<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LEAP WIRELESS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LWI LOGO]
10307 Pacific Center Court
San Diego, California 92121
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 14, 1999
To the Stockholders of Leap Wireless International, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Leap
Wireless International, Inc., a Delaware corporation (the "Company"), will be
held at the San Diego Marriott -- La Jolla, 4240 La Jolla Village Drive, San
Diego, California 92037, on Thursday, January 14, 1999 at 9:00 a.m. local time,
for the following purposes:
1. To elect two Class I directors to hold office until the 2002 Annual
Meeting of Stockholders.
2. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the Company's fiscal year ending August 31,
1999.
3. To transact such other business as may properly come before the meeting
or any continuation, adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on November 30, 1999
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any continuation, adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ HARVEY P. WHITE
Harvey P. White
Chairman of the Board,
Chief Executive Officer and President
San Diego, California
December 11, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
[LWI LOGO]
10307 Pacific Center Court
San Diego, California 92121
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by the Board of Directors of Leap Wireless
International, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Thursday, January 14, 1999, at 9:00
a.m. local time (the "Annual Meeting"), or at any continuation, adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at the San Diego
Marriott -- La Jolla, 4240 La Jolla Village Drive, San Diego, California 92037.
The approximate date on which this proxy statement and the accompanying proxy
card are first to be sent to stockholders is December 11, 1998.
SOLICITATION
The Company will pay the cost of soliciting proxies for the upcoming Annual
Meeting. The Company will ask banks, brokerage houses, fiduciaries and
custodians holding stock in their names for others to send proxy materials to
and obtain proxies from the beneficial owners of such stock, and the Company
will reimburse them for their reasonable expenses in doing so. In addition to
soliciting proxies by mail, the Company and its directors, officers and regular
employees may also solicit proxies personally, by telephone or by other
appropriate means. No additional compensation will be paid to directors,
officers or other regular employees for such services. The Company has also
retained D.F. King & Co., Inc., a professional proxy solicitation firm, to
assist in the solicitation of proxies at an estimated cost of $8,000, plus
certain out-of-pocket expenses.
VOTING RIGHTS AND OUTSTANDING SHARES
Stockholders of record at the close of business on November 30, 1998 (the
"Record Date") are entitled to receive notice of and to vote at the Annual
Meeting. At the close of business on the Record Date, the Company had
outstanding and entitled to vote 17,698,727 shares of Common Stock.
Stockholders of record on such date will be entitled to one vote on all
matters to be voted upon for each share of Common Stock held.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be considered shares entitled
to vote in the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
(i.e., shares held by a broker or nominee that are represented at the meeting
but which the broker or nominee is not empowered to vote on a particular
proposal) are counted towards a quorum but are not counted for any purpose in
determining whether a matter has been approved.
REVOCABILITY OF PROXIES
Any stockholder giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal
<PAGE> 4
executive offices, 10307 Pacific Center Court, San Diego, California 92121, a
written notice of revocation or a duly executed proxy bearing a later date. A
stockholder of record at the close of business on November 30, 1998 may vote in
person if present at the meeting, whether or not he or she has previously given
a proxy. Attendance at the meeting will not, by itself, revoke a proxy.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides
that the number of directors that shall constitute the whole Board of Directors
shall be fixed exclusively by one or more resolutions adopted from time to time
by the Board of Directors. The authorized number of directors is currently set
at seven. The Company's Amended and Restated Certificate of Incorporation and
Bylaws also provide that the Board of Directors shall be divided into three
classes, with each class having a three-year term. Directors are assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors.
Two seats on the Board of Directors, currently held by James E. Hoffmann
and Michael B. Targoff, have been designated as Class I Board seats, with the
term of the directors occupying such seats expiring as of the Annual Meeting.
Each of the nominees for election to this class is currently a Board member
of the Company who was previously elected by QUALCOMM Incorporated ("QUALCOMM"),
the sole stockholder of the Company at the time of election. If elected at the
Annual Meeting, each of the two nominees would serve until the 2002 Annual
Meeting, in each case until his successor is elected and has qualified, or until
such director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Shares represented by executed proxies will be voted, if
authority to do so is not withheld, for the election of the two nominees named
below. In the event that any nominee should be unavailable for election as a
result of an unexpected occurrence, such shares will be voted for the election
of such substitute nominee as the Board of Directors may propose. Each person
nominated for election has agreed to serve if elected, and the Board of
Directors has no reason to believe that any nominee will be unable to serve.
Biographical information for each person nominated as a director, and for
each person whose term of office as a director will continue after the Annual
Meeting, is set forth below.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2002 ANNUAL MEETING
JAMES E. HOFFMANN
James E. Hoffmann, 48, has served as Senior Vice President, General
Counsel, Secretary and a Director of the Company since its formation in June
1998. Prior to joining the Company, he served as Vice President, Legal Counsel
of QUALCOMM from June 1998 to September 1998. From February 1995 until June
1998, he served as Vice President of QUALCOMM and Division Counsel for the
Infrastructure Products Division, having joined QUALCOMM as Senior Legal Counsel
in June 1993. Prior to joining QUALCOMM, Mr. Hoffmann was a partner in the law
firm of Gray, Cary, Ames & Frye, where he practiced transactional corporate law.
He holds a B.S. degree from the United States Naval Academy, an M.B.A. degree
from Golden Gate University and a J.D. degree from University of California,
Hastings College of the Law.
2
<PAGE> 5
MICHAEL B. TARGOFF
Michael B. Targoff, 54, has served as a Director of the Company since
September 1998. He is founder and CEO of Michael B. Targoff and Co., a company
that seeks controlling investments in telecommunications and related industry
companies. From its formation in January 1996 through January 1998, Mr. Targoff
was President and Chief Operating Officer of Loral Space & Communications
Limited. Prior to that, Mr. Targoff was Senior Vice President of Loral
Corporation. From 1991, Mr. Targoff was a Director and a principal Loral
executive responsible for Loral's satellite manufacturing joint venture with
Alcatel, Aerospatiale, Alenia and Daimler Benz Aerospace. Mr. Targoff was also
the President and is a Director of Globalstar Telecommunications Limited, the
company that is the public owner of Globalstar, Loral's global mobile satellite
system. Mr. Targoff is also a Director of Foremost Corporation of America. Prior
to joining Loral Corporation in 1981, Mr. Targoff was a Partner in the New York
law firm of Willkie Farr and Gallagher. Mr. Targoff attended Brown University
where he received a B.A. degree in 1966. From Columbia University School of Law,
he earned a J.D. degree in 1969 and was a Hamilton Fisk Scholar and Editor of
the Columbia Journal of Law and Social Problems.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NOMINEE NAMED ABOVE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
THOMAS J. BERNARD
Thomas J. Bernard, 66, has served as Executive Vice President and a
Director of the Company since its formation in June 1998. Prior to joining the
Company, he served as a Senior Vice President of QUALCOMM from April 1996
through June 1998. From April 1996 until June 1998, he was also General Manager
of the Infrastructure Products Division of QUALCOMM. He had retired in April
1994, but returned to QUALCOMM in August 1995 as Executive Consultant and became
Senior Vice President, Marketing, in December 1995. Mr. Bernard first joined
QUALCOMM in September 1986. He served as Vice President and General Manager for
the OmniTRACS division and in September 1992 was promoted to Senior Vice
President. From March 1982 to September 1986, Mr. Bernard held various positions
at M/A-COM LINKABIT. Prior to joining QUALCOMM in September 1986, Mr. Bernard
was Executive Vice President and General Manager, M/A-COM Telecommunications
Division, Western Operations. Mr. Bernard served on the Board of Directors of
Sigma Circuits, Inc., a circuit board manufacturing company, from April 1995 to
July 1998.
ALEJANDRO BURILLO AZCARRAGA
Alejandro Burillo Azcarraga, 46, has served as a Director of the Company
since September 1998. He has more than 30 years experience working for, and
holds 14% of the controlling interest in, Grupo Televisa ("Televisa"). Mr.
Burillo presently serves as Vice-Chairman of the Board of Directors and
President of International Affairs of Televisa, positions to which he was
appointed in 1997. Previously and since 1991, Mr. Burillo served as
Vice-Chairman of the Board and Chief Operating Officer of Televisa. Mr. Burillo
also holds a controlling interest in Grupo Pegaso, a private investment group
with interests in various industries including cable television, communications,
retail electronics, real estate, sports and entertainment. Mr. Burillo also
serves as a Board Member of Grupo Desc, an NYSE-listed company and one of
Mexico's main industrial groups.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
HARVEY P. WHITE
Harvey P. White, 64, has served as Chairman of the Board, Chief Executive
Officer, President and a Director of the Company since its formation in June
1998. He is one of the founders of QUALCOMM, and served as Vice Chairman of the
Board of QUALCOMM from June 1998 to September 1998. From May 1992 until June
1998 he served as President of QUALCOMM and from February 1994 to August 1995 as
Chief Operating Officer of QUALCOMM. Prior to May 1992, he was Executive Vice
President and Chief
3
<PAGE> 6
Operating Officer, and was also a Director of QUALCOMM since it began operations
in July 1985 until he resigned in September 1998 when the Company became an
independent, publicly-traded company. From March 1978 to June 1985, Mr. White
was an officer of LINKABIT (M/A-COM LINKABIT after August 1980), where he was
successively Chief Financial Officer, Vice President, Senior Vice President and
Executive Vice President. Mr. White became Chief Operating Officer of LINKABIT
in July 1979 and a Director of LINKABIT in December 1979. Mr. White is currently
a director of Solana Technology Development Corp, a privately held multimedia
technology start-up company. He holds a B.A. degree in Economics from Marshall
University.
JEFFREY P. WILLIAMS
Jeffrey P. Williams, 47, has served as a Director of the Company since
September 1998. He has been a Managing Partner at Greenhill & Co., LLC, an
investment banking firm, since 1998. From September 1996 to January 1998, Mr.
Williams was Executive Vice President, Strategic Development and Global Markets
for McGraw-Hill Companies, and from 1984 through 1996 he was an investment
banker with Morgan Stanley and Company in their Telecommunications and Media
Group. Mr. Williams has a Bachelor of Architecture from the University of
Cincinnati and an M.B.A. degree with distinction from Harvard University
Graduate School of Business Administration.
SCOT B. JARVIS
Scot B. Jarvis, 38, is a cofounder and managing member of Cedar Grove
Partners, LLC, a privately owned company formed to make investments in
telecommunications ventures. From 1994 to 1996, Mr. Jarvis was a Vice President
of Operations for Eagle River, Inc., a telecommunications investment company
owned by Craig O. McCaw. While at Eagle River, Mr. Jarvis was the cofounder and
acting President of Nextlink Communications, Inc., now a publicly traded
competitive local exchange company (CLEC) controlled by Mr. McCaw. Mr. Jarvis
was also responsible for certain operations and sat on the board of NEXTEL
Communications, a nationwide provider of specialized mobile radio service. From
1985 to 1994, Mr. Jarvis held a number of executive positions at McCaw Cellular
Communications which was sold to AT&T in August 1994. His responsibilities
included Acquisitions and Development, International Development, and he
operated two separate Cellular One Districts in California from 1990 to 1993.
Including the Company and Nextlink, Mr. Jarvis serves on the Board of Directors
of PulsePoint Communications, Inc., Metawave Communications Corp., and XYPoint
Corporation.
BOARD AND COMMITTEE MEETINGS
For the two months that the Company was in existence during the fiscal year
ended August 31, 1998, the Company's Board of Directors acted solely through
written consents. In September 1998, the Board created standing audit and
compensation committees.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee will, among other things, recommend independent
certified public accountants; review the scope of the audit examination,
including fees and staffing; review the independence of the auditors; review and
approve non-audit services provided by the auditors; review findings and
recommendations of auditors and management's response; review the internal audit
and control function; and review compliance with the Company's ethical business
practices policy. The members of the Audit Committee are Messrs. Targoff and
Williams.
The Compensation Committee will review management compensation programs,
approve compensation changes for senior executive officers, review compensation
changes for senior management, and administer management stock plans. The
members of the Compensation Committee are Messrs. Burillo, Jarvis and Williams.
4
<PAGE> 7
COMPANY MANAGEMENT
Biographical information for the executive officers of the Company who are
not directors is set forth below. There are no family relationships between any
director or executive officer and any other director or executive officer.
Executive officers serve at the discretion of the Board of Directors. The term
of office of each executive officer is until his or her respective successor is
elected and has been qualified, or until his or her death, resignation or
removal. Officers are elected by the Board of Directors annually at its first
meeting following the Annual Meeting of Stockholders.
Daniel O. Pegg, 52, the Company's Senior Vice President, Public Affairs,
served as Senior Vice President, Public Affairs of QUALCOMM from March 1997 to
September 1998. Prior to joining QUALCOMM, Mr. Pegg was President and Chief
Executive Officer of the San Diego Economic Development Corporation for 14
years. Mr. Pegg served on the Board of Directors of Gensia Pharmaceuticals from
1986 to 1996. Mr. Pegg holds a B.A. degree from California State University at
Los Angeles.
Leonard C. Stephens, 41, the Company's Senior Vice President, Human
Resources, served as Vice President, Human Resources Operations for QUALCOMM
from December 1995 to September 1998. Prior to joining QUALCOMM, Mr. Stephens
was employed by Pfizer Inc., where he served in a number of human resources
positions over a 14 year career. He holds a B.A. degree in Political Science
from Howard University.
Tom Willardson, 48, joined QUALCOMM in July 1998 to serve as Senior Vice
President, Finance and Treasurer of the Company. From July 1995 to July 1998,
Mr. Willardson was Vice President and Associate Managing Director of Bechtel
Enterprises, Inc., a wholly-owned investment and development subsidiary of
Bechtel Group, Inc. From January 1986 to July 1995, Mr. Willardson served as a
principal at The Fremont Group, an investment company. Mr. Willardson was
re-elected in June 1998 to serve as a Director of Cost Plus, Inc. where he has
served as a Director since March 1991. He holds an M.B.A. degree from the
University of Southern California and a B.S. degree in Finance from Brigham
Young University.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending August 31, 1999 and
has directed that management submit the
selection of independent accountants to the stockholders for ratification at the
Annual Meeting. PricewaterhouseCoopers LLP audited the Company's financial
statements for fiscal 1998. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the Annual Meeting, will have an opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
Stockholders are not required to ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent accountants. However,
the Board is submitting the selection of PricewaterhouseCoopers LLP to the
stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Board and the Audit Committee
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Board and the Audit Committee in their discretion may direct the
appointment of a different independent accounting firm at any time during the
year if they determine that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares represented
and voting at the meeting will be required to ratify the selection of
PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Company Common
Stock as of November 1, 1998, by (i) all those known by the Company to be
beneficial owners of more than 5% of its Common Stock; (ii) each director of the
Company; (iii) the Company's Chief Executive Officer and the other four most
highly paid executive officers of the Company (the "Named Executive Officers");
and (iv) all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
DIRECTORS, OFFICERS AND 5% SHAREHOLDERS SHARES(2) TOTAL
--------------------------------------- --------- ----------
<S> <C> <C>
QUALCOMM Incorporated(3).................................... 5,500,000 23.8%
Harvey P. White(4)(5)....................................... 344,263 1.9%
Thomas J. Bernard(5)(6)..................................... 8,144 *
James E. Hoffmann(5)(7)..................................... 10,348 *
Daniel O. Pegg(5)(8)........................................ 8,110 *
Leonard C. Stephens(5)...................................... 2,117 *
Alejandro Burillo Azcarraga................................. 0 *
Scot B. Jarvis.............................................. 700 *
Michael B. Targoff.......................................... 0 *
Jeffrey P. Williams......................................... 0 *
All Officers and Directors as a group (10 persons).......... 373,682 2.1%
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders of the Company and by Schedules 13D and 13G filed
with the Securities and Exchange Commission (the "Commission"). Unless
otherwise indicated in the footnotes to this table and subject to marital
property laws where applicable, each of the stockholders named in this table
has sole voting and investment power with respect to the shares indicated as
beneficially owned and has a business address of Leap Wireless
International, Inc., 10307 Pacific Center Court, San Diego, California
92121. Applicable percentages are based on 17,651,772 shares of Leap Common
Stock outstanding, adjusted as required by rules promulgated by the
Commission.
(2) In addition to shares held in the individual's sole name, this column
includes shares held by the spouse and other members of the named person's
immediate household who share that household with the named person, and
shares held in family trusts.
(3) Consists entirely of a Warrant to purchase shares of Leap Common Stock for
approximately $6.11 per share, or an aggregate purchase price of
approximately $33.6 million. The Warrant is fully exercisable immediately
and expires in September 2008. QUALCOMM Incorporated's business address is
6455 Lusk Blvd., San Diego, California 92121.
(4) Includes 2,500 shares held in a foundation of which Mr. White disclaims
beneficial ownership. Also includes 272,816 shares held in family trusts,
7,500 shares held in a Family Limited Partnership, 250 shares held in a
charitable remainder trust, and 6,947 shares held in trusts for the benefit
of relatives.
(5) Includes shares issuable upon exercise of options exercisable within 60 days
of November 1, 1998 as follows: Mr. Bernard, 7,400 shares (including 2,900
shares subject to options held by Mr. Bernard's wife); Mr. Hoffmann, 5,650
shares; Mr. Pegg, 2,500; Mr. Stephens, 2,100; and Mr. White, 54,250 shares.
(6) Includes 60 shares held by Mr. Bernard's spouse.
(7) Includes 2,500 shares held in a custodial account for the benefit of Mr.
Hoffmann's spouse.
(8) Includes 25 shares held in a custodial account for the benefit of Mr. Pegg,
25 shares held in a custodial account for the benefit of Mr. Pegg's spouse
and 500 shares held for the benefit of Mr. Pegg's minor son.
6
<PAGE> 9
DISTRIBUTION OF COMPANY COMMON STOCK
From the Company's incorporation on June 24, 1998 until September 23, 1998,
the Company was a wholly-owned subsidiary of QUALCOMM. On September 23, 1998,
QUALCOMM distributed all of the Company's Common Stock as a taxable dividend to
the holders of QUALCOMM Common Stock at the close of business on September 11,
1998. Each of such holders received one share of Company Common Stock for every
four shares of QUALCOMM Common Stock that he or she owned.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and
greater-than-ten-percent stockholders are required by Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended August 31, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater-
than-ten-percent beneficial owners were complied with.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive any compensation for their services
as director except that each non-employee director receives an option to
purchase 20,000 shares of Company Common Stock when he or she first serves as a
non-employee director and an option to purchase 10,000 additional shares of
Company Common Stock at the time of each subsequent annual meeting that occurs
while he or she continues to serve as a non-employee director.
The exercise price for each option is the fair market value of the
Company's Common Stock on the date the option is granted. Each option becomes
exercisable over five years according to the following schedule: as long as the
optionee continues to serve as a non-employee director, employee or consultant
to the Company, 20% of the shares subject to the option first become exercisable
on each of the first five anniversaries of the date of grant. Each option has a
term of 10 years, provided that the options terminate 30 days after the optionee
ceases to be a non-employee director, employee or consultant to the Company.
Special exercise and termination rules apply if the optionee's relationship with
the Company is terminated as a result of retirement at age 70 after at least
nine years of service on the Board, permanent and total disability, or death.
The Company also reimburses directors for their travel expenses incurred in
connection with attendance at Board and Board committee meetings.
7
<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS
The Company first hired employees on September 23, 1998. Prior to that
date, all of the Company's executive officers were employees of QUALCOMM. As a
result, the information set forth in the following tables reflects compensation
earned by the Named Executive Officers for services they rendered to QUALCOMM as
QUALCOMM employees during QUALCOMM's last three fiscal years.
The services rendered by such individuals to QUALCOMM were, in some
instances, in capacities not equivalent to the positions they currently hold
with the Company. Therefore, these tables do not necessarily reflect the
compensation that will be paid to the executive officers of the Company.
Compensation paid to executive officers by the Company in its fiscal year ending
August 31, 1999 will be reported in the Company's Proxy Statement for the Annual
Meeting to be held in January 2000, the first annual meeting to occur after the
end of fiscal year 1999.
SUMMARY COMPENSATION TABLE
(COMPENSATION PAID BY QUALCOMM)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM
--------------------------------------------- COMPENSATION
OTHER SECURITIES
NAME AND PRINCIPAL POSITIONS ANNUAL UNDERLYING ALL OTHER
AT THE COMPANY YEAR SALARY BONUS COMPENSATION(2) OPTIONS COMPENSATION(4)
- ---------------------------- ---- -------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White........... 1998 $477,853 $320,000 $ 0 75,000 $108,902
Chairman of the Board, 1997 $395,713 $250,000 $ 0 0 $ 37,011
Chief Executive Officer 1996 $354,963 $100,000 $ 0 85,000 $ 34,437
and President
Thomas J. Bernard......... 1998 $287,509 $120,000 $ 0 0 $ 34,545
Executive Vice President 1997 $245,142 $ 65,000 $ 0 0 $ 6,086
and Director 1996 $186,976 $ 40,000 $ 0 60,000 $ 0
James E. Hoffmann......... 1998 $178,930 $ 60,000 $ 0 4,000 $ 13,899
Senior Vice President, 1997 $149,283 $ 50,000 $ 0 3,000 $ 10,048
General Counsel, 1996 $131,646 $ 20,000 $ 0 4,000 $ 9,418
Secretary and Director
Leonard C. Stephens....... 1998 $176,930 $ 55,000 $104,947 6,000 $ 2,258
Senior Vice President, 1997 $146,828 $ 45,000 $ 42,268 3,000 $ 1,816
Human Resources 1996 $112,711 $ 25,000 $ 43,644 15,000 $ 0
Daniel O. Pegg............ 1998 $209,868 $ 68,000 $ 0 0 $ 41,745
Senior Vice President, 1997 $111,174(3) $ 55,000 $ 0 50,000 $ 3,463
Public Affairs 1996 $ 0 $ 0 $ 0 0 $ 0
</TABLE>
- ---------------
(1) As permitted by rules established by the Commission, no amounts are shown
with respect to certain "perquisites" where such amounts do not exceed the
lesser of either $50,000 or 10% of the total of annual salary and bonus.
(2) In December 1995, Leonard C. Stephens joined QUALCOMM as Vice President of
Human Resources. QUALCOMM made payments related to his relocation as shown
above and in its 1998 fiscal year reimbursed Mr. Stephens $50,705 for income
taxes arising from the relocation payment.
(3) Mr. Pegg joined QUALCOMM in March 1997. If he had been employed by QUALCOMM
during the entire 1997 fiscal year at the same annual base salary rate, his
salary for fiscal 1997 would have been $212,000.
8
<PAGE> 11
(4) Includes QUALCOMM matching 401(k) contributions, executive benefits
payments, executive retirement stock matching, and financial planning
services as follows:
<TABLE>
<CAPTION>
QUALCOMM
MATCHING EXECUTIVE EXECUTIVE FINANCIAL TOTAL
401(k) BENEFITS RETIREMENT PLANNING OTHER
NAME YEAR CONTRIBUTIONS PAYMENTS CONTRIBUTIONS(1) SERVICES COMPENSATION
---- ---- ------------- --------- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White........... 1998 $ 2,313 $2,520 $48,919 $38,070 $108,902(2)
1997 $ 2,145 $2,520 $32,346 $ 0 $ 37,011
1996 $ 2,191 $2,520 $29,726 $ 0 $ 34,437
Thomas J. Bernard......... 1998 $ 2,659 $4,270 $26,532 $ 1,084 $ 34,545
1997 $ 1,816 $4,270 $ 0 $ 0 $ 6,086
1996 $ 0 $ 0 $ 0 $ 0 $ 0
James E. Hoffmann......... 1998 $ 2,659 $ 0 $ 8,916 $ 2,324 $ 13,899
1997 $ 2,145 $ 0 $ 7,903 $ 0 $ 10,048
1996 $ 2,191 $ 0 $ 7,227 $ 0 $ 9,418
Leonard C. Stephens....... 1998 $ 2,258 $ 0 $ 0 $ 0 $ 2,258
1997 $ 1,816 $ 0 $ 0 $ 0 $ 1,816
1996 $ 0 $ 0 $ 0 $ 0 $ 0
Daniel O. Pegg............ 1998 $14,048 $4,475 $ 9,174 $14,048 $ 41,745
1997 $ 0 $ 0 $ 3,463 $ 0 $ 3,463
1996 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
- ---------------
(1) QUALCOMM has a voluntary retirement plan that allows eligible
executives to defer up to 100% of their income on a pre-tax basis. The
participants receive a 50% company stock match on a maximum deferral of
15% of income payable only upon eligible retirement. Participants
become fully vested in the stock benefit at age 65, with partial
vesting beginning after the participant reaches the age of 61 and has
at least three years of employment with QUALCOMM, or has participated
in the plan for more than ten years. The employee contributions and the
stock benefit are unsecured and subject to the general creditors of
QUALCOMM. At September 27, 1998, 2,167 shares were vested on behalf of
Harvey P. White and 536 shares were vested on behalf of Thomas J.
Bernard.
(2) Also includes $17,080, the dollar value of the benefit or premiums paid
for a split-dollar life insurance policy (unrelated to term life
insurance coverage) reflecting the present value of the economic
benefit of the premiums paid by QUALCOMM during its fiscal year 1998.
Effective September 23, 1998, the Company assumed QUALCOMM's obligation to
pay premiums under an existing split dollar life insurance policy for the
benefit of Harvey P. White and his wife. The initial annual premiums are
approximately $600,000, and the policy's death benefit is initially $9,800,000.
Upon the death of the second to die of Mr. White and his wife, the Company will
receive out of the policy's proceeds a full reimbursement of any premiums paid
under the policy. The value of the premium paid by QUALCOMM in its fiscal 1998
is reflected in the Summary Compensation Table above.
9
<PAGE> 12
The following table shows specified information with respect to options to
purchase QUALCOMM Common Stock ("QUALCOMM Options") granted to the Named
Executive Officers during QUALCOMM's fiscal 1998:
QUALCOMM OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS GRANTED AT ASSUMED ANNUAL RATES OF
UNDERLYING TO STOCK PRICE APPRECIATION FOR
OPTIONS QUALCOMM OPTION TERM(3)
GRANTED EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME (#)(2) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- --------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Hoffmann....... 4,000 0.07% $64.18 12/04/07 $ 161,393.93 $ 408,971.71
Leonard C. Stephens..... 6,000 0.10% $64.18 12/04/07 $ 242,090.90 $ 613,457.57
Harvey P. White......... 75,000 1.23% $62.35 11/13/07 $2,939,850.37 $7,449,571.43
</TABLE>
- ---------------
(1) Options granted to executive officers by the Company in its fiscal year
ending August 31, 1999 will be reported in the Company's Proxy Statement for
the Annual Meeting to be held in January 2000, the first annual meeting to
occur after the end of fiscal 1999.
(2) Such QUALCOMM options become exercisable according to the following
schedule: 20% first become exercisable on each of the first, second, third,
fourth and fifth anniversaries of the date of grant.
(3) Calculated on the assumption that the market value of the underlying
QUALCOMM Common Stock increases at the stated values, compounded annually.
Options granted under QUALCOMM's Option Plan generally have a maximum term
of ten years. The total appreciation of the options over their ten year
terms at 5% and 10% is 63% and 159%, respectively.
QUALCOMM AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
SHARES VALUE (#) ($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White............. 6,000 $132,540 202,000 162,000 $3,950,860 $1,154,850
Thomas J. Bernard........... 0 $ 0 18,000 42,000 $ 136,500 $ 374,700
James E. Hoffmann........... 0 $ 0 19,400 12,600 $ 509,560 $ 141,310
Daniel O. Pegg.............. 0 $ 0 10,000 40,000 $ 0 $ 0
Leonard C. Stephens......... 0 $ 0 3,600 20,400 $ 45,276 $ 181,104
</TABLE>
- ---------------
(1) Company options exercised by the executive officers during the Company's
fiscal year ending August 31, 1999 will be reported in the Company's Proxy
Statement for the Annual Meeting to be held in January 2000, the first
annual meeting to occur after the end of fiscal 1999.
(2) Represents the closing price per share of the underlying shares on the last
day of the fiscal year less the option exercise price multiplied by the
number of shares. The closing value per share was $51.00 on the last trading
day of the fiscal year as reported on the Nasdaq National Market.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Company's Compensation Committee (the "Committee") is composed of three
outside Directors: Messrs. Alejandro Burillo Azcarraga, Scot B. Jarvis and
Jeffrey P. Williams. Among its other responsibilities, the Compensation
Committee develops the compensation policies of the Company, and reviews and
approves
10
<PAGE> 13
annual executive officer compensation. In general, the compensation policies
adopted by the Committee are designed (i) to attract and retain executives
capable of leading the Company to meet its business objectives, and (ii) to
motivate the Company's executives to enhance long-term stockholder value.
EXECUTIVE OFFICER COMPENSATION
The Company's executive officer compensation program is comprised of three
primary components: base salary, annual incentive compensation in the form of
cash bonuses, and long-term incentive compensation in the form of stock options.
In recognition of the strong demand for executives in the wireless
communications industry, the Committee generally intends to set total executive
compensation at or above the median levels for comparable positions at similarly
sized companies in the wireless communication industry. The Committee also
expects that the total compensation for each executive officer will depend upon
the Company's performance and the executive's level of responsibility,
experience, performance, and contribution to the Company's growth and
profitability. The Committee does not anticipate assigning a specific weight to
any of the factors described above.
BASE SALARY
The Compensation Committee expects to set the base salary for executive
officers based on salary data relating to markets from which the Company
attracts executive talent. There is strong competition for senior level talent
in the wireless communication industry. Based on this demand, and the Company's
on-going need to attract and retain senior level talent, the Committee expects
that base salaries for the Company's executive officers will be set at or above
the median level for the Company's industry.
Each of the Company's six executive officers were employed by QUALCOMM
prior to joining the Company. The Committee approved the current base salaries
for these executive officers based largely upon their base salaries at QUALCOMM,
adjusted in some cases to reflect the greater level of responsibility an
executive officer would have at the Company.
ANNUAL CASH INCENTIVE BONUS
The Company intends to pay bonuses to its executive officers after the end
of the fiscal year, based primarily upon the Company's performance during the
year, the individual performance of each executive officer, and compensation
survey information for executives employed within the Company's market segment.
STOCK OPTION GRANTS
The Company grants stock options in order to provide long-term incentives,
and to align employee and stockholder long-term interest, by creating a direct
link between compensation and stockholder return. Stock options are generally
granted at an option price equal to the fair market value of the Company's
common stock on the date of grant. In order to facilitate the long-term
incentives provided by option grants, options become exercisable over five
years, with 20% of the shares covered by an option first becoming exercisable at
the end of each of the first five years following the date of grant.
The option exercise period is designed to encourage employees to work for
the long-term view of the Company's welfare and to establish their long-term
relationship with the Company. It is also designed to reduce employee turnover
and to retain the trained skills of valued employees.
The Committee anticipates that the number of options granted to individual
executive officers will depend upon the executive's position at the Company, his
or her performance prior to the option grant, and market practices within the
wireless communication industry. Because a primary purpose of granting options
is to provide incentives for future performance and to retain valued employees,
the Committee expects to consider the number of shares that are not yet
exercisable by an executive under previously granted options when granting
additional stock options.
11
<PAGE> 14
CHIEF EXECUTIVE OFFICER'S SALARY
The Company hired Harvey P. White, its President and Chief Executive
Officer, on September 23, 1998 -- after the end of fiscal 1998. The Committee
set Mr. White's base salary at $500,011 per year, an amount which is equal to
the base salary he was earning at QUALCOMM immediately prior to his employment
by the Company.
COMPENSATION COMMITTEE
Alejandro Burillo Azcarraga
Scot B. Jarvis
Jeffrey P. Williams
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In late September 1998, the Company provided a $17.5 million loan (the
"Pegaso Loan") to Pegaso Comunicaciones y Servicios, S.A. de C.V., a Mexican
company 96%-owned by Alejandro Burillo Azcarraga, a Company Director and a
member of the Board's Compensation Committee. The Pegaso Loan bears interest at
the rate of 13% per annum. A principal installment of $7.5 million, plus accrued
interest, was repaid on October 29, 1998, as scheduled, and the second principal
installment of $10 million, plus accrued interest, is due on or before December
31, 1998. The purpose of the Pegaso Loan was to facilitate investment by Pegaso
Comunicaciones y Servicios, S.A. de C.V. in Pegaso Telecomunicaciones, S.A. de
C.V. ("Pegaso"), the joint venture in which the Company has an interest, and to
ensure that the investors in Pegaso made all capital contribution to Pegaso that
were required for the acquisition of Mexican telecommunications licenses on
September 30, 1998. The Pegaso Loan is guaranteed by Mr. Burillo and is secured
by a pledge of all of the shares of Pegaso Comunicaciones y Servicios, S.A. de
C.V. and Mr. Burillo's interest in an unrelated joint venture with QUALCOMM to
operate a satellite tracking, management and two-way communications systems for
the trucking industry in Mexico.
The Company has used and expects to continue to use the services of a
variety of consultants in connection with business strategies for its U.S.
wireless opportunities. Messrs. Jarvis and Williams, directors and members of
the Board's Compensation Committee, have also advised the Company with respect
to such matters. The Company expects Messrs. Jarvis and Williams to continue to
provide services to it, and has begun to discuss entering into an agreement to
compensate them for their services. The compensation may take the form of cash
and/or equity in Company domestic operations. The discussions are in a
preliminary stage.
STOCK PERFORMANCE
The Company was a wholly owned subsidiary of QUALCOMM during its fiscal
year ended August 31, 1998. The Company's Common Stock first traded on the
Nasdaq National Market, on a when issued basis, on September 23, 1998. The
closing price of the Company's Common Stock was $4.50 on that day. After the
close of business on September 23, 1998, QUALCOMM distributed the Company's
Common Stock to its stockholders as a taxable dividend. The closing price of the
Company's Common Stock was $8.00 on September 24, 1998 and $6.03 on November 10,
1998.
RELATIONSHIP WITH QUALCOMM
The Company and QUALCOMM entered into various agreements in connection with
the transfer of certain wireless telecommunications businesses (the "Company's
Business") from QUALCOMM to the Company, and QUALCOMM's distribution (the
"Distribution") of all of the Company's stock to QUALCOMM's stockholders in
September 1998. These agreements give QUALCOMM substantial influence over the
Company. The most significant of these agreements are briefly summarized below.
Each of the summarized agreements has been filed as an exhibit to the Company's
Annual Report on Form 10-K.
12
<PAGE> 15
SEPARATION AND DISTRIBUTION AGREEMENT
Immediately prior to the Distribution, the Company and QUALCOMM entered
into a Separation and Distribution Agreement (the "Separation and Distribution
Agreement") regarding the principal transactions required to effect the
separation of the companies (the "Separation"). Pursuant to this agreement,
QUALCOMM transferred to the Company: the Company's Business; $10 million in
cash; approximately $113 million of indebtedness owed to QUALCOMM by certain
QUALCOMM operating companies, now the Company's operating companies (the
"Operating Companies"); and other related assets. In addition, the Company
assumed approximately $74 million of QUALCOMM's funding obligations relating to
the Operating Companies; QUALCOMM's rights and obligations to participate in the
management of the Operating Companies; and certain accrued liabilities with
respect to the Company's employees. The Company also issued QUALCOMM a warrant
to purchase 5,500,000 shares of Company Common Stock for approximately $6.11 per
share or an aggregate of approximately $33.6 million. The warrant is currently
exercisable and remains exercisable until September 2008.
The Company also agreed in the Separation and Distribution Agreement that,
until January 1, 2004, it will deploy only systems using or planning to use
specified CDMA technology based on or derived from QUALCOMM's CDMA technology,
subject to certain limited exceptions, and will only invest in companies using
such CDMA technology, in connection with terrestrial wireless activities. The
Separation and Distribution Agreement also granted QUALCOMM a non-exclusive,
royalty-free license to any patent rights developed by the Company or any of the
Company's affiliates. In addition, pursuant to the Separation and Distribution
Agreement, the Company granted QUALCOMM a right of first refusal for a period of
three years with respect to proposed transfers by the Company of interests in
joint ventures and equity interests included in the Company's Business at the
time of the Distribution, subject to preexisting rights of other investors.
CREDIT FACILITY
The Company and QUALCOMM have also entered into a $265 million secured
Credit Facility, which enables the Company to borrow up to $35.2 million from
QUALCOMM to meet normal working capital and operating expenses, and up to $229.8
million to make certain identified portfolio investments. The Credit Facility is
secured by substantially all of the assets of the Company. Amounts borrowed bear
interest at a variable rate equal to LIBOR plus 5.25% per annum and are due and
payable in September 2006, subject to earlier payment pursuant to the terms of
the Credit Facility. Interest is payable quarterly beginning September 30, 2001
and, prior to such time, accrued interest is added to outstanding principal. The
Credit Facility required a 2% origination fee.
The Credit Facility contains a total debt to total capitalization financial
ratio, and includes other operating covenants that place restrictions on the
operations of the Company's Business, including restrictions on the Company's
ability to incur indebtedness, merge, consolidate or transfer all or
substantially all of its assets, make certain sales of assets, create, incur or
permit the existence of certain liens and pay dividends.
MASTER AGREEMENT REGARDING EQUIPMENT PROCUREMENT
The Master Agreement Regarding Equipment Procurement (the "Equipment
Agreement") sets forth obligations of the Company and QUALCOMM with respect to
the purchase and sale of certain terrestrial-based CDMA infrastructure and
subscriber equipment. Pursuant to the Equipment Agreement, the Company agreed
that: (i) the Company will purchase from QUALCOMM not less than 50% of the
Company's direct requirements for infrastructure and subscriber equipment during
the five-year period following the first such purchase; (ii) with respect to
each direct or indirect investment by the Company that is made prior to October
2002 in a wireless telecommunications operating entity operating in the United
States in which the Company has not previously invested (a "U.S. Operator"), the
Company shall cause each such U.S. Operator, as a condition of and prior to
making such investment, to enter into an equipment requirements agreement with
QUALCOMM that shall require such U.S. Operator to purchase from QUALCOMM not
less than 50% of its requirements for infrastructure and subscriber equipment
during a five-year period commencing on the date of such investment; and (iii)
with respect to each direct or indirect investment by the Company in a U.S.
Operator that is made after September 2002, the Company shall exercise its
commercially reasonable efforts
13
<PAGE> 16
to cause the U.S. Operator, as a condition of making such investment, to provide
QUALCOMM with a reasonable opportunity to bid on such U.S. Operator's
requirements for infrastructure and subscriber equipment, and encourage such
U.S. Operator to acquire such equipment from QUALCOMM. The purchase obligations
described above are imposed upon the Company only if QUALCOMM's bid for such
infrastructure equipment or subscriber equipment, as applicable, is on
competitive terms and conditions (except that QUALCOMM's bid for such equipment
may not be greater than 110% of the lowest competing bid that the Company is
willing to accept, taking into account all reasonably quantifiable and/or
objective factors associated with the sale and financing of wireless
telecommunications equipment and related services, provided, however, that once
QUALCOMM has been awarded contracts for an aggregate of $250 million of
infrastructure equipment and related services for U.S. systems, the 110%
criterion is lowered to 100% for subsequent purchases of infrastructure
equipment, and once QUALCOMM has been awarded contracts for an aggregate of $250
million of subscriber equipment for U.S. systems, the 110% criterion is lowered
to 100% for subsequent purchases of subscriber equipment).
Further, until the earlier to occur of (i) September 2002 and (ii) the date
on which the Company has received an aggregate $60 million of debt or equity
financing (by parties other than QUALCOMM and excluding the proceeds of stock
option exercises), so long as QUALCOMM offers equipment on competitive terms and
conditions, the Company shall cause each wireless telecommunications operating
entity operating outside the United States in which the Company has not
previously invested (a "Non-U.S. Operator") in which the Company makes a direct
or indirect investment, as a condition of and prior to making such investment,
to enter into an equipment requirements agreement with QUALCOMM substantially
similar to the agreement that the Company is required to cause U.S. Operators to
enter into. With respect to any Non-U.S. Operators in which the Company makes a
direct or indirect investment following the applicable period described above,
the Company shall use commercially reasonable efforts to cause such Non-U.S.
Operator, as a condition of making such investment, to provide QUALCOMM with a
reasonable opportunity to bid on such U.S. Operator's infrastructure and
subscriber equipment, and encourage such U.S. Operator to acquire such equipment
from QUALCOMM.
All such obligations with respect to equipment purchases shall expire in
September 2007, or such sooner date as set forth in the Equipment Agreement.
To the extent the Company does not attempt to procure, in any instance,
such equipment on a competitive basis from multiple prospective vendors, but
instead elects to negotiate exclusively with QUALCOMM to supply such equipment,
then QUALCOMM agrees to offer and sell such equipment to the Company on a "most
favored pricing" basis.
INTERIM SERVICES AGREEMENT
The Company and QUALCOMM also entered into an Interim Services Agreement
immediately prior to the Distribution, which governs QUALCOMM's provision of
certain transition services to the Company on an interim basis for an amount
equal to the hourly rate of the QUALCOMM employees providing such services, plus
associated general and administrative overhead (which is deemed to equal 150% of
the hourly rate of the employee), and all out-of-pocket costs and expenses.
EMPLOYEE BENEFITS AGREEMENT
The Employee Benefits Agreement governs the employee benefit obligations of
the Company, including both compensation and benefits, with respect to employees
assigned to the Company as of the Distribution Date. Pursuant to this agreement,
the Company assumed and agreed to pay all liabilities to former employees of
QUALCOMM or its affiliates employed by the Company. In addition, the Company
granted options to purchase shares of Company Common Stock to certain holders of
options to purchase shares of QUALCOMM Common Stock.
TAX AGREEMENT
The Tax Agreement generally requires QUALCOMM to pay, and indemnify the
Company against, taxes relating to the businesses conducted by QUALCOMM or its
subsidiaries, other than the following taxes which the Company will pay and
indemnify QUALCOMM against: (i) taxes relating to the Company and its U.S.
subsidiaries for periods after the Distribution; (ii) taxes relating to the
Company's' non-U.S. subsidiaries or
14
<PAGE> 17
any predecessor or successor thereof for all periods before and after the
Distribution, and (iii) taxes arising out of certain actions taken by the
Company or any of its subsidiaries that cause adverse tax consequences to
QUALCOMM, the Company or their respective subsidiaries with respect to the
transactions related to the Distribution, subject to certain limitations.
CONVERSION AGREEMENT
The Company and QUALCOMM also entered into a Conversion Agreement under
which the Company agreed to issue up to 2,271,060 shares of Company Common Stock
to holders of the Trust Convertible Preferred Securities (the "Trust Preferred
Securities") of QUALCOMM Financial Trust I, a wholly-owned statutory business
trust of QUALCOMM, upon the conversion of such securities into QUALCOMM Common
Stock. The Company also agreed to file and keep effective a registration
statement covering the shares of Company Common Stock issuable upon conversion
of the Trust Preferred Securities. The Company will not receive any additional
benefit upon the conversion of such Trust Preferred Securities.
STOCKHOLDER PROPOSALS
Proposals that stockholders wish to include in the Proxy Statement for the
annual stockholders meeting to be held in 2000 must be received by the Company
no later than August 13, 1999 and must satisfy the conditions established by the
Securities and Exchange Commission for such proposals. Proposals that
stockholders wish to present at the annual stockholders meeting to be held in
2000 (but not include in the related Proxy Statement) must be received by the
Company at its principal executive office at 10307 Pacific Center Court, San
Diego, California 92121, no later than 5:00 p.m. P.S.T. on November 15, 1999 and
must satisfy the conditions for such proposals set forth in the Company's
Bylaws.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED AUGUST 31, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
EXCLUDING EXHIBITS, MAY BE OBTAINED BY STOCKHOLDERS WITHOUT CHARGE BY WRITTEN
REQUEST ADDRESSED TO LEAP WIRELESS INTERNATIONAL, INC., ATTN. INVESTOR
RELATIONS, 10307 PACIFIC CENTER COURT, SAN DIEGO, CALIFORNIA 92121.
By Order of the Board of Directors
/s/ HARVEY P. WHITE
-------------------------------------
Harvey P. White
Chairman of the Board,
Chief Executive Officer and President
December 11, 1998
15
<PAGE> 18
PROXY PROXY
LEAP WIRELESS INTERNATIONAL, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 14, 1999
The undersigned hereby appoints Harvey P. White and James E. Hoffmann, and each
of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Leap Wireless International,
Inc. (the "Company") which the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of the Company to be held at the San Diego Marriott - La
Jolla, 4240 La Jolla Village Drive, San Diego, California 92037, on Thursday,
January 14, 1999 at 9:00 a.m. local time and at any and all continuations and
adjournments or postponements thereof, with all powers that the undersigned
would possess if personally present, on the following matters, in accordance
with the following instructions, and on all other matters that may properly come
before the meeting. With respect to any matter not known to the Company as of
December 1, 1998, such proxies are authorized to vote in their discretion.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AS MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE THEREWITH.
YOUR VOTE IS IMPORTANT. THEREFORE, YOU ARE URGED TO COMPLETE, SIGN, DATE,
AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on other side)
LEAP WIRELESS INTERNATIONAL, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR
AND FOR PROPOSAL 2.
1. To elect two directors to hold office until the 2002 Annual Meeting of
Stockholders.
For Withheld For All
Except nominees written in below.
[ ] [ ] [ ] _____________________________
Nominee Exceptions
NOMINEES: James E. Hoffmann and Michael B. Targoff
2. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the Company's fiscal year ending August 31,
1999.
For Against Abstain
[ ] [ ] [ ]
DATED___________________________________
________________________________________
Signature
________________________________________
Signature
Please vote, sign, date and promptly return this proxy in the enclosed return
envelope which is postage prepaid if mailed in the United States.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
<PAGE> 19
[LWI LOGO]
10307 Pacific Center Court
San Diego, CA 92121
www.leapwireless.com
Investor Relations: Rochelle Bold (619) 882-6222
Dear Leap Wireless Stockholder,
Enclosed are copies of our Annual Report on Form 10-K for the fiscal year
ended August 31, 1998 for Leap Wireless International, Inc. (NASDAQ: LWIN), the
Proxy Statement relating to our upcoming Annual Meeting of Stockholders on
January 14, 1999, and a proxy card that you can use to vote on matters to be
raised at the Annual Meeting. Securities and Exchange Commission (SEC)
regulations require Leap Wireless to file and mail to its stockholders an annual
report for the 1998 fiscal year even though we were not an independent company
at that time.
Although our fiscal year ended almost a month before our spin-off from
Qualcomm Incorporated, 1998 will probably best be remembered by our stockholders
as the year in which we became a separately traded public company. But fiscal
year 1998 was an important year for Leap -- a year spent selecting partners in
Russia and Mexico, acquiring spectrum through our operating companies in Mexico
and Australia, and creating and developing new operating companies. And with the
global wireless telephone population expected to exceed 300 million subscribers
by December, surpassing previous industry forecasts, 1998 was an important year
not only for our company, but also for our industry. For companies such as Leap
that operate internationally, 1998 was exceptionally significant as more than
80% of this year's wireless growth is expected to occur outside the United
States.
WORLDWIDE OPPORTUNITY
Half the population of the world has never made a phone call. Waiting times
for telephone service can range from six months in Mexico to more than 10 years
in Russia. So, while the short-term economic outlook in many of our markets may
be uncertain, demand for telephone service remains strong. At Leap, we believe
that worldwide communication is rapidly becoming wireless. In regions not yet
connected by copper, it is the cheapest and fastest way to provide telephone
service. We believe that in many countries, wireless service will soon become
the norm, eventually surpassing wireline penetration.
MOVING QUICKLY TOWARDS NETWORK BUILD-OUT
Although many members of Leap's management team are now on board, we are
continuing to add executives and managers with extensive experience in deploying
wireless systems around the world, and we are continuing to recruit
professionals with experience in finance, marketing, back office systems and
other wireless operations functions. This will allow us to position ourselves to
take advantage of worldwide wireless growth and move aggressively on network
build-outs and system launches.
1998 IN REVIEW
1998 was a busy year for the operating companies that comprise Leap
Wireless. In the spring and summer of 1998, Leap's Australian operating company,
OzPhone, acquired spectrum covering three regions of Australia for $1.16 a
person. Also, this year, Chilesat PCS, our Chilean operating company, completed
the build-out of a nationwide PCS system and in September became the first Leap
Wireless system in commercial operation.
Last May, Pegaso, Leap's Mexican joint venture, acquired a nationwide PCS
license in Mexico, with a population of 99 million, for $2.60 per person. In
contrast, some winners in the recent Brazilian spectrum
<PAGE> 20
auction paid more than $44 per person. And by the end of the fiscal year,
Metrosvyaz, one of Leap's Russian operating companies, had signed more than half
a dozen agreements with local Russian telephone companies to use wireless
infrastructure to provide basic telephone service to areas covering more than 21
million people.
PRIORITIES FOR 1999
While our networks are in the development or early launch stages and
require substantial up-front investment, we believe that they represent a solid
basis for the creation of stockholder value. In the coming year we will focus
intensely on building our subscriber base in Chile and successfully launching
our systems in Mexico, Russia and the United States, where we recently filed an
application with the Federal Communications Commission to acquire spectrum
covering 3.3 million people in North and South Carolina. We plan to launch our
initial U.S. system based on our limited mobility concept by the middle of 1999.
Our credit facility from Qualcomm will allow us to invest approximately
$200 million over the next twelve to fifteen months in growing our operating
companies. In addition, we currently estimate that our operating companies will
need approximately $200 million in working capital (in addition to the vendor
financing currently committed) over the same time period in order to
aggressively expand the networks and take full advantage of market position. We
are hopeful that the public debt and equity markets will be available to Leap
Wireless and our operating companies by the middle of next year. In the
meantime, we are also actively exploring private equity, bank sources and other
financing alternatives.
Deploying and expanding our networks, adding customers and securing the
financial resources necessary to fully implement our business plans will be our
core focus in 1999. We are excited about the coming year and appreciate your
continued support. We look forward to keeping you updated on our progress.
Finally, I want to conclude by thanking you, our stockholders, for your
support, and the Leap Wireless team and all the employees at each of our
operating companies for our progress to date. Along with our vendors and
partners, they are the key ingredients to Leap's future success.
Sincerely,
/s/ HARVEY P. WHITE
Harvey P. White
Chairman of the Board,
Chief Executive Officer and President
