent, the term Taxes shall include (in addition to
withholding taxes that may be imposed in the future or other amounts otherwise
includable in Taxes) United States withholding tax, if any, applicable with
respect to the Lender Party assignee on such date. Such Lender Party agrees to
promptly notify each of the Administrative Agent and the Borrower of any change
in circumstances which would modify or render invalid any claimed exemption or
reduction, and shall provide each of the Administrative Agent and the Borrower
with revised versions of the appropriate forms described in this Section 2.14(e)
that reflect such change in circumstance. If any form or document referred to in
this subsection (e) requires the disclosure of information, other than
information necessary to compute the tax payable and information required on the
date hereof by Internal Revenue Service Form 1001 or 4224, that the Lender Party
reasonably considers to be confidential, the Lender Party shall give notice
thereof to the Borrower and shall not be obligated to include in such form or
document such confidential information.
27
<PAGE> 33
(f) For any period with respect to which a Lender Party has failed to
provide the Borrower with accurate and complete copies of the appropriate form
described in Section 2.14(e) (updated as necessary in accordance therewith)
certifying that such Lender Party is exempt from or entitled to a reduced rate
of United States withholding tax on payments pursuant to this Agreement or the
Notes, if any (other than if such failure is due to a change in law occurring
subsequent to the date on which a form originally was required to be provided),
such Lender Party shall not be entitled to indemnification under Section 2.13(a)
or (c) with respect to Taxes imposed by the United States by reason of such
failure; provided, however, that should a Lender Party become subject to Taxes
because of its failure to deliver a form required hereunder, the Borrower shall,
at such Lender Party's expense, take such steps as the Lender Party shall
reasonably request to assist the Lender Party to recover such Taxes.
(g) If any Lender Party claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001, or
any successor or other form prescribed by the Internal Revenue Service, and such
Lender Party sells, assigns, grants a participation in, or otherwise transfers
all or part of the obligations of the Borrower to such Lender Party, such Lender
Party agrees to notify each of the Administrative Agent and the Borrower of the
percentage amount in which it is no longer the beneficial owner of obligations
of the Borrower to such Lender Party. To the extent of such percentage amount
the Administrative Agent will treat such Lender Party's IRS Form 1001 as no
longer valid and, in the case of a participation, such Lender Party agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Internal Revenue Code.
(h) If any Lender Party claiming exemption from United States
withholding tax by filing IRS Form 4224, or any successor or other form
prescribed by the Internal Revenue Service, with the Administrative Agent sells,
assigns, grants a participation in, or otherwise offers all or part of the
obligations of the Borrower to such Lender Party, such Lender Party agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Internal Revenue Code.
(i) If the Internal Revenue Service or any other governmental authority
of the United States or other jurisdiction asserts a claim that the
Administrative Agent did not properly withhold tax from amounts paid to or for
the account of any Lender Party (because the appropriate form was not delivered
or was not properly executed, or because such Lender Party failed to notify the
Administrative Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender Party shall indemnify the Administrative Agent fully for all amounts
paid, directly or indirectly, by the Administrative Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Administrative Agent under this
Section, together with all cost and expenses (including Attorney Costs). The
obligation of the Lender Parties under this subsection shall survive the payment
of all obligations and the resignation or replacement of the Administrative
Agent.
Section 2.15. Sharing of Payments, Etc.
If any Lender Party shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) on
account of the Advances owing to it (other
28
<PAGE> 34
than pursuant to Section 2.11, 2.14, 2.18, 2.20 or 8.04(d)) in excess of its
ratable share of payments on account of the Advances obtained by all the Lender
Parties, such Lender Party shall forthwith purchase from the other Lender
Parties such participations in the Advances owing to them as shall be necessary
to cause such purchasing Lender Party to share the excess payment ratably with
each of them; provided, however, that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender Party, such purchase
from each Lender Party shall be rescinded and such Lender Party shall repay to
the purchasing Lender Party the purchase price to the extent of such recovery
together with an amount equal to such Lender Party's ratable share (according to
the proportion of (i) the amount of such Lender Party's required repayment to
(ii) the total amount so recovered from the purchasing Lender Party) of any
interest or other amount paid or payable by the purchasing Lender Party in
respect of the total amount so recovered. The Borrower agrees that any Lender
Party so purchasing a participation from another Lender Party pursuant to this
Section 2.14 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender Party were the direct creditor of the
Borrower in the amount of such participation.
Section 2.16. Use of Proceeds.
The proceeds of the Advances shall be available (and the Borrower agrees
that it shall use such proceeds) to provide working capital for the Borrower and
for general corporate purposes of the Borrower and its Subsidiaries.
Section 2.17. Extension of Termination Date.
At least 30 days but not more than 45 days prior to the Maturity Date,
the Borrower, by written notice to the Administrative Agent, may elect to extend
the Termination Date by one calendar year from the Maturity Date. The
Administrative Agent shall promptly notify each Lender Party of such request.
Provided that on the Maturity Date no Default shall have occurred and be
continuing, or shall occur as a consequence thereof, the Termination Date shall,
effective as at the Maturity Date, be extended for one calendar year from the
Maturity Date.
Section 2.18. Substitution of Lenders.
In the event (a) the obligation of any Lender to make or maintain
Eurodollar Rate Advances has been suspended pursuant to Section 2.08(b), (b) any
Lender has demanded compensation under Section 2.11, 2.12, 2.14 or 2.20, which
compensation increases the effective lending rate of such Lender in excess of
the effective lending rate of the other Lenders, or (c) any Lender shall be a
Defaulting Lender, then and in any such event, the Borrower may substitute for
such Lender (the "Affected Lender") another financial institution, which
financial institution shall be an Eligible Assignee, for such Lender to assume
the Commitment of such Affected Lender and to purchase the Note, if any, of such
Affected Lender hereunder in accordance with Section 8.07. Such assumption and
purchase shall be effected by execution and delivery by such Affected Lender and
such replacement Lender of an Assignment and Acceptance, and shall otherwise be
made in the manner described in Section 8.07, provided that the Affected
Lender's obligation to so assign and sell its Commitment and Note, if any, shall
be subject to the condition that all amounts owing to such Affected Lender
(including, without limitation, principal, accrued
29
<PAGE> 35
and unpaid interest and fees, and all amounts owing to such Affected Lender
under Sections 2.11, 2.12, 2.14 and 8.04) shall have been paid in full; provided
that such Affected Lender's rights under Sections 2.11, 2.14 and 8.04, and its
obligations under Section 7.07, shall survive the effective date specified in
the Assignment and Acceptance for such Lender Party as to matters occurring
prior to such date.
Section 2.19. Evidence of Debt.
(a) Each Lender Party shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Advance owing to such Lender Party from time to
time, including the amounts of principal and interest payable and paid to such
Lender from time to time hereunder. The Borrower agrees that upon notice by any
Lender Party to the Borrower (with a copy of such notice to the Administrative
Agent) to the effect that a promissory note or other evidence of indebtedness is
required or appropriate in order for such Lender Party to evidence (whether for
purposes of pledge, enforcement or otherwise) the Advances owing to, or to be
made by, such Lender Party, the Borrower shall promptly execute and deliver to
such Lender Party, with a copy to the Administrative Agent, a promissory note or
other evidence of indebtedness, in the form of Exhibit A hereto or in form and
substance reasonably satisfactory to the Borrower and such Lender Party (each a
"Note"), payable to the order of such Lender in a principal amount equal to the
Revolving Credit Commitment of such Lender.
(b) The Register maintained by the Administrative Agent pursuant to
Section 8.07(d) shall include a control account, and a subsidiary account for
each Lender, in which accounts (taken together) shall be recorded (i) the date
and amount of each Borrowing made hereunder, the Type of Advances comprising
such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii)
the terms of each Assignment and Acceptance delivered to and accepted by it,
(iii) the amount of any principal or interest due and payable or to become due
and payable from the Borrower to each Lender hereunder, and (iv) the amount of
any sum received by the Administrative Agent from the Borrower hereunder and
each Lender's share thereof.
(c) Entries made in good faith by the Administrative Agent in the
Register pursuant to subsection (b) above, and by each Lender in its account or
accounts pursuant to subsection (a) above, shall be prima facie evidence of the
amount of principal and interest due and payable or to become due and payable
from the Borrower to, in the case of the Register, each Lender and, in the case
of such account or accounts, such Lender, under this Agreement, absent manifest
error; provided, however, that the failure of the Administrative Agent or such
Lender to make an entry, or any finding that an entry is incorrect, in the
Register or such account or accounts shall not limit or otherwise affect the
obligations of the Borrower under this Agreement.
Section 2.20. Additional Interest on Eurodollar Rate Advances.
The Borrower shall pay to each Lender Party, so long as such Lender
Party shall be required under regulations of the FRB to maintain reserves with
respect to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of each
Eurodollar Rate Advance of such Lender Party, from the date of such Advance
until such principal amount is paid in full, at an interest rate per annum equal
at all times to the
30
<PAGE> 36
remainder obtained by subtracting (i) the Eurodollar Rate for the Interest
Period for such Advance from (ii) the rate obtained by dividing such Eurodollar
Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage
of such Lender for such Interest Period, payable on each date on which interest
is payable on such Advance. Such additional interest shall be determined by such
Lender Party and notified to the Borrower through the Administrative Agent.
Section 2.21. Presentation of Claims; Certificates.
Each Lender Party will, within 180 days after obtaining knowledge of any
event occurring after the date hereof, which would entitle such Lender Party to
compensation pursuant to Section 2.11, 2.12, 2.14 or 2.20 (each a "Triggering
Event"), notify the Borrower and the Administrative Agent of such Triggering
Event. Notwithstanding any other provision of this Agreement, no Lender Party
shall be entitled to any compensation pursuant to any such section in respect of
any Triggering Event (a) for any period of time in excess of 180 days prior to
such notice or (b) for any period prior to such notice if such Lender Party
shall not have given notice within 180 days of the date such Triggering Event
shall have been enacted, promulgated, adopted or issued in definitive final
form, except to the extent such Triggering Event is retroactive. Any Lender
Party claiming reimbursement or compensation under any such Section shall
deliver to the Borrower, with a copy to the Administrative Agent, a certificate
setting forth in reasonable detail such claimed amount and such certificate
shall be conclusive and binding for all purposes, absent manifest error.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
Section 3.01. Conditions Precedent to Effectiveness of Section 2.01.
Section 2.01 of this Agreement shall become effective on and as of the
first date (the "Effective Date") on which the following conditions precedent
have been satisfied:
(a) There shall have occurred no Material Adverse Change since September
27, 1998.
(b) There shall exist no action, suit, investigation, litigation or
proceeding affecting the Borrower or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i) would be
reasonably likely to have a Material Adverse Effect or (ii) purports to affect
the legality, validity or enforceability of any Loan Document or the
consummation of the transactions contemplated hereby.
(c) All governmental and third party consents and approvals necessary in
connection with the transactions contemplated hereby shall have been obtained
(without the imposition of any conditions that are not acceptable to the Initial
Lenders) and shall remain in effect, and no law or regulation shall be
applicable in the reasonable judgment of the Initial Lenders that restrains,
prevents or imposes materially adverse conditions upon the transactions
contemplated hereby.
31
<PAGE> 37
(d) The Borrower shall have notified each Initial Lender and each Agent
in writing as to the proposed Effective Date.
(e) The Borrower shall have paid all accrued fees of the Agents, Lead
Arrangers and Lender Parties and the accrued fees and expenses of counsel to the
Agents.
(f) On the Effective Date, the following statements shall be true and
the Documentation Agent shall have received for the benefit of each Lender Party
a certificate signed by a duly authorized officer of the Borrower, dated the
Effective Date, stating that:
(i) The representations and warranties contained in Section 4.01
are correct on and as of the Effective Date, and
(ii) No event has occurred and is continuing that constitutes a
Default.
(g) The Agents shall have received on or before the Effective Date the
following, each dated such day, in form and substance satisfactory to the Agents
and (except for the Notes, if any) in sufficient copies for each of the Initial
Lenders:
(i) The Notes, if any, to the order of the Initial Lenders that
have requested Notes, respectively.
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower approving each Loan Document, and of the
certificate of incorporation and the bylaws of the Borrower and of all
documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to the Loan Documents.
(iii) A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying the names and true signatures of the officers of
the Borrower authorized to sign the Loan Documents and the other
documents to be delivered hereunder.
(iv) Certified copies of the Related Documents.
(v) A favorable opinion of Cooley Godward LLP, counsel for the
Borrower, substantially in the form of Exhibit D hereto and as to such
other matters as any Initial Lenders through the Documentation Agent may
reasonably request.
(vi) A favorable opinion of Morrison & Foerster, counsel for the
Administrative Agent, in form and substance satisfactory to the Agents.
(vii) Evidence that all conditions to the effectiveness of the
First Amendment to the Existing Credit Agreement have occurred.
Section 3.02. Conditions Precedent to Each Borrowing.
The obligation of each Lender Party to make an Advance on the occasion
of each Borrowing (including the initial Borrowing) shall be subject to the
conditions precedent that the Effective Date shall have occurred and on the date
of such Borrowing (a) the following
32
<PAGE> 38
statements shall be true (and each of the giving of the applicable Notice of
Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing
shall constitute a representation and warranty by the Borrower that both on the
date of such notice and on the date of such Borrowing such statements are true):
(i) the representations and warranties contained in Section 4.01
are correct on and as of such date, before and after giving effect to
such Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date other than any such representations
or warranties that, by their terms, refer to a specific date other than
the date of the Borrowing, in which case as of a such specific date, and
(ii) no event has occurred and is continuing, or would result
from such Borrowing or from the application of the proceeds therefrom,
that constitutes a Default;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as to material matters (in the reasonable determination of
the Administrative Agent) as any Lender Party through the Administrative Agent
may reasonably request.
Section 3.03. Determinations Under Section 3.01.
For purposes of determining compliance with the conditions specified in
Section 3.01, each Lender Party shall be deemed to have consented to, approved
or accepted or to be satisfied with each document or other matter required
thereunder to be consented to or approved by or acceptable or satisfactory to
the Lender Parties unless an officer of the Documentation Agent responsible for
the transactions contemplated by this Agreement shall have received notice from
such Lender Party prior to the date that the Borrower, by notice to the Lender
Parties, designates as the proposed Effective Date, specifying its objection
thereto. The Documentation Agent shall promptly notify the Lender Parties of the
occurrence of the Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority (including, without limitation, all governmental
licenses, permits and other approvals and all intellectual property) to own or
lease and operate its properties and to carry on its business as now conducted
and as proposed to be conducted.
(b)(i) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all Restricted Subsidiaries and Unrestricted Subsidiaries of the
Borrower, showing as of the date of the Existing Credit Agreement (as to each
such Restricted Subsidiary and each such Unrestricted Subsidiary), the
jurisdiction of its incorporation or organization and the percentage of the
33
<PAGE> 39
outstanding shares (or other ownership interest, as applicable) owned (directly
or indirectly) by the Borrower as of such date.
(i) Each Subsidiary of the Borrower (x) is duly organized,
validly existing and in good standing under the laws of the jurisdiction
of its organization and (y) has all requisite power and authority
(including, without limitation, all governmental licenses, permits and
other approvals) to own or lease and operate its properties and to carry
on its business as now conducted and as proposed to be conducted.
(c) The execution, delivery and performance by the Borrower of this
Agreement and each other Loan Document, and the consummation of the transactions
contemplated hereby, are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (i) the
Borrower's charter or by-laws or (ii) law or any contractual restriction binding
on or affecting the Borrower.
(d) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other third
party is required for the due execution, delivery and performance by the
Borrower of this Agreement or any other Loan Document, except for those
authorizations, approvals, actions, notices and filings listed on Schedule
4.01(d) hereto, all of which have been duly obtained, taken, given or made and
are in full force and effect.
(e) This Agreement has been, and each other Loan Document when delivered
hereunder will have been, duly executed and delivered by the Borrower. This
Agreement is, and each other Loan Document when delivered hereunder will be, the
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with their respective terms except as enforcement thereof
may be limited by bankruptcy, insolvency or other laws affecting the enforcement
of creditors' rights generally.
(f) The Consolidated balance sheet of the Borrower and its Subsidiaries
as at September 27, 1998, and the related Consolidated statements of income and
cash flows of the Borrower and its Subsidiaries for the fiscal year then ended,
accompanied by an opinion of Price Waterhouse LLP, independent public
accountants, duly certified by the chief financial officer of the Borrower,
together with a certificate of said officer stating that such information is
accurate and correct in all material respects, copies of which have been
furnished to each Lender Party, fairly present the Consolidated financial
condition of the Borrower and its Subsidiaries as at such date and the
Consolidated results of the operations of the Borrower and its Subsidiaries for
the period ended on such date, all in accordance with generally accepted
accounting principles consistently applied. Since September 27, 1998, there has
been no Material Adverse Change.
(g) There is no pending action, suit, investigation, litigation or
proceeding against or, to the best of the Borrower's knowledge, otherwise
affecting the Borrower or any of its Subsidiaries or, to the best of the
Borrower's knowledge, threatened action, suit, investigation, litigation or
proceeding affecting the Borrower of any of its Subsidiaries, including without
limitation, any Environmental Action, before any court, governmental agency or
arbitrator that (i) would be reasonably likely to have a Material Adverse Effect
or (ii) purports to affect the
34
<PAGE> 40
legality, validity or enforceability of this Agreement or any other Loan
Document or the consummation of the transactions contemplated hereby.
(h) The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.
(i) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan.
(j) As of the last annual actuarial valuation date, the funded current
liability percentage, as defined in Section 302(d)(8) of ERISA, of each Plan
exceeds 90% and there has been no material adverse change in the funding status
of any such Plan since such date.
(k) Neither the Borrower nor any ERISA Affiliate has incurred or is
reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan.
(l) Neither the Borrower nor any ERISA Affiliate has been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of ERISA,
and no such Multiemployer Plan is reasonably expected to be in reorganization or
to be terminated, within the meaning of Title IV of ERISA.
(m) Except as set forth in the financial statements referred to in this
Section 4.01 and in Section 5.03, the Borrower and its Subsidiaries have no
material liability with respect to "expected post retirement benefit
obligations" within the meaning of Statement of Financial Accounting Standards
No. 106.
(n)(i) Except where it would not be reasonably likely to result in a
Material Adverse Effect, the operations and properties of the Borrower and each
of its Subsidiaries comply in all material respects with all applicable
Environmental Laws and Environmental Permits, all past non-compliance with such
Environmental Laws and Environmental Permits has been resolved without ongoing
obligations or costs, and no circumstances exist that would be reasonably likely
to (A) form the basis of an Environmental Action against the Borrower or any of
its Subsidiaries or any of their properties that could have a Material Adverse
Effect or (B) cause any such property to be subject to any restrictions on
ownership, occupancy, use or transferability under any Environmental Law that
could have a Material Adverse Effect.
(i) None of the properties currently or, to the best of the
Borrower's knowledge, formerly owned or operated by the Borrower or any
of its Subsidiaries is listed or proposed for listing on the National
Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("NPL") or on the Comprehensive
Environmental Response, Compensation and Liability Information System
maintained by the U.S. Environmental Protection Agency ("CERCLIS") or
any analogous foreign, state or local list or, to the best knowledge of
the Borrower, is adjacent to any such property; there are no and never
have been any underground or aboveground storage tanks or any surface
impoundments, septic tanks, pits, sumps or lagoons in which
35
<PAGE> 41
Hazardous Materials are being or have been treated, stored or disposed
of on any property currently owned or operated by the Borrower or any of
its Subsidiaries or, to the best of its knowledge, on any property
formerly owned or operated by the Borrower or any of its Subsidiaries
that would be reasonably likely to result in a Material Adverse Effect;
there is no asbestos or asbestos-containing material on any property
currently owned or operated by the Borrower or any of its Subsidiaries
that would be reasonably likely to result in a Material Adverse Effect;
and Hazardous Materials have not been released, discharged or disposed
of on any property currently or, to the best of the Borrower's
knowledge, formerly owned or operated by the Borrower or any of its
Subsidiaries or, to the best of its knowledge, any adjoining property
that would be reasonably likely to result in a Material Adverse Effect.
(ii) Neither the Borrower nor any of its Subsidiaries is
undertaking, and has not completed, either individually or together with
other potentially responsible parties, any investigation or assessment
or remedial or response action relating to any actual or threatened
release, discharge or disposal of Hazardous Materials at any site,
location or operation, either voluntarily or pursuant to the order of
any governmental or regulatory authority or the requirements of any
Environmental Law that would be reasonably likely to result in a
Material Adverse Effect; and all Hazardous Materials generated, used,
treated, handled or stored at or transported to or from any property
currently or, to the best of the Borrower's knowledge, formerly owned or
operated by the Borrower or any of its Subsidiaries have been disposed
of in a manner not reasonably expected to result in a Material Adverse
Effect.
(o) The Borrower and each of its Restricted Subsidiaries is in
compliance, in all material respects, with all applicable laws, rules,
regulations and orders and all agreements or instruments evidencing Debt and
other material agreements, in each case by which any of them or their properties
is bound except in any case where the failure to so comply, either individually
or in the aggregate, would not be reasonably likely to have a Material Adverse
Effect.
(p) Neither the Borrower nor any of its Subsidiaries is an "investment
company", an "affiliated person" of an "investment company", or a "promoter" or
"principal underwriter" for an "investment company", as such terms are defined
the Investment Company Act of 1940, as amended. Neither the making of any
Advances nor the application of the proceeds therefrom or repayment thereof by
the Borrower, nor the consummation of the transactions contemplated hereby, will
violate any provision of such Act or any rule, regulation or order of the SEC
thereunder.
(q) There are no Liens of any nature whatsoever on any properties of the
Borrower or any of its Restricted Subsidiaries other than Liens permitted under
Section 5.02(a).
(r) The Borrower and each of its Subsidiaries have filed, have caused to
be filed or have been included in all tax returns (federal, state, local and
foreign) that are, to the best of the Borrower's knowledge after undertaking due
diligence and inquiry in any jurisdiction in which the Borrower has reason to
believe it may be currently subject to taxation (it being understood that the
Borrower and its Restricted Subsidiaries are under an absolute obligation to
undertake such due diligence and inquiry in each such jurisdiction), required to
be filed or, in the case of
36
<PAGE> 42
income taxes, that are similarly required to be filed and where the failure to
do so would cause the imposition of a penalty or interest, and in each case have
paid all taxes shown thereon to be due, together with applicable interest and
penalties.
(s) Set forth on Schedule 4.01(s) hereto is a complete and accurate
list, as of the date of the Existing Credit Agreement, of all issued patents,
trademarks, trade names, parties to CDMA license agreements, registered service
marks and registered copyrights of the Borrower and each of its Subsidiaries,
showing as of the date of the Existing Credit Agreement, the U.S. registration
numbers where applicable.
(t) Set forth on Schedule 4.01(t) hereto is a complete and accurate
list, as of the date of the Existing Credit Agreement, of all real property
owned or leased by the Borrower or any of its Restricted Subsidiaries with a
book value of $1 million or more or, where no book value is available, with an
annual rent greater than $500,000, in each case, showing as of the date of the
Existing Credit Agreement the street address, county or other relevant
jurisdiction or state, and with respect to any lease, the lessor, lessee,
expiration date and annual rental cost thereof. Each such lease is the legal,
valid and binding obligation of the lessor thereof, enforceable in accordance
with its terms.
(u) Set forth on Schedule 4.01(u) hereto is a complete and accurate list
as of the date of the Existing Credit Agreement of all categories of Existing
Debt and each individual item of Existing Debt that has a stated value of $5
million or more and, in each case, the amount thereof.
(v) Set forth on Schedule 4.01(v) hereto is a complete and accurate list
of all equity capital Investments of the Borrower and its Restricted
Subsidiaries as of the date of the Existing Credit Agreement.
(w) Year 2000 Readiness Disclosure. The Borrower and its Restricted
Subsidiaries have developed and budgeted for a comprehensive program that the
Borrower believes addresses adequately the "Year 2000 problem" (that is, the
inability of computers, as well as embedded microchips in non-computing devices,
to perform properly date-sensitive functions with respect to certain dates prior
to and after December 31, 1999). Based upon such program and the Borrower's
review of the Year 2000 problem performed to date, the Borrower believes that
(1) the Borrower and its Restricted Subsidiaries will substantially avoid the
Year 2000 problem as to all computers, as well as embedded microchips in
non-computing devices, that are material to the Borrower's and its Restricted
Subsidiaries' business, properties or operations taken as a whole and (2) the
failure of its (or its Restricted Subsidiaries') own or a third party's systems
or equipment due to the Year 2000 problem, including those of vendors,
customers, and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure, will not have a Material Adverse
Effect.
37
<PAGE> 43
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.01. Affirmative Covenants.
So long as any Advance shall remain unpaid or any Lender Party shall
have any Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its Restricted
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
compliance with ERISA and Environmental Laws as provided in Section 5.01(j).
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Restricted Subsidiaries to pay and discharge, before the same shall become
delinquent, any and all amounts that either on an individual basis or in the
aggregate equal or exceed $50,000 and that are attributable to (i) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
property and (ii) all lawful claims that, if unpaid, might by law become a Lien
upon its property; provided, however, that neither the Borrower nor any of its
Restricted Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being maintained, unless
and until any Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors.
(c) Maintenance of Insurance. Maintain, and cause each of its Restricted
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Borrower or such Restricted Subsidiary
operates.
(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and
cause each of its Restricted Subsidiaries to preserve and maintain, its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Borrower and its Restricted Subsidiaries may consummate any
merger or consolidation permitted under Section 5.02(b) and provided further
that neither the Borrower nor any of its Restricted Subsidiaries shall be
required to preserve any right or franchise if the Board of Directors of the
Borrower or such Subsidiary shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Borrower or such
Restricted Subsidiary, as the case may be, and that the loss thereof is not
disadvantageous in any material respect to the Borrower and the Restricted
Subsidiaries taken as a whole or the Lender Parties.
(e) Visitation Rights. At any reasonable time and from time to time, but
in all cases during the Borrower's normal business hours and upon reasonable
notice, permit any Agent or any of the Lender Parties or any agents or
representatives thereof, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Borrower and
any of its Restricted Subsidiaries, and to discuss the affairs, finances and
accounts of the
38
<PAGE> 44
Borrower and any of its Restricted Subsidiaries with any of their Responsible
Officers and, upon 5 Business Days' notice to a Responsible Officer, any of the
officers of the Borrower or its Restricted Subsidiaries and with their
independent certified public accountants as may reasonably be necessary to
discuss the affairs, finances and accounts of the Borrower and any of its
Restricted Subsidiaries.
(f) Keeping of Books. Keep, and cause each of its Restricted
Subsidiaries to keep, proper books of record and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Borrower and each such Restricted Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Restricted Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of its
Restricted Subsidiaries to conduct, all transactions otherwise permitted under
this Agreement with any of their Affiliates on terms that are fair and
reasonable and no less favorable to the Borrower or such Restricted Subsidiary
than it would obtain in a comparable arm's-length transaction with a Person not
an Affiliate (it being understood that for purposes of this clause (h), an
"arm's-length transaction" includes a transaction which is (A) commercially
reasonable, (B) conducted in the ordinary course of business of such Borrower or
such Restricted Subsidiary and (C) consistent with past business practices of
such Borrower or such Restricted Subsidiaries).
(i) Reporting Requirements. Furnish to the Administrative Agent for
distribution promptly to the Lender Parties:
(i) as soon as available and in any event within 50 days after
the end of each of the first three quarters of each fiscal year, a
Consolidated balance sheet of the Borrower and its Restricted
Subsidiaries as of the end of such quarter and Consolidated statements
of income and cash flows of the Borrower and its Restricted Subsidiaries
for the period commencing at the end of the previous fiscal year and
ending with the end of such quarter, duly certified (subject to year-end
audit adjustments) by a Responsible Officer of the Borrower as having
been prepared in accordance with generally accepted accounting
principles and a certificate of the chief financial officer of the
Borrower (in the form of Exhibit E hereto) as to compliance with the
terms of this Agreement and setting forth in reasonable detail the
calculations necessary to demonstrate compliance with Section 5.03,
provided that, in the event of any change in GAAP used in the
preparation of such financial statements, the Borrower shall also
provide, if necessary for the determination of compliance with Section
5.03, a statement of reconciliation conforming such financial statements
to GAAP;
(ii) as soon as available and in any event within 100 days after
the end of each fiscal year, a copy of the audited annual report for
such year for the Borrower and its Consolidated Subsidiaries, and a
Consolidated balance sheet of the Borrower and its Restricted
Subsidiaries as of the end of such fiscal year and Consolidated
statements of
39
<PAGE> 45
income and cash flows of the Borrower and its Restricted Subsidiaries
for such fiscal year, and, in the case of the audited annual report,
accompanied by an unqualified opinion by Price Waterhouse LLP or other
independent public accountants acceptable to the Required Lenders,
together with a certificate of a Responsible Officer of the Borrower (in
the form of Exhibit E hereto) as to compliance with the terms of this
Agreement and setting forth in reasonable detail the calculations
necessary to demonstrate compliance with Section 5.03 provided that, in
the event of any change in GAAP used in the preparation of such
financial statements, the Borrower shall also provide, if necessary for
the determination of compliance with Section 5.03, a statement of
reconciliation conforming such financial statements to GAAP;
(iii) as soon as available and in any event no later than 90 days
after the end of each fiscal year, forecasts prepared by management of
the Borrower, in form satisfactory to the Administrative Agent, of
balance sheets, income statements and cash flow statements of the
Borrower and its Restricted Subsidiaries on a quarterly basis for the
fiscal year following such fiscal year then ended and on an annual basis
for each fiscal year thereafter until the Termination Date;
(iv) within five days after the Borrower knows or should know of
the occurrence of each Default continuing on the date of such statement,
a statement of the chief financial officer of the Borrower setting forth
details of such Default and the action that the Borrower has taken and
proposes to take with respect thereto;
(v) promptly after the filing thereof, copies of all material
reports and registration statements that the Borrower or any Subsidiary
files with the Securities and Exchange Commission;
(vi) promptly after the commencement thereof, notice of all
actions and proceedings before any court, governmental agency or
arbitrator affecting the Borrower or any of its Restricted Subsidiaries
of the type described in Section 4.01(g);
(vii) (A) promptly and in any event within 20 days after the
Borrower or any ERISA Affiliate knows or has reason to know that any
ERISA Event has occurred, a statement of a Responsible Officer of the
Borrower describing such ERISA Event and the action, if any, that the
Borrower or such ERISA Affiliate has taken and proposes to take with
respect thereto and (B) on the date any records, documents or other
information must be furnished to the PBGC with respect to any Plan
pursuant to Section 4010 of ERISA, a copy of such records, documents and
information;
(viii) promptly and in any event within three Business Days after
receipt thereof by the Borrower or any ERISA Affiliate, copies of each
notice from the PBGC stating its intention to terminate any Plan or to
have a trustee appointed to administer any Plan;
(ix) promptly and in any event within 30 days after the receipt
thereof by the Borrower or any ERISA Affiliate, a copy of the annual
actuarial report for each Plan the funded current liability percentage
(as defined in Section 302(d)(8) of ERISA) of which is less than 90% or
the unfunded current liability of which exceeds $5,000,000;
40
<PAGE> 46
(x) promptly and in any event within five Business Days after
receipt thereof by the Borrower or any ERISA Affiliate from the sponsor
of a Multiemployer Plan, copies of each notice concerning (A) the
imposition of Withdrawal Liability by any such Multiemployer Plan, (B)
the reorganization or termination, within the meaning of Title IV of
ERISA, of any such Multiemployer Plan or (C) the amount of liability
incurred, or that may be incurred, by the Borrower or any ERISA
Affiliate in connection with any event described in clause (A) or (B);
(xi) promptly after the assertion or occurrence thereof, notice
of any Environmental Action against or of any noncompliance by the
Borrower or any of its Subsidiaries with any Environmental Law or
Environmental Permit that could reasonably be expected to have a
Material Adverse Effect;
(xii) promptly after the occurrence thereof, notice of any change
in the Public Debt Rating of the Borrower; and
(xiii) such other information respecting the Borrower or any of
its Subsidiaries as any Lender Party through the Administrative Agent
may from time to time reasonably request.
(j) Compliance with Environmental Laws. Comply, and cause each of its
Restricted Subsidiaries and all lessees and other Persons operating or occupying
its properties to comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew and cause each of
its Restricted Subsidiaries to obtain and renew all material Environmental
Permits necessary for its operations and properties; and conduct, and cause each
of its Restricted Subsidiaries to conduct, any investigation, study, sampling
and testing, and undertake any cleanup, removal, remedial or other action
necessary to remove and clean up all Hazardous Materials from any of its
properties, in accordance with the requirements of all Environmental Laws that
would be reasonably likely to have a Material Adverse Effect; provided, however,
that neither the Borrower nor any of its Restricted Subsidiaries shall be
required to undertake any such cleanup, removal, remedial or other action to the
extent that its obligation to do so is being contested in good faith and by
proper proceedings and appropriate reserves are being maintained with respect to
such circumstances.
Section 5.02. Negative Covenants.
So long as any Advance shall remain unpaid or any Lender Party shall
have any Commitment hereunder, the Borrower will not:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any
of its Restricted Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties, whether now owned or hereafter
acquired, or assign, or permit any of its Restricted Subsidiaries to assign, any
right to receive income, other than:
(i) Permitted Liens;
(ii) purchase money Liens (including mortgages) upon or in any
real property or equipment acquired or held by the Borrower or any
Restricted Subsidiary in the
41
<PAGE> 47
ordinary course of business to secure the purchase price of such
property or equipment or inventory or to secure Debt incurred solely for
the purpose of financing the acquisition of such property or equipment
or inventory, or Liens existing on such property or equipment at the
time of its acquisition (other than any such Liens created in
contemplation of such acquisition that were not incurred to finance the
acquisition of such property or equipment or inventory) or extensions,
renewals or replacements of any of the foregoing for the same or a
lesser amount; provided, however, that no such Lien shall extend to or
cover any properties of any character other than the real property or
equipment or inventory being acquired, and no such extension, renewal or
replacement shall extend to or cover any properties not theretofore
subject to the Lien being extended, renewed or replaced;
(iii) the Liens existing on the Effective Date (as defined in the
Existing Credit Agreement) and described on Schedule 5.02(a) hereto and
Liens arising after the Effective Date (as defined in the Existing
Credit Agreement) and permitted under Section 5.02(a)(i)-(vi) and
(viii)-(x) thereof and existing on the Effective Date hereof;
(iv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Borrower or any
Restricted Subsidiary of the Borrower or becomes a Restricted Subsidiary
of the Borrower; provided that such Liens are otherwise permitted under
this Section 5.02(a) and were not created in contemplation of such
merger, consolidation or acquisition and do not extend to any assets
other than those of the Person so merged into or consolidated with the
Borrower or such Restricted Subsidiary or acquired by the Borrower or
such Restricted Subsidiary;
(v) Liens arising in connection with Capitalized Leases; provided
that no Lien shall extend to or cover any assets other than the assets
subject to such Capitalized Leases;
(vi) Liens on rights to receive payment owing under Vendor Loans,
accounts receivable, royalty payments under license agreements arising
solely in connection with the financing, sale or other disposition of
such Vendor Loans, accounts receivable or royalty payments under license
agreements pursuant to Section 5.02(e)(v);
(vii) Liens on cash and Cash Equivalents in an aggregate amount
at any time outstanding not to exceed the greater of (A) $150,000,000
and (B) 35% of all cash and Cash Equivalents held by the Borrower and
its Restricted Subsidiaries in U.S. deposit or investment accounts,
securing Debt permitted under Section 5.02(d)(i)(B) or (iii)(B);
(viii) the replacement, extension or renewal of any Lien
permitted by clause (iii) above upon or in the same property theretofore
subject thereto or the replacement, extension or renewal (without
increase in the amount or change in any direct or contingent obligor) of
the Debt secured thereby;
(ix) Liens on equity interests, partnership interests or other
similar ownership interests owned or otherwise held by the Borrower or
its Restricted Subsidiaries in
42
<PAGE> 48
connection with the Borrower's or its Restricted Subsidiaries'
Investments in the telecommunications business; and
(x) Liens consisting of mortgages on real property as security
for the repayment of Debt incurred by the Borrower or its Restricted
Subsidiaries as permitted hereunder.
(b) Mergers, Etc. Merge or consolidate with or into any Person, or
permit any of its Restricted Subsidiaries to do so, except that (i) any
Restricted Subsidiary of the Borrower may merge or consolidate with or into any
other Restricted Subsidiary of the Borrower, (ii) any Restricted Subsidiary of
the Borrower may merge into the Borrower so long as the Borrower is the
surviving entity, (iii) the Borrower may merge with any other Person so long as
the Borrower is the surviving corporation, (iv) any Restricted Subsidiary may
merge with any other Person so long as the Restricted Subsidiary is the
surviving Person and (v) any Restricted Subsidiary may merge into another Person
solely for the purpose of effecting a sale, transfer or other disposition of
assets permitted under Section 5.02(e)(vii); provided, however, that, in each
case, (i) no Default shall have occurred and be continuing at the time of such
proposed transaction or would result therefrom, (ii) the Borrower shall be in
pro forma compliance (calculated based on the historical financial statements
most recently furnished or required to be furnished pursuant to Section 5.01(i))
with the covenants set forth in Section 5.03) and (iii) the Borrower shall have
furnished to the Administrative Agent a Compliance Certificate.
(c) Accounting Changes. Make or permit, or permit any of its Restricted
Subsidiaries to make or permit, any change in accounting policies or reporting
practices, except as required or permitted by generally accepted accounting
principles; provided, however, that in the event the Borrower or any of its
Restricted Subsidiaries makes any such change in their respective accounting
policies or reporting practices as permitted hereunder, the Borrower shall
promptly notify the Administrative Agent of any change that is material on an
individual basis or, when aggregated with any other change or changes, is
material, in each case, in reasonable detail.
(d) Debt. Create, incur, assume or suffer to exist, or permit any of its
Restricted Subsidiaries to create, incur, assume or suffer to exist, any Debt
other than:
(i) in the case of the Borrower,
(A) Debt under the Loan Documents,
(B) Permitted Debt, provided, that immediately before and
after giving effect thereto, (I) no Default shall have occurred and be
continuing and (II) the Borrower shall be in pro forma compliance
(calculated based on the historical financial statements most recently
furnished or required to be furnished pursuant to Section 5.01(i)) with
the covenants set forth in Section 5.03,
(C) Debt in respect of Hedge Agreements not entered into for
speculative purposes and designed to hedge against fluctuation in
interest rates or foreign exchange rates incurred in the ordinary course
of business and consistent with prudent business practice,
43
<PAGE> 49
(D) additional unsecured Debt (other than Debt of the type
described in clause (j) of the definition of "Debt"), provided that at
the time such Debt is incurred, (I) no Default shall have occurred and
be continuing before or after giving effect to the incurrence of such
Debt, (II) either (x) the maturity thereof is at least one year after
the Termination Date in effect at the time of the incurrence of such
Debt and any amortization thereof shall commence no earlier than such
Termination Date, or (y) such Debt is incurred pursuant to the Existing
Credit Agreement and the Loan Documents (as defined in the Existing
Credit Agreement) and (III) the Borrower shall be in pro forma
compliance (calculated based on historical financial statements most
recently furnished or required to be furnished pursuant to Section
5.01(i)) with the covenants set forth in Section 5.03, and
(E) other unsecured Debt maturing prior to one year after the
Termination Date incurred in the ordinary course of business aggregating
not more than $15,000,000 at any time outstanding, provided, that
immediately before and after giving effect thereto, (I) no Default shall
have occurred and be continuing and (II) the Borrower shall be in pro
forma compliance (calculated based on the historical financial
statements most recently furnished or required to be furnished pursuant
to Section 5.01(i)) with the covenants set forth in Section 5.03;
(ii) in the case of the Borrower and its Restricted Subsidiaries,
(A) Capitalized Leases (including in connection with
sale-leaseback transactions) secured by Liens permitted by Section
5.02(a)(v) and Debt secured by Liens permitted by Section 5.02(a)(ii)
and (x), provided that at the time such Debt is incurred, (i) no Default
shall have occurred and be continuing before or after giving effect to
the incurrence of such Debt and (ii) the Borrower shall be in pro forma
compliance (calculated based on historical financial statements most
recently furnished or required to be furnished pursuant to Section
5.01(i)) with the covenants set forth in Section 5.03,
(B) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business,
(C) Debt incurred in connection with the sale, transfer or
other disposition of Vendor Loans, accounts receivable or royalty
payments under license agreements pursuant to Section 5.02(e)(v);
provided that (i) no Default shall have occurred and be continuing
before or after giving effect to the incurrence of such Debt and (ii)
the Borrower shall be in pro forma compliance (calculated based on
historical financial statements, most recently furnished or required to
be furnished pursuant to Section 5.01(i)) with the covenants set forth
in Section 5.03),
(D) Debt existing on the Effective Date (as defined in the
Existing Credit Agreement) and described on Schedule 4.01(u) hereto and
Debt incurred after the Effective Date (as defined in the Existing
Credit Agreement) and permitted under Section 5.02(d)(i)(A)-(D),
(d)(ii), and (d)(iii)(A) thereof and existing on the
44
<PAGE> 50
Effective Date hereof, and any Debt extending the maturity of, or
refunding or refinancing, in whole or in part, such Debt, provided that
the principal amount of such Debt shall not be increased above the
principal amount thereof outstanding immediately prior to such
extension, refunding or refinancing, and the direct and contingent
obligors therefor shall not be changed, as a result of or in connection
with such extension, refunding or refinancing, and
(E) Debt consisting of any Investments permitted under
Sections 5.02(g)(vi), (vii), (viii), (ix) and (x); provided, however,
(i) no Default exists before or after giving effect to the incurrence of
such Debt and (ii) the Borrower shall be in pro forma compliance
(calculated based on historical financial statements, most recently
furnished or required to be furnished pursuant to Section 5.01(i)) with
the covenants set forth in Section 5.03; and
(iii) in the case of the Borrower's Restricted Subsidiaries,
(A) Debt owed to the Borrower or to a wholly owned Restricted
Subsidiary of the Borrower, and
(B) additional Debt (other than Debt secured by capital stock
of the Borrower or any of its Restricted Subsidiaries) aggregating not
more than $50,000,000 outstanding at any time; provided that at the time
such Debt is incurred, (i) no Default shall have occurred and be
continuing before or after giving effect to the incurrence of such Debt,
(ii) the Borrower shall be in pro forma compliance (calculated based on
historical financial statements most recently furnished or required to
be furnished pursuant to Section 5.01(i)) with the covenants set forth
in Section 5.03 and (iii) the terms relating to principal amount,
amortization, maturity, collateral (if any) and subordination (if any),
and other material terms taken as a whole, of such Debt and of any
agreement entered into and of any instrument issued in connection
therewith are no less favorable in any material respect to the Borrower
or the Lender Parties than the terms and conditions of this Agreement.
(e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise
dispose of, or permit any of its Restricted Subsidiaries to sell, lease,
transfer or otherwise dispose of, any assets, or grant any option or
other right to purchase, lease or otherwise acquire any assets except:
(i) sales of inventory in the ordinary course of its
business;
(ii) in a transaction authorized by Section 5.02(b)
hereunder;
(iii) sales, leases, transfers or other dispositions of
assets (A) from the Borrower to any Restricted Subsidiary for fair value
and (B) from any Restricted Subsidiary to the Borrower for fair value
and (C) from the Borrower or any Restricted Subsidiary to any
Unrestricted Subsidiary for cash and for fair value;
45
<PAGE> 51
(iv) sales, leases, transfers or other dispositions of assets
and properties of the Borrower or any of its Restricted Subsidiaries in
connection with sale-leaseback transactions otherwise permitted
hereunder;
(v) (A) the non-recourse (except as otherwise hereunder
permitted) sale, transfer or other disposition of Vendor Loans for cash
and for fair value in the ordinary course of business of the Borrower
and its Restricted Subsidiaries, (B) the non-recourse sale of
international accounts receivable for cash and for fair value in the
ordinary course of business of the Borrower and its Restricted
Subsidiaries and (C) the non-recourse financing, sale or other
disposition of royalty payments under license agreements in the ordinary
course of business of the Borrower and its Restricted Subsidiaries
solely in connection with securitizations in an aggregate amount under
this subclause (C) not to exceed 50% of the net present value of the
aggregate amount of royalty payments arising under all license
agreements of the Borrower and its Restricted Subsidiaries (the
calculation thereof to be determined in good faith by the Borrower using
commercially reasonable assumptions);
(vi) sales, transfers or other dispositions of Investments
permitted under Sections 5.02(g)(iii), (v), (vii), (viii), (ix) and (x);
(vii) in addition to the foregoing items, sales, leases,
transfers or other dispositions of assets for fair value, provided that
at least 75% of the proceeds of such sales, leases, transfers or other
dispositions shall be for cash, provided that the -------- aggregate
amount of such assets sold in any fiscal year: (x) shall not exceed 25%
of Total Tangible Assets calculated as at the end of the fiscal year
then most recently ended and (y) shall not have generated more than 25%
of the Consolidated EBITDA of the Borrower and its Restricted
Subsidiaries for the fiscal year then most recently ended;
(viii) any sale, transfer or disposition of capital assets of
the Borrower or any Restricted Subsidiaries to the extent such sale
constitutes the sale of obsolete or worn out property or such property
which is no longer required in the operation of the Borrower's or its
Restricted Subsidiaries' businesses, any liquidation sales of any
discontinued, discounted or obsolete inventory; and
(ix) sales, leases, transfers or other dispositions of assets of
the Borrower or any of its Restricted Subsidiaries to joint ventures
permitted under Section 5.02(g)(vii) for reasonably equivalent value;
provided, however, that with respect to clauses (ii), (iii)(B) and (C), (iv),
(v), (vi) and (vii) above: (A) any such sale, lease, transfer or other
disposition of such asset shall be for fair value, determined in good faith by
the Borrower; and (B) immediately after giving effect thereto, the Borrower
shall be in pro forma compliance (calculated based on historical financial
statements most recently furnished or required to be furnished pursuant to
Section 5.01(i)) with the covenants set forth in Section 5.03.
(f) Dividends, Etc. Declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of
46
<PAGE> 52
capital stock of the Borrower, or purchase, redeem or otherwise acquire for
value (or permit any of its Subsidiaries to do so) any shares of any class of
capital stock of the Borrower or any warrants, rights or options to acquire any
such shares, now or hereafter outstanding, except that, so long as no Default
shall have occurred and be continuing at the time of any action described below
or would result therefrom, the Borrower may:
(i) purchase, redeem or otherwise acquire shares of its
preferred stock issued pursuant to the Preferred Share Purchase Rights
Plan or the Trust Convertible Preferred Securities, rights or options to
acquire any such shares or Trust Convertible Preferred Securities with
the proceeds received from the substantially concurrent issue of new
shares of its capital stock or Debt incurred in pursuant to Section
5.02(d)(i)(D); provided, however, that (A) the issuance and sale of any
such capital stock would not materially impair the rights or interests
of any Agent or any Lender Party under the Loan Documents, (B) no
Default exists before or after giving effect to the issuance and sale of
such capital stock, and (C) the material terms, taken as a whole, of
such capital stock and of any agreement entered into and of any
instrument issued in connection therewith are no less favorable in any
material respect to the Borrower or the Lender Parties than the terms
and conditions of this Agreement;
(ii) declare and pay cash dividends to the holders of its
preferred stock issued pursuant to the Preferred Share Purchase Rights
Plan or holders of the Trust Convertible Preferred Securities, in each
case, as in effect on the date hereof, to the extent permitted under
applicable law, solely out of (A) net income of the Borrower and its
Restricted Subsidiaries, arising after September 28, 1997 and computed
on a cumulative Consolidated basis or (B) cash and Cash Equivalents
owned by the Borrower at the time of such payment at such time in excess
of (x) the aggregate principal amount of all Advances then outstanding,
(y) all interest thereon and (z) all other amounts then due and payable
under the Loan Documents;
(iii) purchase shares of capital stock of the Borrower through a
variety of ways, including, but not limited to (A) purchasing such stock
in the open market or in private transactions, (B) selling and/or buying
put and/or call options directly or indirectly on such stock, (C)
entering into forward contracts to purchase such stock at specified
future dates, and (D) entering into any combination of the foregoing;
provided, however, that each such purchase shall be made in
nonspeculative transactions approved in good faith by the Borrower's
board of directors; and provided further, however, that the aggregate
settlement price for all such purchases valued at the time of settlement
of such purchases, net of any premiums received by the Borrower, shall
not exceed the greater of $100,000,000 or the aggregate amount of 15% of
cash and Cash Equivalents owned by the Borrower and its Restricted
Subsidiaries at such time; and
(iv) the Borrower and its Restricted Subsidiaries may repurchase
capital stock from employees, directors and consultants of the Borrower
and its Subsidiaries pursuant to existing or future stock option plans
and such other repurchase agreements approved by such Person's Board of
Directors in good faith and consistent with past practices of such
Person, or such other repurchase agreement pursuant to employee or
consultant
47
<PAGE> 53
contracts, provided that such agreement is fair, reasonable and in the
ordinary course of business of the Borrower or its Restricted
Subsidiaries, as the case may be;
provided, however, that, in each such case, immediately before and after giving
effect thereto, no Default shall have occurred and be continuing or would result
therefrom and the Borrower shall be in pro forma compliance (calculated based on
historical financial statements most recently furnished or required to be
furnished pursuant to Section 5.01(i)) with the covenants set forth in Section
5.03.
(g) Investments in Other Persons. Make or hold, or permit any of its
Restricted Subsidiaries to make or hold, any Investment in any Person other
than:
(i) Investments by the Borrower or its Restricted Subsidiaries
in their Restricted Subsidiaries outstanding on the date hereof and
additional investments in wholly owned Restricted Subsidiaries;
(ii) loans and advances to employees, directors and consultants
in the ordinary course of the business of the Borrower and its
Restricted Subsidiaries as presently conducted and other loans and
advances to employees, directors and consultants of the Borrower and its
Restricted Subsidiaries with the approval of the Borrower's or such
Restricted Subsidiary's board of directors;
(iii) Investments in Cash Equivalents;
(iv) Investments consisting of intercompany Debt permitted under
Section 5.02(d)(iii)(A);
(v) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and the compromise or
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(vi) other Investments (direct or indirect) in suppliers,
operators, customers and manufacturers in connection with customer and
vendor financing in the ordinary course of business and consistent with
past practices; provided that any such business acquired or invested in
shall be in the same or similar line of business as the business of the
Borrower or any of its Restricted Subsidiaries' existing
telecommunications, logistics, software, wireless data transmission or
similar businesses, or in the wireless operations business;
(vii) Investments in joint ventures, provided that any such
business acquired or invested in shall be in the same or similar line of
business as the business of the Borrower or any of its Restricted
Subsidiaries' existing telecommunications, logistics, software, wireless
data transmission or similar businesses, or in the wireless operations
business;
(viii) Investments existing on the Effective Date (as defined in
the Existing Credit Agreement) as described on Schedule 4.01(v) hereto
and Investments made after the Effective Date (as defined in the
Existing Credit Agreement) and existing on the
48
<PAGE> 54
Effective Date hereof that were either permitted under Section
5.02(g)(i) - (ix) of the Existing Credit Agreement or made pursuant to
the Consent dated as of September 11, 1998, executed with respect to the
Existing Credit Agreement;
(ix) Investments in special purpose Restricted Subsidiaries
formed to effect acquisitions otherwise permitted hereunder or
Investments described in (vi) and (vii) of this Section 5.02(g); and
(x) other Investments made after the Effective Date (as defined
in the Existing Credit Agreement) not otherwise described in this
Section 5.02(g), provided that the original cost of such Investments
made after the Effective Date (as defined in the Existing Credit
Agreement) does not exceed, in the aggregate, $25,000,000 in any fiscal
year or, if less than such amount is or was invested in any fiscal year,
the unused portion of such amount may be carried over to succeeding
fiscal years to increase the amount otherwise permitted in subsequent
fiscal years;
provided, however, with respect to clauses (v), (vi), (vii), (ix) and (x) above,
(i) no Default exists before or after giving effect to
the making of such Investment,
(ii) the Borrower shall be in pro forma compliance
(calculated based on historical financial statements most
recently furnished or required to be furnished pursuant to
Section 5.01(i)) with the covenants set forth in Section 5.03,
and
(iii) any such Investment shall be for fair value as
determined in good faith by the Borrower.
(h) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof (it being understood that for purposes of this
clause (h) its business includes existing telecommunications, logistics,
software, wireless data transmission and similar businesses and in the wireless
operations business).
(i) Prepayments, Etc. of Debt. (i) Prepay, redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner, or make
any payment in violation of any subordination terms of, any Debt, other than (A)
the prepayment of the Advances in accordance with the terms of this Agreement or
the prepayment of the "Advances" in accordance with the terms of the Existing
Credit Agreement, (B) regularly scheduled or required repayments or redemptions
or refinancing of the Existing Debt set forth on Schedule 4.01(u) hereto and the
Debt incurred after the Effective Date (as defined in the Existing Credit
Agreement) and permitted under Section 5.02(d)(i)-(iii) thereof and existing on
the Effective Date hereof, (C) purchases, redemptions or other acquisitions of
the Trust Convertible Preferred Securities and securities issued pursuant to the
Preferred Share Purchase Rights Plan and other securities permitted to be issued
pursuant to Section 5.02(f) or 5.02(d)(i)(D); provided, however, that in the
case of this subsection (C), the Borrower uses the proceeds of a previous or
concurrent issuance of other capital stock permitted under Section 5.02(f)
hereunder to purchase, redeem or
49
<PAGE> 55
otherwise acquire such Trust Convertible Preferred Securities or other
securities, (D) the prepayment of Debt permitted under Section 5.02(d), provided
that such Debt is prepaid or refinanced simultaneously therewith and the
material terms, taken as a whole, of such new Debt refinancing the existing Debt
and of any agreement entered into and of any instrument issued in connection
therewith, are no less favorable in any material respect to the Borrower or the
Lender Parties than the terms and conditions of this Agreement, and (E) the
prepayment of Debt consisting of Capital Leases or (ii) amend, modify or change
in any manner any term or condition of any Debt which could adversely affect the
interest or rights of the Agents or the Lender Parties, or permit any of its
Restricted Subsidiaries to do any of the foregoing.
(j) Designation of Restricted and Unrestricted Subsidiaries. (i)
Designate a Subsidiary, in connection with an acquisition permitted under
Section 5.02(g) or a sale, transfer, lease or other disposition of assets
permitted under Section 5.02(e)(vii) as an Unrestricted Subsidiary, or
redesignate an Unrestricted Subsidiary as a Restricted Subsidiary, unless, in
either case, immediately before and after giving effect thereto, no Default
shall have occurred and be continuing or would result therefrom and the Borrower
shall be in pro forma compliance (calculation based on historical financial
statements most recently furnished or required to be furnished pursuant to
Section 5.01(i)) with the covenants set forth in Section 5.03, or (ii)
redesignate a Restricted Subsidiary as an Unrestricted Subsidiary.
(k) Amendment, Etc. of Related Documents. Cancel or terminate any
Related Document or consent to or accept any cancellation or termination
thereof, amend, modify or change in any manner any term or condition of any
Related Document or give any consent, waiver or approval thereunder, waive any
default under or any breach of any term or condition of any Related Document,
agree in any manner to any other amendment, modification or change of any term
or condition of any Related Document or take any other action in connection with
any Related Document that, in each case, would impair, in any material respect,
the value of the interest or rights of the Borrower thereunder or that would
impair, in any material respect, the rights or interest of the Agents or any
Lender Party, or permit any of its Subsidiaries to do any of the foregoing.
SECTION 5.03. Financial Covenants.
So long as any Advance shall remain unpaid or any Lender Party shall
have any Commitment hereunder, the Borrower will:
(a) Total Debt/Total Capitalization. Maintain at the end of each fiscal
quarter a ratio of Total Debt to Total Capitalization of not more than [*].
(b) Leverage Ratio. Maintain at the end of each fiscal quarter a ratio
of Total Debt as at such date to EBITDA for the four consecutive fiscal quarter
period ending on such date of not greater than [*].
(c) Interest Coverage Ratio. Maintain at the end of each fiscal quarter
a ratio of EBITDA to Interest Expense, in each case for the four consecutive
fiscal quarter period ending on such date, at least [*].
*Confidential Treatment Requested
50
<PAGE> 56
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default.
If any of the following events ("Events of Default") shall occur and be
continuing:
(a) The Borrower shall fail to pay any principal of any Advance when the
same becomes due and payable; or the Borrower shall fail to pay any interest on
any Advance or make any other payment of fees or other amounts payable under the
Loan Documents within three Business Days after the same becomes due and
payable; or
(b) Any representation or warranty made or deemed made by the Borrower
herein or by the Borrower (or any of its officers) in connection with the Loan
Documents shall prove to have been incorrect in any material respect when made;
or
(c) (i) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 5.01(c), (d), (g) or (i), 5.02 or 5.03, or
(ii) the Borrower shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement on its part to be performed or observed if
such failure shall remain unremedied for 15 days after written notice thereof
shall have been given to the Borrower by any Agent or any Lender Party; or
(d) (i) The Borrower or any of its Restricted Subsidiaries shall fail to
make any Investment in the form of a capital contribution such Person is
required to make or fail to pay any principal of or premium or interest on any
Debt that is outstanding in a principal or notional amount, together with the
amount of such capital contribution, of at least $30,000,000 in the aggregate
(but excluding Debt outstanding hereunder) of the Borrower or such Restricted
Subsidiary (as the case may be), when the same becomes due and payable (whether
by scheduled maturity, required prepayment, payment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt; or any
other event shall occur or condition shall exist under any agreement or
instrument relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased, or an offer
to prepay, redeem, purchase or defease such Debt shall be required to be made,
in each case prior to the stated maturity thereof; or
(ii) The Borrower or any of its Subsidiaries shall fail to make
any Investment in the form of a capital contribution such Person is
required to make or fail to pay any principal of or premium or
interest on any Debt that is outstanding in a principal or notional
amount, together with the amount of such capital contribution, of at
least $50,000,000 in the aggregate (but excluding Debt outstanding
hereunder) of the Borrower or such Subsidiary (as the case may be),
when the same becomes due and payable (whether by scheduled maturity,
required prepayment, payment, acceleration,
51
<PAGE> 57
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a
regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt
shall be required to be made, in each case prior to the stated maturity
thereof; or
(e) The Borrower or any of its Subsidiaries shall generally not pay its
debts as such debts become due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Borrower or
any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 30 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for, it
or for any substantial part of its property) shall occur; or the Borrower or any
of its Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$30,000,000 shall be rendered against the Borrower or any of its Subsidiaries
and either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of 15 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect;
(g) Any non-monetary judgment or order shall be rendered against the
Borrower or any of its Subsidiaries that could be reasonably expected to have a
Material Adverse Effect, and there shall be any period of 15 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(h) (i) Any Person or two or more Persons acting in concert shall have
acquired beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934),
directly or indirectly, of Voting Stock of the Borrower (or other securities
convertible into such Voting Stock) representing 20% or more of the combined
voting power of all Voting Stock of the Borrower; or (ii) during any period of
up to 18 consecutive months, commencing before or after the date of this
Agreement, individuals who at the beginning of such 18-month period were
directors of the Borrower, together with such directors as are approved by
directors who were directors at the beginning of such period, shall cease for
any reason to constitute a majority of the board of directors of the Borrower;
or (iii) any Person or two or more Persons acting in concert shall have acquired
by
52
<PAGE> 58
contract or otherwise, or shall have entered into a contract or arrangement
that, upon consummation, will result in its or their acquisition of the power to
exercise, directly or indirectly, a controlling influence over the management or
policies of the Borrower; or
(i) Any ERISA Event shall have occurred with respect to a Plan and the
sum (determined as of the date of occurrence of such ERISA Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans with
respect to which an ERISA Event shall have occurred and then exist (or the
liability of the Borrower and the ERISA Affiliates related to such ERISA Event)
exceeds $30,000,000; or
(j) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to
such Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Borrower and the ERISA
Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $30,000,000 or requires payments exceeding $10,000,000
per annum; or
(k) The Borrower or any ERISA Affiliate shall have been notified by the
sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
and as a result of such reorganization or termination the aggregate annual
contributions of the Borrower and the ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will be
increased over the amounts contributed to such Multiemployer Plans for the plan
years of such Multiemployer Plans immediately preceding the plan year in which
such reorganization or termination occurs by an amount exceeding $10,000,000; or
(l) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 shall for any reason cease to be valid and binding on or
enforceable against the Borrower, or the Borrower shall so state in writing; or
(m) there shall occur any Material Adverse Change; or
(n) there shall occur any "Event of Default" as defined in the Existing
Credit Agreement;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the obligation of each Lender Party to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall at the request, or
may with the consent, of the Required Lenders, by notice to the Borrower,
declare the Advances, the Notes, if any, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the Advances, the Notes, if any, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower; provided, however, that in the event of an actual or deemed entry of
an order for relief with respect to the Borrower under the Federal Bankruptcy
Code, (A) the obligation of each Lender Party to make Advances shall
automatically be terminated and (B) the Advances, the Notes, if any, all such
interest and all such amounts shall
53
<PAGE> 59
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
ARTICLE VII
THE AGENTS
SECTION 7.01. Appointment and Authorization; "Agent"
Each Lender Party hereby irrevocably (subject to Section 7.09) appoints,
designates and authorizes each Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with this Agreement and each
other Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto;
provided, however, that no Agent shall be required to take any action that
exposes such Agent to personal liability or that is contrary to this Agreement
or applicable law. Notwithstanding any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document, no Agent shall have
any duties or responsibilities, except those expressly set forth herein, nor
shall any Agent have or be deemed to have any fiduciary relationship with any
Lender Party, and no implied covenants, functions. responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against such Agent. Without limiting the generality
of the foregoing sentence, the use of the term "agent" in this Agreement with
reference to each Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any applicable
law. Instead, such, term is used merely as a matter of market custom, and is
intended to create or reflect only an administrative relationship between
independent contracting parties.
SECTION 7.02. Delegation of Duties.
Each Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties.
SECTION 7.03. Liability of the Agents.
None of the Agent-Related Persons shall (i) be liable for any action
taken or to be taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated hereby (except for
its own gross negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Lender Parties for any recital, statement, representation
or warranty made by the Borrower or any Subsidiary or Affiliate of the Borrower,
or any officer thereof, contained in this Agreement or in any other Loan
Document, or in any certificate, report, statement or other document referred to
or provided for in, or received by any Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of the Borrower or any other party to any Loan
Document to
54
<PAGE> 60
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Lender Party to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records or the Borrower or any of the Borrower's Subsidiaries or
Affiliates.
SECTION 7.04. Reliance by the Agents.
(a) Each Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, instrument, telegram, facsimile, telex, telecopier or
telephone message, statement or other document or writing or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to the Borrower), independent accountants and other experts
selected by the Agents. Each Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required Lenders
as it deems appropriate and, if it so requests, it shall first be indemnified to
its satisfaction by the Lender Parties against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action. Each Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Required Lenders and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all of the Lender Parties.
(b) Without limiting the generality of the foregoing, each Agent (i) may
treat the payee of any Note, if any, as the holder thereof until, in the case of
the Administrative Agent, the Administrative Agent receives and accepts an
Assignment and Acceptance entered into by the Lender Party that is the payee of
such Note, if any, as assignor, and an Eligible Assignee, as assignee, or, in
the case of any other Agent, such Agent has received notice from the
Administrative Agent that it has received and accepted such Assignment and
Acceptance, in each case as provided in Section 8.07, (ii) makes no warranty or
representation to any Lender Party and shall not be responsible to any Lender
Party for any statements, warranties or representations (whether written or
oral) made in or in connection with any Loan Document; (iii) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of this Agreement on the part of the Borrower
or to inspect the property (including the books and records) of the Borrower;
and (iv) shall not be responsible to any Lender Party for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of any
Loan Document or any other instrument or document furnished pursuant hereto.
(c) For purposes of determining compliance with the conditions specified
in Section 3.01, each Lender Party that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by any Agent to such Lender Party for
consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to the Lender Party.
55
<PAGE> 61
SECTION 7.05. Notice of Default.
No Agent shall be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default, except with respect to defaults in the
payment of principal, interest and fees required to be paid to the
Administrative Agent for the account of the Lenders, unless the Administrative
Agent shall have received written notice from a Lender Party or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". The Administrative Agent will
notify the Lenders of its receipt of any such notice. The Administrative Agent
shall take such action with respect to such Default or Event of Default as may
be requested by the Required Lenders in accordance with Article VI; provided,
however, that unless and until the Administrative Agent has received any such
request, the Administrative Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable or in the best interest of the
Lender Parties.
SECTION 7.06. Lender Party Credit Decision.
Each Lender Party acknowledges that none of the Agent-Related Persons
has made any representation or warranty to it, and that no act by the Agent
hereinafter taken, including any review of the affairs of the Borrower and its
Subsidiaries, shall be deemed to constitute any representation or warranty by
any Agent-Related Person to any Lender Party. Each Lender Party represents to
each Agent that it has, independently and without reliance upon any
Agent-Related Person and based on the financial statements referred to in
Section 4.01 and such other documents, and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and its Subsidiaries, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to the Borrower
hereunder. Each Lender Party also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrower.
Except for notices, reports and other documents expressly herein required to be
furnished to the Lender Parties by each Agent, no Agent shall have any duty or
responsibility to provide any Lender Party with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrower which may come into the possession
of any of the Agent-Related Persons.
SECTION 7.07. Indemnification of Agents.
(a) Whether or not the transactions contemplated hereby are consummated,
each Lender Party shall indemnify upon demand the Agent-Related Persons (to the
extent not reimbursed by or on behalf of the Borrower and without limiting the
obligation of the Borrower to do so), pro rata, from and against any and all
Indemnified Liabilities; provided, however, that no Lender Party shall be liable
for the payment to any Agent-Related Person of any portion of such
56
<PAGE> 62
Indemnified Liabilities resulting solely from such Person's gross negligence or
willful misconduct as found in a final, non-appealable judgment by a court of
competent jurisdiction. Without limitation of the foregoing, each Lender Party
shall reimburse the Agents upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by the Agents in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agents are not
reimbursed for such expenses by or on behalf of the Borrower.
(b) In the case of any investigation, litigation or proceeding giving
rise to any Agent's Indemnified Liabilities, this Section 7.07 applies whether
any such investigation, litigation or proceeding is brought by any Agent, any
Lender Party or a third party. Without prejudice to the survival of any other
agreement of any Lender Party hereunder, the agreement, obligations and
undertaking of each Lender Party contained in this Section 7.07 shall survive
the payment in full of principal, interest and all other amounts payable
hereunder and under the other Loan Documents and the resignation or replacement
of the Agents.
SECTION 7.08. Agent in Individual Capacity.
Each of Bank of America, Citibank and their Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Borrower and its
Affiliates as though each of Bank of America and Citibank were not an Agent
hereunder and without notice to or consent of the Lenders. The Lender Parties
acknowledge that, pursuant to such activities, Bank of America, Citibank or
their Affiliates may receive information regarding the Borrower and its
Affiliates (including information that may be subject to confidentiality
obligations in favor of the Borrower or such Affiliates) and acknowledge that no
such Agent shall be under any obligation to provide such information to them.
With respect to its Commitment, the Advances made by it and the Note, if any,
issued to it, each of Bank of America and Citibank shall have the same rights
and powers under this Agreement as any other Lender Party and may exercise the
same as though it were not an Agent.
SECTION 7.09. Successor Agent.
Any Agent may, and at the request of the Required Lenders shall, resign
as an Agent upon 30 days' notice to the Lenders. If such Agent resigns under
this Agreement, the Required Lenders shall appoint from among the Lenders a
successor agent for the Lender Parties which successor agent shall be approved
by the Borrower. If no successor agent is appointed prior to the effective date
of the resignation of such Agent, such Agent may appoint, after consulting with
the Lenders and the Borrower, a successor agent from among the Lender Parties.
Upon the acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers, discretion, privileges
and duties of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as such Agent
shall be terminated. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article VII and Section 8.04 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was an Agent under
this Agreement. If no
57
<PAGE> 63
successor agent has accepted appointment as the successor Agent by the date
which is 30 days following a retiring Agent's notice of resignation, the
retiring Agent's resignation shall nevertheless thereupon become effective and
the Lender Parties shall perform all of the duties of such Agent hereunder until
such time, if any, as the Required Lenders appoint a successor agent as provided
for above.
SECTION 7.10. Co-Agents.
None of the Lender Parties identified on the cover page or signature
pages of this Agreement as a "co-agent" shall have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
applicable to all Lender Parties as such. Without limiting the foregoing, none
of the Lender Parties so identified as a "co-agent" shall have or be deemed to
have any fiduciary relationship with any other Lender Party. Each Lender Party
acknowledges that it has not relied, and will not rely, on any of the other
Lender Parties so identified in deciding to enter into this Agreement or in
taking or not taking action hereunder.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc.
No amendment or waiver of any provision of this Agreement or the Notes,
if any, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Required Lenders and the Borrower with receipt acknowledged by the
Administrative Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lender Parties and the Borrower with receipt acknowledged by
the Administrative Agent, do any of the following: (a) waive any of the
conditions specified in Section 3.01, (b) increase the Commitments of the Lender
Parties or subject the Lender Parties to any additional obligations, (c) reduce
the principal of, or interest on, the Notes, if any, or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes, if any, or any fees or other amounts
payable hereunder, (e) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, if any, or the number of Lenders
that shall be required for the Lenders or any of them to take any action
hereunder or (f) amend this Section 8.01; and provided further that no
amendment, waiver or consent shall, unless in writing and signed by the Agents
in addition to the Lenders required above to take such action, and the Borrower,
affect the rights or duties of the Agents under this Agreement or any Note, if
any.
SECTION 8.02. Notices, Etc.
All notices and other communications provided for hereunder shall be in
writing (including telecopier, telegraphic or telex communication) and mailed,
telecopied, telegraphed, telexed or delivered, if to the Borrower, at its
address at 6455 Lusk Boulevard, San Diego, California 92121, Attention:
Treasurer; if to any Initial Lender, at its Domestic Lending Office
58
<PAGE> 64
specified opposite its name on Schedule I hereto; if to any other Lender Party,
at its Domestic Lending Office specified in the Assignment and Acceptance
pursuant to which it became a Lender Party; if to the Administrative Agent, at
its address at 555 California Street-41st Floor, Credit Products #9048, San
Francisco, California 94194, Attention: John J. Sullivan unless such notice is
with respect to a Borrowing, Conversion or repayment, in which case to the
address of Bank of America's Agency Administration Services #5596 at 1850
Gateway Blvd., 5th Floor, Concord, CA 94520, Attn: Myrna Lara; if to the
Documentation Agent, at its address at 399 Park Avenue, New York, New York
10043, Attention: Suzanne Maccagnan; or, as to the Borrower, the Administrative
Agent or the Documentation Agent, at such other address as shall be designated
by such party in a written notice to the other parties and, as to each other
party, at such other address as shall be designated by such party in a written
notice to the Borrower and the Administrative Agent. All such notices and
communications shall, when delivered by overnight courier, telecopied,
telegraphed or telexed or facsimile, be effective when delivered to the
overnight courier, telecopied, facsimile, delivered to the telegraph company or
confirmed by telex answerback, respectively, except that notices and
communications to any Agent pursuant to Article II, III or VII shall not be
effective until received by such Agent. Delivery by telecopier of an executed
counterpart of any amendment or waiver of any provision of this Agreement or the
Notes, if any, or of any Exhibit hereto to be executed and delivered hereunder
shall be effective as delivery of a manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies.
No failure on the part of any Lender Party or any Agent to exercise, and
no delay in exercising, any right hereunder or under any Note, if any, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
SECTION 8.04. Costs and Expenses.
(a) The Borrower shall, whether or not the transactions contemplated
hereby are consummated, pay or reimburse all reasonable fees and expenses of
counsel for the Agents (including in their capacity as Agents) promptly after
demand in connection with the development, preparation, delivery, administration
and execution of, and any amendment, supplement, waiver or modification to (in
each case, whether or not consummated), this Agreement, any Notes, if any, any
other Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs incurred by each of Bank of America
and Citibank (including in its capacity as an Agent) with respect thereto; and
(b) The Borrower shall pay or reimburse the Agents and each Lender Party
within five Business Days after demand (subject to subsection 3.01(f)) for all
costs and expenses (including Attorney Costs) incurred by them in connection
with the enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or any other Loan Document during the existence of
an Event of Default or after acceleration of the Loans (including in connection
with any "workout" or restructuring regarding the Loans, and including in any
insolvency proceeding, bankruptcy proceeding, liquidation, winding up,
reorganization, receivership,
59
<PAGE> 65
arrangement, adjustment, protection, relief of debtors or appellate proceeding
(collectively, an "Insolvency Proceeding")).
(c) Whether or not the transactions contemplated hereby are consummated,
the Borrower shall indemnify, defend and hold the Agent-Related Persons, each
Lender Party and each of its Affiliates and each of their respective officers,
directors, employees, counsel, agents, advisors and attorneys-in-fact (each, an
"Indemnified Party") harmless from and against any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, charges, expenses and disbursements (including Attorney Costs) of any
kind or nature whatsoever which may at any time (including at any time following
repayment of the Advances and the termination, resignation or replacement of any
Agent or replacement of any Lender Party) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation or proceeding or preparation of a defense in
connection with) (i) this Agreement, any Loan Document or any document
contemplated by or referred to herein, or the transactions contemplated hereby
or the actual or proposed use of proceeds of the Advances, or (ii) the actual or
alleged presence of Hazardous Materials on any property of the Borrower or any
of its Subsidiaries or any Environmental Action relating in any way to the
Borrower or any of its Subsidiaries, or in the case of each of clauses (i) and
(ii) above, any action taken or omitted by any such Person under or in
connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement or the
Advances or the use of the proceeds thereof, whether or not any Indemnified
Party is a party thereto and whether or not any such investigation, litigation
or proceeding is brought by the Borrower, its directors, shareholders or
creditors or an Indemnified Party or any other Person, (all the foregoing in
clauses (i) and (ii) above, collectively, being the "Indemnified Liabilities");
provided, that the Borrower shall have no obligation hereunder to any
Indemnified Party with respect to Indemnified Liabilities resulting solely from
the gross negligence or willful misconduct of such Indemnified Party as found in
a final, non-appealable judgment by a court of competent jurisdiction. The
Borrower also agrees not to assert any claim against any Agent, any Lender
Party, any of their Affiliates, or any of their respective directors, officers,
employees, attorneys and agents, on any theory of liability, for special
indirect, consequential or punitive damages arising out of or otherwise relating
to the Notes, if any, this Agreement, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Advances.
(d) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender Party
other than on the last day of the Interest Period for such Advance, as a result
of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12,
acceleration of the Advances or maturity of the Notes, if any, pursuant to
Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender
Party other than on the last day of the Interest Period for such Advance upon an
assignment of rights and obligations under this Agreement pursuant to Section
2.18 or pursuant to Section 8.07 as a result of a demand by the Borrower
pursuant to Section 8.07(a), the Borrower shall, upon demand by such Lender
Party (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender Party any amounts required
to compensate such Lender Party for any additional losses, costs or expenses
that it may reasonably incur as a result of such payment or Conversion,
including, without limitation, any loss
60
<PAGE> 66
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by any
Lender Party to fund or maintain such Advance.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.11, 2.14, 2.17, 2.18, 2.20 and 8.04 shall survive the payment in full
of principal, interest and all other amounts payable hereunder and under the
Notes, if any.
SECTION 8.05. Right of Set-off.
Upon (i) the occurrence and during the continuance of any Event of
Default and (ii) the making of the request or the granting of the consent
specified by Section 6.01 to authorize the Administrative Agent to declare the
Advances and the Notes, if any, due and payable pursuant to the provisions of
Section 6.01, each Lender Party and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender Party or such Affiliate to or for the credit or the account of
the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement and the Note, if any, held by such
Lender Party, whether or not such Lender Party shall have made any demand under
this Agreement or such Note, if any, and although such obligations may be
unmatured. Each Lender Party agrees promptly to notify the Borrower after any
such set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
each Lender Party and its Affiliates under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that such Lender Party and its Affiliates may have.
SECTION 8.06. Binding Effect; Entire Agreement.
This Agreement shall become effective (other than Section 2.01, which
shall only become effective upon satisfaction of the conditions precedent set
forth in Section 3.01) when it shall have been executed by the Borrower and the
Agents and when the Documentation Agent shall have been notified by each Initial
Lender that such Initial Lender has executed it and thereafter shall be binding
upon and inure to the benefit of the Borrower, each Agent and each Lender Party
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lender Parties. This Agreement, together with the
other Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all previous proposals,
negotiations, representations, commitments and other communications between or
among the parties, both oral and written, with respect thereto.
SECTION 8.07. Assignments and Participations.
(a) Each Lender may and, if demanded by the Borrower pursuant to Section
2.18, will assign to one or more Persons all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Advances owing to it and the Note or Notes, if
any, held by it); provided, however, that (i) each such assignment shall be
61
<PAGE> 67
of a constant, and not a varying, percentage of all rights and obligations under
this Agreement, (ii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender or an assignment of all of a
Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 or an
integral multiple of $1,000,000 in excess thereof, (iii) each such assignment
shall be to an Eligible Assignee, and (iv) the parties to each such assignment
shall execute and deliver to the Borrower for its approval (unless an Event of
Default shall have occurred and be continuing), such approval not to be
unreasonably withheld or delayed, and to the Administrative Agent for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note, if any, subject to such assignment and a processing and
recordation fee of $3,000.
(b) Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender Party hereunder and (y)
the Lender Party assignor thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender Party's rights and obligations
under this Agreement, such Lender Party shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance, the Lender
Party assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with any Loan
Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of any Loan Document or any other instrument or document
furnished pursuant hereto; (ii) such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under any Loan Document or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 4.01 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon any Agent, such assigning Lender Party
or any other Lender Party and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement as are delegated to such Agent by the terms
hereof, together with such powers and discretion as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Lender.
62
<PAGE> 68
(d) The Administrative Agent shall maintain at its address referred to
in Section 8.02 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lender Parties and the Commitment of, and principal amount of the Advances
owing to, each Lender Party from time to time (the "Register"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Administrative Agent and the Lender Parties may
treat each Person whose name is recorded in the Register as a Lender Party
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrower or any Lender Party at any reasonable time and
from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender Party and an assignee representing that it is an Eligible
Assignee, (and subject to the Borrower's approval, such approval not to be
unreasonably withheld) together with any Note or Notes, if any, subject to such
assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of Exhibit C hereto, (i)
accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Borrower. In
the case of any assignment by a Lender, within five Business Days after its
receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Administrative Agent in exchange for the surrendered Note, if
any, a new Note, if any, to the order of such Eligible Assignee in an amount
equal to the Commitment assumed by it pursuant to such Assignment and Acceptance
and, if the assigning Lender has retained a Commitment hereunder, a new Note to
the order of the assigning Lender in an amount equal to the Commitment retained
by it hereunder. Such new Note or Notes, if any, shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note or Notes, if any, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit A hereto.
(f) Each Lender Party may sell participations to one or more banks or
other entities that qualify as an Eligible Assignee (other than the Borrower or
any of its Affiliates) in or to all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment, the Advances owing to it and the Note, if any, or Notes, if any,
held by it); provided, however, that (i) such Lender Party's obligations under
this Agreement (including, without limitation, its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender Party shall remain the holder of any such Note, if any, for
all purposes of this Agreement, (iv) the Borrower, the Agents and the other
Lender Parties shall continue to deal solely and directly with such Lender Party
in connection with such Lender Party's rights and obligations under this
Agreement, (v) no participant under any such participation shall have any right
to approve any amendment or waiver of any provision of this Agreement or any
Note, if any, or any consent to any departure by the Borrower therefrom, except
to the extent that such amendment, waiver or consent would reduce the principal
of, or interest on, the Advances and the Notes, if any, or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or postpone any date fixed for any payment of principal of, or
interest on, the Advances and the Notes, if any, or any fees or other amounts
payable hereunder, in each case to the extent subject to such participation and
(vi) such Lender Party shall give prompt notice to the Borrower of such
participations.
63
<PAGE> 69
(g) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided that, prior to any such
disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
relating to the Borrower received by it from such Lender Party.
(h) Notwithstanding any other provision set forth in this Agreement, any
Lender Party may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Note, if any, held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
SECTION 8.08. Confidentiality.
Neither any Agent nor any Lender Party shall disclose any Confidential
Information to any other Person without the consent of the Borrower, other than
(a) to such Agent's or such Lender Party's Affiliates and their officers,
directors, employees, agents, auditors, attorneys and advisors and, as
contemplated by Section 8.07(f), to actual or prospective assignees and
participants, and then only on a confidential basis, (b) as required by any law,
rule or regulation or judicial process and (c) as requested or required by any
state, federal or foreign authority or examiner regulating banks or banking. In
the event any Lender Party is contemplating assigning or selling a participation
in all or a portion of its rights and obligations under this Agreement to one or
more Persons, prior to disclosing any Confidential Information to such Person,
such Person shall be required to execute a confidentiality agreement in form and
substance satisfactory to the Borrower and such Person.
SECTION 8.09. Reserved.
SECTION 8.10. Governing Law.
This Agreement and the Notes, if any, shall be governed by, and
construed in accordance with, the laws of the State of New York.
SECTION 8.11. Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective as delivery of
a manually executed counterpart of this Agreement.
SECTION 8.12. Jurisdiction, Etc.
(a) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdictions of any
New York State court and any California State court or federal court of the
United States of America sitting in New York City
64
<PAGE> 70
or San Diego, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the Notes, if any, or
for recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or any such California State court or, to the extent permitted by law, in
such federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement or the Notes
in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
65
<PAGE> 71
SECTION 8.13. Waiver of Jury Trial.
Each of the Borrower, the Agents and the Lender Parties hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the Notes, if any, or the actions of any Agent or
any Lender Party in the negotiation, administration, performance or enforcement
thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
QUALCOMM INCORPORATED
/s/ illegible
By _______________________________________________
Title:
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
as Administrative Agent, and as Syndication Agent
/s/ illegible
By _______________________________________________
Title:
CITIBANK, N.A.
as Documentation Agent and as Syndication Agent
/s/ illegible
By _______________________________________________
Title:
Initial Lenders
BANK OF AMERICA NATIONAL TRUSTS
& SAVINGS ASSOCIATION
as Initial Lender
By _______________________________________________
Title
66
<PAGE> 72
EXHIBIT A - FORM OF
PROMISSORY NOTE
U.S.$_______________ Dated: March 4, 1999
FOR VALUE RECEIVED, the undersigned, QUALCOMM INCORPORATED, a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
_________________________ (the "Lender") for the account of its Applicable
Lending Office on the Termination Date (each as defined in the Credit Agreement
referred to below) the principal sum of U.S.$[amount of the Lender's Commitment
in figures] or, if less, the aggregate principal amount of the Advances made by
the Lender to the Borrower pursuant to the Credit Agreement dated as of March 4,
1999 among the Borrower, the Lender and certain other lender parties party
thereto, Bank of America National Trust & Savings Association ("Bank of
America"), as Administrative Agent and Syndication Agent, and Citibank, N.A., as
Documentation Agent and Syndication Agent (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"; the terms defined therein
being used herein as therein defined) outstanding on the Termination Date.
The Borrower promises to pay interest on the unpaid principal amount of
each Advance from the date of such Advance until such principal amount is paid
in full, at such interest rates, and payable at such times, as are specified in
the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Bank of America, as Administrative Agent, at 1850 Gateway
Blvd, Concord, California 94520, Attention Alix Bax, in same day funds. Each
Advance owing to the Lender by the Borrower pursuant to the Credit Agreement,
and all payments made on account of principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached hereto
which is part of this Promissory Note.
This Promissory Note is one of the Notes referred to in, and is entitled
to the benefits of, the Credit Agreement. The Credit Agreement, among other
things, (i) provides for the making of Advances by the Lender to the Borrower
from time to time in an aggregate amount not to exceed at any time outstanding
the U.S. dollar amount first above mentioned, the indebtedness of the Borrower
resulting from each such Advance being evidenced by this Promissory Note, and
(ii) contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
QUALCOMM INCORPORATED
By _______________________________________________
Title:
1
<PAGE> 73
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF PRINCIPAL PAID UNPAID PRINCIPAL NOTATION
DATE ADVANCE OR PREPAID BALANCE MADE BY
---- ------- ---------- ------- -------
<S> <C> <C> <C> <C>
</TABLE>
2
<PAGE> 74
EXHIBIT B - FORM OF
NOTICE OF BORROWING
Bank of America National Trust & Savings Association,
as Administrative Agent
for the Lender Parties party
to the Credit Agreement
referred to below
[Date]
Attention: ____________________
Ladies and Gentlemen:
The undersigned, QUALCOMM Incorporated, refers to the Credit Agreement,
dated as of March 4, 1999 (as amended, supplemented or otherwise modified from
time to time, the "Credit Agreement", the terms defined therein being used
herein as therein defined), among the undersigned, certain Lender Parties party
thereto, Bank of America National Trust & Savings Association, as Administrative
Agent and Syndication Agent, and Citibank, N.A., as Documentation Agent and
Syndication Agent, and hereby gives you notice, irrevocably, pursuant to Section
2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing
under the Credit Agreement, and in that connection sets forth below the
information relating to such Borrowing (the "Proposed Borrowing") as required by
Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _______________, ____.
(ii) The Type of Advances comprising the Proposed Borrowing is [Base
Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed Borrowing is
$_______________.
[(iv) The initial Interest Period for each Eurodollar Rate Advance made
as part of the Proposed Borrowing is __________ month[s].]
(v) The Borrower's Designated Account for the proposed Borrowing is
__________________.
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 4.01 of the
Credit Agreement are correct, before and after giving effect to the Proposed
Borrowing and to the application of the proceeds therefrom, as though made on
and as of such date other than any such representations or warranties that, by
their terms, refer to a specific date other than the date of the Borrowing, in
which case as of a such specific date; and
1
<PAGE> 75
(B) no event has occurred and is continuing, or would result from such
Proposed Borrowing or from the application of the proceeds therefrom, that
constitutes a Default.
Very truly yours,
QUALCOMM INCORPORATED
By ___________________________________________
Title:
2
<PAGE> 76
EXHIBIT C - FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of March 4, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement") among QUALCOMM Incorporated, a Delaware corporation (the
"Borrower"), the Lender Parties (as defined in the Credit Agreement), Bank of
America National Trust & Savings Association, as administrative agent (the
"Administrative Agent") and syndication agent, and Citibank, N.A., as
documentation agent and syndication agent. Terms defined in the Credit Agreement
are used herein with the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule I hereto agree
as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, without recourse to the
Assignor, an interest in and to the Assignor's rights and obligations under the
Credit Agreement as of the date hereof equal to the percentage interest
specified on Schedule 1 hereto of all outstanding rights and obligations under
the Credit Agreement. After giving effect to such sale and assignment, the
Assignee's Commitment and the amount of the Advances owing to the Assignee will
be as set forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with any Loan Document or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of any Loan Document or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or the
performance or observance by the Borrower of any of its obligations under any
Loan Document or any other instrument or document furnished pursuant thereto;
and (iv) attaches the Note, if any, held by the Assignor and requests that the
Administrative Agent exchange such Note for a new Note payable to the order of
the Assignee (if requested by such Assignee) in an amount equal to the
Commitment assumed by the Assignee pursuant hereto or new Notes payable to the
order of the Assignee in an amount equal to the Commitment assumed by the
Assignee pursuant hereto and the Assignor in an amount equal to the Commitment
retained by the Assignor under the Credit Agreement, respectively, as specified
on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon any Agent, the Assignor or any other Lender Party and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes each Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Credit Agreement as are
delegated to
1
<PAGE> 77
such Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (v) agrees that it will perform in accordance
with their terms all of the obligations that by the terms of the Credit
Agreement are required to be performed by it as a Lender Party; and (vi)
attaches any U.S. Internal Revenue Service forms required under Section 2.14 of
the Credit Agreement.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent, along with a processing and recordation fee pursuant to
Section 8.07(a) of the Credit Agreement. The effective date for this Assignment
and Acceptance (the "Effective Date") shall be the date of acceptance hereof by
the Administrative Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative Agent, as of
the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender Party thereunder and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent, from
and after the Effective Date, the Administrative Agent shall make all payments
under the Credit Agreement and the Notes in respect of the interest assigned
hereby (including, without limitation, all payments of principal, interest and
facility fees with respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
and the Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
2
<PAGE> 78
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Assignee's Commitment: $___________
Aggregate outstanding principal amount of Advances assigned: $___________
Principal amount of Note payable to Assignee: $___________
Principal amount of Note payable to Assignor: $___________
Effective Date*:_______________, ____
[NAME OF ASSIGNOR], as Assignor
By____________________________________________________
Title:
Dated: _______________, ____
[NAME OF ASSIGNEE], as Assignee
By____________________________________________________
Title:
Domestic Lending Office:
[Address]
Eurodollar Lending Office:
[Address]
3
- --------
* This date should be no earlier than five Business Days after the
delivery of this Assignment and Acceptance to the Administrative Agent.
3
<PAGE> 79
Accepted [and Approved]* this
__________ day of _______________, ____
Bank of America National Trust & Savings Association, as Administrative Agent
By__________________________________________
Title:
[Approved this __________ day
of _______________, ____
QUALCOMM INCORPORATED
By__________________________________________
Title:+
- --------------
* Required if the Assignee is an Eligible Assignee solely by reason of
clause (v) of the definition of "Eligible Assignee".
+ Required if the Assignee is an Eligible Assignee solely by reason of
clause (v) of the definition of "Eligible Assignee".
4
<PAGE> 80
[COOLEY LETTERHEAD]
March 4, 1999
To the Lender Parties
party to the Credit Agreement
dated as of March 4, 1999
among QUALCOMM Incorporated, said Lender
Parties, Bank of America National Trust and Savings Association, as
Administrative Agent and Syndication Agent and to Citibank, N.A. as
Documentation Agent and Syndication Agent
RE: CREDIT AGREEMENT DATED AS OF MARCH 4 1999, AMONG QUALCOMM INCORPORATED,
AS BORROWER, THE LENDER PARTIES, BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, AS ADMINISTRATIVE AGENT AND SYNDICATION AGENT, AND
CITIBANK, N.A., AS DOCUMENTATION AGENT AND SYNDICATION AGENT
Ladies and Gentlemen:
We have acted as counsel for QUALCOMM Incorporated, a Delaware corporation (the
"Company"), in connection with the Credit Agreement dated as of March 4, 1999
(the "Credit Agreement"), among the Company, the financial institutions listed
therein as Initial Lenders (the "Lenders"), Bank of America National Trust and
Savings Association as Administrative Agent (the "Administrative Agent") and
Syndication Agent (a "Syndication Agent"), and Citibank, N.A., as Documentation
Agent (the "Documentation Agent") and Syndication Agent (a "Syndication Agent").
We are providing this opinion to you at the request of the Company pursuant to
Section 3.01(g)(v) of the Credit Agreement. Capitalized terms used in this
opinion letter will have the meanings given to such terms in the Credit
Agreement except as otherwise provided in this opinion letter.
In connection with this opinion, we have examined the following documents,:
1. the Credit Agreement;
2. the Notes dated March 4, 1999 listed on Schedule A hereto;
3. the Restated Certificate of Incorporation of the Company, as
amended on February 17, 1998, and presently in effect;
4. the Bylaws of the Company as adopted August 29, 1991 and
presently in effect;
<PAGE> 81
The Lender Parties et al.
March 4, 1999
Page Two
5. a certificate of the Secretary of State of the State of Delaware
dated March 1, 1999, attesting to the continued corporate
existence and good standing of the Borrower in that State;
6. the resolutions of the Board of Directors of the Company
authorizing the Loan Documents and the transactions contemplated
by the Loan Documents adopted at a meeting held on January 27,
1999; and
7. each of the Material Agreements (defined below) set forth on
Schedule B hereto.
As used herein, the term "Loan Documents" shall mean documents 1 and 2 above.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Loan Documents by the various parties and upon originals or
copies certified to our satisfaction of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
Where we render an opinion "to the best of our knowledge" or concerning an item
"known to us" or our opinion otherwise refers to our knowledge, it is based
solely upon (a) an inquiry of attorneys in this firm who perform legal services
for the Company and (b) receipt of a certificate executed by an officer of the
Company covering such matters (the "Company Certificate").
In rendering this opinion, we have assumed, with your consent, the genuineness
and authenticity of all signatures on original documents (other than the
signatures on behalf of the Company on the Loan Documents); the authenticity of
all documents submitted to us as originals; the conformity to originals of all
documents submitted to us as copies; the accuracy, completeness and authenticity
of certificates of public officials; the due authorization, execution and
delivery of all documents, including, without limitation, the due authorization,
execution and delivery of the Loan Documents (except the due authorization,
execution and delivery by the Company of any Loan Documents) where
authorization, execution and delivery are prerequisites to the effectiveness of
such documents; and that such documents constitute legally valid and binding
obligations of each party thereto (except for the Company) enforceable against
such parties in accordance with their respective terms.
We have also assumed, with your consent, that all individuals executing and
delivering documents have the legal capacity to so execute and deliver; that the
Loan Documents are obligations binding upon the parties thereto (except the
Company); that the Lender Parties and the Agents have filed any required
California franchise or income tax returns and have paid any required California
franchise or income taxes; and that there are no extrinsic agreements or
<PAGE> 82
The Lender Parties et al.
March 4, 1999
Page Three
understandings among the parties to the Loan Documents that would modify or
interpret the terms of the Loan Documents or the respective rights or
obligations of the parties thereunder.
With your permission, we have assumed, without investigation, that: (a) the
Lenders will disburse the Loans in accordance with the terms of the Credit
Agreement; (b) all Loans required to be disbursed will be disbursed by the
Lender Parties to the Company; (c) all payments of principal and interest due
under the Loan Documents, and all fees and reimbursable costs paid by the
Company with respect thereto, will be received by the Administrative Agent and
the Lender Parties for their own account and applied in payment of the
obligations under the Loan Documents; and (d) at the time of each such
disbursement and payment, all facts and applicable law will be the same as those
existing as of the date of this opinion.
Our opinion is expressed only with respect to the Federal laws of the United
States of America, the laws of the State of California and the General
Corporation Law of the State of Delaware ("Delaware Law"). We express no opinion
as to whether the laws of any particular jurisdiction will apply. We note,
however, that the parties to the Loan Documents have designated the laws of the
State of New York as the laws governing the Loan Documents. Our opinion in
paragraph 3 below as to the validity, binding effect and enforceability of the
Loan Documents is premised upon the result that would be obtained if a
California court were to apply the internal laws of the State of California
(notwithstanding the designation of the laws of the State of New York) to the
interpretation and enforcement of the Loan Documents.
We express no opinion (i) relative to the applicability or effect of any law,
rule or regulation relating to securities or to the sale or issuance thereof,
(ii) with respect to the applicability or effect of any pension, employee
benefit or tax laws, including, without limitation, the Internal Revenue Code,
the California Revenue and Taxation Code and the Employee Retirement Income
Security Act of 1974, as amended, and other similar laws, statutes, acts,
regulations or ordinances, or any decrees or decisional law with respect
thereto, (iii) federal or state antitrust, unfair competition or trade practice
laws or regulations, (iv) compliance with fiduciary requirements, (v) federal or
state environmental laws and regulations, (vi) compliance with any antifraud law
or (vii) federal or state laws and regulations concerning filing requirements,
other than requirements applicable to charter-related documents.
Insofar as any law, rule or regulation of the State of California regarding
maximum allowable interest rates may be applicable, we have, with your
permission, assumed that each of the Agents and each Lender Party is a bank
incorporated or organized under, or a foreign bank licensed to conduct a banking
business through an agency located in the United States of America pursuant to,
the laws of the United States of America or any state of the United States of
America, within the meaning of Section 1 of Article XV of the California
Constitution and Section 1716 of the California Financial Code.
<PAGE> 83
The Lender Parties et al.
March 4, 1999
Page Four
Our opinions in paragraph 3 below as to the enforceability of any obligations of
the Company under any of the Loan Documents may be limited by or subject to
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium, marshaling or other laws and
rules of law affecting the enforcement generally of creditors' rights and
remedies. In addition, we express no opinion as to the effect of California
Civil Code Section 1717 on the recovery of attorneys' fees in contract actions,
limitations imposed by California law on the appointment of receivers, and the
enforceability of any particular provision of any of the Loan Documents (1)
relating to rights or remedies or as to the availability of any specific or
equitable relief of any kind (and we point out that the enforcement of any of
your rights may be subject in all cases to an implied duty of good faith and
fair dealing and to general principles of equity, regardless of whether such
enforceability is considered in a proceeding at law or in equity), (2) where the
breach of such provisions imposes restrictions or burdens upon the debtor,
including the acceleration of indebtedness due under debt instruments, and it
cannot be demonstrated that the enforcement of such restrictions or burdens is
reasonably necessary for the protection of the creditor, (3) whereby any Lender
Party purchasing a participation from another Lender Party may exercise set-off
or similar rights with respect to such participation or (4) relating to (a)
waivers of defenses, rights to trial by jury, or rights to object to
jurisdiction or venue and other rights or benefits bestowed by statute or court
decisions, (b) waivers of provisions which are not capable of waiver under
Section 1-102(3) of the California Uniform Commercial Code or (c) exculpation
clauses, indemnity clauses and clauses relating to releases or waivers of
unmatured claims or rights.
With respect to our opinion in paragraph 4 below, with respect to defaults under
any Material Agreement, we have relied solely upon, (i) an inquiry of officers
of the Company, (ii) a list of agreements certified to us in the Company
Certificate by officers of the Company as all the loan, debt, indenture, note,
mortgage, or similar financing agreements relating to the extension of credit to
Company (a) involving amounts exceeding $15,000,000, or (b) that otherwise
affect or purport to affect the obligation of the Company under any Loan
Document or the right of the Company to borrow money or to consummate the other
transactions contemplated under the Loan Documents (all of which agreements are
listed on Schedule A hereto and are referred to collectively herein as the
"Material Agreements"), and (iii) an examination of the Material Agreements; we
have made no further investigation and reviewed no other documents. With respect
to the list of agreements referred to in clause (ii) of the preceding sentence,
we have with your permission relied solely upon such certificate as to the
accuracy of matters set forth therein even though such certificate may involve
conclusions of law in addition to representations of fact and you understand we
express no opinion as to the accuracy of the certificate or the reasonableness
of reliance thereon.
For purposes of the opinions expressed in paragraphs 4 and 5 below, we have
assumed that the Company will not in the future take any discretionary action
(including a decision not to act)
<PAGE> 84
The Lender Parties et al.
March 4, 1999
Page Five
permitted by the Loan Documents that would cause the payment of the Loan to
violate any California or federal statute, rule or regulation or constitute a
violation or breach of or default under any of the agreements, orders, judgments
or decrees referred to in clauses (ii) and (iii) of paragraph 4 or require an
order, consent, permit or approval to be obtained from a California or federal
governmental authority.
We express no opinion as to the effect of non-compliance by the Lender Parties
with any state or federal laws or regulations applicable to the transactions
contemplated by the Loan Documents because of the nature of the Lenders'
business.
On the basis of the foregoing, in reliance thereon, and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated, and is validly existing
and in good standing under the laws of the State of Delaware, with corporate
power and authority to enter into the Loan Documents and to perform its
obligations thereunder.
2. The execution, delivery and performance of the Loan Documents
have been duly authorized by all necessary corporate action on the part of the
Company, and the Loan Documents have been duly executed and delivered by the
Company.
3. The Loan Documents constitute legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
4. The Company's execution and delivery of, and performance of its
obligations on the Effective Date under, the Loan Documents do not (i) violate
the Company's Certificate of Incorporation or Bylaws, (ii) violate, breach, or
result in a default under, any existing obligation of or restriction on the
Company under any Material Agreement identified in the Company's Certificate, or
(iii) breach or otherwise violate any existing obligation of or restriction on
the Company under any order, judgment or decree of any California or federal
court or governmental authority binding on the Company identified in the
Company's Certificate.
5. The execution and delivery by the Company of, and performance of
its obligations under, the Loan Documents do not violate or contravene any
California or federal statute or regulation which, in our experience, is
applicable generally to borrowers in commercial transactions of the nature
contemplated by the Loan Documents.
6. No orders, consents, permits or approvals of any California or
federal governmental authority which, in our experience, are applicable
generally to borrowers in commercial transactions of the nature contemplated by
the Loan Documents, are required for the
<PAGE> 85
The Lender Parties et al.
March 4, 1999
Page Six
execution, delivery of, and performance by the Company of its obligations under
the Loan Documents.
7. To the best of our knowledge, there are no actions, suits, or
proceedings pending or overtly threatened against the Company which purport to
affect the legality, validity, binding effect or enforceability of any of the
Loan Documents. Except for those matters described in the Company's Form 10-K
for the Company's fiscal year ending September 27, 1998 filed with the
Securities and Exchange Commission, we have not given substantive attention on
behalf of the Company or any of its Subsidiaries to, or represented the Company
in connection with, any actions, suits or proceedings pending or threatened
against the Company or any of its Subsidiaries before any court, arbitrator or
governmental agency which might have a materially adverse effect upon the
financial condition or operations of the Company or of the Company and its
Restricted Subsidiaries taken as a whole. We call your attention to the fact
that our engagement is limited to specific matters as to which we have been
consulted by the Company and its Subsidiaries and to which we have devoted
substantive attention. There may, therefore, be other matters of a legal nature
that could bear on the Company and its Subsidiaries with respect to which we
have not been consulted.
Our opinions set forth above are limited to the matters expressly set forth in
this opinion letter, and no opinion may be implied or inferred beyond the
matters expressly stated. This opinion speaks only as to law and facts in effect
or existing as of the date hereof and we undertake no obligation or
responsibility to update or supplement this opinion to reflect any facts or
circumstances that may hereafter come to our attention or any changes in or law
which may hereafter occur.
<PAGE> 86
The Lender Parties et al.
March 4, 1999
Page Seven
This opinion is intended solely for your benefit, the Lender Parties listed on
Schedule I of the Credit Agreement on the date hereof and permitted assignees
under the Credit Agreement and is not to be relied upon by any other person,
firm or entity. In addition, this opinion may be made available to, but may not
be relied upon by, participants, potential participants and regulators having
authority over any Lender Party or permitted assignee.
Sincerely,
Joseph A. Scherer
JAS:dp
<PAGE> 87
SCHEDULE A
THE NOTES
The Bank of New York
BankBoston, N.A.
Banque Nationale de Paris
Citibank, N.A.
Fleet National Bank
Sanwa Bank California
KeyBank National Association
Societe Generale
<PAGE> 88
SCHEDULE B
MATERIAL AGREEMENTS
1) Indenture dated as of February 25, 1997, between the Company and
Wilmington Trust Company, as Trustee for the Holders of the 5-3/4%
Convertible Subordinated Debentures due 2012 issued pursuant thereto.
2) Letter of Credit dated as of April 28, 1997, issued by The Bank of New
York in the amount of $58,000,000 for the account of the Company for the
benefit of Bank of America NT & SA, which supports certain obligations
of the Company under the System Equipment Purchase Agreement dated as of
February 27, 1997, between the Company and Chilesat Telefonia Personal
S.A. ("Chilesat PCS").
3) Guaranty dated as of April 25, 1997, as amended by the First Amendment
to Guaranty dated as of June 20, 1997, executed by the Company for the
benefit of Bank of America NT & SA, pursuant to which the Company
guaranties up to fifty percent of the reimbursement obligations of
Chilesat PCS under the Reimbursement Agreement dated as of November 7,
1996, as amended, between Chilesat PCS and Bank of America NT & SA.
4) Application and Agreement for Standby Letter of Credit dated December
11, 1996, by and between QUALCOMM Incorporated and Bank of America NT &
SA relating to the issuance of a standby letter of credit for the
account of QUALCOMM China Inc. in favor of The Chase Manhattan Bank in
the amount of $US 22,514,479 and related Security Agreement: Secured
Party in Possession of even date therewith.
5) Credit Agreement dated as of March 11, 1998, by and among QUALCOMM
Incorporated, as Borrower, the Lender Parties, Bank of America N.T. &
S.A., as Administrative Agent, Syndication Agent and Initial Issuing
Bank, and Citibank, N.A., as Documentation Agent and Syndication Agent
as amended by that First Amendment to Revolving Credit Agreement dated
as of March 4, 1999 by and among the same parties.
<PAGE> 89
EXHIBIT E - FORM OF
COMPLIANCE CERTIFICATE
Dated as of ____________
The undersigned hereby certifies that [s]he is a Responsible Officer of
QUALCOMM, Incorporated (the "Borrower") and that as such [s]he is authorized to
execute this certificate on behalf of the Borrower. With reference to the Credit
Agreement, dated as of March 4, 1999 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement", the terms defined therein
being used herein as therein defined), among the undersigned, certain Lender
Parties party thereto, Bank of America National Trust & Savings Association, as
Administrative Agent and Syndication Agent, and Citibank, N.A., as Documentation
Agent and Syndication Agent, the undersigned further certifies, represents and
warrants as follows:
(a) attached hereto as Annex A are the calculations necessary to confirm
compliance with the covenants contained in Section 5.03 of the Credit Agreement;
[(b) attached hereto as Annex B are the financial statements provided
pursuant to Section 5.01(i)(ii) of the Credit Agreement;]
(c) no Default has occurred or is continuing;
(d) all calculations on the attached annexes are made in accordance with
GAAP; and
(e) the information contained herein is true, complete and correct.
QUALCOMM INCORPORATED
By ____________________________________
Title:
1
<PAGE> 90
Annex A
to Compliance Certificate
1. Total Debt/Total Capitalization = Total Debt = __________________
____________________
Total Capitalization
Where
Total Debt = a - (b + c + d - e)
___________ = ___________ _ (____________ + ____________ + _____________ _
___________)
and
Total Capitalization = Total Debt + f + g + h
___________ = ___________ + ___________ + ___________ + _____________
and
a = Debt of Borrower and its Restricted Subsidiaries* = _____________
b = Trust Convertible Preferred Securities outstanding*
(so long as no Special
Event of Default shall have
occurred or be continuing = _____________
c = cash*_____ = _____________
d = Cash Equivalents* = _____________
e = cash and Cash Equivalents pledged by Borrower
and its Restricted
Subsidiaries to secure Debt of
such Person up to the amount of such Debt* = _____________
and
f = aggregate principal amount of Trust Convertible Securities
(or similar instruments not included in Total Debt)** = _____________
+
- --------------
* Caculated on a Consolidated Basis
** Specify type of similar instrument
2
<PAGE> 91
g = [capitalized][deferred] interest of Trust
Convertible Securities (or similar
instruments not included
in Total Debt)_ = __________________
h = Consolidated shareholders' equity = __________________
(including preferred stock)
2. Leverage Ratio = Total Debt
_______ ____________________ = __________________
_______ Consolidated EBITDA
3. Interest Coverage Consolidated EBITDA+
Ratio__= ____________________ = __________________
Interest Expense+
- -------------
+ of the Borrower and its Subsidiaries
3
<PAGE> 1
EXHIBIT 10.2
-------------------------------------------
*** Text Omitted and Filed Separately
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4), 200.83 and
240.24b-2
-------------------------------------------
MULTI-PRODUCT LICENSE AGREEMENT
This Multi-Product License Agreement (the "Agreement") is entered into on March
24, 1999 by and between QUALCOMM Incorporated, a Delaware corporation, having
its executive offices at 6455 Lusk Boulevard, San Diego, California, U.S.A.,
92121 (hereinafter referred to as "Q") and TELEFONAKTIEBOLAGET LM ERICSSON
(PUBL), a Swedish corporation having its executive offices at S-126 25
Stockholm, Sweden (hereinafter referred to as "E"), with respect to the
following facts:
RECITALS
WHEREAS, Q and E are parties in the civil action entitled
"Ericsson Inc. et al. v. QUALCOMM Inc. et al." (the "Litigation") and by
entering into this Agreement, a settlement agreement and a subscriber unit
license agreement agree to settle and resolve the Litigation and to release all
existing claims relating thereto;
WHEREAS, contemporaneously with the execution of this Agreement Q
and E have entered into an Asset Purchase Agreement, dated as of the date hereof
(the "Asset Purchase Agreement") pursuant to which E has agreed to purchase and
Q has agreed to sell certain assets and liabilities of Q's infrastructure
business;
WHEREAS, Q and E each own patents that are essential to make, use
and sell products which comply with the standards based on cdmaOne, cdma2000 and
WCDMA; and
WHEREAS, as part of the settlement of the Litigation, each Party
has agreed to grant the other Party a license under the respective Essential
Patent portfolio and such other patents as may be designated under this
Agreement for use in CDMA Applications, including but not limited to cdmaOne,
cdma2000 and W-CDMA, effective upon the Closing (as defined in the Asset
Purchase Agreement) (the "Effective Date").
NOW, THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, the Parties hereby agree as follows:
1. Headings and Definitions.
All headings used in this Agreement are inserted for convenience
only and are not intended to affect the meaning or interpretation of this
Agreement or any clause. For purposes of this Agreement, the following
definitions apply:
"Affiliate" of a Party means a company or other legal entity
which controls, is controlled by, or is under common control with such Party,
but any such company or other legal entity shall be deemed to be an Affiliate
only as long as such control exists, and for the purposes of this definition,
"control" means direct or indirect ownership of at least fifty percent (50%) of
<PAGE> 2
2
the voting power of the shares or other securities for election of directors (or
other managing authority) of the controlled or commonly controlled entity.
"ASICs" means individual integrated circuit chips and integrated
circuit chipsets (including the hardware, firmware and/or associated software
that runs on the ASIC) which are custom designed to perform a particular
function or functions.
"CDMA Applications" means all communications applications
(regardless of the transmission medium) which operate using code division
multiple access ("CDMA") technology, whether or not based on IS-95 Related
Systems, cdma2000 or W-CDMA, and irrespective of frequency band.
"CDMA Modules" means modules, chip(s), chipsets (whether or not
mounted on circuit cards) and circuit cards (for example, but not limited to,
PCMCIA cards) that provide communication capabilities (regardless of the
transmission medium) for use in user terminals (for example, PC's, vending
machines and play stations), if sold separately (i.e., not incorporated into a
user terminal). The CDMA Module must perform at least all the functionality
necessary for all CDMA and RF modulation and demodulation.
"E" means Telefonaktiebolaget LM Ericsson (publ), a Swedish
corporation.
"E's Licensed Patents" means E's (and its Affiliates') Essential
Patents, and any non-Essential Patent selected by Q in accordance with either
Section 2.3 or Section 3.3. The term "E's Licensed Patents" also includes the
Patents In Suit.
"Essential Patents" means those Patents (in any country of the
world) as to which it is, or is claimed by the patent owner to be, not possible
on technical (but not commercial) grounds, taking into account normal technical
practice and the state of the art generally available at the time of adoption or
publication of the relevant Standard, to make, sell, lease, otherwise dispose
of, repair, use or operate equipment or methods which comply with such Standard
without infringing such patent.
"E's Essential Patents" or "Q's Essential Patents" means
Essential Patents owned or sublicensable by E (or by any of E's Affiliates), or
by Q (or by any of Q's Affiliates), respectively. If such Essential Patents are
not owned by a Party or its Affiliates and are sublicensable by such Party or
its Affiliates only with payment of additional royalty or consideration to a
third party, or subject to obligations imposed as a condition of granting
sublicenses, then such patents are included within the Patents being licensed
hereunder only to the extent that the Party receiving such license agrees to pay
any such additional royalty or consideration and agrees to be bound by such
obligations in connection with such Party's use of such Patents.
<PAGE> 3
3
"Have Made" means the right to have a third party make a product
for CDMA Applications for the use and benefit of the party exercising the have
made right, provided that:
(i) the party exercising the have made right owns and supplies
the designs, or specifications, or working drawings to such third party
(except with respect to ASICs as to which a Party must own and design
only the overall architecture thereof);
(ii) such designs, specifications, and working drawings (in the
case of ASICs , as to the overall architecture) are in sufficient detail
that no substantial additional design by such third party is required;
(iii) such third party is not allowed to sell such product to
other third parties; and
(iv) each such product sold by the Party exercising the have made
right, or its Affiliate or Manufacturing Licensees shall bear the
trademarks, trade names, or other commercial indicia of such party or
its Affiliate or Manufacturing Licensee, although such products may be
co-branded with the trademarks, trade names, or other commercial indicia
of the reseller or distributor of such products. The requirements of
this subparagraph (iv) shall not apply where a customer requires that
the product bear only such customer's trademarks, trade names, or other
commercial indicia.
"Infrastructure Equipment" means network equipment, including but
not limited to equipment in the mobile switching center and cell sites. The term
"Infrastructure Equipment" does not include Subscriber Units or ASICs (other
than those ASICs incorporated and sold in E's Infrastructure Equipment).
"IS-95 Related Systems" means IS-95 and any single carrier system
with a spreading bandwidth not greater than 1.25 MHz and based on or derived
from IS-95.
"Litigation" means all litigation pending as of the Effective
Date between E and Q (and/or their Affiliates) in the United States District
Court for the Eastern District of Texas.
[*]
* Confidential Treatment Requested
<PAGE> 4
4
[*]
"Multi-Mode" means Licensed Products having the capability to
operate utilizing a CDMA air interface and an air interface in accordance with
one or more non-CDMA standards.
"Party" means Q and E individually, and the term "Parties" means
Q and E collectively.
"Patent" means all patents (including utility models) and like
statutory rights other than design patents, issued at any time before, on or
after the Effective Date anywhere in the world:
(i) which are owned, exclusively or jointly, or controlled by
either Party or any of its Affiliates at any time, or
(ii) with respect to which, and to the extent to which, either
Party or any of its Affiliates shall have the right to grant the licenses
and rights herein granted.
"Patents In Suit" means the eleven patents asserted in the
Litigation, U.S. Pat. Nos. 5,088,108 (RE 36,017), 5,209,528 (RE 36,079),
5,148,485, 5,193,140, 5,230,003, 5,239,557, 5,282,250, 5,327,577 (RE 36,078),
5,390,245, 5,430,760 and 5,551,073, and their foreign counterparts, reissuances,
divisionals, continuations and continuations in part.
"Q"means QUALCOMM Incorporated, a Delaware corporation.
"Q's ASICs" means ASICs Sold by Q, the overall architecture of
which has been designed by Q, although the functional blocks of such ASICs may
be designed by others (e.g., as in the MSM 2300 and MSM 3000 ASICs).
"Q's Licensed Patents" means Q's (and its Affiliates') Essential
Patents and any non-Essential Patent selected by E in accordance with either
Section 2.3 or Section 3.3.
"Sold," "Sale," "Sell" means put into use, sold, leased or
otherwise transferred and a sale shall be deemed to have occurred upon first use
by a third party, shipment or invoicing, whichever shall first occur.
"Standards" means those standards which are applicable to CDMA
Applications.
* Confidential Treatment Requested
<PAGE> 5
5
"Subscriber Units" means (a) complete user terminals which can be
used without any additional equipment or components being attached thereto to
initiate or receive wireless transmissions and (b) CDMA Modules. The term
"Subscriber Units" does not include Infrastructure Equipment or ASICs (other
than those ASICs incorporated and sold in a Party's Subscriber Units).
2. License Grant By E.
2.1 License Grant. E hereby grants to Q, effective as of the
Effective Date, a world-wide, nontransferable, non-exclusive license under E's
Licensed Patents to make and Have Made, use, sell, offer for sale, lease or
otherwise dispose of, and import Q's ASICs, test equipment and Globalstar
gateway equipment (collectively, the "Q Licensed Products") for CDMA
Applications. The license further includes (a) the right for the Q Licensed
Products to be [*] and (b) to make and use solely by Q (but not to sell, lease
or otherwise dispose of to third parties) instrumentalities for the development
and manufacture of the Q Licensed Products.
2.2 Royalties. [*] For the avoidance of doubt, the Sale by Q to a
third party for use in a wireless telephone of a chip or chipset (whether or not
mounted on a circuit card provided that such circuit card is not a finished
product, e.g. a PCMCIA card) that meets the definition of Q's ASICs shall be
treated under this Agreement as an ASIC Sale and not as a Subscriber Unit Sale.
2.3 Inclusion of Other Patents. At any time and from time to
time, Q can cause any of E's non-Essential Patents to be included in E's
Licensed Patents for CDMA Applications by notifying E, in which case E shall
have the right to cause an equal number of Q's non-Essential Patents to be
included in Q's Licensed Patents for CDMA Applications. The patents so included
by Q or by E shall be deemed to have been so included as of the Effective Date
of this Agreement. In the event that Q causes the same non-Essential Patent of E
to be included in E's Licensed Patents under this Agreement and under the
subscriber unit license agreement of even date herewith, E shall have the right
to cause only a single Patent of Q's non-Essential Patents to be included in Q's
Licensed Patents for use under both agreements.
2.4 Right to Sublicense. Other than to Manufacturing Licensees as
set forth below and as set forth in Section 2.5, Q shall have the right to grant
sublicenses of the rights set forth in Section 2.1 above only to Affiliates of
Q. In the event that tender requirements or regulatory requirements or
identifiable market requirements in a country so reasonably necessitate, Q, or
Affiliates of Q, may also grant sublicenses to a Manufacturing Licensee(s) to
* Confidential Treatment Requested
<PAGE> 6
6
manufacture and supply products designed and developed by Q or by any of its
Affiliates only in the Limited Geographic Territory and only for so long as it
remains a Manufacturing Licensee. Any sublicensed Affiliate shall agree to be
subject in all respects to all of the obligations contained in this Agreement.
Any sublicensed Manufacturing Licensee shall agree in writing to a sublicense
containing terms and conditions not inconsistent with this Agreement, [*]. Any
sublicense granted to a Manufacturing Licensee shall continue only so long as
such Manufacturing Licensee does not assert, either in litigation or by a direct
communication to E, E's Affiliates, E's Manufacturing Licensees or customers for
E Licensed Products, any Essential Patents for CDMA Applications against E
Licensed Products. If such Manufacturing Licensee asserts non-Essential Patents
against E, E's Affiliates, E's Manufacturing Licensees or customers for E
Licensed Products, Q shall use reasonable efforts to cause such Manufacturing
Licensee to withdraw such assertion. Q, in addition to any such sublicensed
Affiliate and Manufacturing Licensee, shall be responsible for failure of any
such sublicensed Affiliate and Manufacturing Licensee to comply with such
obligations and provisions. Any such sublicense shall terminate immediately if
such Affiliate ceases to be an Affiliate of Q or such Manufacturing Licensee
ceases to be a Manufacturing Licensee. Any sublicense to an Affiliate shall be
effective retroactively as of the later of the Effective Date or the date such
Affiliate became an Affiliate. Any sublicense to a Manufacturing Licensee shall
be effective as of the date Q notifies E of such sublicense being granted in
accordance with 2.4.1 below.
2.4.1 Manufacturing Licensee. Not less than thirty (30) days
prior to commencement of sublicensed operations of any entity which Q desires to
sublicense as a Manufacturing Licensee, Q shall deliver written notice to E
specifying such entity, the nature and percentage of Q's ownership, and the
Limited Geographic Territory in which such Manufacturing Licensee shall
manufacture and sell products and such other information as may be reasonably
requested by E. Q shall ensure that each Manufacturing Licensee exercises the
rights it receives by virtue of becoming a Manufacturing Licensee only in the
Limited Geographic Territory and that each Manufacturing Licensee complies in
all respects with the terms and conditions of this Agreement and any breach of
this Agreement by any Manufacturing Licensee shall be deemed to be a breach of
this Agreement by Q.
2.5 Rights for Q's ASIC Customers.
2.5.1 Licensed Patents Within Q's ASIC. [*] For the purposes of
this Agreement only, E claims that
* Confidential Treatment Requested
<PAGE> 7
7
all of the Patents In Suit would be infringed by the use of Q's MSM 2300 and MSM
3000 ASICs for their intended purposes and, solely with respect to the rights of
Q and Q's ASIC customers under this Agreement, E agrees not to claim otherwise
and not to claim that any of the Patents In Suit are not Essential Patents to
IS-95 Rev. A and B.
2.5.2 Essential Patents Not Within Q's ASIC. [*]
2.5.3 Non-assertion Against E. Any sublicense granted to any ASIC
customer of Q under Section 2.5.1 or 2.5.2 shall continue only so long as such
ASIC customer does not assert, either in litigation or by a direct communication
to E, E's Affiliates, Manufacturing Licensees or customers for E's Licensed
Products, any Essential Patents for CDMA Applications against E's Licensed
Products and such ASIC customer does not dismiss such litigation or withdraw
such assertion or offer a royalty-free license under such patents within thirty
(30) days after Q's receipt of notice from E of such litigation or
communication.
2.5.4 Royalty Rates for Q's ASIC Customers. E agrees to offer to
Q's ASIC customers, [*] licenses under E's Essential Patents (which have not
been sublicensed in Sections 2.5.1 and 2.5.2 above) to make and have made, use,
sell, offer for sale, lease or otherwise dispose of, and import, equipment
incorporating Q's ASICs and used in CDMA Applications other than IS-95 Related
Systems. [*] The royalty rate under such licenses shall be calculated by [*]
* Confidential Treatment Requested
<PAGE> 8
8
[*]
2.6 No Implied License. The license granted to Q in Section 2.1
and the sublicenses granted to Q's Affiliates and Manufacturing Licensees in
Section 2.4 above specifically exclude, other than as set forth in Sections
2.5.1 and 2.5.2 above, any and all rights to use or sell Q Licensed Products
under circumstances or in a manner which conveys or purports to convey, whether
explicitly, by principles of implied license, patent exhaustion or otherwise, to
any third party user or purchaser of such Q Licensed Products any rights or
licenses under any of E's patents which would not be infringed by the use for
their intended purposes of such Q Licensed Products.
3. Grant of License from Q to E.
3.1 License Grant. Q hereby grants to E, effective as of the
Effective Date, a world-wide, non-transferable, non-exclusive license under Q's
Licensed Patents to make and Have Made, use, sell, offer for sale, lease or
otherwise dispose of, and import Infrastructure Equipment for terrestrial-based
CDMA Applications and for satellite-based CDMA Applications to the extent that Q
is not contractually prohibited from granting such license as of the Effective
Date of this Agreement (but should Q on a later date become entitled to license
any additional rights for satellite based CDMA such rights shall be deemed to be
licensed hereunder as of such date conditioned upon E then being willing to
grant a reciprocal license to Q for gateway equipment for satellite
applications) and test equipment for CDMA Applications (collectively, the "E
Licensed Products") and the right to Have Made ASICs for incorporation into E
Licensed Products. Q hereby also grants to E, effective as of the Effective
Date, a world-wide, non-transferable, non-exclusive license to make and Have
Made, use, sell, offer for sale, lease or otherwise dispose of, and import
Infrastructure Equipment and test equipment for terrestrial-based CDMA
Applications under any of Q's patents or patent applications which exist on the
Effective Date and are utilized in the terrestrial-based infrastructure
products/systems used or sold by Q's infrastructure business, and in future
generations of such infrastructure products/systems developed, used or sold by
E. The license further includes [*]
* Confidential Treatment Requested
<PAGE> 9
9
3.2 [*]
3.3 Inclusion of Other Patents. At any time and from time to
time, E can cause any of Q's non-Essential Patents to be included in Q's
Licensed Patents for CDMA Applications by notifying Q, in which case Q shall
have the right to cause an equal number of E's non-Essential Patents to be
included in E's Licensed Patents for CDMA Applications. The patents so included
by E or by Q shall be deemed to have been so included as of the Effective Date
of this Agreement. In the event that E causes the same non-Essential Patent of Q
to be included in Q's Licensed Patents under this Agreement and under the
subscriber unit license agreement of even date herewith, Q shall have the right
to cause only a single Patent of E's non-Essential Patents to be included in E's
Licensed Patents for use under both agreements.
3.4 Right to Sublicense. Other than to Manufacturing Licensees as
set forth below, E shall have the right to grant sublicenses of the rights set
forth in Section 3.1 above only to Affiliates of E. In the event that tender
requirements or regulatory requirements or identifiable market requirements in a
country so reasonably necessitate, E, or its Affiliates, may also grant
sublicenses to a Manufacturing Licensee(s) to manufacture and supply products
designed and developed by E or by any of its Affiliates only in the Limited
Geographic Territory and only for so long as it remains a Manufacturing
Licensee. Any sublicensed Affiliate shall agree to be subject in all respects to
all of the obligations contained in this Agreement. Any sublicensed
Manufacturing Licensee shall agree in writing to a sublicense containing terms
and conditions not inconsistent with this Agreement, [*]. Any sublicense granted
to a Manufacturing Licensee shall continue only so long as such Manufacturing
Licensee does not assert, either in litigation or by a direct communication to
Q, Q's Affiliates, Q's Manufacturing Licensees or customers for Q Licensed
Products, any Essential Patents for CDMA Applications against Q Licensed
Products. If such Manufacturing Licensee asserts non-Essential Patents against
Q, Q's Affiliates, Q's Manufacturing Licensees or customers for Q Licensed
Products, E shall use reasonable efforts to cause such Manufacturing Licensee to
withdraw such assertion. E, in addition to any such sublicensed Affiliate and
Manufacturing Licensee, shall be responsible for failure of any such sublicensed
Affiliate and Manufacturing Licensee to comply with such obligations and
provisions. Any such sublicense shall terminate immediately if such Affiliate
ceases to be an Affiliate of E or such Manufacturing Licensee ceases to be a
Manufacturing Licensee. Any sublicense to an Affiliate shall be effective
retroactively as of the later of the Effective Date or the date such Affiliate
became an Affiliate. Any sublicense to a Manufacturing Licensee shall be
effective as of the date E notifies Q of such sublicense being granted in
accordance with 3.4.1 below.
3.4.1 Manufacturing Licensee. Not less than thirty (30) days
prior to commencement of sublicensed operations of any entity which E desires to
sublicense as a
* Confidential Treatment Requested
<PAGE> 10
10
Manufacturing Licensee, E shall deliver written notice to Q specifying such
entity, the nature and percentage of E's ownership, and the Limited Geographic
Territory in which such Manufacturing Licensee shall manufacture and sell
products and such other information as may be reasonably requested by Q. E shall
ensure that each Manufacturing Licensee exercises the rights it receives by
virtue of becoming a Manufacturing Licensee only in the Limited Geographic
Territory and that each Manufacturing Licensee complies in all respects with the
terms and conditions of this Agreement and any breach of this Agreement by any
Manufacturing Licensee shall be deemed to be a breach of this Agreement by E.
3.5 No Implied License. The license granted to E in Section 3.1
and the sublicenses granted to E's Affiliates and Manufacturing Licensees under
Section 3.4 above specifically exclude any and all rights to use or sell E
Licensed Products under circumstances or in a manner which conveys or purports
to convey, whether explicitly, by principles of implied license, patent
exhaustion or otherwise, to any third party user or purchaser of such E Licensed
Products any rights or licenses under any of Q's patents which would be
infringed by the use for their intended purposes of such E Licensed Products.
4. Limitations on License Grants.
4.1 Jointly Owned Patents. With respect to Patents herein
licensed which are owned by a Party jointly with others, the Parties recognize
that there are countries which require the express consent of all inventors or
their assignees to the grant of licenses or rights under patents issued in such
countries for such jointly owned inventions. Each Party hereby expressly gives
such consent, shall obtain such consent from its Affiliates and shall use all
reasonable efforts to obtain such consent from its employees and its Affiliates'
employees, and from other third parties, as required to make full and effective
any such licenses and rights granted to the grantee hereunder by such Party and
by another licensor of such grantee.
If, in spite of such efforts, a Party is unable to obtain such
consents from any such employees or third parties, the resulting inability of
such Party to make full and effective its purported grant of such licenses and
rights shall not be considered to be a breach of this agreement. For the
avoidance of doubt, in such case, the licenses and rights shall be considered
granted by each Party to the maximum extent possible, and, consequently, if the
other Party acquires a corresponding license from the employee or third party,
such other Party shall be deemed licensed under the patent.
<PAGE> 11
11
4.2 Obligations to Third Parties. In the event the exercise of a
license hereunder exposes the grantor or any of its Affiliates to any obligation
to make a payment to a third party (other than payments between a Party and its
Affiliates and its or their employees), or if the license to the grantor imposes
additional obligations on the grantor, [*]. Each Party represents that there is,
at the date of this Agreement, no such obligation to make payments in respect of
any property licensed hereunder.
5. Release. Subject to settlement of the Litigation, each Party for
itself and its present Affiliates, hereby releases the other Party and the other
Party's present Affiliates and all customers of such other Party and such other
Party's present Affiliates who have purchased or used products herein licensed
to the other Party, from all claims, demands and rights of action which the
first mentioned Party or any of its present Affiliates may have on account of
any act of infringement or alleged infringement of any Licensed Patent prior to
the Effective Date, provided such act would be licensed under this Agreement if
it had occurred subsequent to the Effective Date.
6. Forbearance. Unless the rights of either Party would be prejudiced
thereby, E and Q agree (to the extent feasible and permitted by law), to forbear
for a reasonable period (not to exceed six months from when each dispute arises)
from bringing (or further actively pursuing) any administrative or court
proceeding contesting the grant or validity of any patent licensed hereunder and
agree to discuss in good faith the resolution of any such dispute. Nothing in or
associated with this Agreement shall be construed as hindering either Party in
any way from challenging the validity of any patent or other intellectual
property right and any such challenge shall not be construed a breach of this
Agreement.
7. Term of Agreement. This Agreement shall commence on the Effective
Date hereof and, except as provided in Section 8, continue until the last
Licensed Patent hereunder shall have expired.
8. Termination.
8.1 Termination for Breach. If either Party (as the "Defaulting
Party") shall at any time commit any material breach of any material covenant
contained herein and shall fail to remedy any such breach within sixty (60) days
after written notice specifying such breach by the other Party, the
non-defaulting Party may, at its option, terminate all licenses and rights
granted herein to the Defaulting Party. All licenses granted to the Party
terminating the other Party's licenses would survive but only as to Patents
issued prior to the date of termination.
8.2 Change of Control. In the event that a third party active in
a material way in the field of telecommunications or data communications
acquires 50% or more of the voting
* Confidential Treatment Requested
<PAGE> 12
12
securities of a Party, all licenses granted herein to such Party shall only be
exercisable in manufacturing facilities where and to like degree previously
exercised by such Party and shall not extend to the operations of such owning or
controlling entity without the express consent of the other Party but the other
Party shall have no right to select patents of the acquiring party in accordance
with Section 2.3 or 3.3.
8.3 Termination of Asset Purchase Agreement. This Agreement shall
terminate automatically and without any further action on the part of either
Party upon any termination of the Asset Purchase Agreement.
9. Miscellaneous Provisions.
9.1 Representations and Disclaimers:
9.1.1. Representations. Each Party represents and warrants that
it has the right and power to enter into this Agreement and the right to and
authority to grant to the other Party the licenses and rights granted herein.
9.1.2. Disclaimers. Nothing contained in this Agreement shall be
construed as:
(a) a warranty or representation that any manufacture, sale,
lease, use or importation will be free from infringement
of patents, copyrights or other intellectual property
rights of others, and it shall be the sole responsibility
of the licensee Party to make such determination as is
necessary with respect to the acquisition of licenses
under patents and other intellectual property of third
parties;
(b) an agreement to bring or prosecute actions or suits
against third parties for infringement;
(c) an obligation to furnish any manufacturing or technical
information or assistance;
(d) conferring any right to use, in advertising, publicity or
otherwise, any name, trade name or trademark, or any
contraction, abbreviation or simulation thereof; and
(e) an obligation upon either Party to make any determination
as to the applicability of any patent to any product of
the other Party.
Neither Party makes any representations, extends any warranties
of any kind and assumes no responsibility whatever with respect
to the manufacture, sale, lease, use or importation of any
product, or part thereof, by the other Party or any of its
<PAGE> 13
13
Affiliates or any of its Manufacturing Licensees or any direct or
indirect supplier or vendee or other transferee of the other
Party or its Affiliates.
9.2 No Waiver. No waiver of the terms and conditions of this
Agreement, or the failure of either Party strictly to enforce any such term or
condition on one or more occasions shall be construed as a waiver of the same or
of any other term or condition of this Agreement on any other occasion.
9.3 Assignment. Neither this Agreement nor any license or rights
hereunder, in whole or in part, shall be assignable or otherwise transferable by
any Party without the written consent of the other Party.
9.4 Severability. If any term, clause, or provision of this
Agreement shall be judged to be invalid or unenforceable, the validity or
enforceability of any other term, clause or provision, shall not be affected;
and such invalid or unenforceable term, clause, or provision shall be deemed
deleted from this Agreement, and this Agreement shall continue in force, and in
the event such invalid or unenforceable provision is considered a material
element of this Agreement, the Parties shall promptly negotiate a replacement
provision in good faith that best meets the intent of the Parties.
9.5 Notice. Any notice, request or information shall be deemed to
be sufficiently given to the addressee when forwarded by prepaid, registered or
certified first class mail or by facsimile transmission or hand delivery to the
following addressee:
<TABLE>
<S> <C>
If to Q: If to E:
QUALCOMM Incorporated Telefonaktiebolaget LM Ericsson
6455 Lusk Boulevard S-126 25 Stockholm
San Diego, CA 92121 SWEDEN
Facsimile No.: (619) 658-2500 Facsimile No.: 011-46-8-719-9527
Attention: President Attention: General Counsel
with a copy to: General Counsel
</TABLE>
The above addresses can be changed by providing notice to the other Party in
accordance with this Section.
9.6 Publication of Agreement. Except as may otherwise be required
by law or as reasonably necessary for performance hereunder, each Party shall
keep the provisions of this Agreement confidential, and shall not disclose its
provisions without first obtaining the written consent of the other Party. The
confidentiality obligations hereunder do not apply to the
<PAGE> 14
14
existence of this Agreement and Q may disclose the existence and the extent to
which it has been granted the right to sublicense Q's ASIC customers in
accordance with Section 2.
9.7 Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the Parties as to the subject matter hereof,
and merges all prior discussions between them, and no Party hereto shall be
bound by any conditions, definitions, warranties, understandings, or
representations with respect to such subject matter other than as expressly
provided herein, or as duly set forth on or subsequent to the date hereof in
writing and by duly authorized officers of the Parties.
9.8 Dispute Resolution.
9.8.1 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York,
U.S.A.
9.8.2 Resolution Procedures. In the event of any alleged
breach of the Agreement or any dispute between the Parties arising under
this Agreement, the Parties shall adopt the following procedures for
resolution of the matter:
9.8.2.1 Negotiated Resolution. The Parties shall first
attempt to resolve the matter by a meeting between executive
level managers of both parties to review a presentation by each
Party concerning the alleged breach or matter in dispute. Only if
the executive level managers are unable to resolve the alleged
breach or dispute within thirty (30) days of the meeting shall
either Party be free to proceed under Section 9.1 or to institute
a claim or action under Section 9.8.2.2.
9.8.2.2 Arbitration. Any controversy or claim arising out
of or relating to this Agreement, its interpretation,
performance, or termination, or the breach thereof that has not
been resolved under Section 9.8.2.1 shall be settled by
arbitration conducted in accordance with the Rules of Arbitration
of the International Chamber of Commerce then in effect on the
date of such controversy or claim. Any such arbitration shall
take place in the City of New York and shall be conducted before
a panel of three arbitrators appointed in accordance with such
Rules (each Party shall select one impartial arbitrator who shall
together select the third arbitrator) and the decision of the
selected arbitrators shall be binding and conclusive upon the
parties, their successors and assigns, who shall comply with such
decision in good faith as if it were a final decision of a court
of competent jurisdiction. Judgment upon the arbitrators' award
may be entered in any court of competent jurisdiction.
9.9 [*]
* Confidential Treatment Requested
<PAGE> 15
15
[*]
* Confidential Treatment Requested
<PAGE> 16
16
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date first written above. This Agreement may be signed in
counterpart.
QUALCOMM Incorporated Telefonaktiebolaget LM Ericsson (publ)
/s/ illegible /s/ illegible
BY: _______________________________ BY: _______________________________
Title: Title:
/s/ illegible
BY: _______________________________
Title:
<PAGE> 1
EXHIBIT 10.3
-------------------------------------------
*** Text Omitted and Filed Separately
Confidential Treatment Requested Under
17 C.F.R. Sections 200.80(b)(4), 200.83 and
240.24b-2
-------------------------------------------
SUBSCRIBER UNIT LICENSE AGREEMENT
This Subscriber Unit License Agreement (the "Agreement") is entered into on
March 24, 1999 by and between QUALCOMM Incorporated, a Delaware corporation,
having its executive offices at 6455 Lusk Boulevard, San Diego, California,
U.S.A., 92121 (hereinafter referred to as "Q") and TELEFONAKTIEBOLAGET LM
ERICSSON (PUBL), a Swedish corporation having its executive offices at S-126 25
Stockholm, Sweden (hereinafter referred to as "E"), with respect to the
following facts:
RECITALS
WHEREAS, Q and E are parties in the civil action entitled
"Ericsson Inc. et al. v. QUALCOMM Inc. et al." (the "Litigation") and by
entering into this Agreement, a settlement agreement and a multi-product license
agreement agree to settle and resolve the Litigation and to release all existing
claims relating thereto;
WHEREAS, contemporaneously with the execution of this Agreement Q
and E have entered into an Asset Purchase Agreement, dated as of the date hereof
(the "Asset Purchase Agreement") pursuant to which E has agreed to purchase and
Q has agreed to sell certain assets and liabilities of Q's infrastructure
business;
WHEREAS, Q and E each own patents that are essential to make, use
and sell products which comply with the standards based on cdmaOne, cdma2000 and
WCDMA; and
WHEREAS, as part of the settlement of the Litigation, each Party
has agreed to grant the other Party a license under the respective Essential
Patent portfolio and such other patents as may be designated under this
Agreement for use in CDMA Applications, including but not limited to cdmaOne,
cdma2000 and W-CDMA, effective upon the Closing (as defined in the Asset
Purchase Agreement) (the "Effective Date").
NOW, THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, the Parties hereby agree as follows:
1. Headings and Definitions.
All headings used in this Agreement are inserted for convenience
only and are not intended to affect the meaning or interpretation of this
Agreement or any clause. For purposes of this Agreement, the following
definitions apply:
"Affiliate" of a Party means a company or other legal entity
which controls, is controlled by, or is under common control with such Party,
but any such company or other legal entity shall be deemed to be an Affiliate
only as long as such control exists, and for the purposes
<PAGE> 2
2
of this definition, "control" means direct or indirect ownership of at least
fifty percent (50%) of the voting power of the shares or other securities for
election of directors (or other managing authority) of the controlled or
commonly controlled entity.
"ASICs" means individual integrated circuit chips and integrated
circuit chipsets (including the hardware, firmware and/or associated software
that runs on the ASIC) which are custom designed to perform a particular
function or functions.
"CDMA Applications" means all communications applications
(regardless of the transmission medium) which operate using code division
multiple access ("CDMA") technology, whether or not based on IS-95 Related
Systems, cdma2000 or W-CDMA, and irrespective of frequency band.
"CDMA Modules" means modules, chip(s), chipsets (whether or not
mounted on circuit cards) and circuit cards (for example, but not limited to,
PCMCIA cards) that provide communication capabilities (regardless of the
transmission medium) for use in user terminals (for example, PC's, vending
machines and play stations), if sold separately (i.e., not incorporated into a
user terminal). The CDMA Module must perform at least all the functionality
necessary for all CDMA and RF modulation and demodulation.
"E" means Telefonaktiebolaget LM Ericsson (publ), a Swedish
corporation.
"E's Licensed Patents" means E's (and its Affiliates') Essential
Patents, and any non-Essential Patent selected by Q in accordance with either
Section 2.3 or Section 3.3. The term "E's Licensed Patents" also includes the
Patents In Suit.
"Essential Patents" means those Patents (in any country of the
world) as to which it is, or is claimed by the patent owner to be, not possible
on technical (but not commercial) grounds, taking into account normal technical
practice and the state of the art generally available at the time of adoption or
publication of the relevant Standard, to make, sell, lease, otherwise dispose
of, repair, use or operate equipment or methods which comply with such Standard
without infringing such patent.
"E's Essential Patents" or "Q's Essential Patents" means
Essential Patents owned or sublicensable by E (or by any of E's Affiliates), or
by Q (or by any of Q's Affiliates), respectively. If such Essential Patents are
not owned by a Party or its Affiliates and are sublicensable by such Party or
its Affiliates only with payment of additional royalty or
<PAGE> 3
3
consideration to a third party, or subject to obligations imposed as a condition
of granting sublicenses, then such patents are included within the Patents being
licensed hereunder only to the extent that the Party receiving such license
agrees to pay any such additional royalty or consideration and agrees to be
bound by such obligations in connection with such Party's use of such Patents.
"Have Made" means the right to have a third party make a product
for CDMA Applications for the use and benefit of the party exercising the have
made right, provided that:
(i) the party exercising the have made right owns and supplies
the designs, or specifications, or working drawings to such third party
(except with respect to ASICs as to which a Party must own and design
only the overall architecture thereof);
(ii) such designs, specifications, and working drawings (in the
case of ASICs , as to the overall architecture) are in sufficient detail
that no substantial additional design by such third party is required;
(iii) such third party is not allowed to sell such product to
other third parties; and
(iv) each such product sold by the Party exercising the have made
right, or its Affiliate or Manufacturing Licensees shall bear the
trademarks, trade names, or other commercial indicia of such party or
its Affiliate or Manufacturing Licensee, although such products may be
co-branded with the trademarks, trade names, or other commercial indicia
of the reseller or distributor of such products. The requirements of
this subparagraph (iv) shall not apply where a customer requires that
the product bear only such customer's trademarks, trade names, or other
commercial indicia.
"Infrastructure Equipment" means network equipment, including but
not limited to equipment in the mobile switching center and cell sites. The term
"Infrastructure Equipment" does not include Subscriber Units or ASICs (other
than those ASICs incorporated and sold in E's Infrastructure Equipment).
"IS-95 Related Systems" means IS-95 and any single carrier system
with a spreading bandwidth not greater than 1.25 MHz and based on or derived
from IS-95.
"Litigation" means all litigation pending as of the Effective
Date between E and Q (and/or their Affiliates) in the United States District
Court for the Eastern District of Texas.
[*]
* Confidential Treatment Requested
<PAGE> 4
4
[*]
"Multi-Mode" means Licensed Products having the capability to
operate utilizing a CDMA air interface and an air interface in accordance with
one or more non-CDMA standards.
"Net Selling Price" means, with respect to any Subscriber Unit
Sold, the greater of [*]
"Party" means Q and E individually, and the term "Parties" means
Q and E collectively.
"Patent" means all patents (including utility models) and like
statutory rights other than design patents, issued at any time before, on or
after the Effective Date anywhere in the world:
* Confidential Treatment Requested
<PAGE> 5
5
(i) which are owned, exclusively or jointly, or controlled by
either Party or any of its Affiliates at any time, or
(ii) with respect to which, and to the extent to which, either
Party or any of its Affiliates shall have the right to grant the
licenses and rights herein granted.
"Patents In Suit" means the eleven patents asserted in the
Litigation, U.S. Pat. Nos. 5,088,108 (RE 36,017), 5,209,528 (RE 36,079),
5,148,485, 5,193,140, 5,230,003, 5,239,557, 5,282,250, 5,327,577 (RE 36,078),
5,390,245, 5,430,760 and 5,551,073, and their foreign counterparts, reissuances,
divisionals, continuations and continuations in part.
"Q" means QUALCOMM Incorporated, a Delaware corporation.
"Q's ASICs" means ASICs Sold by Q, the overall architecture of
which has been designed by Q, although the functional blocks of such ASICs may
be designed by others (e.g., as in the MSM 2300 and MSM 3000 ASICs).
"Q's Licensed Patents" means Q's (and its Affiliates') Essential
Patents and any non-Essential Patent selected by E in accordance with either
Section 2.3 or Section 3.3.
"Sold," "Sale," "Sell" means put into use, sold, leased or
otherwise transferred and a sale shall be deemed to have occurred upon first use
by a third party, shipment or invoicing, whichever shall first occur.
"Standards" means those standards which are applicable to CDMA
Applications.
"Subscriber Units" means (a) complete user terminals which can be
used without any additional equipment or components being attached thereto to
initiate or receive wireless transmissions and (b) CDMA Modules. The term
"Subscriber Units" does not include Infrastructure Equipment or ASICs (other
than those ASICs incorporated and sold in a Party's Subscriber Units).
2. License Grant By E.
2.1 License Grant. E hereby grants to Q, effective as of the
Effective Date, a world-wide, non-transferable, non-exclusive [*] license under
E's Licensed Patents to make and Have Made, use, sell, offer for sale, lease or
otherwise dispose of, and import Subscriber Units designed by Q or its
Affiliates and which design is owned by Q or its Affiliates (the "Q Licensed
Products") for CDMA Applications. The license further includes [*]
* Confidential Treatment Requested
<PAGE> 6
6
[*]
2.2 Royalties. The license to Q in Section 2.1 shall be [*] with
respect to all of the Q Licensed Products, with the exception only for those
Subscriber Units licensed pursuant to this Agreement Sold by Q beginning four
years after the Effective Date of this Agreement (the "Reportable Subscriber
Units"). Beginning four years after the Effective Date and within sixty (60)
days after the end of each calendar quarter during the remaining term of this
Agreement, Q agrees to pay E a royalty equal to [*] of the royalty rate then
being paid by E to Q for Subscriber Units Sold by E in accordance with Section
3.2 of this Agreement times the Net Selling Price of each Reportable Subscriber
Unit Sold [*]. For the avoidance of doubt, the Sale by Q to a third party for
use in a wireless telephone of a chip or chipset (whether or not mounted on a
circuit card provided that such circuit card is not a finished product, e.g. a
PCMCIA card) that meets the definition of Q's ASICs shall be treated under this
Agreement as an ASIC Sale under the Multi-Product License Agreement and not as a
Subscriber Unit Sale hereunder unless Q has paid the royalty, if any, applicable
to a Subscriber Unit.
2.2.1 [*]
2.2.2 [*]
2.2.3 If Q sells a CDMA Module to an Affiliate or
Manufacturing Licensee of Q for incorporation into a Subscriber Unit, [*]
2.3 Inclusion of Other Patents. At any time and from time to
time, Q can cause any of E's non-Essential Patents to be included in E's
Licensed Patents for CDMA Applications by notifying E, in which case E shall
have the right to cause an equal number of Q's non-Essential Patents to be
included in Q's Licensed Patents for CDMA Applications. The
* Confidential Treatment Requested
<PAGE> 7
7
patents so included by Q or by E shall be deemed to have been so included as of
the Effective Date of this Agreement. In the event that Q causes the same
non-Essential Patent of E to be included in E's Licensed Patents under this
Agreement and under the Multi-Product License Agreement of even date herewith, E
shall have the right to cause only a single Patent of Q's non-Essential Patents
to be included in Q's Licensed Patents for use under both agreements.
2.4 Right to Sublicense. Other than to Manufacturing Licensees as
set forth below, Q shall have the right to grant sublicenses of the rights set
forth in Section 2.1 above only to Affiliates of Q. In the event that tender
requirements or regulatory requirements or identifiable market requirements in a
country so reasonably necessitate, Q, or Affiliates of Q, may also grant
sublicenses to a Manufacturing Licensee(s) to manufacture and supply products
designed and developed by Q or by any of its Affiliates only in the Limited
Geographic Territory and only for so long as it remains a Manufacturing
Licensee. Any sublicensed Affiliate shall agree to be subject in all respects to
all of the obligations contained in this Agreement, including but not limited to
the payment of royalties on any Subscriber Units sold by such Affiliate. Any
sublicensed Manufacturing Licensee shall agree in writing to a sublicense
containing terms and conditions not inconsistent with this Agreement, including
but not limited to the payment of royalties on any Subscriber Units sold by such
Manufacturing Licensee, [*]. Any sublicense granted to a Manufacturing Licensee
shall continue only so long as such Manufacturing Licensee does not assert,
either in litigation or by a direct communication to E, E's Affiliates, E's
Manufacturing Licensees or customers for E Licensed Products, any Essential
Patents for CDMA Applications against E Licensed Products. If such Manufacturing
Licensee asserts non-Essential Patents against E, E's Affiliates, E's
Manufacturing Licensees or customers for E Licensed Products, Q shall use
reasonable efforts to cause such Manufacturing Licensee to withdraw such
assertion. Q shall report to E the Net Selling Price for all Reportable
Subscriber Units Sold by each Affiliate and Manufacturing Licensee that is
granted a sublicense. Q, in addition to any such sublicensed Affiliate and
Manufacturing Licensee, shall be responsible for failure of any such sublicensed
Affiliate and Manufacturing Licensee to comply with such obligations and
provisions. Any such sublicense shall terminate immediately if such Affiliate
ceases to be an Affiliate of Q or such Manufacturing Licensee ceases to be a
Manufacturing Licensee. Any sublicense to an Affiliate shall be effective
retroactively as of the later of the Effective Date or the date such Affiliate
became an Affiliate. Any sublicense to a Manufacturing Licensee shall be
effective as of the date Q notifies E of such sublicense being granted in
accordance with 2.4.1 below.
2.4.1 Manufacturing Licensee. Not less than thirty (30) days
prior to commencement of sublicensed operations of any entity which Q desires to
sublicense as a Manufacturing Licensee, Q shall deliver written notice to E
specifying such entity, the nature and percentage of Q's ownership, and the
Limited Geographic Territory in which such Manufacturing Licensee shall
manufacture and sell products and such other information as may be reasonably
requested by E. Q shall ensure that each Manufacturing Licensee exercises the
* Confidential Treatment Requested
<PAGE> 8
8
rights it receives by virtue of becoming a Manufacturing Licensee only in the
Limited Geographic Territory and that each Manufacturing Licensee complies in
all respects with the terms and conditions of this Agreement and any breach of
this Agreement by any Manufacturing Licensee shall be deemed to be a breach of
this Agreement by Q.
2.5 [*]
2.6 No Implied License. The license granted to Q in Section 2.1
and the sublicenses granted to Q's Affiliates and Manufacturing Licensees in
Section 2.4 above specifically exclude any and all rights to use or sell Q
Licensed Products under circumstances or in a manner which conveys or purports
to convey, whether explicitly, by principles of implied license, patent
exhaustion or otherwise, to any third party user or purchaser of such Q Licensed
Products any rights or licenses under any of E's patents which would not be
infringed by the use for their intended purposes of such Q Licensed Products.
* Confidential Treatment Requested
<PAGE> 9
9
3. Grant of License from Q to E.
3.1 License Grant. Q hereby grants to E, effective as of the
Effective Date, a world-wide, non-transferable, non-exclusive [*] license under
Q's Licensed Patents to make and Have Made, use, sell, offer for sale, lease or
otherwise dispose of, and import Subscriber Units, designed by E or its
Affiliates and which design is owned by E or its Affiliates, for CDMA
Applications (the above licensed Subscriber Units are hereafter referred to as
the "E Licensed Products") and the right to Have Made ASICs for incorporation
into E Licensed Products. The license further includes [*]. Notwithstanding
anything to the contrary contained in this Agreement, E is not granted a license
under any of Q's patents to sell any CDMA Modules or ASICs to any third party,
directly or indirectly, for incorporation into a wireless telephone.
3.2 Royalties. Within sixty (60) days after the end of each
calendar quarter during the term of this Agreement, E agrees to pay Q a royalty
equal to [*]
3.2.1 Notwithstanding anything to the contrary herein, the
maximum royalty payable by E on any Subscriber Unit (other than telephones) Sold
[*]
3.2.2 [*]
* Confidential Treatment Requested
<PAGE> 10
10
where Q holds Patents which would be infringed by the importation or Sale of
such Subscriber Units.
3.2.3 If E sells a CDMA Module to an Affiliate or
Manufacturing Licensee of E for incorporation into a Subscriber Unit, then the
royalty shall be [*].
3.3 Inclusion of Other Patents. At any time and from time to
time, E can cause any of Q's non-Essential Patents to be included in Q's
Licensed Patents for CDMA Applications by notifying Q, in which case Q shall
have the right to cause an equal number of E's non-Essential Patents to be
included in E's Licensed Patents for CDMA Applications. The patents so included
by E or by Q shall be deemed to have been so included as of the Effective Date
of this Agreement. In the event that E causes the same non-Essential Patent of Q
to be included in Q's Licensed Patents under this Agreement and under the
Multi-Product License Agreement of even date herewith, Q shall have the right to
cause only a single Patent of E's non-Essential Patents to be included in E's
Licensed Patents for use under both agreements.
3.4 Right to Sublicense. Other than to Manufacturing Licensees as
set forth below, E shall have the right to grant sublicenses of the rights set
forth in Section 3.1 above only to Affiliates of E. In the event that tender
requirements or regulatory requirements or identifiable market requirements in a
country so reasonably necessitate, E, or its Affiliates, may also grant
sublicenses to a Manufacturing Licensee(s) to manufacture and supply products
designed and developed by E or by any of its Affiliates only in the Limited
Geographic Territory and only for so long as it remains a Manufacturing
Licensee. Any sublicensed Affiliate shall agree to be subject in all respects to
all of the obligations contained in this Agreement, including but not limited to
the payment of royalties on any Subscriber Units Sold by such Affiliate. Any
sublicensed Manufacturing Licensee shall agree in writing to a sublicense
containing terms and conditions not inconsistent with this Agreement, including
but not limited to the payment of royalties on any Subscriber Units sold by such
Manufacturing Licensee, [*]. Any sublicense granted to a Manufacturing Licensee
shall continue only so long as such Manufacturing Licensee does not assert,
either in litigation or by a direct communication to Q, Q's Affiliates, Q's
Manufacturing Licensees or customers for Q Licensed Products, any Essential
Patents for CDMA Applications against Q Licensed Products. If such Manufacturing
Licensee asserts non-Essential Patents against Q, Q's Affiliates, Q's
Manufacturing Licensees or customers for Q Licensed Products, E shall use
reasonable efforts to cause such Manufacturing Licensee to withdraw such
assertion. E shall report to Q the Net Selling Price for all Subscriber Units
Sold by each Affiliate and Manufacturing Licensee that is granted a sublicense.
E, in addition to any such sublicensed Affiliate and Manufacturing Licensee,
shall be responsible for failure of any such sublicensed Affiliate and
Manufacturing Licensee to comply with such
* Confidential Treatment Requested
<PAGE> 11
11
obligations and provisions. Any such sublicense shall terminate immediately if
such Affiliate ceases to be an Affiliate of E or such Manufacturing Licensee
ceases to be a Manufacturing Licensee. Any sublicense to an Affiliate shall be
effective retroactively as of the later of the Effective Date or the date such
Affiliate became an Affiliate. Any sublicense to a Manufacturing Licensee shall
be effective as of the date E notifies Q of such sublicense being granted in
accordance with 3.4.1 below.
3.4.1 Manufacturing Licensee. Not less than thirty (30) days
prior to commencement of sublicensed operations of any entity which E desires to
sublicense as a Manufacturing Licensee, E shall deliver written notice to Q
specifying such entity, the nature and percentage of E's ownership, and the
Limited Geographic Territory in which such Manufacturing Licensee shall
manufacture and sell products and such other information as may be reasonably
requested by Q. E shall ensure that each Manufacturing Licensee exercises the
rights it receives by virtue of becoming a Manufacturing Licensee only in the
Limited Geographic Territory and that each Manufacturing Licensee complies in
all respects with the terms and conditions of this Agreement and any breach of
this Agreement by any Manufacturing Licensee shall be deemed to be a breach of
this Agreement by E.
3.5 [*]
* Confidential Treatment Requested
<PAGE> 12
12
[*]
3.6 [*]
3.7 No Implied License. The license granted to E in Section 3.1
and the sublicenses granted to E's Affiliates and Manufacturing Licensees under
Section 3.4 above specifically exclude any and all rights to use or sell E
Licensed Products under circumstances or in a manner which conveys or purports
to convey, whether explicitly, by principles of implied license, patent
exhaustion or otherwise, to any third party user or purchaser of such E Licensed
Products any rights or licenses under any of Q's patents which would be
infringed by the use for their intended purposes of such E Licensed Products.
4. Limitations on License Grants.
4.1 Jointly Owned Patents. With respect to Patents herein
licensed which are owned by a Party jointly with others, the Parties recognize
that there are countries which require the express consent of all inventors or
their assignees to the grant of licenses or rights under patents issued in such
countries for such jointly owned inventions. Each Party hereby expressly gives
such consent, shall obtain such consent from its Affiliates and shall use all
reasonable efforts to obtain such consent from its employees and its Affiliates'
employees, and from other third parties, as required to make full and effective
any such licenses and rights granted to the grantee hereunder by such Party and
by another licensor of such grantee.
If, in spite of such efforts, a Party is unable to obtain such
consents from any such employees or third parties, the resulting inability of
such Party to make full and effective its purported grant of such licenses and
rights shall not be considered to be a breach of this agreement. For the
avoidance of doubt, in such case, the licenses and rights shall be considered
granted by each Party to the maximum extent possible, and, consequently, if the
other Party
* Confidential Treatment Requested
<PAGE> 13
13
acquires a corresponding license from the employee or third party, such other
Party shall be deemed licensed under the patent.
4.2 Obligations to Third Parties. In the event the exercise of a
license hereunder exposes the grantor or any of its Affiliates to any obligation
to make a payment to a third party (other than payments between a Party and its
Affiliates and its or their employees), or if the license to the grantor imposes
additional obligations on the grantor, the grantee shall, at the request of the
grantor, [*]
5. Release. Subject to settlement of the Litigation, each Party for
itself and its present Affiliates, hereby releases the other Party and the other
Party's present Affiliates and all customers of such other Party and such other
Party's present Affiliates who have purchased or used products herein licensed
to the other Party, from all claims, demands and rights of action which the
first mentioned Party or any of its present Affiliates may have on account of
any act of infringement or alleged infringement of any Licensed Patent prior to
the Effective Date, provided such act would be licensed under this Agreement if
it had occurred subsequent to the Effective Date.
6. Purchases from Licensed Sources. Subject to Sections 2.2.2 and 3.2.2,
royalties shall be payable under this Agreement on Subscriber Units Sold by a
Party which use any of the other Party's Licensed Patents (including but not
limited to by use of an ASIC from whomsoever purchased). If either Party (as the
"Purchasing Party") purchases Subscriber Units (other than CDMA Modules) from a
third party, which third party is licensed under all of the other Party's
Licensed Patents contained in such Subscriber Unit, then, as long as the
Purchasing Party is not purchasing such Subscriber Units under its Have Made
rights granted to it under this Agreement, the Purchasing Party shall not be
required to pay royalties to the other Party with respect to such Subscriber
Units. For CDMA Modules purchased by the Purchasing Party from a CDMA Modules
manufacturer exercising license rights granted by the other Party to manufacture
and sell such CDMA Modules for its own account, the Purchasing Party shall be
entitled to [*] in calculating the Net Sales Price of the Subscriber Unit
containing such CDMA Module for royalty calculation purposes under Section 2.2
or Section 3.2 provided that such third party is licensed to convey to
purchasers all necessary rights under the non-Purchasing Party's Licensed
Patents to use such CDMA Module. [*]
7. Taxes. Withholding taxes and any other taxes levied anywhere in the
world upon payments by the paying Party to the licensor Party of royalties under
this Agreement and
* Confidential Treatment Requested
<PAGE> 14
14
required to be withheld from such payments shall be withheld and paid by the [*]
to the appropriate tax authorities. In connection therewith, the gross amounts
to be paid shall be adjusted in such a manner that all such taxes are for [*].
Promptly after each such tax payment, the official tax receipts or other
evidence issued by the tax authority concerned shall be forwarded to [*] to
enable it to support a claim for tax credit.
8. Conversion to U.S. Dollars. Royalties shall be paid in U.S. dollars
by wire-transfer and at a bank to be designated by the payee. To the extent that
the Net Selling Price for Subscriber Units Sold outside of the United States is
paid to the selling Party other than in U.S. dollars, then such Party shall
convert the portion of the royalty payable to the licensor from such Net Selling
Price into U.S. dollars at the official rate of exchange of the currency of the
country from which the Net Selling Price was paid, as quoted by the U.S. Wall
Street Journal (or the Chase Manhattan Bank or another agreed-upon source if not
quoted in the Wall Street Journal) for the last business day of the calendar
quarter in which such Subscriber Units were Sold. If the transfer of or the
conversion into U.S. dollars is not lawful or possible, the payment of such part
of the royalties as is necessary shall be made by the deposit thereof, in the
currency of the country where the sale was made on which the royalty was based
to the credit and account of the licensor Party or its nominee in any commercial
bank or trust company of the licensor Party's choice located in that country,
prompt notice of which shall be given by the paying Party to the licensor Party.
9. Forbearance. Unless the rights of either Party would be prejudiced
thereby, E and Q agree (to the extent feasible and permitted by law), to forbear
for a reasonable period (not to exceed six months from when each dispute arises)
from bringing (or further actively pursuing) any administrative or court
proceeding contesting the grant or validity of any patent licensed hereunder and
agree to discuss in good faith the resolution of any such dispute. Nothing in or
associated with this Agreement shall be construed as hindering either Party in
any way from challenging the validity of any patent or other intellectual
property right and any such challenge shall not be construed a breach of this
Agreement.
10. Third Party Infringement. Upon discovery by either Party (Licensee
Party) of any infringement by a third party (the "Infringer") of any Licensed
Patent(s) of the other Party (Licensor Party) which results in a material
competitive disadvantage to the Licensee party in a country or countries by
virtue of its being a licensee under this Agreement, the Licensee Party shall
promptly notify the Licensor Party of such infringement. [*]
* Confidential Treatment Requested
<PAGE> 15
15
[*]
11. Term of Agreement. This Agreement shall commence on the Effective
Date hereof and, except as provided in Section 13, continue until the last
Licensed Patent hereunder shall have expired.
12. Records and Remittances.
12.1 Audits. Each Party (and each of its sublicensed Affiliates
and Manufacturing Licensees), as a licensee, shall keep clear and accurate
records with respect to Subscriber Units. Each Party, as a licensor, shall have
the right, through independent certified public accountants of its choosing (but
reasonably acceptable to the other Party) to receive a list of all sublicensed
Affiliates during the audit period and to examine and audit, during normal
business hours, semi-annually (or at less frequent intervals) all such records
and such other records and accounts as may under recognized accounting practices
contain information bearing upon the amount of royalties payable to it under
this Agreement. Prompt adjustment shall be made by any Party who has made any
error or omission disclosed by such examination or audit to compensate for any
errors or omissions disclosed by such examination or audit. Neither such right
to examine and audit, nor the right to receive such adjustments, shall be
affected by statements to the contrary appearing on checks or otherwise, unless
any such right is expressly waived by the Party having such right. Each Party,
as a licensee, shall furnish the other whatever additional information the other
Party may reasonably prescribe from time to time to enable such other Party to
ascertain whether Subscriber Units Sold by the licensee Party or any of its
Affiliates or Manufacturing Licensees are subject to payment of royalties
hereunder and the amount payable thereon. If the adjustment payable to the
licensor Party after such audit is equal to 10% or greater of the amount
actually remitted to the licensor Party for that period, the licensee Party
shall bear the cost of the audit.
12.2 Certified Statement. Within sixty (60) days following the
end of each calendar quarter during the term of this Agreement, each Party, as a
licensee, shall furnish the other Party, as a licensor, with a statement, in a
form reasonably acceptable to the licensor Party, certified by an officer of the
licensee Party, recording: i) the Net Selling Price of all Subscriber Units Sold
during such calendar quarter in countries not exempted from royalty payments
with a separate itemization of the Net Selling Price of CDMA Modules, ii) the
amount of royalties payable thereon, and iii) the countries in which the
manufacture, sale or use of Subscriber Units took place which are believed to be
exempt from the payment of royalties, and briefly, the reason therefor. If no
Subscriber Units have been Sold for that calendar quarter, that fact shall be
shown on such statement.
* Confidential Treatment Requested
<PAGE> 16
16
12.3 Late Payments. Payments when provided for in this Agreement
shall, when overdue, bear interest computed monthly (prorated for periods of
time less than one month) at [*] If the amount of such charge exceeds the
maximum permitted by law, such charge shall be reduced to such maximum.
13. Termination.
13.1 Termination for Breach. If either Party (as the "Defaulting
Party") shall at any time materially default in the payment of any royalty or
the making of any report hereunder, or shall commit any material breach of any
material covenant contained herein, or shall make any material false report and
shall fail to remedy any such default, breach or report within sixty (60) days
after written notice specifying such default, breach or report by the other
Party, the non-defaulting Party may, at its option, terminate all licenses and
rights granted herein to the Defaulting Party. All licenses granted to the Party
terminating the other Party's licenses would survive but only as to Patents
issued prior to the date of termination. However, in respect of any alleged
breach or default due to failure to report, a false report, or to make payment
of royalties under this Agreement, the Party alleging such breach or default
shall exhaust all of the Dispute Resolution Procedures under Section 14.8.2.1
before giving notice of breach or default and termination of this Agreement to
the Party alleged to be in breach or default.
13.2 Change of Control. In the event that a third party active in
a material way in the field of telecommunications or data communications
acquires 50% or more of the voting securities of a Party, all licenses granted
herein to such Party shall only be exercisable in manufacturing facilities where
and to like degree previously exercised by such Party and shall not extend to
the operations of such owning or controlling entity without the express consent
of the other Party but the other Party shall have no right to select patents of
the acquiring party in accordance with Section 2.3 or 3.3.
13.3 Termination of Asset Purchase Agreement. This Agreement
shall terminate automatically and without any further action on the part of
either Party upon any termination of the Asset Purchase Agreement.
13.4 Rights upon Termination. Any termination or expiration of
this Agreement shall not relieve the licensee Party from its obligations to make
a report or from its liability for payment of royalties on Subscriber Units Sold
on or prior to the date of such termination or expiration and shall not
prejudice the right to recover the full amount of any royalties or other sums
due or accrued at the time of such termination or expiration and shall not
prejudice any cause of action or claim accrued or to accrue on account of any
breach or default. Furthermore, any termination or expiration of this Agreement
under this Section shall not prejudice the right of the licensor Party to
conduct a final audit of the records of the licensee Party in accordance with
the provisions of Section 12.1 hereof.
* Confidential Treatment Requested
<PAGE> 17
17
14. Miscellaneous Provisions.
14.1 Representations and Disclaimers:
14.1.1. Representations. Each Party represents and warrants
that it has the right and power to enter into this Agreement and the right to
and authority to grant to the other Party the licenses and rights granted
herein.
14.1.2. Disclaimers. Nothing contained in this Agreement
shall be construed as:
(a) a warranty or representation that any manufacture,
sale, lease, use or importation will be free from
infringement of patents, copyrights or other
intellectual property rights of others, and it
shall be the sole responsibility of the licensee
Party to make such determination as is necessary
with respect to the acquisition of licenses under
patents and other intellectual property of third
parties;
(b) an agreement to bring or prosecute actions or suits
against third parties for infringement;
(c) an obligation to furnish any manufacturing or
technical information or assistance;
(d) conferring any right to use, in advertising,
publicity or otherwise, any name, trade name or
trademark, or any contraction, abbreviation or
simulation thereof; and
(e) an obligation upon either Party to make any
determination as to the applicability of any patent
to any product of the other Party.
Neither Party makes any representations, extends any warranties
of any kind and assumes no responsibility whatever with respect
to the manufacture, sale, lease, use or importation of any
product, or part thereof, by the other Party or any of its
Affiliates or any of its Manufacturing Licensees or any direct or
indirect supplier or vendee or other transferee of the other
Party or its Affiliates.
14.2 No Waiver. No waiver of the terms and conditions of this
Agreement, or the failure of either Party strictly to enforce any such term or
condition on one or more occasions shall be construed as a waiver of the same or
of any other term or condition of this Agreement on any other occasion.
<PAGE> 18
18
14.3 Assignment. Neither this Agreement nor any license or rights
hereunder, in whole or in part, shall be assignable or otherwise transferable by
any Party without the written consent of the other Party.
14.4 Severability. If any term, clause, or provision of this
Agreement shall be judged to be invalid or unenforceable, the validity or
enforceability of any other term, clause or provision, shall not be affected;
and such invalid or unenforceable term, clause, or provision shall be deemed
deleted from this Agreement, and this Agreement shall continue in force, and in
the event such invalid or unenforceable provision is considered a material
element of this Agreement, the Parties shall promptly negotiate a replacement
provision in good faith that best meets the intent of the Parties.
14.5 Notice. Any notice, request or information shall be deemed
to be sufficiently given to the addressee when forwarded by prepaid, registered
or certified first class mail or by facsimile transmission or hand delivery to
the following addressee:
If to Q: If to E:
QUALCOMM Incorporated Telefonaktiebolaget LM Ericsson
6455 Lusk Boulevard S-126 25 Stockholm
San Diego, CA 92121 SWEDEN
Facsimile No.: (619) 658-2500 Facsimile No.: 011-46-8-719-9527
Attention: President Attention: General Counsel
with a copy to:
General Counsel
The above addresses can be changed by providing notice to the other Party in
accordance with this Section.
14.6 Publication of Agreement. Except as may otherwise be
required by law or as reasonably necessary for performance hereunder, each Party
shall keep the provisions of this Agreement confidential, and shall not disclose
its provisions without first obtaining the written consent of the other Party.
The confidentiality obligations hereunder do not apply to the existence of this
Agreement.
14.7 Dispute Resolution.
14.7.1 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York,
U.S.A.
<PAGE> 19
19
14.7.2 Resolution Procedures. In the event of any alleged
breach of the Agreement or any dispute between the Parties arising under
this Agreement, the Parties shall adopt the following procedures for
resolution of the matter:
14.7.2.1 Negotiated Resolution. The Parties shall first
attempt to resolve the matter by a meeting between executive
level managers of both parties to review a presentation by each
Party concerning the alleged breach or matter in dispute. Only if
the executive level managers are unable to resolve the alleged
breach or dispute within thirty (30) days of the meeting shall
either Party be free to proceed under Section 13.1 or to
institute a claim or action under Section 14.7.2.2.
14.7.2.2 Arbitration. Any controversy or claim arising out
of or relating to this Agreement, its interpretation,
performance, or termination, or the breach thereof that has not
been resolved under Section 14.7.2.1 shall be settled by
arbitration conducted in accordance with the Rules of Arbitration
of the International Chamber of Commerce then in effect on the
date of such controversy or claim. Any such arbitration shall
take place in the City of New York and shall be conducted before
a panel of three arbitrators appointed in accordance with such
Rules (each Party shall select one impartial arbitrator who shall
together select the third arbitrator) and the decision of the
selected arbitrators shall be binding and conclusive upon the
parties, their successors and assigns, who shall comply with such
decision in good faith as if it were a final decision of a court
of competent jurisdiction. Judgment upon the arbitrators' award
may be entered in any court of competent jurisdiction. In the
event either Party disputes its obligation to pay the other Party
royalties and prevails in such dispute, then any royalties paid
under protest by such Party from the date it first gave notice of
its desire to invoke the procedures of Section 14.7.2.1 with
respect to such disputed royalties shall be repaid by the other
Party with interest from such date computed at the rate set forth
in Section 12.3.
14.8 [*]
* Confidential Treatment Requested
<PAGE> 20
20
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
to be executed as of the date first written above. This Agreement may be signed
in counterpart.
QUALCOMM Incorporated Telefonaktiebolaget LM Ericsson (publ)
/s/ illegible /s/ illegible
BY: _______________________________ BY: _______________________________
Title: Title:
/s/ illegible
BY: _______________________________
Title:
<PAGE> 1
EXHIBIT 10.4
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this "Release") is entered
into as of March 24, 1999 by and between QUALCOMM Incorporated, a Delaware
corporation, and QUALCOMM Personal Electronics, a California partnership
(collectively, "QUALCOMM"), on the one hand, and Telefonaktiebolaget LM
Ericsson (publ), a Swedish corporation, and Ericsson Inc., a Delaware
corporation (collectively, "Ericcson"), on the other hand.
RECITALS
A. QUALCOMM and Ericsson are parties in the civil action entitled
"Ericsson Inc. et al. v. QUALCOMM Inc. et al.," Civil Action No.
2:96cv183-DF/HWM (Consolidated), in the United States District Court for the
Eastern District of Texas, Marshall Division, as well as the civil action
untitled "OKI America, Inc. v. Telefonaktiebolaget LM Ericsson, Sweden and
Ericsson Inc.," No. C-96 20747 RMW (EAI), in the United States District Court
for the Northern District of California, San Jose Division (together, the
"Litigation"), and by entering into this Release agree to stay and ultimately
to settle and dismiss their respective claims in the Litigation and to release
all existing claims relating thereto, subject to the terms and conditions
hereof;
B. Simultaneously with the execution and delivery of this Release,
QUALCOMM and Ericsson have entered into an Asset Purchase Agreement (the "Asset
Purchase Agreement") pursuant to which Ericsson has agreed to purchase and
QUALCOMM has agreed to sell substantially all the assets and liabilities of
QUALCOMM's infrastructure business (the "Acquired Business"), subject to
the terms and conditions thereof; and
C. Also simultaneously with the execution and delivery of this Release,
in connection with the settlement of the Litigation and the purchase and sale
of the Acquired Business, QUALCOMM and Ericsson have entered into a
Multi-Product License Agreement and a Subscriber Unit License Agreement (the
"License Agreements") pursuant to which each party has agreed to grant the
other party a license under the specific patents identified in the License
Agreements and such other patents as may be designated under the terms of the
License Agreements for use in CDMA applications, including but not limited to,
in cdmaone (including 1S-95, 1S-95A, 1S-95B, ANSI J-STD-008 and Q-CDMA),
cdma2000 and W-CDMA, contingent upon the Closing of the purchase and sale of
the Acquired Business pursuant to the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the License Agreements, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
<PAGE> 2
2
1. Stay. Upon the execution of this Release, Ericsson and QUALCOMM agree
to stay the Litigation for a period of four months, and shall jointly move for
an immediate stay of all proceedings and of all pending decisions by each court
in the Litigation for such period. The parties agree that in the event of any
termination of the Asset Purchase Agreement prior to the end of such period,
the stay shall be lifted, and the parties shall jointly move therefor.
2. Dismissal. Upon the Closing (as defined in the Asset Purchase
Agreement) of the purchase and sale of the Acquired Business pursuant to the
Asset Purchase Agreement, Ericsson and QUALCOMM shall dismiss with prejudice
all of their respective claims and counterclaims against each other in the
Litigation, each party to bear its own costs (and attorneys' fees) related to
the Litigation. Upon the closing of the Asset Purchase Agreement, each party
shall promptly file in the Litigation all pleadings and papers necessary to
accomplish such dismissal. The parties agree that any subsequent claims or
actions filed by either party arising out of any claim or cause of action that
is the subject of this Release will also be subject to dismissal with prejudice.
3. No Admission. The parties hereby expressly agree and acknowledge
that, by entering into and performing this Release, neither of them admits any
liability or wrongdoing or the truth of any allegation contained in any claim,
defense, or counterclaim alleged in the Litigation. Neither this Release nor
any action taken to carry out this Release may be construed or used as an
admission of any issues, facts, wrongdoing, liability, or violation of law
whatsoever.
4. General Mutual Release. Upon the Closing of the purchase and sale of
the Acquired Business pursuant to the Asset Purchase Agreement, in
consideration of the covenants and agreements contained herein and in the
License Agreements, and on behalf of their officers, directors, shareholders,
affiliates, successors, heirs, executors, administrators, and assigns, QUALCOMM
hereby fully and forever releases and discharges Ericsson, and Ericsson hereby
fully and forever releases and discharges QUALCOMM, from any and all claims,
demands, liabilities, commissions, payments, obligations, responsibilities,
suits, actions and causes of action, whether liquidated or unliquidated, fixed
or contingent, known or unknown, which the releasing party or any of its
present Affiliates (as defined below) may have on account of any act or
omission as of the Closing Date (as defined in the Asset Purchase Agreement)
arising out of or relating to the Litigation and the termination thereof.
"Affiliates" of any party means all other persons or entities controlling,
controlled by or under common control with, such specified party.
5. Waiver. All rights under Section 1542 of the Civil Code of the State
of California, and under any and all similar laws of any governmental entity,
are hereby expressly waived. Each party is aware that said Section 1542 of the
Civil Code of the State of California provides as follows:
"A general release does not extend to claims which the creditor
<PAGE> 3
3
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."
6. Representations. Each party hereby represents and warrants to the
other that (a) it is duly and fully authorized to enter into this Release, that
this Release has been duly authorized, executed and delivered by it and that
this Release is enforceable against it in accordance with its terms, (b) it is
executing this Release after consultation with its own independent legal counsel
and (c) it has not heretofore assigned or transferred to any person or entity
any right, title or interest in any of the claims asserted in the litigation or
in the matters that it purports to release herein.
7. Entire Agreement; Governing Law. This Release, the License Agreements
and the Asset Purchase Agreement form the entire agreement between the parties
concerning the subject matter hereof. There are no other existing agreements or
understandings between the parties hereto relating to the settlement and release
provided for in this Release. All prior agreements, promises or negotiations
between the parties are merged into this Release and the License Agreements and
Asset Purchase Agreement. This Release shall be governed by and construed in
accordance with the law of the State of New York.
8. Termination. This Release shall terminate automatically and without
any action on the part of any party hereto in the event of any termination of
the Asset Purchase Agreement.
9. Successors, Assigns and Beneficiaries. This Release shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
successors, assigns, representatives, beneficiaries and attorneys.
10. Counterparts. This Release may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
11. Further Acts. Each party to this Release agrees to perform any and all
further acts and execute and deliver any and all further documents that may be
reasonably necessary to carry out the provisions of this Release.
12. Waiver and Amendments. No waiver of any provision of this Release
shall be deemed a waiver of any other provision. Any amendment to this Release
shall be in writing and signed by both parties.
<PAGE> 4
4
IN WITNESS WHEREOF, the parties hereto have executed this Release through
their duly authorized representatives, as of the date first set forth above.
QUALCOMM INCORPORATED
By /s/ [Signature Illegible]
-----------------------------------
Name:
Title:
QUALCOMM PERSONAL ELECTRONICS
By QUALCOMM Incorporated, its general partner
By /s/ [Signature Illegible]
-----------------------------------
Name:
Title:
TELEFONAKTIEBOLAGET LM ERICSSON(publ)
By /s/ [Signature Illegible]
-----------------------------------
Name:
Title:
By /s/ [Signature Illegible]
------------------------------------
Name:
Title:
ERICSSON INC
By /s/ [Signature Illegible]
------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.5
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Amendment"),
dated as of March 4, 1999 is entered into by and among QUALCOMM INCORPORATED, a
Delaware corporation (the "Borrower"), the banks, financial institutions and
other institutional lenders (the "Initial Lenders") listed on the signature
pages hereof, Bank of America N.T. & S.A. ("BankAmerica"), as administrative
agent (the "Administrative Agent"), initial issuing bank (the "Initial Issuing
Bank"), and syndication agent, and Citibank, N.A. ("Citibank"), as documentation
agent (the "Documentation Agent") and syndication agent (together with
BankAmerica, the "Syndication Agents"), for the Lender Parties (as hereinafter
defined), agree as follows.
RECITALS
WHEREAS, the Borrower, the Lenders and the Administrative Agent are
parties to the U.S. $400,000,000.00 Credit Agreement, dated as of March 11, 1998
(the "Credit Agreement"), pursuant to which the Lenders have extended certain
credit facilities to the Borrower;
WHEREAS, the Borrower, the Lenders, and the Administrative Agent now
hereby wish to amend the Credit Agreement in certain respects, all as set forth
in greater detail below;
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise defined
shall have the meanings assigned in the Credit Agreement.
2. Amendment to Credit Agreement.
(a) Amendment to Section 1.01. Section 1.01 of the Credit
Agreement is hereby amended to add each of the following terms in its property
alphabetical order:
"364-Day Credit Agreement" means the U.S. $200,000,000 Credit
Agreement (364-Day) dated as of March 4, 1999 among the Borrower,
Bank of America National Trust & Savings Association as
Administrative Agent and Syndication Agent, Citibank, N.A. as
Documentation Agent and Syndication Agent, and the other
financial institutions party thereto.
"Year 2000 problem" has the meaning specified in subsection
4.01(w).
(b) Amendment to subsection 2.04(a). The fifth line of subsection
2.04(a) is hereby amended to delete the word "average" and insert the word
"actual" in its stead.
(c) Amendments to Section 4.01.
(i) Section 4.01 is hereby amended to add the following
subsection (w):
<PAGE> 2
(w) Year 2000 Readiness Disclosure. The Borrower and its
Restricted Subsidiaries have developed and budgeted for a
comprehensive program that the Borrower believes addresses
adequately the "Year 2000 problem" (that is, the inability
of computers, as well as embedded microchips in
non-computing devices, to perform properly date-sensitive
functions with respect to certain dates prior to and after
December 31, 1999). Based upon such program and the
Borrower's review of the Year 2000 problem performed to
date, the Borrower believes that (1) the Borrower and its
Restricted Subsidiaries will substantially avoid the Year
2000 problem as to all computers, as well as embedded
microchips in non-computing devices, that are material to
the Borrower's and its Restricted Subsidiaries' business,
properties or operations taken as a whole and (2) the
failure of its (or its Restricted Subsidiaries') own or a
third party's systems or equipment due to the Year 2000
problem, including those of vendors, customers, and
suppliers, as well as a general failure of or interruption
in its communications and delivery infrastructure, will
not have a Material Adverse Effect.
(ii) Subsection 4.01(b)(ii) is hereby amended to read in
its entirety as follows:
(ii) Each Subsidiary of the Borrower (x) is duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and (y) has
all requisite power and authority (including, without
limitation, all governmental licenses, permits and other
approvals) to own or lease and operate its properties and
to carry on its business as now conducted and as proposed
to be conducted.
(iii) Subsection 4.01(b)(iii) is hereby deleted.
(d) Amendment to subsection 5.02(d). Item (II) of subsection
5.02(d)(i)(D) of the Credit Agreement is hereby amended to read in its entirety
as follows:
(II) either (x) the maturity thereof is at least one year after
the Termination Date in effect at the time of the incurrence of
such Debt and any amortization thereof shall commence no earlier
than such Termination Date, or (y) such Debt is incurred pursuant
to the 364-Day Credit Agreement and the Loan Documents (as
defined in the 364-Day Credit Agreement) and
(e) Amendment to subsection 5.02(i). Item (A) of subsection
5.02(i)(i) of the Credit Agreement is hereby amended to read in its entirety as
follows:
(A) the prepayment of the Advances in accordance with the terms
of this Agreement or the prepayment of the "Advances" in
accordance with the terms of the 364-Day Credit Agreement,
(f) Amendments to Section 6.01.
2
<PAGE> 3
(i) Subsection 6.01(m) is hereby amended to add the word
"or" after the semicolon.
(ii) Section 6.01 is hereby amended to add the following
subsection (n):
(n) there shall occur any "Event of Default" as defined
in the 364-Day Credit Agreement;
3. Representations and Warranties. The Borrower hereby represents and warrants
to the Administrative Agent and each of the Lenders as follows:
(a) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person (including any governmental
authority) in order to be effective and enforceable. The Credit Agreement as
amended by this Amendment constitutes a legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its respective
terms, without defense, counterclaim or offset.
(b) All representations and warranties of the Borrower contained
in the Credit Agreement are true and correct as though made on and as of the
date hereof (except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true and correct
as of such earlier date).
(c) The Borrower is entering into this Amendment on the basis of
its own investigation and for its own reasons, without reliance upon the Agents,
any Lender or any other person.
4. Effective Date. This Amendment will become effective as of March 4, 1999,
provided that each of the following has occurred:
(a) The Administrative Agent has received from the Borrower and
the Required Lenders a duly executed original or facsimile of this Amendment;
and
(b) All conditions precedent to the first Loan under the 364-Day
Credit Agreement (as defined in Section 2 above) other than the effectiveness of
this Amendment shall have occurred.
5. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and
effect, and all references therein and in the other Loan Documents to the Credit
Agreement shall henceforth refer to the Credit Agreement as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
3
<PAGE> 4
(b) This Amendment shall be binding upon and inure to the benefit
of the parties to the Credit Agreement and their respective successors and
assigns. No third party beneficiaries are intended in connection with this
Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of New York.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which, when taken
together, shall be deemed to constitute but one and the same instrument.
(e) This Amendment, together with the Credit Agreement, contains
the entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior drafts
and communications with respect thereto.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Borrower hereby covenants to pay or to reimburse the
Administrative Agent, upon demand, for all costs and expenses (including
Attorney Costs) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment in San Francisco, California as
of the date first above written.
QUALCOMM INCORPORATED
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
CITIBANK, N.A.
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
ABN AMRO BANK N.V.
LOS ANGELES INTERNATIONAL BRANCH
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
<PAGE> 6
THE BANK OF NEW YORK
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
BANKBOSTON, N.A.
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
6
<PAGE> 7
BARCLAYS BANK PLC
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
BAYERISCHE HYPO-UND VEREINSBANK
AKTIENGESELLSCHAFT, NEW YORK BRANCH
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
THE CHASE MANHATTAN BANK
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
CIBC INC.
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
7
<PAGE> 8
FLEET NATIONAL BANK
By: /S/ SIGNATURE ILLEGIBLE
__________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
SAN FRANCISCO AGENCY
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
LEHMAN COMMERCIAL PAPER, INC.
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
8
<PAGE> 9
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /S/ SIGNATURE ILLEGIBLE
__________________________________
Name:
Title:
SANWA BANK CALIFORNIA
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
SOCIETE GENERALE, LOS ANGELES BRANCH
By: /S/ SIGNATURE ILLEGIBLE
_______________________________________
Name:
Title:
9
<PAGE> 10
ACKNOWLEDGED:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Administrative
Agent
By: /S/ SIGNATURE ILLEGIBLE
__________________________________
Name:
Title:
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 28, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> MAR-28-1999
<CASH> 121,253
<SECURITIES> 83,395
<RECEIVABLES> 895,901
<ALLOWANCES> 22,231
<INVENTORY> 254,477
<CURRENT-ASSETS> 1,548,309
<PP&E> 557,899
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,621,396
<CURRENT-LIABILITIES> 792,701
<BONDS> 29,457
660,000
0
<COMMON> 7
<OTHER-SE> 1,076,844
<TOTAL-LIABILITY-AND-EQUITY> 1,076,851
<SALES> 1,873,618
<TOTAL-REVENUES> 1,873,618
<CGS> 1,266,165
<TOTAL-COSTS> 1,266,165
<OTHER-EXPENSES> 95,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,774
<INCOME-PRETAX> 6,016
<INCOME-TAX> 106
<INCOME-CONTINUING> 5,910
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,910
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
