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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM 10
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GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
LEAP WIRELESS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0811062
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
10307 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA
ATTENTION: HARVEY P. WHITE
PRESIDENT AND CHIEF EXECUTIVE OFFICER 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
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WITH COPIES TO:
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FREDERICK T. MUTO SCOTT N. WOLFE
THOMAS A. COLL DAVID A. HAHN
COOLEY GODWARD LLP LATHAM & WATKINS
4365 EXECUTIVE DRIVE 701 B STREET
SUITE 1100 SUITE 2100
SAN DIEGO, CA 92121-2128 SAN DIEGO, CA 92101-8193
(619) 550-6000 (619) 236-1234
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (877) 977-5327
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.0001 PER SHARE
(TITLE OF CLASS)
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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LEAP WIRELESS INTERNATIONAL, INC.
INFORMATION REQUIRED IN REGISTRATION STATEMENT:
CROSS-REFERENCE BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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ITEM
NUMBER CAPTION LOCATION IN INFORMATION STATEMENT
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Item 1. Business Information Statement Summary; Risk Factors;
Introduction; The Distribution; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Combined Financial
Statements.
Item 2. Financial Information Information Statement Summary; Risk Factors; Pro Forma
Capitalization; Pro Forma Combined Financial
Statements; Selected Historical Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Combined
Financial Statements.
Item 3. Properties Business.
Item 4. Security Ownership of Principal Stockholders; Management.
Certain Beneficial Owners
and Management
Item 5. Directors and Executive Management; Liability and Indemnification of Directors
Officers and Officers.
Item 6. Executive Compensation Management.
Item 7. Certain Relationships and Information Statement Summary; The Distribution;
Related Transactions Relationship Between QUALCOMM and the Company after
the Distribution; Certain Relationships and Related
Transactions.
Item 8. Legal Proceedings Business.
Item 9. Market Price of and Information Statement Summary; The Distribution;
Dividends on the Principal Stockholders; Management; Treatment of
Registrant's Common Equity QUALCOMM Employee Stock Options in the Distribution;
and Related Stockholder Description of Company Capital Stock.
Matters
Item 10. Recent Sales of Description of Company Capital Stock.
Unregistered Securities
Item 11. Description of Registrant's Description of Company Capital Stock; Description of
Securities to Be Registered Rights Agreement.
Item 12. Indemnification of Liability and Indemnification of Directors and
Directors and Officers Officers.
Item 13. Financial Statements and Index to Financial Statements and the statements
Supplementary Data referenced therein.
Item 14. Changes in and Not Applicable.
Disagreements with
Accountants on Accounting
and Financial Disclosure
Item 15. Financial Statements and Index to Financial Statements; Exhibit Index.
Exhibits
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2
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Amendment No. 1 to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
Leap Wireless International, Inc.
August 21, 1998 By: /s/ HARVEY P. WHITE
------------------------------------
Name: Harvey P. White
Title: President and Chief Executive
Officer
3
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EXHIBIT INDEX
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EXHIBIT
NO. DESCRIPTION
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2.1 Form of Separation and Distribution Agreement between
QUALCOMM Incorporated ("QUALCOMM") and the Registrant.
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Certificate of Amendment of Certificate of Incorporation of
the Registrant.
3.4 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of the Registrant.
3.5 Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.6 Form of Amended and Restated Bylaws of the Registrant.
4.1 Form of Common Stock Certificate.
4.2 Form of Warrant to be issued to QUALCOMM.
4.3 Form of Rights Agreement between the Registrant and Harris
Trust Company of California.
10.1 Form of Credit Agreement between QUALCOMM and the
Registrant.
10.2 Form of Tax Matters Agreement between QUALCOMM and the
Registrant.
10.3 Form of Interim Services Agreement between QUALCOMM and the
Registrant.
10.4 Form of Master Agreement Regarding Equipment Procurement
between QUALCOMM and the Registrant.
10.5 Form of Employee Benefits Agreement between QUALCOMM and the
Registrant.
10.6 Form of Conversion Agreement between QUALCOMM and the
Registrant.
10.7 Form of Registrant's 1998 Stock Option Plan (the "Option
Plan").
10.8 Form of non-qualified/incentive stock option under the
Option Plan.
10.9 Form of non-qualified stock option under the Option Plan to
be granted to QUALCOMM option holders in connection with the
Distribution.
10.10 Form of Registrant's 1998 Non-Employee Directors' Stock
Option Plan
(the "Directors' Plan").
10.11 Form of non-qualified stock option under the Directors'
Plan.
10.12 Form of Registrant's Employee Stock Purchase Plan.
10.13 Assignment and Assumption of Lease dated August 11, 1998
between QUALCOMM and Vaxa International, Inc.
10.14 Form of Indemnity Agreement to be entered into between the
Registrant and its directors and officers.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule for the fiscal year ended August 31,
1997.
27.2 Financial Data Schedule for the fiscal year ended August 31,
1996.
27.3 Financial Data Schedule for the nine months ended May 31,
1997.
27.4 Financial Data Schedule for the nine months ended May 31,
1998.
99.1 Leap Wireless International, Inc. Information Statement
dated , 1998.
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EXHIBIT 2.1
SEPARATION AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
QUALCOMM INCORPORATED
AND
LEAP WIRELESS INTERNATIONAL, INC.
DATED AS OF
__________, 1998
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS.............................................................1
1.1 Action.....................................................................1
1.2 Affiliate..................................................................1
1.3 Ancillary Agreements.......................................................1
1.4 cdmaOne....................................................................2
1.5 Consents...................................................................2
1.6 Contingent Gain............................................................2
1.7 Contingent Liability.......................................................2
1.8 Credit Facility............................................................2
1.9 Distribution Date..........................................................2
1.10 Employee Benefits Agreement................................................3
1.11 Equipment Agreement........................................................3
1.12 Form 10....................................................................3
1.13 Governmental Approvals.....................................................3
1.14 Governmental Authority.....................................................3
1.15 Insurance Proceeds.........................................................3
1.16 Interest...................................................................3
1.17 Interim Services Agreement.................................................3
1.18 Liabilities................................................................3
1.19 Person.....................................................................4
1.20 Policies...................................................................4
1.21 Privileges.................................................................4
1.22 Privileged Information.....................................................4
1.23 QUALCOMM Business..........................................................4
1.24 QUALCOMM Common Stock......................................................4
1.25 QUALCOMM Group.............................................................4
1.26 QUALCOMM Policies..........................................................4
1.27 Record Date................................................................4
1.28 Related Entity.............................................................5
1.29 Security Interest..........................................................5
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TABLE OF CONTENTS
(CONTINUED)
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1.30 Shared Policies............................................................5
1.31 Leap Assets................................................................5
1.32 Leap Business..............................................................5
1.33 Leap Group.................................................................5
1.34 Leap Operating Assets......................................................5
1.35 Leap Policies..............................................................5
1.36 Subsidiary.................................................................5
1.37 Tax Agreement..............................................................5
1.38 Tax........................................................................5
1.39 Warrant....................................................................6
1.40 Wireless System............................................................6
ARTICLE 2 THE SEPARATION.......................................................6
2.1 Transfer of Assets and Assumption of Liabilities...........................6
2.2 Leap Assets................................................................7
2.3 Leap Liabilities...........................................................7
2.4 Termination Of Agreements..................................................9
2.5 Disclaimer Of Representations And Warranties...............................9
2.6 Governmental Approvals And Consents; Deferred Transfers....................9
2.7 Assignment Of Assumed Leap Liabilities....................................10
2.8 QUALCOMM Consideration; Leap Reserve Shares...............................10
ARTICLE 3 THE DISTRIBUTION....................................................11
3.1 The Distribution..........................................................11
3.2 Actions Prior To The Distribution.........................................12
3.3 Conditions To Distribution................................................12
3.4 Fractional Shares.........................................................13
ARTICLE 4 INDEMNIFICATION.....................................................14
4.1 Indemnification By Leap...................................................14
4.2 Indemnification By QUALCOMM...............................................14
4.3 Indemnification Obligations Net Of Insurance Proceeds And Other Amounts...15
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TABLE OF CONTENTS
(CONTINUED)
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4.4 Procedures For Indemnification Of Third Party Claims......................15
4.5 Additional Matters........................................................17
4.6 Survival Of Indemnities...................................................17
ARTICLE 5 CERTAIN COVENANTS AND OTHER AGREEMENTS OF THE PARTIES...............17
5.1 Restriction on Interests..................................................17
5.2 Restriction on Use of Other Technology....................................18
5.3 Restriction on Employee Solicitation or Hiring............................19
5.4 Right of First Refusal....................................................19
5.5 Competition...............................................................21
5.6 Management of Interests...................................................21
5.7 Investment Company Act....................................................21
5.8 License Grant By Leap.....................................................22
5.9 Metrosvyaz Limited; Equipment Requirements; Financial Support.............22
ARTICLE 6 CONFIDENTIALITY.....................................................22
6.1 Confidentiality...........................................................22
6.2 Protective Arrangements...................................................23
ARTICLE 7 ACCESS TO INFORMATION AND SERVICES..................................23
7.1 Provision of Corporate Records............................................23
7.2 Access to Information.....................................................24
7.3 Production of Witnesses...................................................24
7.4 Reimbursement.............................................................25
7.5 Retention of Records......................................................25
7.6 Privileged Matters........................................................25
ARTICLE 8 INSURANCE...........................................................27
8.1 Policies and Rights Included Within the Leap Assets.......................27
8.2 Post-Distribution Date Claims.............................................27
8.3 Administration and Reserves...............................................27
8.4 Agreement for Waiver of Conflict and Shared Defense.......................28
ARTICLE 9 ARBITRATION; DISPUTE RESOLUTION.....................................28
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TABLE OF CONTENTS
(CONTINUED)
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9.1 Disputes..................................................................28
9.2 Alternative Dispute Resolution............................................29
9.3 Arbitration Procedure.....................................................29
9.4 Confidentiality...........................................................31
ARTICLE 10 FURTHER ASSURANCES..................................................31
10.1 Further Assurances........................................................31
ARTICLE 11 TERMINATION.........................................................32
11.1 Termination By Mutual Consent.............................................32
ARTICLE 12 MISCELLANEOUS.......................................................33
12.1 Counterparts; Entire Agreement............................................33
12.2 Governing Law.............................................................33
12.3 Assignability.............................................................33
12.4 Third Party Beneficiaries.................................................33
12.5 Notices...................................................................33
12.6 Severability..............................................................34
12.7 Publicity.................................................................34
12.8 Expenses..................................................................34
12.9 Headings..................................................................34
12.10 Survival Of Covenants.....................................................34
12.11 Waivers Of Default........................................................34
12.12 Specific Performance......................................................35
12.13 Amendments................................................................35
12.14 Interpretation............................................................35
12.15 Legal Counsel.............................................................35
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SEPARATION AND DISTRIBUTION AGREEMENT
THIS SEPARATION AND DISTRIBUTION AGREEMENT (including all exhibits and
schedules hereto, the "Agreement"), dated as of _____________, 1998, is by and
between QUALCOMM INCORPORATED ("QUALCOMM") and LEAP WIRELESS INTERNATIONAL, INC.
("Leap"). Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in Article 1 hereof.
WHEREAS, the Board of Directors of QUALCOMM has determined that it is in
the best interests of QUALCOMM and its stockholders to transfer the Leap Assets
to Leap and to cause Leap to assume the Leap Liabilities, all as more fully
described in this Agreement and the Ancillary Agreements (the "Separation");
WHEREAS, the Board of Directors of QUALCOMM has further determined that it
is appropriate and desirable, on the terms and conditions contemplated hereby,
for QUALCOMM to distribute to holders of shares of QUALCOMM Common Stock all of
the outstanding shares of common stock, $0.0001 par value (the "Leap Common
Stock"), owned directly or indirectly by QUALCOMM (the "Distribution"), and
retain the Warrant; and
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Separation and the Distribution
and certain other agreements that will govern certain matters relating to the
Separation and the Distribution and the relationship of QUALCOMM and Leap
following the Distribution.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1 ACTION means any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local,
foreign or international Governmental Authority or any arbitration or mediation
tribunal.
1.2 AFFILIATE of any Person means a Person that controls, is controlled by,
or is under common control with such Person. As used herein, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such entity, whether through
ownership of voting securities or other interests, by contract or otherwise.
1.3 ANCILLARY AGREEMENTS means the Credit Facility, the Equipment
Agreement, the Employee Benefits Agreement, the Interim Services Agreement, the
Conversion Agreement and the Tax Agreement.
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1.4 cdmaONE shall mean those fixed or mobile wireless telecommunications
systems based on or derived from QUALCOMM's CDMA technology which (i) have been
adopted as an industry standard by the Telecommunications Industry Association
(TIA) or other recognized international standards bodies, and the adoption of
such standard has been voted in favor of by QUALCOMM ("QUALCOMM Approved
Standards"), (ii) are compatible with or employ the same physical layer as
QUALCOMM Approved Standards ("QUALCOMM Approved Systems") or (iii) are
compatible with the infrastructure and subscriber equipment manufactured and
sold by QUALCOMM. cdmaOne currently includes, by way of example and not by
limitation, the TIA's IS-95 digital cellular standard and ANSI JSTD-008 digital
PCS standard. If a system is considered a cdmaOne system in one country,
QUALCOMM and Leap have agreed that it would be considered a cdmaOne system in
any other country, irrespective of whether or not such system has been adopted
(or approved by QUALCOMM) as a standard in such other country.
1.5 CONSENTS means any consents, waivers or approvals from, or notification
requirements to, any third parties.
1.6 CONTINGENT GAIN means any claim or other right of QUALCOMM or Leap or
any of their respective Affiliates, whenever arising, against any Person other
than QUALCOMM, Leap or any of their respective Affiliates, if and to the extent
that (i) such claim or right has accrued as of the Distribution Date (based on
then existing law) and (ii) the existence or scope of the obligation of such
other Person as of the Distribution Date was not acknowledged, fixed or
determined in any material respect, due to a dispute or other uncertainty as of
the Distribution Date or as a result of the failure of such claim or other right
to have been discovered or asserted as of the Distribution Date. A claim or
right meeting the foregoing definition shall be considered a Contingent Gain
regardless of whether there was any Action pending, threatened or contemplated
as of the Distribution Date with respect thereto.
1.7 CONTINGENT LIABILITY means any Liability, other than Liabilities for
Taxes (which are governed by the Tax Agreement), of QUALCOMM, Leap or any of
their respective Affiliates, whenever arising, to any Person other than
QUALCOMM, Leap or any of their respective Affiliates, if and to the extent that
(i) such Liability has accrued as of the Distribution Date (based on then
existing law) and (ii) the existence or scope of the obligation of QUALCOMM,
Leap or any of their respective Affiliates as of the Distribution Date with
respect to such Liability was not acknowledged, fixed or determined in any
material respect, due to a dispute or other uncertainty as of the Distribution
Date or as a result of the failure of such Liability to have been discovered or
asserted as of the Distribution Date (it being understood that the existence of
a litigation or other reserve with respect to any Liability shall not be
sufficient for such Liability to be considered acknowledged, fixed or
determined).
1.8 CREDIT FACILITY means that certain Credit Agreement of even date
herewith by and between QUALCOMM and Leap.
1.9 DISTRIBUTION DATE means the date on which the Distribution to the
QUALCOMM stockholders is effective.
2.
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1.10 EMPLOYEE BENEFITS AGREEMENT means that certain Employee Benefits
Agreement of even date herewith by and between QUALCOMM and Leap.
1.11 EQUIPMENT AGREEMENT means that certain Master Agreement Regarding
Equipment Procurement of even date herewith by and between QUALCOMM and Leap.
1.12 FORM 10 means the Registration Statement on Form 10 (Registration No.
001-14269) filed by Leap with the Securities and Exchange Commission (the
"Commission") on July 1, 1998, as amended, relating to the Leap Common Stock.
1.13 GOVERNMENTAL APPROVALS means any notices, reports or other filings to
be made, or any consents, registrations, approvals, permits or authorizations to
be obtained from, any Governmental Authority.
1.14 GOVERNMENTAL AUTHORITY shall mean any federal, state, local, foreign
or international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental authority.
1.15 INSURANCE PROCEEDS means those monies:
(a) received by an insured from an insurance carrier; or
(b) paid by an insurance carrier on behalf of the insured; or
in either case net of any applicable premium adjustments (including reserves and
retrospectively rated premium adjustments) and net of any costs or expenses
(including allocated costs of in-house counsel and other personnel) incurred in
the collection thereof.
1.16 INTEREST in any Person, as used in Sections 5.1, 5.4 and 5.7 only,
means any loan or advance in excess of $100,000, in aggregate, to such Person,
any purchase or other acquisition of a material portion of the assets of such
Person or of a business unit of such Person, or any purchase or other
acquisition of 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 a Person
guarantees, directly or indirectly in any manner, any indebtedness in excess of
$100,000, in aggregate, of such Person.
1.17 INTERIM SERVICES AGREEMENT means that certain Interim Services
Agreement of even date herewith by and between QUALCOMM and Leap.
1.18 LIABILITIES means any and all losses, claims, charges, debts, demands,
actions, causes of action, suits, damages, obligations, payments, costs and
expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities
and similar obligations, exonerations, covenants, contracts, controversies,
agreements, promises, doings, omissions, variances, guarantees, make whole
agreements and similar obligations, and other liabilities, including all
contractual obligations, whether absolute or contingent, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever
arising, and including those arising under any law, rule, regulation, Action,
threatened or contemplated Action (including the
3.
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costs and expenses of demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all costs and
expenses (including allocated costs of in-house counsel and other personnel),
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened or contemplated Actions), order or consent decree
of any Governmental Authority or any award of any arbitrator or mediator of any
kind, and those arising under any contract, commitment or undertaking, including
those arising under this Agreement or any Ancillary Agreement, in each case,
whether or not recorded or reflected or required to be recorded or reflected on
the books and records or financial statements of any Person.
1.19 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.
1.20 POLICIES means insurance policies and insurance contracts of any kind
relating to the Leap Business or the QUALCOMM Business as conducted prior to the
Distribution Date, including without limitation primary and excess policies,
comprehensive general liability policies, automobile and workers' compensation
insurance policies, and self-insurance and captive insurance company
arrangements, together with the rights, benefits and privileges thereunder.
1.21 PRIVILEGES means all privileges that may be asserted under applicable
law, including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
1.22 PRIVILEGED INFORMATION means all Information as to which QUALCOMM,
Leap or any of their Subsidiaries are entitled to assert the protection of a
Privilege.
1.23 QUALCOMM BUSINESS means the collective business of QUALCOMM, excluding
the Leap Business.
1.24 QUALCOMM COMMON STOCK means the Common Stock, $0.0001 par value per
share, of QUALCOMM.
1.25 QUALCOMM GROUP means QUALCOMM and each Person (other than any member
of the Leap Group) that is an Affiliate of QUALCOMM immediately after the
Distribution Date.
1.26 QUALCOMM POLICIES means all Policies, current or past, which are owned
or maintained by or on behalf of QUALCOMM (or any of its predecessors) which
relate to the QUALCOMM Business but do not relate to the Leap Business.
1.27 RECORD DATE means the close of business on the date to be determined
by the QUALCOMM Board of Directors as the record date for determining
stockholders of QUALCOMM entitled to receive shares of Leap Common Stock in the
Distribution.
4.
<PAGE> 10
1.28 RELATED ENTITY means any Person (i) in which Leap, directly or
indirectly through one or more intermediaries, holds an interest of ten percent
(10%) or more of the aggregate issued and outstanding ownership interests of
such Person, (ii) that Leap or an Affiliate of Leap, by means of a reseller
agreement, management contract, debt financing agreement or otherwise, has the
ability to substantially influence the management and control of such Person, or
(iii) that is an Affiliate of Leap.
1.29 SECURITY INTEREST means any mortgage, security interest, pledge, lien,
charge, claim, option, right to acquire, voting or other restriction,
right-of-way, covenant, condition, easement, encroachment, restriction on
transfer, or other encumbrance of any nature whatsoever.
1.30 SHARED POLICIES means all Policies, current or past, which are owned
or maintained by or on behalf of QUALCOMM or its predecessors which relate to
both the QUALCOMM Business and the Leap Business, and all other Policies not
constituting Leap Policies or QUALCOMM Policies.
1.31 LEAP ASSETS has the definition set forth in Section 2.2.
1.32 LEAP BUSINESS means the business of operating Leap Operating Assets.
1.33 LEAP GROUP means Leap and each Person (other than any member of the
QUALCOMM Group) that is an Affiliate of Leap immediately after the Distribution
Date
1.34 LEAP OPERATING ASSETS means all of QUALCOMM's right, title and
interest in and to the assets listed on Schedules A-1 through A-7.
1.35 LEAP POLICIES means all Policies, current or past, which are owned or
maintained by or on behalf of QUALCOMM or any of its Affiliates or predecessors,
which relate to the Leap Business but do not relate to the QUALCOMM Business and
which Policies are either maintained by the QUALCOMM Group or assignable to the
Leap Group.
1.36 SUBSIDIARY of any Person means any corporation or other organization
whether incorporated or unincorporated of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries; provided,
however that no Person that is not directly or indirectly wholly owned by any
other Person shall be a Subsidiary of such other Person unless such other Person
controls, or has the right, power or ability to control, that Person.
1.37 TAX AGREEMENT means that certain Tax Agreement of even date herewith
by and between QUALCOMM and Leap.
1.38 TAX (and, with correlative meanings, "Taxes" and "Taxable") means,
without limitation, and as determined on a jurisdiction-by-jurisdiction basis,
each foreign or U.S. federal, state, local or municipal income, alternative or
add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise,
5.
<PAGE> 11
severance, stamp, occupation, premium, property or any other tax, custom,
tariff, impost, levy, duty, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or penalty, addition to tax
or additional amount related thereto, imposed by any taxing authority.
1.39 WARRANT means that certain warrant dated of even date herewith to
purchase up to 5,500,000 shares of Leap Common Stock, granted to QUALCOMM in
connection with the Distribution.
1.40 WIRELESS SYSTEM means a terrestrial-based PCS, cellular, wireless
local loop or other terrestrial-based wireless communication system.
ARTICLE 2
THE SEPARATION
2.1 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES.
(a) QUALCOMM hereby assigns, transfers, conveys and delivers to Leap,
and agrees to cause its applicable Subsidiaries to assign, transfer, convey and
deliver to Leap, and Leap hereby accepts from QUALCOMM and its respective
Subsidiaries, all of QUALCOMM's and its applicable Subsidiaries' respective
right, title and interest in and to the Leap Assets (as defined in Section 2.2
below).
(b) Leap hereby assumes and agrees to faithfully perform and fulfill
all Leap Liabilities (as defined in Section 2.3), in accordance with their
respective terms. Notwithstanding the foregoing, Leap shall not assume any
Liability attributable to the failure of QUALCOMM or its officers, directors,
employees, agents, Subsidiaries or Affiliates to perform QUALCOMM's obligations
to Leap pursuant to this Agreement or the Ancillary Agreements.
(c) In the event that at any time or from time to time (whether prior
to or after the Distribution Date) any party hereto (or any member of the
QUALCOMM Group or Leap Group, as applicable), shall receive or otherwise possess
an asset that is allocated to any other Person pursuant to this Agreement or any
Ancillary Agreement, such party shall promptly transfer or cause to be
transferred, such asset to such Person so entitled thereto. Prior to such
transfer, the Person receiving or possessing such Asset shall hold such Asset in
trust for such other Person. In the event that at any time or from time to time
(whether prior to or after the Distribution Date) any party hereto or any member
of the QUALCOMM Group or Leap Group, as applicable, shall hold or otherwise
possess any information or otherwise be required to cooperate to allow a Person
to avoid a Liability assumed pursuant to this Agreement or any Ancillary
Agreement, such Person shall, to the extent reasonable, promptly provide such
information and/or cooperation and/or cause such information or cooperation to
be provided to the Person so entitled thereto.
(d) In furtherance of the assignment, transfer and conveyance of Leap
Assets and the assumption of Leap Liabilities set forth in Section 2.1(a) and
(b), simultaneously with the execution and delivery hereof or as promptly as
practicable thereafter, (i) QUALCOMM shall execute and deliver, and shall cause
its Subsidiaries to execute and deliver, such bills of sale,
6.
<PAGE> 12
stock powers, certificates of title, assignments of contracts and other
instruments of transfer, conveyance and assignment as and to the extent
necessary to evidence the transfer, conveyance and assignment of all of
QUALCOMM's and its respective Subsidiaries' right, title and interest in and to
the Leap Assets to Leap and (ii) Leap shall execute and deliver, to QUALCOMM and
its respective Subsidiaries such bills of sale, stock powers, certificates of
title, assumptions of contracts, indemnity agreements and other instruments of
assumption as and to the extent necessary to evidence the valid and effective
assumption of the Leap Liabilities by Leap.
2.2 LEAP ASSETS.
(i) For the purpose of this Agreement, "Leap Assets" shall mean
(i) the assets listed on Schedules A-1 (Chase Telecommunications, Inc.), A-2
(ChileSat), A-3 (Metrosvyaz), A-4 (OzPhone), A-5 (PC Phone), A-6 (Pegaso), A-7
(Telesystems of Ukraine) and A-8 (other assets) hereto; (ii) any and all assets
that are expressly stated in this Agreement or any Ancillary Agreement (or the
schedules hereto or thereto) as assets to be assigned to Leap; and (iii) any and
all Contingent Gains primarily relating to the Leap Business or expressly
assigned to Leap pursuant to this Agreement or any Ancillary Agreement.
Notwithstanding the foregoing, Leap Assets shall not include any of the
following assets (the "Excluded Assets"):
(i) assets of QUALCOMM under or relating to equipment supply
and/or vendor finance agreements, including but not limited to all equipment
supply and vendor finance agreements with entities that comprise the Leap
Operating Assets except as may be expressly transferred to Leap pursuant to this
Agreement or the Ancillary Agreements (or the Schedules or Exhibits hereto or
thereto);
(ii) any and all assets that are expressly contemplated by this
Agreement or any Ancillary Agreement (or the Schedules or Exhibits hereto or
thereto), as assets to be retained by QUALCOMM or any other member of the
QUALCOMM Group; or
(iii) any and all Contingent Gains primarily relating to the
QUALCOMM Business or expressly retained by QUALCOMM pursuant to this Agreement
or any Ancillary Agreement.
2.3 LEAP LIABILITIES.
(a) For the purposes of this Agreement, "Leap Liabilities" shall
mean:
(i) the Liabilities listed on Schedules B-1 (Chase
Telecommunications, Inc.), B-2 (ChileSat), B-3 (Metrosvyaz), B-4 (OzPhone), B-5
(PC Phone), B-6 (Pegaso), B-7 (Telesystems of Ukraine) and B-8 (other
Liabilities) hereto;
(ii) any and all Liabilities that are expressly contemplated by
this Agreement or any Ancillary Agreement (or the schedules hereto or thereto)
as Liabilities to be assumed by Leap, and all agreements, obligations and
Liabilities of any member of the Leap Group under this Agreement or any of the
Ancillary Agreements;
7.
<PAGE> 13
(iii) all Liabilities (other than Taxes based on, or measured by
reference to, net income, and liabilities expressly retained by QUALCOMM
pursuant to this Agreement and/or the Ancillary Agreements), including any
employee-related Liabilities and any Liabilities relating to environmental laws,
rules and regulations of any jurisdiction ("Environmental Laws") (such
Liabilities, "Environmental Liabilities"), relating to, arising out of or
resulting from:
(1) the operation of the Leap Business, as conducted at any
time after the Distribution (including any Liability relating to, arising out of
or resulting from any act or failure to act by any director, officer, employee,
agent or representative (whether or not such act or failure to act is or was
within such Person's authority));
(2) the operation of any business conducted by any member
of the Leap Group at any time after the Distribution (including any Liability
relating to, arising out of or resulting from any act or failure to act by any
director, officer, employee, agent or representative (whether or not such act or
failure to act is or was within such Person's authority)); or
(3) any Leap Asset(s) to the extent the Liability arises
after the Distribution; or
(4) any agreements or understandings, whether oral or
written, relating to future business, equity participation, employment or
similar arrangements with respect to U.S. domestic wireless operator
opportunities, whether or not such agreements or understandings were entered
into prior to, on or after the Distribution Date;
(iv) any and all Contingent Liabilities primarily relating to the
Leap Business or expressly assumed by Leap pursuant to this Agreement or any
Ancillary Agreement; and
(v) all other Liabilities of Leap relating to, arising out of or
resulting from Leap's performance or obligations under any Ancillary Agreement
or this Agreement.
Notwithstanding the foregoing, the Leap Liabilities shall not include the
following Liabilities (the "Excluded Liabilities"): (i) Liabilities of QUALCOMM
under or relating to equipment supply and/or vendor finance agreements,
including all equipment supply and vendor finance agreements with the entities
that comprise the Leap Operating Assets, except as may be expressly transferred
to Leap pursuant to this Agreement or the Ancillary Agreements or schedules or
exhibits hereto or thereto; (ii) Liabilities based upon or relating to the
Distribution, except for those Liabilities set forth in Section 4.1(d) and
Liabilities arising out of or attributable to actions or inaction of Leap; (iii)
Liabilities based upon or relating to Actions against employees of QUALCOMM who
become employees of Leap as of or following the Separation, to the extent such
Actions are based upon or relate to actions or conduct of such employees in
their capacities as employees prior to July 1, 1998; (iv) any and all
Liabilities that are expressly contemplated by this Agreement or any Ancillary
Agreement (or the schedules hereto or thereto) as Liabilities to be retained or
assumed by QUALCOMM or any other member of the QUALCOMM Group, and all
agreements and obligations of any member of the QUALCOMM Group under this
Agreement or any of the Ancillary Agreements; and (v) any and all Contingent
8.
<PAGE> 14
Liabilities not primarily relating to the Leap Business or that are expressly
assumed by Leap pursuant to this Agreement or any Ancillary Agreement.
2.4 TERMINATION OF AGREEMENTS. Except with respect to this Agreement and
the Ancillary Agreements (and agreements expressly contemplated herein or
therein to survive by their terms), Leap and QUALCOMM (on their own behalf and
on behalf of the members of the Leap Group and QUALCOMM Group, respectively)
hereby terminate, except to the extent the same are in writing and do not by
their written terms terminate as a result of the Separation or Distribution, any
and all written or oral agreements, arrangements, commitments or understandings,
between or among them, effective as of the Distribution Date; and each party
shall, at the reasonable request of any other party, take, or cause to be taken,
such other actions as may be necessary to effect the foregoing.
2.5 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. (a) Each of QUALCOMM (on
behalf of itself and each member of the QUALCOMM Group) and Leap (on behalf of
itself and each member of the Leap Group) understands and agrees that, except as
expressly set forth herein or in any Ancillary Agreement, no party to this
Agreement, any Ancillary Agreement or any other agreement or document
contemplated by this Agreement, any Ancillary Agreement or otherwise, is
representing or warranting in any way as to the assets, businesses or
Liabilities transferred or assumed as contemplated hereby or thereby, as to any
consents or approvals required in connection therewith, as to the value or
freedom from any Security Interests of, or any other matter concerning, any
assets of such party, or as to the absence of any defenses or right of setoff or
freedom from counterclaim with respect to any claim or other asset, including
any accounts receivable, of any party, or as to the legal sufficiency of any
assignment, document or instrument delivered hereunder to convey title to any
asset or thing of value upon the execution, delivery and filing hereof or
thereof. Except as may expressly be set forth herein or in any Ancillary
Agreement, all such assets are being transferred on an "as is," "where is" basis
and the respective transferees shall bear the economic and legal risks that any
conveyance shall prove to be insufficient to vest in the transferee good and
marketable title, free and clear of any Security Interest.
2.6 GOVERNMENTAL APPROVALS AND CONSENTS; DEFERRED TRANSFERS
(a) To the extent that the Separation requires any Governmental
Approvals or Consents, the parties will use commercially reasonable efforts to
obtain any such Governmental Approvals and Consents.
(b) If and to the extent that the valid, complete and perfected
transfer or assignment (or novation of any government contract) to Leap of any
Leap Assets would be a violation of applicable laws or require any Consent or
Governmental Approval in connection with the Separation or the Distribution,
then, unless QUALCOMM shall otherwise determine, the transfer or assignment to
or from the Leap Group, as the case may be, of such Leap Assets or non-Leap
Assets, respectively, shall be automatically deemed deferred and any such
purported transfer or assignment shall be null and void until such time as all
legal impediments are removed and/or each of such Consents or Governmental
Approvals have been obtained. Notwithstanding the foregoing, such asset shall be
deemed a Leap Asset for purposes of determining whether any Liability is an Leap
Liability.
9.
<PAGE> 15
(c) If the transfer or assignment of any assets intended to be
transferred or assigned hereunder is not consummated prior to or at the
Distribution Date, whether as a result of the provisions of Section 2.6(b) or
for any other reason, then the Person retaining such asset shall thereafter hold
such asset for the use and benefit, insofar as reasonably possible, of the
Person entitled thereto (at the expense of the Person entitled thereto).
(d) If and when the Consents and/or Governmental Approvals, or any
other impediments to transfer, the absence of which caused the deferral of
transfer of any asset pursuant to Section 2.6(b) or otherwise, are obtained or
removed (as appropriate), the transfer of the applicable asset shall be effected
in accordance with the terms of this Agreement and/or the applicable Ancillary
Agreement.
(e) The Person retaining an asset due to the deferral of the transfer
of such asset shall take such actions with respect to such asset as may be
reasonably requested by the Person entitled to the asset, provided that such
person retaining an asset shall not be obligated, in connection with the
foregoing, to expend any money unless the necessary funds are advanced by the
Person entitled to the asset, other than reasonable out-of-pocket expenses,
attorneys' fees and recording or similar fees, all of which shall be promptly
reimbursed by the Person entitled to such asset.
2.7 ASSIGNMENT OF ASSUMED LEAP LIABILITIES.
(a) Each of QUALCOMM and Leap, at the request of the other, shall use
its commercially reasonable efforts to obtain, or to cause to be obtained, any
consent, substitution, approval or amendment required to assign all obligations
under agreements, leases, licenses and other obligations or Liabilities of any
nature whatsoever that constitute Leap Liabilities.
(b) If QUALCOMM or Leap is unable to obtain, or to cause to be
obtained, any such required consent, approval, substitution or amendment, the
applicable member of the QUALCOMM Group shall continue to be bound by such
agreements, leases, licenses and other obligations and, unless not permitted by
law or the terms thereof, Leap shall, as agent or subcontractor for QUALCOMM or
such other Person, as the case may be, pay, perform and discharge fully all the
obligations or other Liabilities of QUALCOMM or such other Person, as the case
may be, thereunder from and after the date hereof. QUALCOMM shall, without
further consideration, pay and remit, or cause to be paid or remitted, to Leap
promptly all money, rights and other consideration received by it or any member
of the QUALCOMM Group in respect of such performance (unless any such
consideration is an Excluded Asset). If and when any such consent, approval,
release, substitution or amendment shall be obtained or such agreement, lease,
license or other rights or obligations shall otherwise become assignable,
QUALCOMM shall thereafter assign, or cause to be assigned, all its rights,
obligations and other Liabilities thereunder or any rights or obligations of any
member of the QUALCOMM Group to Leap without payment of further consideration
and Leap shall, without the payment of any further consideration, assume such
rights and obligations.
2.8 QUALCOMM CONSIDERATION; LEAP RESERVE SHARES. In consideration of the
transfer of the Leap Assets by QUALCOMM to Leap, and QUALCOMM's other
obligations pursuant hereto and pursuant to the Ancillary Agreements, in
addition to the other consideration
10.
<PAGE> 16
described herein (including, without limitation, Leap's obligations pursuant
hereto and pursuant to the Ancillary Agreements), Leap shall issue, grant or
transfer to QUALCOMM, as appropriate, prior to the Distribution Date, (i) shares
of Leap Common Stock necessary to effect the Distribution, and (ii) the Warrant.
In addition, without limitation on any of Leap's other obligations pursuant to
this Agreement and the Ancillary Agreements, Leap agrees to hold in reserve for
issuance, and to promptly issue, all such shares of Leap Common Stock as may be
or become issuable as a result of the Distribution by reason of any provision of
any stock option plan or agreement, warrant or other security of QUALCOMM
(including without limitation QUALCOMM's 1991 Stock Option Plan and QUALCOMM's
Non-Employee Director Stock Option Plan and options outstanding thereunder,
QUALCOMM's Executive Matching Retirement Plan, and all outstanding Trust
Convertible Preferred Securities issued by QUALCOMM Financial Trust, an
Affiliate of QUALCOMM) and in such manner as is directed by QUALCOMM consistent
with such adjustment provisions (the "Leap Reserve Shares"). Leap shall issue
Leap Reserve Shares to the holders of the QUALCOMM Trust Convertible Preferred
Securities promptly following the exercise or conversion thereof and for no
additional consideration except as may be determined otherwise by QUALCOMM. Leap
shall also issue Leap Reserve Shares to holders of QUALCOMM options, warrants
and other convertible securities promptly following the exercise or conversion
thereof for consideration equal to the price per share set forth in the
particular instrument, as further described in the Employee Benefits Agreement.
ARTICLE 3
THE DISTRIBUTION
3.1 THE DISTRIBUTION.
1 (a) Subject to Section 3.3 hereof, on or prior to the Distribution
Date, QUALCOMM will deliver to the distribution agent selected by QUALCOMM (the
"Agent"), for the benefit of and distribution to holders of record of QUALCOMM
Common Stock on the Record Date, stock certificates, endorsed by QUALCOMM in
blank, representing all of the outstanding shares of Leap Common Stock then
owned by QUALCOMM or any member of the QUALCOMM Group, and shall instruct the
Agent to distribute on the Distribution Date the appropriate number of such
shares of Leap Common Stock to each such holder or designated transferee or
transferees of such holder.
(b) Subject to Section 3.4, each holder of QUALCOMM Common Stock on
the Record Date (or such holder's designated transferee or transferees) will be
entitled to receive in the Distribution one (1) share of Leap Common Stock for
each four (4) shares of QUALCOMM Common Stock held by such holder on the Record
Date.
(c) Leap and QUALCOMM, as the case may be, will provide to the Agent
all share certificates and any information required in order to complete the
Distribution on the basis specified above.
11.
<PAGE> 17
3.2 ACTIONS PRIOR TO THE DISTRIBUTION.
(a) Prior to the Distribution Date, QUALCOMM and Leap shall prepare
and mail to the holders of QUALCOMM Common Stock, such information concerning
Leap, its business, operations and management, the Distribution and such other
matters as QUALCOMM shall reasonably determine and as may be required by law.
Leap will prepare, and Leap will, to the extent required under applicable law,
file with the Commission the Form 10 and any such other documentation which
QUALCOMM determines are necessary or desirable to effectuate the Distribution
and QUALCOMM and Leap shall each use its commercially reasonable efforts to
obtain all necessary approvals from the Commission with respect thereto as soon
as practicable.
(b) QUALCOMM and Leap shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of the United States (and
any comparable laws under any foreign jurisdiction) in connection with the
Distribution.
(c) QUALCOMM and Leap shall take all reasonable steps necessary and
appropriate to cause the conditions set forth in Section 3.3 to be satisfied and
to effect the Distribution on the Distribution Date.
(d) Leap shall prepare and file, and shall use its commercially
reasonable efforts to have approved, an application for the inclusion of the
Leap Common Stock to be distributed in the Distribution on the Nasdaq National
Market.
(e) QUALCOMM and Leap shall enter into all Ancillary Agreements.
(f) QUALCOMM and Leap shall cooperate to change the name of any
entity that is part of the Leap Group or the Leap Operating Assets so that the
word "QUALCOMM" or derivations thereof is not included in any such name.
3.3 CONDITIONS TO DISTRIBUTION. QUALCOMM and Leap shall be obligated to
consummate the Distribution no later than September 27, 1998, subject to the
satisfaction, or waiver by the QUALCOMM Board of Directors in its sole
discretion, of the following conditions:
(a) any material Governmental Approvals and Consents necessary to
consummate the Distribution shall have been obtained and be in full force and
effect;
(b) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Distribution shall be in effect and no other event outside
the control of QUALCOMM shall have occurred or failed to occur that prevents the
consummation of the Distribution;
(c) the Board of Directors of QUALCOMM shall have (i) authorized and
approved the Distribution and not withdrawn such authorization and approval;
(ii) received the opinion of Lehman Brothers described in the Form 10; (iii)
received an opinion from Delaware counsel, selected by QUALCOMM in its sole
discretion, regarding the appropriateness of the QUALCOMM Board of Directors'
determination as to whether statutory surplus is legally
12.
<PAGE> 18
available to effect the Distribution under Section 170 of the Delaware General
Corporation Law; and (iv) received an opinion in such form as is reasonably
acceptable to QUALCOMM (the "Investment Company Opinion"), from Willkie Farr and
Gallagher or other counsel selected by QUALCOMM in its sole discretion, to the
effect that (a) Leap has filed an application under Section 3(b)(2) of the
Investment Company Act of 1940, as amended (the "Investment Company Act"), for
an order of the Commission finding and declaring Leap to be primarily engaged in
a business other than investing, reinvesting, owning, holding or trading in
securities either directly or through majority-owned subsidiaries or controlled
companies conducting similar types of businesses, (b) the filing of such
application provides Leap with an automatic 60-day exemption from all provisions
of the Investment Company Act, (c) immediately following the expiration of such
60-day period Leap may, and the Board of Directors of Leap has taken all
necessary action to, avail itself to the exemption from the registration
requirements of the Investment Company Act set forth in rule 3(a)(2) thereunder
(the transient investment company exemption), and (d) Leap is not an investment
company within the meaning of the Investment Company Act;
(d) All Ancillary Agreements shall have been entered into by the
respective parties thereto, and all conditions precedent to borrowing amounts
under the Credit Facility shall be satisfied or waived by the lenders
thereunder;
(e) the executive officers and members of the Board of Directors of
Leap listed in the section entitled "Management" in the Form 10 shall have
resigned from QUALCOMM in every capacity in which they served QUALCOMM prior to
the Distribution, including without limitation as officer, director, committee
member, employee and/or consultant (excluding, however, any continuing
consulting arrangement described in the Form 10) and arrangements shall have
been made to the satisfaction of QUALCOMM pursuant to the Employee Benefits
Agreement or otherwise for the complete and orderly transition of employment of
all other Persons designated by the parties as those QUALCOMM employees who are
to become Leap employees as of or prior to the Distribution; and
(f) no other events or developments shall have occurred that, in the
judgment of the Board of Directors of QUALCOMM, would result in the Distribution
having a material adverse effect on QUALCOMM or on the stockholders of QUALCOMM
or not being in the best interest of QUALCOMM and its stockholders.
The foregoing conditions are for the sole benefit of QUALCOMM and shall not give
rise to or create any duty on the part of QUALCOMM or the QUALCOMM Board of
Directors to waive or not waive any such condition.
3.4 FRACTIONAL SHARES. As soon as practicable after the Distribution Date,
QUALCOMM shall direct the Agent to aggregate all fractional shares of Leap
Common Stock to which its stockholders would otherwise be entitled and sell the
whole shares obtained thereby at the direction of QUALCOMM in open market
transactions or otherwise, in each case at then prevailing trading prices, and
to cause to be distributed to each such holder or for the benefit of each such
beneficial owner to which a fractional share shall be allocable such holder's or
owner's ratable share of the proceeds of such sale, after making appropriate
deductions of the amount required to be withheld for federal income tax purposes
and after deducting an amount equal to all brokerage charges, commissions and
transfer taxes attributed to such sale.
13.
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QUALCOMM and the Agent shall use their reasonable efforts to aggregate the
shares of QUALCOMM Common Stock that may be held by any beneficial owner thereof
through more than one account in determining the fractional share allocable to
such beneficial owner.
ARTICLE 4
INDEMNIFICATION
4.1 INDEMNIFICATION BY LEAP. Except as provided in Section 4.3, Leap shall
indemnify, defend and hold harmless QUALCOMM, each member of the QUALCOMM Group
and each of their respective directors and officers, and each of the heirs,
executors, successors and assigns of any of the foregoing (collectively, the
"QUALCOMM Indemnitees"), from and against any and all Liabilities of the
QUALCOMM Indemnitees relating to, arising out of or resulting from any of the
following items:
(a) the failure of Leap or any other member of the Leap Group or any
other Person to pay, perform or otherwise promptly discharge any Leap
Liabilities in accordance with their respective terms after the Distribution
Date;
(b) any Leap Liability;
(c) any breach by Leap of this Agreement or any of the Ancillary
Agreements; and
(d) any failure (or alleged failure) of Leap to operate the Leap
Business as described in the "Business" section of the Form 10.
4.2 INDEMNIFICATION BY QUALCOMM. QUALCOMM shall indemnify, defend and hold
harmless Leap, each member of the Leap Group and each of their respective
directors and officers, and each of the heirs, executors, successors and assigns
of any of the foregoing (collectively, the "Leap Indemnitees"), from and against
any and all Liabilities of the Leap Indemnitees relating to, arising out of or
resulting from any of the following items:
(a) the failure of QUALCOMM or any other member of the QUALCOMM Group
or any other Person to pay, perform or otherwise promptly discharge any
Liabilities of the QUALCOMM Group other than the Leap Liabilities after the
Distribution Date; provided, however, this Section 4.2(a) shall not apply to any
Liability arising out of or related to any agreement (such as an equipment
supply agreement, vendor finance agreement or capital contribution agreement),
other than an agreement specified in Section 4.2(d), between any member of the
QUALCOMM Group, on the one hand, and any member of the Leap Group and any Person
in which Leap, directly or indirectly, holds an equity, debt or other financial
interest, on the other hand; provided further, however, nothing in the
immediately preceding proviso shall be construed as impairing the rights of the
subject parties under any such agreement;
(b) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in the Form 10 except with respect to
information described in Section 4.1(d) above;
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(c) any Liability of the QUALCOMM Group, other than the Leap
Liabilities; and
(d) any breach by QUALCOMM of this Agreement or any of the Ancillary
Agreements.
4.3 INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER
AMOUNTS.
(a) The parties intend that any Liability subject to indemnification
or reimbursement pursuant to this Article 4 or Article 5 will be net of
Insurance Proceeds that actually reduce the amount of the Liability.
Accordingly, the amount which any party (an "Indemnifying Party") is required to
pay to any Person entitled to indemnification hereunder (an "Indemnitee") will
be reduced by any Insurance Proceeds theretofore actually recovered by or on
behalf of the Indemnitee in reduction of the related Liability. If an Indemnitee
receives a payment (an "Indemnity Payment") required by this Agreement from an
Indemnifying Party in respect of any Liability and subsequently receives
Insurance Proceeds then the Indemnitee will pay to the Indemnifying Party an
amount equal to the excess of the Indemnity Payment received over the amount of
the Indemnity Payment that would have been due if the Insurance Proceeds
recovery had been received, realized or recovered before the Indemnity Payment
was made.
(b) In the case of any Contingent Liability, any Insurance Proceeds
recovered by either party in respect of the Contingent Liability will be used to
satisfy the Contingent Liability before the parties shall seek relief under this
Article 4.
(c) An insurer who would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third party shall be entitled to a "windfall" (i.e., a benefit they
would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof. Notwithstanding
the foregoing, each member of the QUALCOMM Group and Leap Group shall be
required to use commercially reasonable efforts to collect or recover any
available Insurance Proceeds.
4.4 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS.
(a) If an Indemnitee shall receive notice or otherwise learn of the
assertion by a Person (including any Governmental Authority) who is not a member
of the QUALCOMM Group or the Leap Group of any claim or of the commencement by
any such Person of any Action (collectively, a "Third Party Claim") with respect
to which an Indemnifying Party may be obligated to provide indemnification to
such Indemnitee pursuant to Section 4.1 or 4.2, or any other Section of this
Agreement or any Ancillary Agreement, such Indemnitee shall give such
Indemnifying Party and each party to this Agreement, written notice thereof
within twenty (20) days after becoming aware of such Third Party Claim. Any such
notice shall describe the Third Party Claim in reasonable detail. If any Person
shall receive notice or otherwise learn of the assertion of a Third Party Claim
which may reasonably be determined to be a Shared Contingent Liability, such
Person shall give each other party to this Agreement written notice thereof
within 20 days after becoming aware of such Third Party Claim. Any such notice
shall describe the
15.
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Third Party Claim in reasonable detail. Notwithstanding the foregoing, the
failure of any Indemnitee or other Person to give notice as provided in this
Section 4.4(a) shall not relieve the related Indemnifying Party of its
obligations under this Article 4, except to the extent that such Indemnifying
Party is actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and, unless the
Indemnifying Party has specified any reservations or exceptions, to seek to
settle or compromise), at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, any Third Party Claim; provided that if the
defendants in any such claim include both the Indemnifying Party and one or more
Indemnitees and in such Indemnitees' reasonable judgment a conflict of interest
between such Indemnitees and such Indemnifying Party exists in respect of such
claim, such Indemnitees shall have the right to employ separate counsel and in
that event the reasonable fees and expenses of such separate counsel (but not
more than one separate counsel reasonably satisfactory to the Indemnifying
Party) shall be paid by such Indemnifying Party. Within 30 days after the
receipt of notice from an Indemnitee in accordance with Section 4.4(a) (or
sooner, if the nature of such Third Party Claim so requires), the Indemnifying
Party shall notify the Indemnitee of its election whether the Indemnifying Party
will assume responsibility for defending such Third Party Claim, which election
shall specify any reservations or exceptions. After notice from an Indemnifying
Party to an Indemnitee of its election to assume the defense of a Third Party
Claim, such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnitee except as set forth in the next sentence. In the event that the
Indemnifying Party has elected to assume the defense of the Third Party Claim
but has specified, and continues to assert, any reservations or exceptions in
such notice, then, in any such case, the reasonable fees and expenses of one
separate counsel for all Indemnitees shall be borne by the Indemnifying Party.
(c) If an Indemnifying Party elects not to assume responsibility for
defending a Third Party Claim, or fails to notify an Indemnitee of its election
as provided in Section 4.4(b), such Indemnitee may defend such Third Party Claim
at the cost and expense (not including allocated costs of in-house counsel and
other in-house personnel) of the Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the defense of
the Third Party Claim in accordance with the terms of this Agreement, no
Indemnitee may settle or compromise any Third Party Claim without the consent of
the Indemnifying Party.
(e) No Indemnifying Party shall consent to entry of any judgment or
enter into any settlement of the Third Party Claim without the consent of the
Indemnitee if the effect thereof is to permit any injunction, declaratory
judgment, other similar order or other similar nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee.
(f) The provisions of Section 4.4 and Section 4.5 shall not apply to
Taxes (which are covered by the Tax Agreement).
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4.5 ADDITIONAL MATTERS.
(a) Any claim on account of a Liability which does not result from a
Third Party Claim shall be asserted by written notice given by the Indemnitee to
the related Indemnifying Party. Such Indemnifying Party shall have a period of
30 days after the receipt of such notice within which to respond thereto. If
such Indemnifying Party does not respond within such 30-day period, such
Indemnifying Party shall be deemed to have refused to accept responsibility to
make payment. If such Indemnifying Party does not respond within such 30-day
period or rejects such claim in whole or in part, such Indemnitee shall be free
to pursue such remedies as may be available to such party as contemplated by
this Agreement and the Ancillary Agreements.
(b) In the event of payment by or on behalf of any Indemnifying Party
to any Indemnitee in connection with any Third Party Claim, such Indemnifying
Party shall be subrogated to and shall stand in the place of such Indemnitee as
to any events or circumstances in respect of which such Indemnitee may have any
right, defense or claim relating to such Third Party Claim against any claimant
or plaintiff asserting such Third Party Claim or against any other person. Such
Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner,
and at the cost and expense (including allocated costs of in-house counsel and
other personnel) of such Indemnifying Party, in prosecuting any subrogated
right, defense or claim.
(c) In the event of an Action in which the Indemnifying Party is not
a named defendant, if the Indemnifying Party shall so request, the parties shall
endeavor to substitute the Indemnifying Party for the named defendant, add the
Indemnifying Party as a named defendant if at all practicable. If such
substitution or addition cannot be achieved for any reason or is not requested,
the named defendant shall allow the Indemnifying Party to manage the Action as
set forth in this section and subject to Section 4.4 with respect to Contingent
Liabilities, the Indemnifying Party shall fully indemnify the named defendant
against all costs of defending the Action (including court costs, sanctions
imposed by a court, attorneys' fees, experts' fees and all other external
expenses, and the allocated costs of in-house counsel and other personnel), the
costs of any judgment or settlement, and the cost of any interest or penalties
relating to any judgment or settlement.
4.6 SURVIVAL OF INDEMNITIES. The rights and obligations of each of QUALCOMM
and Leap and their respective Indemnitees under this Article 4 shall survive the
sale or other transfer by any party of any Assets or businesses or the
assignment by it of any Liabilities.
ARTICLE 5
CERTAIN COVENANTS AND OTHER AGREEMENTS OF THE PARTIES
5.1 RESTRICTION ON INTERESTS. During the period commencing at the
Distribution and continuing until January 1, 2004, subject to the express terms
of written agreements to which Leap is a party in existence at the time of the
Distribution:
(a) Leap and its Affiliates shall not acquire Interests, directly or
indirectly, in Persons that deploy (or intend to deploy) a Wireless System
unless (i) with respect to Persons that do not have a pre-existing Wireless
System that utilizes a technology other than cdmaOne,
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such Person only utilizes or intends to only utilize cdmaOne for such Wireless
System and such Person agrees to procure infrastructure and subscriber equipment
from QUALCOMM in accordance with the provisions of the Equipment Agreement, or
(ii) with respect to Persons that do have a pre-existing Wireless System that
utilizes a technology other than cdmaOne, the provisions of the last sentence in
this Section 5.1 are complied with as to such Person and such Person agrees to
procure infrastructure and subscriber equipment from QUALCOMM for such Person's
cdmaOne Wireless System in accordance with the provisions of the Equipment
Agreement; and
(b) Leap shall use commercially reasonable efforts to cause each
Related Entity that is not a Leap Affiliate to not acquire Interests in other
Persons that deploy (or intend to deploy) a Wireless System unless such Person
only utilizes or intends to only utilize cdmaOne for such Wireless System and
such Person agrees to procure infrastructure and subscriber equipment from
QUALCOMM in accordance with the provisions of the Equipment Agreement.
Notwithstanding the provisions of this Section 5.1, an Interest may be acquired
in a Person that has a pre-existing Wireless System that utilizes a technology
other than cdmaOne, but only so long as (i) the proceeds from the acquisition of
any such Interest are to be used by such Person solely to support and in
connection with the deployment of a cdmaOne Wireless System, (ii) reasonable
efforts are made to ensure that such proceeds are so utilized, and (iii) unless
such Person is already a party to an equipment requirements agreement with
QUALCOMM (in accordance with the provisions of the Equipment Agreement), the
efforts described above are undertaken to have such Person agree to procure
infrastructure and subscriber equipment in accordance with the provisions of the
Equipment Agreement.
5.2 RESTRICTION ON USE OF OTHER TECHNOLOGY. Leap agrees that during the
period commencing at the Distribution and continuing until January 1, 2004,
subject to the express terms of written agreements to which Leap is a party in
existence at the time of the Distribution:
(a) Leap will solely implement and utilize cdmaOne in connection with
its own (i) deployment and/or use of wireless infrastructure equipment, and (ii)
distribution and sale of wireless subscriber equipment, and (iii) provision of
wireless communication services in the world (the activities in clauses "(i)"
through "(iii)" collectively being referred to as the "Wireless Activities");
(b) Leap will cause its Affiliates that do not have a pre-existing
Wireless System that utilizes a technology other than cdmaOne to solely
implement and utilize, cdmaOne in connection with each such Affiliate's Wireless
Activities;
(c) Leap will cause its Affiliates that do have a pre-existing
Wireless System that utilizes a technology other than cdmaOne to solely
implement and utilize cdmaOne in connection with each such Affiliate's Wireless
Activities to the extent those Wireless Activities are funded, directly or
indirectly, by Leap, and furthermore Leap shall exercise commercially reasonable
efforts to cause such Affiliates to use cdmaOne or a cdmaOne overlay with
respect to any expansions of each such pre-existing non-cdmaOne Wireless System;
and
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(d) Leap will use its commercially reasonable efforts to cause each
Related Entity (that is not a Leap Affiliate) to solely implement and utilize
cdmaOne in connection with each such Related Entity's Wireless Activities.
Except to the extent set forth in clause "(c)" of the immediately preceding
sentence with respect to Affiliates having pre-existing non-cdmaOne Wireless
Systems, (i) in no event will Leap or its Affiliates implement, utilize or
support in any respect global system for mobile communications ("GSM"), time
division multiple access ("TDMA") or any other digital technologies (or variants
thereof) in competition with cdmaOne in connection with the provision of
wireless communication services, and (ii) Leap agrees to exercise its
commercially reasonable efforts to cause any Related Entity not to implement,
utilize or support in any respect GSM, TDMA or any other competing digital
technologies (or variants thereof) in competition with cdmaOne in connection
with the provision of wireless communication services. Leap further agrees to,
and agrees to cause its Affiliates to, support and promote cdmaOne based
technology for commercial implementation by its corporate partners and any
consortium of which it is a member in connection with any Wireless Activities
engaged in by any such partners and/or consortia in all parts of the world.
5.3 RESTRICTION ON EMPLOYEE SOLICITATION OR HIRING. Leap (on behalf of
itself, its Affiliates and any Related Entity, if any, that is utilized to
execute the domestic business activities described in the section of the Form 10
captioned "United States Wireless Opportunities") agrees that for a period of
three (3) years following the date of the Distribution, it will not solicit or
induce any employee of QUALCOMM or any other member of the QUALCOMM Group to
terminate or breach an employment, contractual or other relationship with
QUALCOMM nor will Leap (or its Affiliates) hire or otherwise employ any employee
of QUALCOMM or any other member of the QUALCOMM Group or any individual that was
employed by QUALCOMM or any other member of the QUALCOMM Group within the
previous six months, unless such person has approached Leap independently
without solicitation by Leap and Leap first consults with QUALCOMM and obtains
QUALCOMM's prior written approval. QUALCOMM (on behalf of itself and its
Affiliates) agrees that for a period of three (3) years following the date of
the Distribution, it will not solicit or induce any employee of Leap to
terminate or breach an employment, contractual or other relationship with Leap
nor will QUALCOMM (or its Affiliates) hire or otherwise employ any employee of
Leap or any member of the Leap Group or any individual that was employed by Leap
or any member of the Leap Group within the previous six months, unless such
person has approached QUALCOMM independently without solicitation by QUALCOMM
and QUALCOMM first consults with Leap and obtains Leap's prior written approval.
5.4 RIGHT OF FIRST REFUSAL. All rights and obligations set forth in this
Section 5.4 are expressly limited by and subject to any and all rights or third
parties existing on the Distribution Date, all of which rights are set forth on
Schedule 5.4 hereto to the actual knowledge of Leap.
(a) Except as otherwise may be agreed by the parties, Leap shall not
sell, assign, pledge, or in any manner transfer any Interest in its Leap
Operating Assets, whether voluntarily or by operation of law, for consideration
or by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this Section 5.4.
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<PAGE> 25
(b) If Leap desires to sell or otherwise transfer as described in
Section 5.4(a) above any Leap Operating Asset, Leap shall first give written
notice thereof to QUALCOMM. Such notice shall indicate the relevant Leap
Operating Asset and name the proposed transferee, and state the number of shares
(or the extent and nature of the interest) proposed to be transferred, the
proposed consideration including timing and form thereof, and all other material
terms and conditions of the proposed transfer.
(c) For thirty (30) days following receipt of such notice, QUALCOMM
shall have the option to elect to purchase all of the Leap Operating Asset
described in the notice at the price and upon the terms set forth in such
notice, subject to the rights of third parties and other restrictions that may
be set forth in written agreements with Leap in existence at the time of the
Distribution. In the event QUALCOMM elects to purchase all of the Leap Operating
Asset, it shall give written notice to Leap of its election and such purchase
shall be made pursuant to Section 5.4(e) below.
(d) Payment for any purchase QUALCOMM elects to make pursuant to
subsection (c) above shall be made in cash or by wire transfer, within thirty
(30) days following the election to purchase by QUALCOMM. Notwithstanding the
foregoing, QUALCOMM shall have the option to pay for said Leap Operating Asset
on substantially the same terms and conditions set forth in the notice from Leap
regarding the proposed transfer of such Leap Operating Asset.
(e) In the event QUALCOMM does not elect to acquire all of such Leap
Operating Asset, Leap may, within the one hundred eighty (180) day period
following the expiration of the option rights granted to QUALCOMM herein,
transfer the Leap Operating Asset as specified in the notice, provided such
transfer is consummated on the basis such that each of the corresponding
material terms of such transfer is at least as favorable to Leap as each of the
material terms set forth in the notice to QUALCOMM.
(f) The foregoing provisions in this Section 5.4 shall not be
applicable to the following transfers by Leap:
(i) Leap's pledge, mortgage or other transfer (or any
foreclosure pursuant thereto) of an Leap Operating Asset pursuant to the terms
of the Credit Facility;
(ii) Leap's bona fide pledge or mortgage (or any foreclosure
pursuant thereto) of an Leap Operating Asset with a commercial lending
institution, consistent with the terms of the Credit Facility; and
(iii) Leap's transfer of an Leap Operating Asset to QUALCOMM.
(g) The foregoing rights of QUALCOMM with respect to any Leap
Operating Asset shall be subject to rights of third parties to acquire such Leap
Operating Asset existing as of the Distribution Date with respect to such Leap
Operating Asset, all of which rights are set forth on Schedule 5.4 hereto to the
actual knowledge of Leap.
(h) The foregoing right of first refusal shall terminate as of the
date three (3) years following the Distribution.
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<PAGE> 26
(i) QUALCOMM may not assign its rights under this Section 5.4.
5.5 COMPETITION. Expect as may be set forth in this Agreement or any of the
Ancillary Agreements, no member of either the QUALCOMM Group or the Leap Group
shall have any duty to refrain from (i) engaging in the same or similar
activities or lines of business as any member of the other Group, (ii) doing
business with any potential or actual supplier or customer of any member of the
other Group, (iii) engaging in, or refraining from, any other activities
whatsoever relating to any of the potential or actual suppliers or customers of
any member of the other Group, or (iv) acquiring a joint venture or equity
interest in any telecommunications operating company or any other entity in the
United States or any other country. Notwithstanding the foregoing, following the
Distribution, so long as QUALCOMM or any of its Affiliates is in the business of
developing and/or selling cdmaOne application specific integrated circuits
neither Leap nor any of its Affiliates shall engage in the development or design
of cdmaOne application specific integrated circuits; provided, however, that
this restriction shall no longer apply in the event of a "change of control" of
QUALCOMM. For purposes of this Agreement, "change of control" means a
transaction or series of transactions whereby (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
QUALCOMM (or other securities convertible into such voting stock) representing
20% or more of the combined voting power of all voting stock of QUALCOMM; or
(ii) during any period of up to 18 consecutive months, commencing after the date
of this Agreement, individuals who at the beginning of such 18-month period were
directors of QUALCOMM, 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 QUALCOMM; or (iii) any
Person or two or more Persons acting in concert shall have acquired by 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 QUALCOMM.
5.6 MANAGEMENT OF INTERESTS. Leap covenants and agrees that following the
Distribution Date it shall take an active management role in its Leap Operating
Assets and any other wireless telecommunications operating company in which it
acquires a joint venture or equity interest, consistent with its own business
needs and applicable laws, contractual arrangements and other requirements of
Leap.
5.7 INVESTMENT COMPANY ACT. Following the Distribution Date, Leap shall use
commercially reasonable efforts, including without limitation by monitoring and
adjusting the nature and extent of its Interests, to ensure that Leap does not
become or remain an "investment company" as defined in the Investment Company
Act. Without limiting the foregoing, and notwithstanding the receipt by the
QUALCOMM Board of Directors of the Investment Company Opinion, as soon as
practicable following the Distribution, Leap shall use commercially reasonable
efforts to obtain an exemptive order from the Commission finding and declaring
Leap to be engaged in a business other than investing, reinvesting, owning,
holding or trading in securities, either directly, through majority-owned
subsidiaries or through controlled companies conducting similar types of
businesses.
21.
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5.8 LICENSE GRANT BY LEAP. Leap (on behalf of itself and its Affiliates)
hereby grants to QUALCOMM (i) with respect to all Leap Patents (as defined
below) that have a wireless communications application, a worldwide,
non-exclusive, royalty-free, fully paid up, perpetual license (with the right to
sublicense) to use, make, have made and/or practice such Leap Patents for any
purpose, and (ii) with respect to all other Leap Patents, a worldwide,
non-exclusive, royalty-free, fully paid up, perpetual license (with the right to
sublicense only to Affiliates of QUALCOMM) to use, make, have made and/or
practice such Leap Patents for any purpose. For purposes of this Section 5.8,
"Leap Patents" shall mean any patents or patent applications (whether filed or
issued and whether foreign or domestic) which are owned or controlled at any
time by Leap or its Affiliates. Notwithstanding the foregoing, Leap Patents
shall not include any patent or patent application as to which each of the
following three conditions are applicable: (i) the patent or patent application
is developed by Leap or its Affiliates expressly for an unaffiliated third
party; (ii) the development of such patent or patent application is funded by
such unaffiliated third party; and (iii) under the terms of the agreement to
develop such patent, Leap does not retain rights to license such patent to any
third parties.
5.9 METROSVYAZ LIMITED; EQUIPMENT REQUIREMENTS; FINANCIAL SUPPORT. Without
the prior written consent of QUALCOMM, Leap shall not amend, waive or otherwise
modify, nor permit the amendment, waiver or modification of (by QUALCOMM
Telecommunications Ltd. or otherwise) (i) the provisions of any shareholders
agreement with Tiller International Limited and/or Tass Telecom that contains a
requirement or obligation to purchase or otherwise acquire infrastructure or
subscriber equipment from any member of the QUALCOMM Group, and/or (ii) the
provisions of any agreement (to which no member of the QUALCOMM Group is a
party) relating to the purchase from any member of the QUALCOMM Group of
infrastructure or subscriber equipment by any Person in which QUALCOMM
Telecommunications Ltd. and/or Metrosvyaz Limited, directly or indirectly, holds
an equity interest.
ARTICLE 6
CONFIDENTIALITY
6.1 CONFIDENTIALITY.
(a) Subject to Section 6.2, each of QUALCOMM and Leap agrees to hold,
and to cause its respective directors, officers, employees, agents, accountants,
counsel and other advisors and representatives to hold, in strict confidence,
with at least the same degree of care that applies to QUALCOMM's confidential
and proprietary information pursuant to policies in effect as of the
Distribution Date, all Information concerning the other that is either in its
possession as of the Distribution Date or furnished by the other or its
respective directors, officers, employees, agents, accountants, counsel and
other advisors and representatives at any time pursuant to this Agreement, any
Ancillary Agreement or otherwise, and shall not use any such Information other
than for such purposes as shall be expressly permitted hereunder or thereunder,
except, in each case, to the extent that such Information has been (i) in the
public domain through no fault of such party or any member of the QUALCOMM Group
or the Leap Group, as applicable, or any of their respective directors,
officers, employees, agents, accountants, counsel and other advisors and
representatives, (ii) later lawfully acquired from other sources by such party
(or any member of the QUALCOMM Group or the Leap Group, as
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applicable) which sources are not themselves bound by a confidentiality
obligation), or (iii) independently generated without reference to any
proprietary or confidential Information of the other party. For purposes of this
Agreement, "Information" shall mean information, whether or not patentable or
copyrightable, in written, oral, electronic or other tangible or intangible
forms, stored in any medium, including studies, reports, records, books,
contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
(b) Each party agrees not to release or disclose, or permit to be
released or disclosed, any such Information to any other Person, except its
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives who need to know such Information (who shall be advised of
their obligations hereunder with respect to such Information), except in
compliance with Section 6.2. Without limiting the foregoing, when any
Information is no longer needed for the purposes contemplated by this Agreement
or any Ancillary Agreement, each party will promptly after request of the other
party either return to the other party all Information in a tangible form
(including all copies thereof and all notes, extracts or summaries based
thereon) or certify to the other party that it has destroyed such Information
(and such copies thereof and such notes, extracts or summaries based thereon).
6.2 PROTECTIVE ARRANGEMENTS. In the event that either party or any other
respective member of the QUALCOMM Group or the Leap Group, as applicable, either
(i) determines on the advice of its counsel that it is required to disclose any
Information pursuant to applicable law or (ii) receives any demand under lawful
process or from any Governmental Authority to disclose or provide Information of
the other party (or any other member of the QUALCOMM Group or the Leap Group, as
applicable) that is subject to the confidentiality provisions hereof, such party
shall notify the other party prior to disclosing or providing such Information
and shall cooperate at the expense of the requesting party in seeking any
reasonable protective arrangements requested by such other party. Subject to the
foregoing, the Person that received such request may thereafter disclose or
provide Information to the extent required by such law (as so advised by
counsel) or by lawful process or such Governmental Authority.
ARTICLE 7
ACCESS TO INFORMATION AND SERVICES
7.1 PROVISION OF CORPORATE RECORDS.
(a) Except as may otherwise be provided in any Ancillary Agreement,
QUALCOMM shall arrange as soon as practicable following the Distribution Date
for the transportation (at Leap's cost) to Leap of the books and records
relating exclusively to the Leap Business (the "Leap Books and Records") in its
possession, except to the extent such items are already in the possession of
Leap or a Leap Subsidiary. The Leap Books and Records shall be the property of
Leap, but shall be available to QUALCOMM for review and duplication until
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QUALCOMM shall notify Leap in writing that such records are no longer of use to
QUALCOMM.
(b) Except as otherwise provided in any Ancillary Agreement, Leap
shall arrange as soon as practicable following the Distribution Date for the
transportation (at QUALCOMM's cost) to QUALCOMM of the books and records
relating exclusively to the QUALCOMM Business (the "QUALCOMM Books and Records")
in its possession, except to the extent such items are already in the possession
of QUALCOMM. The QUALCOMM Books and Records shall be the property of QUALCOMM,
but shall be available to Leap for review and duplication (except that QUALCOMM
shall have the right to withhold QUALCOMM Books and Records to the extent
QUALCOMM reasonably determines such QUALCOMM Books and Records do not relate in
any material way to the Leap Business) until Leap shall notify QUALCOMM in
writing that such records are no longer of use to Leap.
(c) With respect to books and records that relate to both the Leap
Business and the QUALCOMM Business ("Combined Books and Records"), (i) the
parties shall use good faith efforts to divide such Combined Books and Records
into Leap Books and Records and QUALCOMM Books and Records, as appropriate, and
(ii) to the extent such Combined Books and Records are not so divided, the
parties shall each keep and maintain copies of such Combined Books and Records
as reasonably appropriate under the circumstances, subject to applicable
confidentiality provisions hereof and of any Ancillary Agreement.
7.2 ACCESS TO INFORMATION. Except as otherwise provided in an Ancillary
Agreement, from and after the Distribution Date, QUALCOMM shall afford to Leap
and its authorized accountants, counsel and other designated representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to all records, books, contracts, instruments, computer data and other
data and information relating to pre-Distribution operations of the Leap
Business (collectively, "Operations Data") within QUALCOMM's possession insofar
as such access is reasonably required by Leap for the conduct of the Leap
Business, subject to appropriate restrictions for classified or Privileged
Information. Similarly, except as otherwise provided in an Ancillary Agreement,
Leap shall afford to QUALCOMM and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable efforts
to give access to persons or firms possessing information) and duplicating
rights during normal business hours to Operations Data within Leap's possession,
insofar as such access is reasonably required by QUALCOMM for the conduct of the
QUALCOMM Business, subject to appropriate restrictions for classified or
Privileged Information. Operations Data may be requested under this Article 8
for the legitimate business purposes of either party, including, without
limitation, audit, accounting, claims (including claims for indemnification
hereunder), litigation and tax purposes, as well as for purposes of fulfilling
disclosure and reporting obligations and for performing under this Agreement and
the transactions contemplated hereby.
7.3 PRODUCTION OF WITNESSES. At all times from and after the Distribution
Date, each of Leap and QUALCOMM shall use reasonable efforts to make available
to the other, upon written request, its and its Subsidiaries' officers,
directors, employees and agents as witnesses to the extent that such persons may
reasonably be required in connection with any Action.
24.
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7.4 REIMBURSEMENT. Except to the extent otherwise contemplated in any
Ancillary Agreement, a party providing Operations Data or witness services to
the other party under this Article 8 shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments of such amounts,
relating to supplies, disbursements and other out-of-pocket expenses (at cost)
and direct and indirect expenses of employees who are witnesses or otherwise
furnish assistance (at cost), as may be reasonably incurred in providing such
Operations Data or witness services.
7.5 RETENTION OF RECORDS. Except as otherwise required by law or agreed to
in an Ancillary Agreement or otherwise in writing, each of QUALCOMM and Leap may
destroy or otherwise dispose of any of the Operations Data, which is material
Operations Data and is not contained in other Operations Data retained by
QUALCOMM or Leap, as the case may be, at any time after the tenth anniversary of
this Agreement, provided that, prior to such destruction or disposal, (a) it
shall provide no less than 90 or more than 120 days prior written notice to the
other, specifying in reasonable detail the Operations Data proposed to be
destroyed or disposed of and (b) if a recipient of such notice shall request in
writing prior to the scheduled date for such destruction or disposal that any of
the Operations Data proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the Operations Data as was requested at the
expense of the party requesting such Operations Data.
7.6 PRIVILEGED MATTERS. To allocate the interests of each party with
respect to Privileged Information, the parties agree as follows:
(a) QUALCOMM shall be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the QUALCOMM Business, whether or not the Privileged
Information is in the possession of or under the control of QUALCOMM or Leap.
QUALCOMM shall also be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information that relates
solely to the subject matter of any claims constituting Liabilities of the
QUALCOMM Group, now pending or which may be asserted in the future, in any
lawsuits or other Actions initiated against or by QUALCOMM, whether or not the
Privileged Information is in the possession of or under the control of QUALCONM
or Leap.
(b) Leap shall be entitled, in perpetuity, to control the assertion
or waiver of all Privileges in connection with Privileged Information which
relates solely to the Leap Business, whether or not the Privileged Information
is in the possession of or under the control of QUALCOMM or Leap. Leap shall
also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information which relates solely to the
subject matter of any claims constituting Leap Liabilities, now pending or which
may be asserted in the future, in any lawsuits or other Actions initiated
against or by Leap, whether or not the Privileged Information is in the
possession of Leap or under the control of QUALCOMM or Leap.
(c) QUALCOMM and Leap agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions of this Section
7.6, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.6(a) and (b). All Privileges relating
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to any claims, proceedings, litigation, disputes or other matters which involve
both QUALCOMM and Leap in respect of which QUALCOMM and Leap retain any
responsibility or liability under this Agreement shall be subject to a shared
Privilege.
(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which the other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third parties or as provided in Section
7.6(e) below. Such consent shall be in writing, or shall be deemed to be granted
unless written objection is made within 20 days after notice upon the other
party requesting such consent.
(e) In the event of any litigation or dispute between a member of the
QUALCOMM Group and a member of the Leap Group, either party may waive a
Privilege in which the other party has a shared Privilege, without obtaining the
consent of the other party, provided that such waiver of a shared Privilege
shall be effective only as to the use of information with respect to the
litigation or dispute between the QUALCOMM Group and the Leap Group, and shall
not operate as a waiver of the shared Privilege with respect to third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either party,
each party agrees that it shall negotiate in good faith, shall endeavor to
minimize any prejudice to the rights of the other party, and shall not
unreasonably withhold consent to any request for waiver by the other party. Each
party specifically agrees that it will not withhold consent to waiver for any
purpose except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of information
subject to a shared Privilege or as to which the other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees has received any
subpoena, discovery or other request which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the information and to assert any rights it may
have under this Section 7.6 or otherwise to prevent the production or disclosure
of such Privileged Information.
(h) The transfer of the Leap Books and Records and the QUALCOMM Books
and Records and other Information between the QUALCOMM Group and the Leap Group
is made in reliance on the agreement of QUALCOMM and Leap, as set forth in
Sections 7.5 and 7.6 and elsewhere in this Agreement, to maintain the
confidentiality of Privileged Information and to assert and maintain applicable
Privileges. The access to information being granted pursuant to Sections 7.1 and
7.2, the agreement to provide witnesses and individuals pursuant to Section 7.3
and the transfer of Privileged Information between the QUALCOMM Group and the
Leap Group pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Agreement or otherwise.
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ARTICLE 8
INSURANCE
8.1 POLICIES AND RIGHTS INCLUDED WITHIN THE LEAP ASSETS. Without limiting
the generality of the definition of the Leap Assets, the Leap Assets shall
include (a) any and all rights of an insured party under each of the Shared
Policies, specifically including rights of indemnity and the right to be
defended by or at the expense of the insurer, with respect to all injuries,
losses, liabilities, damages and expenses incurred or claimed to have been
incurred on or prior to the Distribution Date by any party in or in connection
with the conduct of the Leap Business (provided QUALCOMM shall have equal rights
with respect to indemnity and the right to be defended to the extent practical
and appropriate) or, to the extent any claim is made against Leap or any of its
Subsidiaries, the QUALCOMM Business, and which injuries, losses, liabilities,
damages and expenses may arise out of insured or insurable occurrences or events
under one or more of the Shared Policies provided, however, that nothing in this
Section 8.1 shall be deemed to constitute (or to reflect) the assignment of the
Shared Policies, or any of them, to Leap; and (b) the Leap Policies.
8.2 POST-DISTRIBUTION DATE CLAIMS. If, subsequent to the Distribution Date,
any Person shall assert a claim against Leap or any Leap Subsidiary with respect
to any injury, loss, liability, damage or expense incurred or claimed to have
been incurred on or prior to the Distribution Date in or in connection with the
Distribution or the conduct of the Leap Business or, to the extent any claim is
made against Leap or any of its Subsidiaries, the QUALCOMM Business, and which
injury, loss, liability, damage or expense may arise out of insured or insurable
occurrences or events under one or more of the Shared Policies, QUALCOMM shall
at the time such claim is asserted (except to the extent inconsistent with
Section 8.1) be deemed to assign, without need of further documentation, to Leap
any and all rights of an insured party under the applicable Shared Policy with
respect to such asserted claim, specifically including rights of indemnity and
the right to be defended by or at the expense of the insurer, provided, however,
that nothing in this Section 8.2 shall be deemed to constitute (or to reflect)
the assignment of the Shared Policies, or any of them, to Leap.
8.3 ADMINISTRATION AND RESERVES.
(a) Notwithstanding the provisions of Article 2, but subject to any
contrary provisions of any Ancillary Agreement, from and after the Distribution
Date:
(i) Leap shall be entitled to any reserves established prior to
the Distribution Date by QUALCOMM, or the benefit of reserves held by any
insurance carrier, with respect to the Leap Liabilities; and
(ii) QUALCOMM shall be entitled to any reserves established by
QUALCOMM, or the benefit of reserves held by any insurance carrier, with respect
to the Liabilities of the QUALCOMM Group.
(b) INSURANCE PREMIUMS. Leap shall have the right but not the
obligation to pay the premiums, to the extent that QUALCOMM does not pay
premiums with respect to the
27.
<PAGE> 33
Liabilities of the QUALCOMM Group (retrospectively-rated or otherwise), with
respect to Shared Policies and the Leap Policies, as required under the terms
and conditions of the respective Policies, whereupon QUALCOMM shall forthwith
reimburse Leap for that portion of such premiums paid by Leap as are
attributable to the Liabilities of the QUALCOMM Group. QUALCOMM shall provide
continued coverage under its director and officer liability insurance policy for
a period of not less than three years, with a policy limit of not less than
Twenty Million Dollars ($20,000,000), for acts which took place or were alleged
to have taken place prior to the Distribution Date covering persons who were
directors and officers of QUALCOMM prior to the Distribution Date. Fifty percent
of the additional premiums, if any, for such coverage shall be reimbursed by
Leap within 15 days of the Distribution Date.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
Leap with respect to the Leap Liabilities and to QUALCOMM with respect to the
Liabilities of the QUALCOMM Group. Payment of the allocable portions of
indemnity costs of Insurance Proceeds resulting from the liability policies will
be made to the appropriate party upon receipt from the insurance carrier. In the
event that the aggregate limits on any Shared Policies are exceeded, the parties
agree to provide an equitable allocation of Insurance Proceeds received after
the Distribution Date based upon their respective bona fide claims. The parties
agree to use their commercially reasonable efforts to cooperate with respect to
insurance matters.
8.4 AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE. In the event that
Insured Claims of both Leap and QUALCOMM exist relating to the same occurrence,
Leap and QUALCOMM agree to jointly defend and to waive any conflict of interest
necessary to the conduct of that joint defense. Nothing in this Section 8.4
shall be construed to limit or otherwise alter in any way the indemnity
obligations of the parties to this Agreement, including those created by this
Agreement, by operation of law or otherwise.
ARTICLE 9
ARBITRATION; DISPUTE RESOLUTION
9.1 DISPUTES. QUALCOMM and Leap recognize that disputes as to certain
matters may from time to time arise during the effectiveness of this Agreement
and/or the Ancillary Agreements (collectively with this Agreement, the "Leap
Agreements") which relate to either party's rights and/or obligations hereunder
or thereunder. It is the objective of the parties to establish procedures to
facilitate the resolution of disputes arising under any of the Leap Agreements
in an expedient manner by mutual cooperation and without resort to litigation.
To accomplish this objective, the parties agree to follow the procedures set
forth in this Article 9 if and when a dispute arises under any of the Leap
Agreements. In the event of a dispute between the parties, any party may, by
written notice to the other, have such dispute referred to their respective
chief executive officers for attempted resolution by good faith negotiations
within fourteen (14) days after such notice is received. In the event the chief
executive officers are not able to resolve such dispute, either party may at any
time after the fourteen (14) day period seek to resolve the dispute through the
other means provided in Section 9.2.
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9.2 ALTERNATIVE DISPUTE RESOLUTION. Any dispute, controversy or claim
arising out of or relating to any of the Leap Agreements, including, without
limitation, disputes relating to alleged breach or to termination of any of such
agreements, shall be settled by binding Alternative Dispute Resolution ("ADR")
in the manner described below.
If a party intends to begin an ADR to resolve a dispute, such party shall
provide written notice (the "ADR Request") to the other party informing such
other party of such intention and the issues to be resolved. Within fifteen (15)
business days after receipt of the ADR Request, the other party may, by written
notice to counsel for the party initiating ADR, add additional issues to be
resolved.
9.3 ARBITRATION PROCEDURE. The ADR shall be conducted pursuant to the
Commercial Arbitration Rules of the American Arbitration Association for Large,
Complex Cases then in effect. Notwithstanding those rules, the following
provisions shall apply to the ADR hereunder.
(a) ARBITRATOR. The arbitration shall be carried out by a single
arbitrator, who shall be a retired United States judge or justice or magistrate
and shall be selected by the parties within thirty (30) days of receipt of the
ADR request in accordance with the procedure described below.
(i) The parties shall select an arbitrator as described in
subsection (ii) below, which arbitrator may but need not be selected from a list
of arbitrators such as the CPR Panel of Distinguished Neutrals of the Center for
Public Resources, subject to: (1) his/her availability and willingness to serve,
(2) his/her availability to commence the arbitration within a reasonable period
of time, (3) his/her agreement to charge fees and expenses that are reasonable
under the circumstances, and (4) his/her commitment to render his/her award
within the time periods provided in this Article 9.
(ii) Each party will exchange a list of ten (10) qualified
arbitrators and in the event that both parties agree to a single common name
that person shall be the arbitrator. In submitting the ten names, each party
shall prioritize from one to ten the persons on their respective lists. In the
event that there is more than one common name on the parties' lists, the person
having the lowest combined priority number shall be the selected arbitrator. The
combined priority number shall be the sum of the order numbers assigned to that
person by the parties. Thus, if one person was Leap's number two priority and
QUALCOMM's number three priority, and another person was Leap's number two
priority and QUALCOMM's number four priority, the former would be appointed. If
more than one person has the lowest combined priority number, the person for
whom there is less difference between the order numbers assigned by the parties
shall be appointed. Thus, if one person was Leap's number one priority and
QUALCOMM's number four priority, and another person was Leap's number two
priority and QUALCOMM's number three priority, the latter person would be
appointed. If this method does not produce a sole arbitrator or if there are no
common names, the parties shall alternatively strike from the combined list
until one name remains, which shall be the selected arbitrator. The party to
strike first shall be determined by the toss of a coin.
(iii) In the event the arbitrator is unable to meet the
requirements set forth in subsection (a) above, then, in the event the first
selected arbitrator was common to both
29.
<PAGE> 35
lists and there was more than one common name on the parties' lists, the
arbitrator having the next lowest combined priority number who is able and
willing to serve pursuant to these requirements shall be selected. If there is
no such individual, then the parties shall use the alternate strike method set
forth above. In the event an arbitrator selected by the alternate strike
methodology is unable or unwilling to serve consistent with the requirements set
forth above, then the alternate striking procedure shall be retraced in reverse
order until an arbitrator is selected.
The arbitrator shall be neutral, disinterested, impartial, and independent
of the parties and others having any known interest in the outcome, and shall
abide by the AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes.
There shall be no ex parte communications with the arbitrator either before or
during the arbitration, relating to the dispute or issues involved in the
dispute or the arbitrator's views on any such issue.
(b) INTERIM REVIEW. Either party may apply to any court having
jurisdiction hereof and seek preliminary injunctive relief until such time as
the arbitration award is rendered or the controversy is otherwise resolved.
(c) LOCATION. Any arbitration under Section 9.2 shall be conducted in
San Diego, California.
(d) DISCOVERY PROCEEDINGS AND HEARINGS. The parties shall have the
right to undertake such limited discovery as is expressly authorized by the
arbitrator upon a determination that such discovery is reasonably necessary to
enable the requesting party to prepare and present its claims and/or defenses at
the hearing. Discovery shall be conducted pursuant to Rules 26-37 of the Federal
Rules of Civil Procedure (with references to "court" in those Rules being
considered references to the "arbitrator") except as they may be modified by the
arbitrator. In addition:
(i) The arbitrator will determine the specific location within
San Diego, California and the date and time of the arbitration hearing, which
will commence no later than ninety (90) days after the date of the appointment
of the arbitrator. The arbitrator will provide reasonable notice of the hearing
date and time.
(ii) The arbitrator will ordinarily conduct the arbitration
hearing in the manner set forth in this Section 9.3 except that the Federal
Rules of Evidence shall apply. The arbitrator shall render its decision in
writing. If the AAA rules and the rules of this subsection (d) conflict in any
manner, the rules of this subsection (d) shall prevail. The arbitrator must hold
an oral hearing, but may impose reasonable time limits on each phase of the
proceeding and may limit testimony to exclude evidence that would be immaterial
or unduly repetitive, provided that all parties are afforded the opportunity to
present material and relevant evidence and that each party is given at least an
approximately equal amount of time for presentation of its case.
(iii) The arbitrator will require witnesses to testify under oath
if requested by any party.
(iv) Any party desiring a stenographic record may secure a court
reporter to attend the proceedings.
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<PAGE> 36
(v) The arbitrator will determine the order of proof, which will
generally be similar to that of a court trial, including opening and closing
statements.
(vi) When the arbitrator determines that all relevant and
material evidence and arguments have been presented, the arbitrator will declare
the hearing closed. The arbitrator may defer the closing of the hearing for up
to ten (10) days to permit the parties to submit post-hearing briefs and or to
make closing arguments, as the arbitrator deems appropriate, before rendering an
award.
(vii) The arbitrator will render the award and its decisions
within thirty (30) days after the date of the closing of the hearing or, if an
arbitration hearing has been waived, within thirty (30) days after the date of
the arbitrator's receiving all materials specified by the parties. The decision
and award of the arbitrator will constitute the arbitration award and will be
binding on the parties.
(viii) The arbitrator shall, in rendering its decision and award,
apply the substantive law of the State of California, without regard to its
conflict of laws provisions, except that the interpretation of and enforcement
of this Article shall be governed by the Federal Arbitration Act. The costs of
the winning party and its reasonable attorneys fees shall be paid by the losing
party which shall be designated by the arbitrator. If the arbitrator is unable
to designate a losing party, it shall so state and each party shall bear its own
costs and attorneys fees.
(e) AWARD. The arbitrator is empowered to award any remedy allowed by
law, including money damages, prejudgment interest and attorneys' fees, and to
grant final, complete, interim, or interlocutory relief, including injunctive
relief. Notwithstanding the foregoing, punitive or multiple damages may not be
awarded. Judgment upon any arbitration award hereunder may be entered and
enforced in any court having jurisdiction thereof.
(f) ARBITRATION FEES. The fees of the arbitrator shall be split
equally between the parties.
9.4 CONFIDENTIALITY. The ADR proceeding shall be confidential and the
arbitrator shall issue appropriate protective orders to safeguard each party's
confidential Information. Except as required by law, no party shall make (or
instruct the arbitrator to make) any public announcement with respect to the
proceedings or decision of the arbitrator without prior written consent of each
other party. The existence of any dispute submitted to ADR, and the award, shall
be kept in confidence by the parties and the arbitrator, except as required in
connection with the enforcement of such award or as otherwise required by
applicable law.
ARTICLE 10
FURTHER ASSURANCES
10.1 FURTHER ASSURANCES.
(a) In addition to the actions specifically provided for elsewhere in
this Agreement, each of the parties hereto shall use its commercially reasonable
efforts, prior to, on
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and after the Distribution Date, to take, or cause to be taken, all actions, and
to do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to consummate and
make effective the transactions contemplated by this Agreement and the Ancillary
Agreements.
(b) Without limiting the foregoing, prior to, on and after the
Distribution Date, each party hereto shall cooperate with the other parties, and
without any further consideration, but at the expense of the requesting party,
to execute and deliver, or use its commercially reasonable efforts to cause to
be executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
(including any Consents or Governmental Approvals), and to take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
Ancillary Agreements, in order to effectuate the provisions and purposes of this
Agreement and the Ancillary Agreements and the transfers of the Leap Assets and
the assignment and assumption of the Leap Liabilities and the other transactions
contemplated hereby and thereby
(c) QUALCOMM and Leap, and each of the members of their respective
Groups, waive (and agree not to assert against any of the others) any claim or
demand that any of them may have against any of the others for any Liabilities
or other claims relating to or arising out of: (i) the failure of Leap or any
member of the Leap Group, on the one hand, or of QUALCOMM or any member of the
QUALCOMM Group, on the other hand, to provide any notification or disclosure
required under any state Environmental Law in connection with the Separation or
the other transactions contemplated by this Agreement, including the transfer by
any member of any Group to any member of any other Group of ownership or
operational control of any Assets not previously owned or operated by such
transferee; or (ii) any inadequate, incorrect or incomplete notification or
disclosure under any such state Environmental Law by the applicable transferor.
To the extent any Liability to any Governmental Authority or any third Person
arises out of any action or inaction described in clause (i) or (ii) above, the
transferee of the applicable Asset hereby assumes and agrees to pay any such
Liability.
ARTICLE 11
TERMINATION
11.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at any
time prior to the Distribution Date by the mutual consent of QUALCOMM and Leap
and upon such termination neither party shall have any Liability or further
obligation to the other party. The previsions hereof shall remain in full force
and effect and shall survive the Distribution Date, including without limitation
the indemnification provisions set forth in Article 4, and the covenants and
other agreements of the parties set forth in Article 5, except to the extent
otherwise agreed by the parties in writing.
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ARTICLE 12
MISCELLANEOUS
12.1 COUNTERPARTS; ENTIRE AGREEMENT.
(a) This Agreement and each Ancillary Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other party.
(b) This Agreement, and the Ancillary Agreements and the exhibits,
schedules and appendices hereto and thereto contain the entire agreement between
the parties with respect to the subject matter hereof, supersede all previous
agreements, negotiations, discussions, writings, understandings, commitments and
conversations with respect to such subject matter and there are no agreements or
understandings between the parties other than those set forth or referred to
herein or therein.
12.2 GOVERNING LAW. This Agreement, except as expressly provided herein,
and, unless expressly provided therein, each Ancillary Agreement, shall be
governed by and construed and interpreted in accordance with the laws of the
State of California, irrespective of the choice of laws principles of the State
of California as to all matters, including matters of validity, construction,
effect, enforceability, performance and remedies.
12.3 ASSIGNABILITY. Except as set forth in any Ancillary Agreement, this
Agreement and each Ancillary Agreement shall be binding upon and inure to the
benefit of the parties hereto and thereto, respectively, and their respective
successors and assigns; provided, however, that no party hereto or thereto may
assign its respective rights or delegate its respective obligations under this
Agreement or any Ancillary Agreement without the express prior written consent
of the other parties hereto or thereto.
12.4 THIRD PARTY BENEFICIARIES. Except for the indemnification rights under
this Agreement of any QUALCOMM Indemnitee or Leap Indemnitee in their respective
capacities as such, (a) the provisions of this Agreement and each Ancillary
Agreement are solely for the benefit of the parties and are not intended to
confer upon any Person except the parties any rights or remedies hereunder, and
(b) there are no third party beneficiaries of this Agreement or any Ancillary
Agreement and neither this Agreement nor any Ancillary Agreement shall provide
any third person with any remedy, claim, liability, reimbursement, claim of
action or other right in excess of those existing without reference to this
Agreement or any Ancillary Agreement.
12.5 NOTICES. All notices or other communications under this Agreement or
any Ancillary Agreement shall be in writing and shall be deemed to be duly given
when (a) delivered in person or (b) deposited in the United States mail or
private express mail, postage prepaid, addressed as follows:
33.
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If to QUALCOMM, to: QUALCOMM Incorporated.
6455 Lusk Boulevard
San Diego, CA 92121
Attn: President
With a copy to General Counsel at the same address.
If to Leap, to: Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, CA 92121
Attn: President
With a copy to General Counsel at the same address.
Either party may, by notice to the other party, change the address to which such
notices are to be given.
12.6 SEVERABILITY. If any provision of this Agreement or any Ancillary
Agreement or the application thereof to any Person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof or thereof, or the application of such provision to
Persons or circumstances or in jurisdictions other than those as to which it has
been held invalid or unenforceable, shall remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby or thereby,
as the case may be, is not affected in any manner adverse to any party. Upon
such determination, the parties shall negotiate in good faith in an effort to
agree upon such a suitable and equitable provision to effect the original intent
of the parties.
12.7 PUBLICITY. Prior to the Distribution, each of Leap and QUALCOMM shall
consult with each other prior to issuing any press releases or otherwise making
public statements with respect to the Distribution or any of the other
transactions contemplated hereby and prior to making any filings with any
Governmental Authority with respect thereto.
12.8 EXPENSES. Except as expressly set forth in this Agreement or in any
Ancillary Agreement, whether or not the Distribution is consummated, all third
party fees, costs and expenses paid or incurred in connection with the
Distribution will be paid by QUALCOMM.
12.9 HEADINGS. The article, section and paragraph headings contained in
this Agreement and in the Ancillary Agreements are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement
or any Ancillary Agreement.
12.10 SURVIVAL OF COVENANTS. Except as expressly set forth in any Ancillary
Agreement, the covenants, representations and warranties contained in this
Agreement and each Ancillary Agreement, and liability for the breach of any
obligations contained herein, shall survive each of the Separation and the
Distribution.
12.11 WAIVERS OF DEFAULT. Waiver by any party of any default by the other
party of any provision of this Agreement or any Ancillary Agreement shall not be
deemed a waiver by the waiving party of any subsequent or other default, nor
shall it prejudice the rights of the other party.
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12.12 SPECIFIC PERFORMANCE. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement or any Ancillary Agreement, the party or parties who are or are to be
thereby aggrieved shall have the right to specific performance and injunctive or
other equitable relief of its rights under this Agreement or such Ancillary
Agreement, in addition to any and all other rights and remedies at law or in
equity, and all such rights and remedies shall be cumulative. The parties agree
that the remedies at law for any breach or threatened breach, including monetary
damages, are inadequate compensation for any loss and that any defense in any
action for specific performance that a remedy at law would be adequate is
waived. Any requirements for the securing or posting of any bond with such
remedy are waived.
12.13 AMENDMENTS.
(a) This Agreement and all Ancillary Agreements except to the extent
as may otherwise be set forth therein, may be amended by the written agreement
of QUALCOMM and Leap. No provisions of this Agreement or any Ancillary Agreement
shall be deemed waived, amended, supplemented or modified by any party, unless
such waiver, amendment, supplement or modification is in writing and signed by
the authorized representative of the party against whom it is sought to enforce
such waiver, amendment, supplement or modification.
(b) Without limiting the foregoing, the parties anticipate that,
prior to the Distribution Date, some or all of the Schedules to this Agreement
may be amended or supplemented and, in such event, such amended or supplemented
Schedules shall be attached hereto in lieu of the original Schedules.
12.14 INTERPRETATION. Words in the singular shall be held to include the
plural and vice versa and words of one gender shall be held to include the other
genders as the context requires. The terms "hereof," "herein," and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement (or the applicable Ancillary Agreement) as a whole
(including all of the schedules, exhibits and appendices hereto and thereto) and
not to any particular provision of this Agreement (or such Ancillary Agreement).
Article, Section, Exhibit, Schedule and Appendix references are to the Articles,
Sections, Exhibits, Schedules and Appendices to this Agreement (or the
applicable Ancillary Agreement) unless otherwise specified. The word "including"
and words of similar import when used in this Agreement (or the applicable
Ancillary Agreement) shall mean "including, without limitation," unless the
context otherwise requires or unless otherwise specified. The word "or" shall
not be exclusive.
12.15 LEGAL COUNSEL. QUALCOMM has engaged Cooley Godward LLP ("Cooley
Godward") as legal counsel to QUALCOMM in connection with the Distribution, the
preparation of this Agreement and the other Leap Agreements and the transactions
contemplated hereby and thereby. Cooley Godward has not been engaged to protect
or represent the interests of Leap with respect to the preparation of this
Agreement, any other Leap Agreement or the transactions contemplated hereby or
thereby. Leap has carefully considered the foregoing and hereby approves Cooley
Godward's representation of QUALCOMM. Leap further:
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<PAGE> 41
(a) acknowledges that actual or potential conflicts of interest exist between
QUALCOMM and Leap, that Leap's interests will not be represented by legal
counsel unless Leap engages counsel on its own behalf, and that Leap has been
afforded the opportunity to engage and seek the advice of its own legal counsel
before entering into this Agreement; and (b) agrees that, in the event of any
disputes between Leap and QUALCOMM, Cooley Godward may represent QUALCOMM, that
notwithstanding any actual or potential conflict of interest, Leap will make no
objections to such representation and that QUALCOMM and Cooley Godward have
relied on the provisions of this Section 12.15 in connection with this Agreement
and the Distribution. Finally, Leap agrees that neither this Agreement nor the
transactions contemplated hereby or in connection with the Distribution are
intended to create an attorney-client relationship between Cooley Godward and
Leap or any other relationship pursuant to which Leap would have a right to
object to Cooley Godward's representation of any Person under any circumstances.
Notwithstanding the provisions of Section 12.4, it is intended that Cooley
Godward shall be entitled to obtain enforcement of this Section 12.15.
36.
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IN WITNESS WHEREOF, the parties have caused this Separation and Distribution
Agreement to be executed by their duly authorized representatives.
QUALCOMM INCORPORATED:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LEAP WIRELESS INTERNATIONAL, INC.:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
37.
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SCHEDULE A-1
(ASSETS RELATED TO CHASE TELECOMMUNICATIONS, INC.)
- - 449,340 Class B Common Shares of Chase Telecommunications, Inc.
- - Warrant rights to purchase 526,973 Class B Common Shares (subject to
vesting) of Chase Telecommunications, Inc. (the right to purchase 208,568
of such shares is vested and the right to the balance of such shares is
subject to the vesting schedule set forth in the Warrant Agreement, as to
which Leap shall be entitled to receive 5/18ths of the amount of all rights
vested in the future).
- - Investor Rights Agreement, dated December 18, 1996, between Chase
Telecommunications, Inc. and QUALCOMM Incorporated, as amended (excluding
any rights and benefits retained by QUALCOMM Incorporated as a prospective
shareholder, if any, with respect to registration rights and similar
rights).
- - Class B Common Stock Purchase Agreement, dated December 18, 1996, by and
among Chase Telecommunications, Inc., Anthony R. Chase, Richard W. McDugald
and QUALCOMM Incorporated, as amended.
- - All outstanding Working Capital Loans (and accrued but unpaid interest on
such Working Capital Loans) outstanding under that certain Credit
Agreement, entered into as of June 26, 1998, by and among Chase
Telecommunications, Inc., as borrower, QUALCOMM Incorporated, as a Lender,
any Affiliate of QUALCOMM or such other Persons as shall from time to time
become Lenders thereunder, and QUALCOMM, as Collateral Agent, and all
rights and benefits associated therewith as the holder of such Working
Capital Loans. Any promissory notes evidencing any such Working Capital
Loans shall be endorsed, without recourse, to Leap.
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SCHEDULE A-2
(ASSETS RELATED TO CHILESAT)
- - 10,999,900 shares of stock in Inversiones QUALCOMM Chile, S.A.
- - Beneficial interest in 100 shares of stock of Inversiones QUALCOMM Chile,
S.A. currently held by Michael Grasty.
- - Subscription and Shareholders Agreement, dated as of February 27, 1997 and
effective as of March 4, 1997, by and among Telex-Chile S.A., Chilesat
S.A., QUALCOMM Incorporated and Chilesat PCS, as amended.
- - Reimbursement Agreement, dated as of November 7, 1996, by and between
Chilesat PCS and Bank of America, as amended (but not including any
obligations therein related to forfeiture of any bonds as a result of
QUALCOMM Incorporated failing to perform as a vendor).
- - All principal amounts (and accrued but unpaid interest theron) outstanding
under the "Additional Commitment" under that certain Amended and Restated
Deferred Payment Agreement, entered into as of June 24, 1998, together with
all forebearances outstanding under such Additional Commitment, and all
rights to convert such amounts outstanding under the Additional Commitment
into equity, and all rights and benefits associated therewith as the holder
of such principal. Any promissory notes evidencing any such outstanding
principal amounts shall be endorsed, without recourse, to Leap.
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<PAGE> 45
SCHEDULE A-3
(ASSETS RELATED TO METROSVYAZ/RUSSIA)
- - 70 Shares of QUALCOMM Telecommunications, Ltd. (Cayman Islands).
- - 70 Shares of QUALCOMM Telecommunications Limited (Isle of Mann); provided,
however, if as of the date of the Distribution QUALCOMM Incorporated has
not already transferred to Tiller International Limited 30 Shares of
QUALCOMM Telecommunications, Ltd. (Isle of Mann), then QUALCOMM
Incorporated shall transfer such 30 Shares to Leap and Leap shall assume
all obligations of QUALCOMM Incorporated to transfer such 30 Shares to
Tiller International Limited.
- - Joint Venture Agreement, dated September 25, 1997, by and between QUALCOMM
Incorporated and Tiller International Limited (but specifically excluding
50%, pro rata, of the obligation under Section 2.3 of the Agreement to make
payments thereunder, such excluded 50% obligation remaining with QUALCOMM).
- - Development Agreement, dated September 25, 1997, by and between QUALCOMM
Incorporated and Tiller International Limited.
- - All principal amounts (and accrued but unpaid interest theron) outstanding
under that certain Loan Agreement, dated as of August 14, 1998, by and
among Metrosvyaz Limited, as Borrower, QUALCOMM Incorporated, as a Lender
and Collateral Agent, and any other parties thereto, to the extent such
amounts relate to financing the working capital needs of Metrosvyaz
Limited, and all rights and benefits associated therewith as the holder of
such principal amounts. Any promissory notes evidencing any such principal
amounts shall be endorsed, without recourse, to Leap.
- - A receivable in the amount of $1.7 million owed by QUALCOMM
Telecommunications, Ltd. (Cayman Islands) to QUALCOMM Incorporated.
3
<PAGE> 46
SCHEDULE A-4
(ASSETS RELATED TO OZPHONE)
- - 8 Ordinary Shares of OzPhone Pty. Ltd.
- - Share Purchase Agreement, dated 18 April 1998, by and among Christopher
Reily, Bloggs Pty Limited, Christopher Reily and Paul Gerard Healy as
trustees for the CXR Superannuation Fund, QUALCOMM Incorporated, and
OzPhone Pty. Ltd.
- - Rights under that certain Agreement, dated 24 April 1998, by and between
OzPhone Pty. Ltd., Science Applications International Corporation ("SAIC"),
Price Waterhouse Corporate Finance Pty. Ltd. ("PW"), and QUALCOMM
Incorporated (to the extent such rights relate to arrangements with PW to
provide financial advisor services, but specifically excluding any rights
or obligations with respect to SAIC providing technical and operational
services, including system integration services, which rights and
obligations are retained by QUALCOMM). If QUALCOMM Incorporated, Leap and
SAIC reach an agreement on system integration services to be provided by
SAIC, Leap will cause OzPhone Pty. Ltd. to issue the required shares to
SAIC as provided in this Agreement.
4
<PAGE> 47
SCHEDULE A-5
(ASSETS RELATED TO PC PHONE)
- - Agreements, letters of intent and leads, if any, to acquire US PCS
spectrum.
- - All plans, business plans, models, studies, marketing plans, naming
efforts, operational plans, management studies, and work in progress
relating to becoming a terrestrial-based wireless telecommunications PCS
operator in the United States, including but not limited to the following:
(i) marketing, strategic planning, market analysis, competitive analysis,
brand name, logo, platform, retail channel development, market demand,
product pricing, and ad agency selection/contract; (ii) back-office
planning, including back office architecture, systems planning and adjunct
systems architecture; (iii) operations planning, including network
deployment; (iv) management planning, including implementation plan
development, spectrum acquisition and legal work product related thereto,
and (v) site acquisition and planning efforts related thereto.
5
<PAGE> 48
SCHEDULE A-6
(ASSETS RELATED TO PEGASO)
- - 1000 Shares of QUALCOMM PCS Mexico, Inc.
- - Rights under that certain Services Agreement, dated June 10, 1998, between
QUALCOMM Wireless Services (Mexico) S.A. de C.V. ("QWS") (as successor to
and assignee of QUALCOMM International Wireless Technology, Inc.) and
Pegaso S.A. de C.V. (as successor to and assignee of Pegaso Comunicaciones
Y Sistemas, S.A. de C.V.), to the extent such rights allow and/or require
QWS, or a related company, to provide operational or related services
pursuant to Section 8.2 of the Agreement, to Pegaso PCS S.A. de C.V. and
its affiliates.
6
<PAGE> 49
SCHEDULE A-7
(ASSETS RELATED TO TELESYSTEMS OF UKRAINE)
- - A 49% equity interest in Telesystems of Ukraine and all other rights
attributable thereto.
- - Agreement on Joint Investment Activity No 1, by and between QUALCOMM
Incorporated and Telesystems of Ukraine Company, dated 3 April 1997, as
amended, and Additional Agreement No. 2 related thereto, and all rights of
QUALCOMM Incorporated provided for therein.
- - Application for obtaining the License to use Frequency in the territory of
Ukraine, dated December 14, 1996.
- - Statute of Limited Liability Company "Telesystems of Ukraine," as amended
and registered on 24 December 1996 under No. 866.
- - Foundation Agreement on Activity of Limited Liability Company "Telesystems
of Ukraine," regarding the creation and activity of the Limited Liability
Company "Telesystems of Ukraine," as executed by RUTA-FARM Limited
Liability Company, QUALCOMM Incorporated, and Ukrainian Association of
Electric Communication "Ukrtelecom".
7
<PAGE> 50
SCHEDULE A-8
(OTHER ASSETS)
- - Building lease on real property commonly known as 10307 Pacific Center
Court, San Diego, California, and leasehold improvements thereon.
- - The furniture, equipment and supplies (including individual computers but
not including any network equipment) utilized by Leap employees and agreed
upon by QUALCOMM Incorporated, as established by an inventory to be
conducted by QUALCOMM Incorporated as of September 5, 1998.
- - $10,000,000 in cash
- - Assets in employee benefits plans delivered to Leap pursuant to the
Employee Benefits Agreement. If such plans do not have trust or other
separately designated assets, a cash amount equal to the value of the
subject benefits as of the Distribution Date, as more specifically set
forth in the Employee Benefits Agreement.
- - Any and all rights which QUALCOMM Incorporated may have to pursue an
opportunity to enter into a venture with the Ukraine Railroad for fiber
optic back-haul and related services.
8
<PAGE> 51
SCHEDULE B-1
(LIABILITIES RELATED TO CHASE TELECOMMUNICATIONS, INC.)
- - Obligations under that certain Investors Rights Agreement, dated
December 18, 1996, between Chase Telecommunications, Inc. and QUALCOMM
Incorporated, to the extent relating to the rights and benefits
transferred to Leap under such Investors Rights Agreement.
- - Class B Common Stock Purchase Agreement, dated December 18, 1996 by, and
among Chase Telecommunications, Inc., Anthony R. Chase, Richard W. McDugald
and QUALCOMM Incorporated
- - The commitment to provide Working Capital Loans under that certain Credit
Agreement, entered into as of June 26, 1998, by and between Chase
Telecommunications, Inc., as borrower, QUALCOMM Incorporated, as a Lender,
any Affiliate of QUALCOMM or such other Persons as shall from time to time
become Lenders hereunder, and QUALCOMM, as Collateral Agent, and all
obligations and liabilities associated with assuming such commitment.
9
<PAGE> 52
SCHEDULE B-2
(LIABILITIES RELATED TO CHILESAT)
- - The commitment to provide funds under the "Additional Commitment" under
that certain Amended and Restated Deferred Payment Agreement, entered into
as of June 24, 1998, and all obligations and liabilities associated with
assuming such commitment.
- - Subscription and Shareholders Agreement, dated as of February 27, 1997 and
effective as of March 4, 1997 by and among Telex-Chile S.A., Chilesat S.A.,
QUALCOMM Incorporated and Chilesat PCS, as amended.
- - Reimbursement Agreement, dated as of November 7, 1996, by and between
Chilesat PCS and Bank of America, as amended (but not including any
obligations therein related to forfeiture of any bonds as a result of
QUALCOMM Incorporated failing to perform as a vendor), and all liability
of QUALCOMM with respect to the related guaranty of QUALCOMM Incorporated.
10
<PAGE> 53
SCHEDULE B-3
(LIABILITIES RELATED TO METROSVYAZ/RUSSIA)
- - Joint Venture Agreement, dated September 25, 1997, by and between QUALCOMM
Incorporated and Tiller International Limited (but specifically excluding
50%, pro rata, of the obligation under Section 2.3 of the Agreement to make
payments thereunder, such excluded 50% obligation remaining with QUALCOMM).
- - Development Agreement, dated September 25, 1997, by and between QUALCOMM
Incorporated and Tiller International Limited.
- - The commitment to provide working capital loan financing under that certain
Loan Agreement, dated as of August 14, 1998, by and among Metrosvyaz
Limited, as Borrower, QUALCOMM Incorporated, as a Lender and Collateral
Agent, and any other parties thereto, which commitment is in the aggregate
amount of approximately $75 million, and all obligations and liabilities
associated with assuming such commitment.
11
<PAGE> 54
SCHEDULE B-4
(LIABILITIES RELATED TO OZPHONE)
- - Share Purchase Agreement, dated 18 April 1998, by and among Christopher
Reily, Bloggs Pty Limited, Christopher Reily and Paul Gerard Healy as
trustees for the CXR Superannuation Fund, QUALCOMM Incorporated, and
OzPhone Pty. Ltd.
- - Agreement, dated 24 April 1998, by and between OzPhone Pty. Ltd., Science
Applications International Corporation ("SAIC"), Price Waterhouse Corporate
Finance Pty. Ltd. ("PW"), and QUALCOMM Incorporated (specifically excluding
any obligations of QUALCOMM Incorporated with respect to SAIC providing
technical and operational services, including system integration services,
which obligations are retained by QUALCOMM). If QUALCOMM Incorporated, Leap
and SAIC reach an agreement on system integration services by SAIC, Leap
will cause OzPhone to issue the required shares to SAIC as provided in this
Agreement.
12
<PAGE> 55
SCHEDULE B-5
(LIABILITIES RELATED TO PC PHONE)
- - Agreements, letters of intent and leads, if any, to acquire US PCS
spectrum.
- - Brokers Agreement with The Cascade Group dated July __, 1998.
13
<PAGE> 56
SCHEDULE B-6
(LIABILITIES RELATED TO PEGASO)
- - Any obligations under that certain Services Agreement, dated June 10, 1998,
between QUALCOMM Wireless Services (Mexico) S.A. de C.V. ("QWS") (as
successor to and assignee of QUALCOMM International Wireless Technology,
Inc.) and Pegaso S.A. de C.V. (as successor to and assignee of Pegaso
Comunicaciones Y Sistemas, S.A. de C.V.) associated with exercising the
right to allow and/or require QWS, or a related company, to provide
operational or related services pursuant to Section 8.2 of the Agreement,
to Pegaso PCS S.A. de C.V. and its affiliates.
14
<PAGE> 57
SCHEDULE B-7
(LIABILITIES RELATED TO TELESYSTEMS OF UKRAINE)
- - Agreement on Joint Investment Activity No 1, by and between QUALCOMM
Incorporated and Telesystems of Ukraine Company, dated 3 April 1997, as
amended, and Additional Agreement No. 2 related thereto, and all
obligations of QUALCOMM Incorporated provided for therein.
- - Application for obtaining the License to use Frequency in the territory of
Ukraine, dated December 14, 1996.
- - Statute of Limited Liability Company "Telesystems of Ukraine," as amended
and registered on 24 December 1996 under No. 866.
- - Foundation Agreement on Activity of Limited Liability Company "Telesystems
of Ukraine," regarding the creation and activity of the Limited Liability
Company "Telesystems of Ukraine," as executed by RUTA-FARM Limited
Liability Company, QUALCOMM Incorporated, and Ukrainian Association of
Electric Communication "Ukrtelecom".
15
<PAGE> 58
SCHEDULE B-8
(OTHER LIABILITIES)
- - Building lease on premises at 10307 Pacific Center Court, San Diego,
California with payments prorated to the Distribution Date.
- - Liabilities assumed by Leap pursuant to the Employee Benefits Agreement.
16
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
QUALCOMM SPINCO, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
The name of this corporation is QUALCOMM SpinCo, Inc.
I.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle;
and the name of the registered agent of the corporation in the State of Delaware
at such address is The Prentice-Hall Corporation System, Inc.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
III.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is One million two
hundred thousand (1,200,000) shares. One million (1,000,000) shares shall be
Common Stock, each having a par value of one-hundredth of one cent ($.0001). Two
hundred thousand (200,000) shares shall be Preferred Stock, each having a par
value of one-hundredth of one cent ($.0001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the
1.
<PAGE> 2
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions of any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
IV.
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
B. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the stockholders entitle to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
V.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VI.
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by
2.
<PAGE> 3
statute, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
VII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
RANDALL L. CLARK, ESQ. 4365 Executive Drive
Suite 1100
San Diego, California 92121
IN WITNESS WHEREOF, this Certificate has been subscribed this 24th day of June
1998 by the undersigned who affirms that the statements made herein are true and
correct.
/s/ Randall L. Clark
--------------------
Randall L. Clark
Sole Incorporator
3.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
QUALCOMM SPINCO, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
BYLAWS
OF
QUALCOMM SPINCO, INC.
(A DELAWARE CORPORATION)
ARTICLE I
Offices
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Dover, County of
Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be fixed
by the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware, as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
Corporate Seal
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a
die bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the corporation required
to be maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought
1.
<PAGE> 3
before an annual meeting, business must be: (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (C) otherwise properly brought before
the meeting by a stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total
2.
<PAGE> 4
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption) or (iv) by the holders of shares
entitled to cast not less than ten percent (10%) of the votes at the meeting,
and shall be held at such place, on such date, and at such time as the Board of
Directors shall fix.
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, including
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided,
3.
<PAGE> 5
however, that directors shall be 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. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by statute or by the
Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such class or classes
or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes, but
the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to
4.
<PAGE> 6
vote at said meeting, arranged in alphabetical order, showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not specified, at the place where the meeting is
to be held. The list shall be produced and kept at the time and place of meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General Corporation Law of the State of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the General Corporation Law of Delaware.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary,
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appropriate or convenient. Subject to such rules and regulations of the Board of
Directors, if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and the safety of those present,
limitations on participation in such meeting to stockholders of record of the
corporation and their duly authorized and constituted proxies and such other
persons as the chairman shall permit, restrictions on entry to the meeting after
the time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and closing
of the polls for balloting on matters which are to be voted on by ballot. Unless
and to the extent determined by the Board of Directors or the chairman of the
meeting, meetings of stockholders shall not be required to be held in accordance
with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE.
The authorized number of directors of the corporation shall be
fixed by the Board of Directors from time to time. Directors need not be
stockholders unless so required by the Certificate of Incorporation. If for any
cause, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. TERM OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in
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the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock, the Board of Directors or any individual director may
be removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least a majority of the voting power of all the then-outstanding
shares of the Voting Stock.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the office
of the corporation required to be maintained pursuant to Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
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(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, postage prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time, a quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed from time to time
by the Board of Directors in accordance with the Certificate of Incorporation;
provided, however, at any meeting, whether a quorum be present or otherwise, a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed
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to preclude any director from serving the corporation in any other capacity as
an officer, agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time
to time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting
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given in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. A majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall be
the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure
of the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or appointed
by the Board of Directors may be removed at any time by the Board of Directors.
If the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. If there is no President, then the
Chairman
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of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
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SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or otherwise
required by law, promissory notes, deeds of trust, mortgages and other evidences
of indebtedness of the corporation, and other corporate instruments or documents
requiring the corporate seal, and certificates of shares of stock of the
corporation, shall be executed, signed or endorsed by the Chairman of the Board
of Directors, or the President or any Vice President, and by the Secretary or
Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
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SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
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SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary, request the Board of Directors to fix a record
date. The Board of Directors shall promptly, but in all events within ten (10)
days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within ten (10) days of the date on which such a request is received,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
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meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have
power to indemnify its employees and other agents as set forth in the Delaware
General Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or
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proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director or officer, of the corporation, or is
or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
prior to the final disposition of the proceeding, promptly following request
therefor, all expenses incurred by any director or officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an officer of
the corporation (except by reason of the fact that such officer is or was a
director of the corporation, in which event this paragraph shall not apply) in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or officer. Any right to indemnification or
advances granted by this Bylaw to a director or officer shall be enforceable by
or on behalf of the person holding such right in any court of competent
jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. The claimant in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such officer is or
was a director of the corporation) for advances, the corporation shall be
entitled to raise a defense as to any such action clear and convincing evidence
that such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of
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<PAGE> 19
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct. In any suit brought by a
director or officer to enforce a right to indemnification or to an advancement
of expenses hereunder, the burden of proving that the director or officer is not
entitled to be indemnified, or to such advancement of expenses, under this
Article XI or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving of
testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent)
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<PAGE> 20
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this Bylaw
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed
by a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
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<PAGE> 21
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing,
and all notices given by facsimile, telex or telegram shall be deemed to have
been given as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
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ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the
stockholders entitled to vote. The Board of Directors shall also have the power,
if such power is conferred upon the Board of Directors by the Certificate of
Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation,
the amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors).
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this Bylaw,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied by
any report thereon of independent accounts or, if there is no such report, the
certificate of an authorized officer of the corporation that such statements
were prepared without audit from the books and records of the corporation. When
there are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations Code, additional
information as required by Section 1501(b) of the California Corporations Code
shall also be contained in such report, provided that if the corporation has a
class of securities registered under Section 12 of the 1934 Act, that Act shall
take precedence. Such report shall be sent to stockholders at least fifteen (15)
days prior to the next annual meeting of stockholders after the end of the
fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the stockholders of the corporation is hereby expressly waived.
22.
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EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
QUALCOMM SPINCO, INC.
QUALCOMM SPINCO, INC. (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "General Corporation Law"), hereby certifies as follows:
FIRST: This Certificate of Amendment amends the provisions of the
Certificate of Incorporation of the Company, filed on June 24, 1998, and was
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law, and was approved by written consent of the stockholders of the
Company given in accordance with the provisions of Section 228 of the General
Corporation Law.
SECOND: The text of Article I of the Certificate of Incorporation is
hereby amended to read in its entirety as follows:
"I.
The name of this corporation is LEAP WIRELESS INTERNATIONAL,
INC."
IN WITNESS WHEREOF, said Board of Directors of the Company has caused
this Certificate of Amendment to be signed by a duly authorized officer of the
Company.
QUALCOMM SPINCO, INC.
Dated: August 19, 1998 /s/ HARVEY P. WHITE
-------------------------------------
Harvey P. White
Chief Executive Officer and President
ATTEST:
/s/ JAMES E. HOFFMANN
- ---------------------------------
James E. Hoffmann
Secretary
<PAGE> 1
EXHIBIT 3.4
FORM OF
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
LEAP WIRELESS INTERNATIONAL, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-----------------------------
Leap Wireless International, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held on August ___,
1998.
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation of this Corporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $.0001 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, powers and preferences, and qualifications,
limitations and restrictions thereof as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 75,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; PROVIDED, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any class or series of stock of this Corporation ranking
prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred
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<PAGE> 2
Stock, in preference to the holders of Common Stock, par value $.0001
per share (the "Common Stock"), of the Corporation, and of any other
stock ranking junior to the Series A Preferred Stock, shall be entitled
to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $10.00 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section 2 immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $10.00 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly
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<PAGE> 3
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than
60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
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<PAGE> 4
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (both as to dividends and
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation, dissolution or winding up of the Corporation, voluntary or
otherwise no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received an amount per share
(the "Series A
4
<PAGE> 5
Liquidation Preference") equal to $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other classes and
series of stock of the Corporation, if any, that rank on a parity with
the Series A Preferred Stock in respect thereof, then the assets
available for such distribution shall be distributed ratably to the
holders of the Series A Preferred Stock and the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any
other corporation into or with the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 6.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth
5
<PAGE> 6
in the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable by the Company.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up, junior to all series of any other class
of the Corporation's Preferred Stock, except to the extent that any such other
series specifically provides that it shall rank on a parity with or junior to
the Series A Preferred Stock.
Section 10. Amendment. At any time any shares of Series A
Preferred Stock are outstanding, the Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
separately as a single class.
Section 11. Fractional Shares. Series A Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
6
<PAGE> 7
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chairman of the Board this ___ day
of August, 1998.
------------------------------
Harvey P. White
Chairman of the Board
7
<PAGE> 1
EXHIBIT 3.5
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
LEAP WIRELESS INTERNATIONAL, INC.
Leap Wireless International, Inc., a corporation organized and existing
under the laws of the General Corporation Law of the State of Delaware, hereby
certifies as follows:
1. The name of the corporation is Leap Wireless International,
Inc. The corporation was originally incorporated under the same name, and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on June 24, 1998.
2. Pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation.
3. This Restated Certificate of Incorporation set forth below was
approved by the corporation's Board of Directors and stockholders and was duly
adopted in accordance with the provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
4. The text of the Certificate of Incorporation is hereby
restated and further amended to read in its entirety as follows:
I.
The name of this corporation is Leap Wireless International, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle;
and the name of the registered agent of the corporation in the State of Delaware
at such address is The Prentice-Hall Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
1.
<PAGE> 2
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Eighty-Five Million
(85,000,000) shares. Seventy-Five Million (75,000,000) shares shall be Common
Stock, each having a par value of one-hundredth of one cent ($.0001). Ten
Million (10,000,000) shares shall be Preferred Stock, each having a par value of
one-hundredth of one cent ($.0001). Effective upon the filing of this Restated
Certificate of Incorporation, each then outstanding share of Common Stock shall
be converted and split into ______ shares of Common Stock.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the distribution of the Common Stock of the Company by the Company's
sole stockholder (the "Distribution") pursuant to an effective registration
statement under the Securities Act of 1934, as amended, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Distribution, the term of
office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Distribution, the term of office of
the Class II directors shall expire and Class II directors shall be elected for
a full term of three years. At the
2.
<PAGE> 3
third annual meeting of stockholders following the Closing of the Distribution,
the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting. Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any Preferred Stock, (i)
neither the Board of Directors nor any individual director may be removed
without cause, and (ii) subject to any limitation imposed by law, any individual
director or directors may be removed with cause by the holders of a majority of
the voting power of the corporation entitled to vote at an election of directors
(the "Voting Stock").
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. After the Distribution, no action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with the Bylaws.
4. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or President, or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of Directors for
3.
<PAGE> 4
adoption) and shall be held at such place, on such date, and at such time as the
Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V or VI,
and/or this Article VII of this Restated Certificate of Incorporation.
4.
<PAGE> 5
IN WITNESS WHEREOF, Leap Wireless International, Inc. has caused this
Restated Certificate of Incorporation to be signed and attested by its duly
elected officers this ____ day of _________, 1998.
By:
-------------------------------------
Harry P. White
Chief Executive Officer and President
Attest:
By:
--------------------------------------
James E. Hoffman
Senior Vice President, General Counsel
and Secretary
5.
<PAGE> 1
EXHIBIT 3.6
AMENDED AND RESTATED
BYLAWS
OF
LEAP WIRELESS INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
LEAP WIRELESS INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(A) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
1.
<PAGE> 3
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the
2.
<PAGE> 4
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation in accordance with the provisions of paragraph (b)
of this Section 5. Such stockholder's notice shall set forth (i) as to each
person, if any, whom the stockholder proposes to nominate for election or
re-election as a director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other than
the Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon
3.
<PAGE> 5
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. In the absence of a quorum, any meeting
of stockholders may be adjourned, from time to time, either by the chairman of
the meeting or by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that directors shall be 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. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series.
4.
<PAGE> 6
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
5.
<PAGE> 7
SECTION 13. ACTION WITHOUT MEETING.
(a) After the closing of the distribution of the Common Stock of the
Company by the Company's sole stockholder (the "Distribution") pursuant to an
effective registration statement under the 1934 Act, no action shall be taken by
the stockholders except at an annual or special meeting of stockholders called
in accordance with these Bylaws, and no action shall be taken by the
stockholders by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed by the Board of Directors from time to time.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at an
annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
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SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the Distribution, the directors shall be divided into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the Distribution, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the
Distribution, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the Distribution, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office for the unexpired portion of the term
of the Director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, (a) no director shall be removed without cause, and (b) subject
to any limitations imposed by law, the Board of Directors or any individual
director may be removed from office at any time with cause by the affirmative
vote of the holders of a majority of the voting power of all the
then-outstanding shares of voting stock of the corporation, entitled to vote at
an election of directors.
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SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
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SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation; provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation.
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(b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the
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meeting. The Secretary, or in his absence, an Assistant Secretary directed to do
so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of
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President is vacant. The Vice Presidents shall perform other duties commonly
incident to their office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time,
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or by the unanimous written consent of the directors in office at the time, or
by any committee or superior officers upon whom such power of removal may have
been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares
of stock of the corporation shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
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(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 37. FIXING RECORD DATES. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix, in
advance, a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such
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officer before the bond, debenture or other corporate security so signed or
attested shall have been delivered, such bond, debenture or other corporate
security nevertheless may be adopted by the corporation and issued and delivered
as though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers
16.
<PAGE> 18
vested in the corporation under the Delaware General Corporation Law or (iv)
such indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to
indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director of
the corporation) for advances, the corporation shall be entitled to raise a
defense as to any such action clear and convincing
17.
<PAGE> 19
evidence that such person acted in bad faith or in a manner that such person did
not believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
18.
<PAGE> 20
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
19.
<PAGE> 21
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such
20.
<PAGE> 22
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock entitled
to vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
21.
<PAGE> 1
EXHIBIT 4.1
FRONT
NUMBER [LOGO] SHARES
GL INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
<TABLE>
<S> <C>
COMMON STOCK COMMON STOCK
CUSIP _______
SEE REVERSE SIDE FOR CERTAIN
DEFINITIONS
</TABLE>
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.0001 PAR VALUE PER
SHARE, OF LEAP WIRELESS INTERNATIONAL, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of the certificate properly endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and facsimile signatures of its
duly authorized officers.
Dated:
LEAP WIRELESS INTERNATIONAL, INC.
CORPORATE SEAL
1998
DELAWARE
<TABLE>
<S> <C>
[SIG] [SIG]
PRESIDENT AND CHIEF EXECUTIVE OFFICER SECRETARY
COUNTERSIGN AND REGISTERED:
HARRIS TRUST COMPANY OF CALIFORNIA
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
</TABLE>
<PAGE> 2
BACK LEAP WIRELESS INTERNATIONAL, INC.
The Corporation is authorized to issue 75,000,000 shares of Common Stock
and 10,000,000 shares of Preferred Stock.
The Corporation will furnish to any stockholder, upon request and
without charge, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights, so far as the same shall have been fixed, and the
authority of the Board of Directors to designate and fix any preferences, rights
and limitations of any wholly unissued series. Any such request should be
addressed to the Secretary of the Corporation at its principal office.
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF TRF MIN ACT -- Custodian (until age )
---------
TEN ENT -- as tenants by the entireties (Cust)
JT TEN -- as joint tenants with right under Uniform Transfers
of survivorship and not as ------------
tenants in common (Minor)
to Minors Act
---------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED, _________________________ hereby sells, assign and transfer
(Name of Assignor)
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the common stock represented by the within certificate and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------------
X
----------------------------------------
X
----------------------------------------
Notice: The signature(s) to this assignment must
correspond with the name(s) as written
upon the face of the certificate in
every particular, without alteration or
enlargement or any change whatever.
Signature(s) Guaranteed:
- -------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE 5,500,000 SHARES
OF COMMON STOCK OF
LEAP WIRELESS INTERNATIONAL, INC.
(VOID AFTER SEPTEMBER ___, 2008)
This certifies that QUALCOMM Incorporated, a Delaware corporation, or
its assigns ("QUALCOMM" or the "Holder"), for value received, is entitled to
purchase from LEAP WIRELESS INTERNATIONAL, INC., a Delaware corporation (the
"Company"), having a place of business at 10307 Pacific Center Court, San Diego,
California, up to 5,500,000 fully paid and nonassessable shares of the Company's
Common Stock ("Common Stock") at a per share price (the "Stock Purchase Price")
equal to the average price of the last sales price per share of the Company's
Common Stock on the Nasdaq National Market for each of the five (5) consecutive
trading days (provided if no such sale is made on any of such trading days, then
the last sales price per share for such day(s) shall be deemed to be the last
sales price per share on the closest preceding day on which a sale was made)
beginning with and including __________, 1998 (the "Effective Date"), any time
or from time to time up to and including 5:00 p.m. (Pacific time) on the date
that is ten (10) years from the date of this Warrant (the "Expiration Date"),
subject to the terms and conditions of this Warrant hereinafter set forth. The
Company agrees that it will calculate the Stock Purchase Price as soon as
practicable (which calculation shall be subject to approval by the Holder, which
may not unreasonably be withheld); and upon presentation of this Warrant to the
Company by the Holder, the Company shall attach to this Warrant a Schedule that
sets forth the Stock Purchase Price and the calculation thereof (and such
Schedule shall constitute a part hereof).
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the
holder of record hereof, at any time or from time to time, up to the Expiration
Date for all or any part of the shares of Common Stock (but not for a fraction
of a share) which may be purchased hereunder. The Company agrees that the shares
of Common Stock purchased under this Warrant shall be and are deemed to be
issued to the Holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered
properly endorsed, a completed, executed Form of Subscription shall have been
delivered, and payment shall have been made for such shares in accordance with
the Subscription Form in the form of cash, cancellation of indebtedness of the
Company, delivery to the Company of Common Stock of the Company having a fair
market value as of the date of exercise equal to the Stock Purchase Price times
the number of shares to be received upon exercise, or in any other form of
consideration approved by the Board of Directors of the Company. Certificates
for the shares of Common Stock so purchased, together with any other securities
or property to which the Holder hereof is
<PAGE> 2
entitled upon such exercise, shall be delivered to the Holder hereof by the
Company at the Company's expense within a reasonable time after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the shares which may be purchased under this Warrant, the Company
shall cancel this Warrant and execute and deliver a new Warrant or Warrants of
like tenor for the balance of the shares purchasable under the Warrant
surrendered upon such purchase to the Holder hereof within a reasonable time.
Each stock certificate so delivered shall be in such denominations of Common
Stock as may be requested by the Holder hereof and shall be registered in the
name of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to convert this Warrant (in whole or in part) into shares equal to the
value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Form of Subscription and notice of such
election in which event the Company shall issue to the Holder a number of shares
of Common Stock computed using the following formula:
X = Y (A-B) A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the Warrant
is being exercised, the portion of the Warrant being
canceled (at the date of such calculation)
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of
such calculation)
For purposes of the above calculation, fair market value of one share of Common
Stock shall be determined as follows:
(a) If traded on a securities exchange or the Nasdaq
National Market, the fair market value of the Common Stock shall be deemed to be
the average of the closing or last reported sale prices of the Common Stock on
such exchange or market over the five (5) day period ending five business days
prior to the date the Holder surrenders this Warrant at the principal office of
the Company together with the properly endorsed Form of Subscription (the
"Determination Date");
(b) If otherwise traded in an over-the-counter market,
the fair market value of the Common Stock shall be deemed to be the average of
the closing or last reported sale prices of the Common Stock over the five (5)
day period ending five business days prior to the Determination Date;
2.
<PAGE> 3
(c) If there is no public market for the Common Stock,
or if a public market has existed for a period less than is necessary for a date
mentioned under subsection (a) or (b) above, then fair market value shall be
determined by mutual agreement of the holder of this Warrant and the Company,
and if the holder and the Company are unable to so agree, at the Company's sole
expense by an investment banker of national reputation selected by the Company
and reasonably acceptable to the holder of this Warrant.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed. The Company will not take
any action which would result in any adjustment of the Stock Purchase Price (as
set forth in Section 3 hereof) if the total number of shares of Common Stock
issuable after such action upon exercise of all outstanding warrants, together
with all shares of Common Stock then outstanding and all shares of Common Stock
then issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of shares
of Common Stock then authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other
3.
<PAGE> 4
securities at the time receivable upon the exercise of this Warrant) shall have
received or become entitled to receive, without payment therefor,
(a)Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution, or
(b) Common Stock or additional stock or other securities
or property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall be
covered by the terms of Section 3.1 above);
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the case referred to in clause (b) above) which such Holder would hold on the
date of such exercise had he been the holder of record of such Common Stock as
of the date on which holders of Common Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property. Notwithstanding the foregoing, in the case of a dividend or
distribution described in clause (b) above and any subsequent exercise
hereunder, the Company's Board of Directors may by resolution determine with
respect to such exercise, in its sole discretion, instead of the adjustment
provided above, to adjust the Stock Purchase Price in accordance with the
formula set forth below and to adjust the number of shares of Common Stock
purchasable pursuant hereto upon such exercise as provided in the lead-in
paragraph to this Section 3:
B' = B x A - F
-----
A
where:
B' = the adjusted Stock Purchase Price
B = the current Stock Purchase Price
A = the fair market value of one share of Common Stock (at the date of
the exercise)
F = the fair market value at the date of exercise of the securities or
property distributed in respect of one share of Common Stock as determined in
good faith by the Board of Directors of the Company.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately
4.
<PAGE> 5
theretofore purchasable and receivable upon the exercise of the rights
represented hereby) such shares of stock, securities or other assets or property
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby. In the event of any Organic Change, appropriate
provision shall be made by the Company with respect to the rights and interests
of the Holder of this Warrant to the end that the provisions hereof (including,
without limitation, registration rights and provisions for adjustments of the
Stock Purchase Price and of the number of shares purchasable and receivable upon
the exercise of this Warrant) shall thereafter be applicable, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
hereof. The Company will not effect any such consolidation, merger or sale
unless, prior to the consummation thereof, the successor corporation (if other
than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holder, executed and mailed or
delivered to the registered Holder hereof at the last address of such Holder
appearing on the books of the Company, the obligation to deliver to such Holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to purchase.
3.4 CERTAIN EVENTS. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, then the Board of Directors of the Company
shall make an adjustment in the number and class of shares available under the
Warrant, the Stock Purchase Price or the application of such provisions, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or
class of shares subject to this Warrant or of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder
at least 30 business days prior to the date on which the Company closes its
books or takes a record for determining rights to receive any dividends or
distributions, or any offer for subscription pro rata to the holders of Common
Stock any additional shares of stock of any class or any other rights.
(c) The Company shall also give written notice to the
Holder at least 30 business days prior to the date on which an Organic Change
shall take place.
5.
<PAGE> 6
4. REGISTRATION RIGHTS.
4.1 DEFINITIONS. As used in this Section 4, the following terms
shall have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable
Securities (as defined in Section 4) that have not been sold to the public or
any assignee of record of such Registrable Securities (as defined in Section 4)
in accordance with Section 4.9 hereof.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (a) Common Stock of the Company
issued or issuable upon exercise of this Warrant; and (b) any Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to the Common Stock issuable upon exercise of this
Warrant, or in exchange for or in replacement of, such above-described
securities.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or issuable upon exercise of this Warrant, or (b) are issuable
pursuant to then exercisable or convertible securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 4.2, 4.3 and 4.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"SHARES" shall mean the Company's Common Stock issued upon
exercise of this Warrant.
6.
<PAGE> 7
4.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 4.2, if
the Company shall receive a written request from the Holders of a majority of
the Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
registration of at least a majority of the Registrable Securities then
outstanding (or a lesser percent if the anticipated aggregate offering price,
net of underwriting discounts and commissions, would exceed $5,000,000), then
the Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of this
Section 4.2, use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 4.2 or any request pursuant to Section 4.4 and the Company shall
include such information in the written notice referred to in Section 4.2(a) or
Section 4.4(a), as applicable. In such event, the right of any Holder to include
its Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
4.2 or Section 4.4, if the underwriter advises the Company that marketing
factors require a limitation of the number of securities to be underwritten
(including Registrable Securities) then the Company shall so advise all Holders
of Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated first to the Company and then to the Holders of such Registrable
Securities on a pro rata basis based on the total number of Registrable
Securities requested to be registered by all such Holders (including the
Initiating Holders); provided, however, that after the first firm commitment
underwritten public offering effected by the Company following the Effective
Date (the "First Public Offering"), the number of shares of Registrable
Securities to be included in such underwriting and registration shall not be
reduced unless all other securities of the Company are first entirely excluded
from the underwriting and registration and in no event shall the number of
Registrable Securities to be included in such underwriting and registration by
the Initiating Holders be reduced to less than thirty percent (30%) of such
Registrable Securities requested to be included in the registration. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 4.2:
(i) during the one year period following the Effective
Date;
7.
<PAGE> 8
(ii) after the Company has effected one (1) registration
pursuant to this Section 4.2, and such registration has been declared or ordered
effective; or
(iii) if the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 4.4 below.
4.3 PIGGYBACK REGISTRATIONS. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 4.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 4.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated first to the Company and then to the Holders on a pro rata
basis based on the total number of Registrable Securities requested to be
registered by such Holders; provided however, that after the First Public
Offering, no such reduction shall reduce the amount of securities of the selling
Holders included in the registration to less than thirty percent (30%) of the
total amount of Registrable Securities requested to be included in such
registration by such Holders. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least ten (10) business days prior
to the effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration. For any Holder which is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing person shall be deemed to
8.
<PAGE> 9
be a single "Holder", and any pro rata reduction with respect to such "Holder"
shall be based upon the aggregate amount of shares carrying registration rights
owned by all entities and individuals included in such "Holder," and requested
to be registered by such Holder as defined in this sentence.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 4.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 4.5 hereof.
4.4 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders of Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, and the anticipated aggregate offering price, net of underwriting
discounts and commissions, would exceed $5,000,000, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 4.4:
(i) if Form S-3 (or any successor or similar
form) is not available for such offering by the Holders, or
(ii) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. Registrations effected pursuant to this
Section 4.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 4.2 or 4.3, respectively.
4.5 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 4.2 or any registration under
Section 4.3 or Section 4.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of
9.
<PAGE> 10
shares so registered. The Company shall not, however, be required to pay for
expenses of any registration proceeding begun pursuant to Section 4.2 or 4.4,
the request of which has been subsequently withdrawn by the Initiating Holders
unless (a) the withdrawal is based upon material adverse information concerning
the Company of which the Initiating Holders were not aware at the time of such
request or (b) the Holders of a majority of Registrable Securities agree to
forfeit their right to a requested registration pursuant to Section 4.2, in
which event such right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be borne by the
holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 4.2 or Section 4.4 to a demand
registration.
4.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one (1) year
or, if earlier, until the Holder or Holders have completed the distribution
related thereto. The Company shall not be required to file, cause to become
effective or maintain the effectiveness of any registration statement that
contemplates a distribution of securities on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for the period set forth in
paragraph (a) above.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
10.
<PAGE> 11
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Use its best efforts to furnish, on the date that
such Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and (ii)
a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.
4.7 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 4.
(b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Section 4.2, 4.3 or 4.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
4.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 4.2, 4.3 or 4.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will pay as incurred to each such Holder, partner,
11.
<PAGE> 12
officer, director, underwriter or controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
that the indemnity agreement contained in this Section 4.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 4.8(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity provided by any Holder under this Section 4.8 exceed the net proceeds
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 4.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such
12.
<PAGE> 13
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 4.8, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 4.8.
(d) If the indemnification provided for in this Section
4.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a Holder hereunder exceed the proceeds from the offering received by such
Holder.
(e) The obligations of the Company and Holders under
this Section 4.8 shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of this Warrant. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
4.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 4 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(a) is a subsidiary, parent, general partner, limited partner, retired partner,
member or retired member of a Holder, or (b) acquires at least one million
(1,000,000) shares of Registrable Securities (as adjusted for stock splits and
combinations); provided, however, (i) the transferor shall furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.
4.10 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights that would
prevent the Company from honoring the registration rights of Holders described
herein.
13.
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4.11 AGREEMENT TO FURNISH INFORMATION. Each Holder agrees to
execute and deliver such other agreements as may be reasonably requested by the
Company or the underwriter which are consistent with the foregoing or which are
necessary to give further effect thereto. In addition, if requested by the
Company or the representative of the underwriters of Common Stock (or other
securities) of the Company, each Holder shall provide, within ten (10) days of
such request, such information as may be required by the Company or such
representative in connection with the completion of any public offering of the
Company's securities pursuant to a registration statement filed under the
Securities Act. The obligations described in this Section 4.11 shall not apply
to a registration relating solely to employee benefit plans on Form S-1 or Form
S-8 or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future.
4.12 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar or analogous
rule promulgated under the Securities Act, at all times after the registration
by the Company of its Common Stock or any other securities under the Exchange
Act or the effective date of the first registration filed by the Company for an
offering of its securities to the general public;
(b) File with the SEC, in a timely manner, all reports
and other documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
4.13 MARKET STANDOFF. Each Holder hereby agrees that it shall
not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder (excluding shares to be
distributed by QUALCOMM in accordance with the Separation and Distribution
Agreement between QUALCOMM and the Company dated on or about the date hereof)
for a period of ninety (90) days following the effective date of a registration
statement of the Company filed under the Securities Act of 1933, as amended,
provided that the officers and directors of the Company enter into similar
agreements.
5. MISCELLANEOUS
5.1 ISSUE TAX. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income taxes)
in respect thereof; provided, however, that the
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<PAGE> 15
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.
5.2 CLOSING OF BOOKS. The Company will at no time close its
transfer books against the transfer of any warrant or of any shares of Common
Stock issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
5.3 AUTOMATIC EXERCISE. To the extent this Warrant is not
previously exercised, and if the fair market value of one share of the Company's
Common Stock is greater than the Stock Purchase Price then in effect, this
Warrant shall be deemed automatically exercised pursuant to Section 1 (even if
not surrendered) immediately before its expiration. To the extent this Warrant
or any portion thereof is deemed automatically exercised pursuant to this
Section 5.3, the Company agrees to promptly notify the holder hereof of the
number shares of Common Stock, if any, the holder hereof is entitled to receive
by reason of such automatic exercise, and the Holder shall have 30 days from the
receipt of such notice to determine whether such automatic exercise shall be
made pursuant to Section 1.1 or 1.2 hereof.
5.4 NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY.
Nothing contained in this Warrant shall be construed as conferring upon the
Holder hereof the right to vote or to consent or to receive notice as a
shareholder of the Company or any other matters or any rights whatsoever as a
shareholder of the Company. Except as may be set forth herein, no cash dividends
or interest shall be payable or accrued in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until, and only
to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares of
Common Stock, and no mere enumeration herein of the rights or privileges of the
holder hereof, shall give rise to any liability of such Holder for the Stock
Purchase Price or as a shareholder of the Company, whether such liability is
asserted by the Company or by its creditors.
5.5 WARRANTS TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
5.6 RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The
rights and obligations of the Company, of the holder of this Warrant and of the
holder of shares of Common Stock issued upon exercise of this Warrant, shall
survive the exercise of this Warrant.
15.
<PAGE> 16
5.7 MODIFICATION AND WAIVER. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
5.8 NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to such Holder at
its address as shown on the books of the Company, attention: Chief Executive
Officer, or to the Company at the address indicated therefor in the first
paragraph of this Warrant, or such other address as either may from time to time
provide to the other.
5.9 BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Common Stock issuable upon the
exercise of this Warrant shall survive the exercise and termination of this
Warrant. All of the covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of the holder hereof.
5.10 DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
5.11 LOST WARRANTS. The Company represents and warrants to the
Holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant and, in
the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
5.12 FRACTIONAL SHARES. No fractional shares shall be issued
upon exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash equal
to such fraction multiplied by the then effective Stock Purchase Price.
5.13 NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment
of its Charter or through any other means, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder of this Warrant against impairment.
[THIS SPACE INTENTIONALLY LEFT BLANK]
16.
<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ______ day of
_____________, 1998.
LEAP WIRELESS INTERNATIONAL, INC.
a Delaware corporation
By:
------------------------------
Title:
---------------------------
ATTEST:
- ----------------------------------------
Secretary
17.
<PAGE> 18
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, 19___
Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, California 92121
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise the warrant issued to it by
Leap Wireless International, Inc. (the "Company") and dated ___________
(the "Warrant") and to purchase thereunder ____________________________
shares of Common Stock of the Company (the "Shares") at the Stock
Purchase Price.
The undersigned hereby elects to pay the Purchase Price in the following manner:
[ ] cash
[ ] cancellation of indebtedness of the Company
[ ] delivery to the Company of other common stock of the Company having a
fair market value as of the date of exercise equal to the Stock Purchase
Price times the number of shares to be acquired upon exercise
[ ] other form of consideration approved by the Board of Directors of the
Company
[ ] The undersigned hereby elects to convert _______________________ percent
(____%) of the value of the Warrant pursuant to the provisions of
Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
---------------------------
By:
------------------------
Title:
---------------------
<PAGE> 1
EXHIBIT 4.3
DRAFT DATED AUGUST 3, 1998
================================================================================
LEAP WIRELESS INTERNATIONAL, INC.
and
HARRIS TRUST COMPANY OF CALIFORNIA
as Rights Agent
Rights Agreement
Dated as of ______ ___, 1998
================================================================================
<PAGE> 2
RIGHTS AGREEMENT
Rights Agreement, dated as of _________ ___, 1998 between Leap
Wireless International, Inc., a Delaware corporation (the "Company"), and Harris
Trust Company of California, a ________ corporation, as Rights Agent (the
"Rights Agent").
RECITALS
WHEREAS, on August ___, 1998 the Board of Directors of the
Company adopted this Agreement, and has authorized and declared a dividend of
one preferred share purchase right (a "Right") for each Common Share (as defined
in Section 1.6) of the Company outstanding at the close of business on August
___, 1998 (the "Record Date") and has authorized and directed the issuance of
one Right (subject to adjustment as provided herein) with respect to each Common
Share that shall become outstanding between the Record Date and the earliest of
the Distribution Date and the Expiration Date (as such terms are defined in
Sections 3.1 and 7.1), each Right initially representing the right to purchase
one one-thousandth (subject to adjustment) of a share of Series A Junior
Participating Preferred Stock (the "Preferred Shares") of the Company having the
rights, powers and preferences set forth in the form of Certificate of
Designation attached hereto as Exhibit A, upon the terms and subject to the
conditions hereinafter set forth, PROVIDED, HOWEVER, that Rights may be issued
with respect to Common Shares that shall become outstanding after the
Distribution Date and prior to the Expiration Date in accordance with Section
22.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
1.1. "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the Common
Shares of the Company then outstanding but shall not include (i) an Exempt
Person or (ii) any Existing Holder, unless and until such time as such Existing
Holder shall become the Beneficial Owner of one or more additional Common Shares
of the Company (other than pursuant to a dividend or distribution paid or made
by the Company on the outstanding Common Shares in Common Shares or pursuant to
a split or subdivision of the outstanding Common Shares), unless, upon becoming
the Beneficial Owner of such additional Common Shares, such Existing Holder is
not then the Beneficial Owner of 15% or more of the Common Shares then
outstanding. "Existing Holder" shall mean QUALCOMM Incorporated, together with
all of its Affiliates and Associates (but excluding individual officers,
directors and employees of QUALCOMM Incorporated), and, for purposes of this
Rights Agreement, (x) prior to the consummation of the proposed "spin-off"
distribution of Common Shares to the common stockholders of QUALCOMM
Incorporated (the "Spin-Off"), QUALCOMM Incorporated may acquire one or more
additional Common Shares without becoming an Acquiring Person hereunder, and (y)
from and after the consummation of the Spin-Off, QUALCOMM Incorporated
1
<PAGE> 3
may become the Beneficial Owner of up to 5,500,000 Common Shares (subject to
adjustment), provided such beneficial ownership of Common Shares is acquired
solely upon the issuance by the Company to QUALCOMM Incorporated of that certain
Warrant to purchase 5,500,000 Common Shares (subject to adjustment) concurrently
with the consummation of the Spin-Off or upon the exercise of such Warrant in
accordance with its terms, without becoming an Acquiring Person hereunder.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as
the result of an acquisition of Common Shares by the Company which, by reducing
the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 15% or more of the Common Shares of the
Company then outstanding; PROVIDED, HOWEVER, that if a Person shall become the
Beneficial Owner of 15% or more of the Common Shares of the Company then
outstanding solely by reason of share purchases by the Company and shall, after
notice from or public disclosure by the Company of such share purchases by the
Company, become the Beneficial Owner of one or more additional Common Shares of
the Company, then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this Section 1.1,
has become such inadvertently (including, without limitation, because (A) such
Person was unaware that it beneficially owned a percentage of Common Stock that
would otherwise cause such Person to be an "Acquiring Person" or (B) such Person
was aware of the extent of its Beneficial Ownership of Common Stock but had no
actual knowledge of the consequences of such Beneficial Ownership under this
Agreement), and without any intention of changing or influencing control of the
Company, and such Person divests as promptly as practicable a sufficient number
of Common Shares so that such Person would no longer be an Acquiring Person, as
defined pursuant to the foregoing provisions of this Section 1.1, then such
Person shall not be deemed to be or have become an "Acquiring Person" at any
time for any purposes of this Agreement. For all purposes of this Agreement, any
calculation of the number of Common Shares outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares of which any Person is the Beneficial Owner, shall be
made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
1.2. "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations, under the Exchange Act, as in effect on the date of this Agreement.
1.3. A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act as in effect on the date of this Agreement);
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has (A) the right to acquire
(whether such right is exercisable immediately, or only after the passage of
time, compliance with regulatory requirements, fulfillment of a
2
<PAGE> 4
condition or otherwise) pursuant to any agreement, arrangement or understanding,
whether or not in writing (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; PROVIDED, HOWEVER, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, (w)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, (x) securities which
such Person has a right to acquire upon the exercise of Rights at any time prior
to the time that any Person becomes an Acquiring Person, (y) securities issuable
upon the exercise of Rights from and after the time that any Person becomes an
Acquiring Person if such Rights were acquired by such Person or any of such
Person's Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3.1 or Section 22 ("Original Rights") or pursuant to Section 11.9 or
Section 11.15 with respect to an adjustment to Original Rights or (z) securities
which such Person or any of such Person's Affiliates or Associates may acquire,
does or do acquire or may be deemed to have the right to acquire, pursuant to
any merger or other acquisition agreement between the Company and such Person
(or one or more of his Affiliates or Associates) if such agreement has been
approved by the Board of Directors of the Company prior to such Person's
becoming an Acquiring Person; or (B) the right to vote pursuant to any
agreement, arrangement or understanding (whether or not in writing); PROVIDED,
HOWEVER, that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security under this clause (B) if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations of the Exchange Act and (2) is not also then reportable on
Schedule 13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof) and with
respect to which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities), whether or not in writing, for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy or consent
as described in the proviso to Section 1.3(ii)(B)) or disposing of any
securities of the Company;
PROVIDED, HOWEVER, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section 1.3), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer, director
or employee of an Exempt Person.
1.4. "Business Day" shall mean any day other than a Saturday,
Sunday, or a day on which banking institutions in the State of California are
authorized or obligated by law or executive order to close.
3
<PAGE> 5
1.5. "close of business" on any given date shall mean 5:00
p.m., California time, on such date; PROVIDED, HOWEVER, that if such date is not
a Business Day it shall mean 5:00 p.m., California time, on the next succeeding
Business Day.
1.6. "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $.0001 per share, of the
Company. "Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock with the greatest voting power, or the
equity securities or other equity interest having power to control or direct the
management, of such other Person or, if such Person is a Subsidiary (as such
term is hereinafter defined) of another Person, the Person or Persons which
ultimately control such first-mentioned Person, and which has issued and
outstanding such capital stock, equity securities or equity interest.
1.7. "Continuing Director" shall mean (i) any member of the
Board of Directors of the Company, while such Person is a member of the Board,
who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring
Person, or an employee, director, representative, nominee or designee of any
Acquiring Person or of any such Affiliate or Associate, and was a member of the
Board prior to the time that any Person becomes an Acquiring Person or (ii) any
Person (during such period in which such Person is a member of the Board) who,
after the time that any Person becomes an Acquiring Person, becomes a member of
the Board and who is not an Acquiring Person, or an Affiliate of Associate of an
Acquiring Person, or an employee, director, representative, nominee or designee
of an Acquiring Person or of any such Affiliate or Associate, if such Person's
nomination for election or election to the Board is recommended or approved by a
majority of the Continuing Directors.
1.8. "Exempt Person" shall mean the Company, any Subsidiary of
the Company, or any employee benefit plan of the Company or of any Subsidiary of
the Company or any entity or trustee holding shares of capital stock of the
Company for or pursuant to the terms of any such plan, or for the purpose of
funding other employee benefits for employees of the Company or any Subsidiary
of the Company.
1.9. "Person" shall mean any individual, partnership, joint
venture, limited liability company, firm, corporation, unincorporated
association, trust or other entity, and shall include any successor (by merger
or otherwise) of such entity.
1.10. "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, the filing of a report pursuant to Section 13(d) of the
Exchange Act or pursuant to a comparable successor statute) by the Company or an
Acquiring Person that an Acquiring Person has become such or that discloses
information which reveals the existence of an Acquiring Person or such earlier
date as a majority of the Board of Directors shall become aware of the existence
of an Acquiring Person.
1.11. "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interests is owned, of record or beneficially, directly or
indirectly, by such Person.
4
<PAGE> 6
1.12. A "Trigger Event" shall be deemed to have occurred upon
any Person becoming an Acquiring Person.
1.13. The following terms shall have the meanings defined for
such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Adjustment Shares 11.1.2
common stock equivalent 11.1.3
Company Recitals
current per share market price 11.4.1
Current Value 11.1.3
Distribution Date 3.1
equivalent preferred stock 11.2
Exchange Act 1.1
Exchange Consideration 27.1
Existing Holder 1.1
Expiration Date 7.1
Final Expiration Date 7.1
Nasdaq 9
Original Rights 1.3
Preferred Shares Recitals
Principal Party 13.2
Purchase Price 4
Record Date Recitals
Redemption Date 7.1
Redemption Price 23.1
Right Recitals
Right Certificate 3.1
Rights Agent Recitals
Security 11.4.1
Spread 11.1.3
Substitution Period 11.1.3
Summary of Rights 3.2
Trading Day 11.4.1
</TABLE>
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3, shall prior to the Distribution Date
also be the holders of the Common Shares) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable. In the event the Company appoints one or more co-Rights
Agents, the respective duties of the Rights Agent and any co-Rights Agent shall
be as the Company shall
5
<PAGE> 7
determine. Contemporaneously with such appointment, if any, the Company shall
notify the Rights Agent thereof.
Section 3. Issuance of Right Certificates.
3.1. Rights Evidenced by Share Certificates. Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
Business Day after the date of the commencement of, or first public announcement
of the intent of any Person (other than an Exempt Person) to commence, a tender
or exchange offer the consummation of which would result in any Person (other
than an Exempt Person) becoming the Beneficial Owner of Common Shares
aggregating 15% or more of the then outstanding Common Shares of the Company
(the earlier of (i) and (ii) being herein referred to as the "Distribution
Date"), (x) the Rights (unless earlier expired, redeemed or terminated) will be
evidenced (subject to the provisions of Section 3.2) by the certificates for
Common Shares registered in the names of the holders thereof (which certificates
for Common Shares shall also be deemed to be Right Certificates) and not by
separate certificates, and (y) the Rights (and the right to receive certificates
therefor) will be transferable only in connection with the transfer of the
underlying Common Shares. The preceding sentence notwithstanding, prior to the
occurrence of a Distribution Date specified as a result of an event described in
clause (ii) (or such later Distribution Date as the Board of Directors of the
Company may select pursuant to this sentence), the Board of Directors may
postpone, one or more times, the Distribution Date which would occur as a result
of an event described in clause (ii) beyond the date set forth in such clause
(ii). Nothing herein shall permit such a postponement of a Distribution Date
after a Person becomes an Acquiring Person, except as a result of the operation
of the fourth sentence of Section 1.1. As soon as practicable after the
Distribution Date, the Company will prepare and execute, the Rights Agent will
countersign and the Company (or, if requested, the Rights Agent) will send, by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Distribution Date (other than any Acquiring Person
or any Associate or Affiliate of an Acquiring Person), at the address of such
holder shown on the records of the Company, one or more certificates for Rights,
in substantially the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right (subject to adjustment as provided herein) for each Common
Share so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
3.2. Summary of Rights. On the Record Date or as soon as
practicable thereafter, the Company will send or cause to be sent a copy of a
Summary of Rights to Purchase Preferred Shares, in substantially the form
attached hereto as Exhibit C (the "Summary of Rights"), by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the close of
business on the Record Date at the address of such holder shown on the records
of the Company. With respect to certificates for Common Shares outstanding as of
the close of business on the Record Date, until the Distribution Date (or the
earlier Expiration Date), the Rights will be evidenced by such certificates for
Common Shares registered in the names of the holders thereof together with a
copy of the Summary of Rights and the registered holders of the Common Shares
shall also be registered holders of the associated Rights. Until the
Distribution Date (or the earlier Expiration Date), the surrender for transfer
of any certificate for Common Shares outstanding at
6
<PAGE> 8
the close of business on the Record Date, with or without a copy of the Summary
of Rights, shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
3.3. New Certificates After Record Date. Certificates for
Common Shares which become outstanding (whether upon issuance out of authorized
but unissued Common Shares, disposition out of treasury or transfer or exchange
of outstanding Common Shares) after the Record Date but prior to the earliest of
the Distribution Date or the Expiration Date, shall have impressed, printed,
stamped, written or otherwise affixed onto them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in an Agreement between Leap Wireless
International, Inc. (the "Company") and oHarris Trust Company of
California, as Rights Agent, dated as of August ___, 1998, as the same
may be amended from time to time (the "Agreement"), the terms of which
are hereby incorporated herein by reference and a copy of which is on
file at the principal executive offices of the Company. Under certain
circumstances, as set forth in the Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by
this certificate. The Company will mail to the holder of this
certificate a copy of the Agreement without charge after receipt of a
written request therefor. AS DESCRIBED IN THE AGREEMENT, RIGHTS WHICH
ARE OWNED BY, TRANSFERRED TO OR HAVE BEEN OWNED BY ACQUIRING PERSONS OR
ASSOCIATES OR AFFILIATES THEREOF (AS DEFINED IN THE AGREEMENT) SHALL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
With respect to such certificates containing the foregoing legend, until the
Distribution Date (or the earlier Expiration Date), the Rights associated with
the Common Shares represented by such certificates shall be evidenced by such
certificates alone, and the surrender for transfer of any such certificates,
except as otherwise provided herein, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby. In the event that
the Company purchases or acquires any Common Shares after the Record Date but
prior to the Distribution Date, any Rights associated with such Common Shares
shall be deemed canceled and retired so that the Company shall not be entitled
to exercise any Rights associated with the Common Shares which are no longer
outstanding.
Notwithstanding this Section 3.3, the omission of a legend
shall not affect the enforceability of any part of this Agreement or the rights
of any holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase shares, certification and assignment to
be printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or trading system on which the Rights may from time to time be listed
or quoted, or to conform to usage. Subject to the terms and conditions hereof,
the Right Certificates, whenever issued, shall be dated as of the Record Date,
7
<PAGE> 9
and shall show the date of countersignature by the Rights Agent, and on their
face shall entitle the holders thereof to purchase such number of one
one-thousandths of a Preferred Share as shall be set forth therein at the price
per one one-thousandth of a Preferred Share set forth therein (the "Purchase
Price"), but the number of such one one-thousandths of a Preferred Share and the
Purchase Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board of Directors, the Chief Executive Officer, President or any Vice
President, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal or a facsimile thereof which shall be attested by the
Secretary or any Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be countersigned, either
manually or by facsimile signature, by an authorized signatory of the Rights
Agent, but it shall not be necessary for the same signatory to countersign all
of the Right Certificates hereunder. No Right Certificate shall be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Right Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be countersigned by the
Rights Agent, and issued and delivered by the Company with the same force and
effect as though the person who signed such Right Certificates had not ceased to
be such officer of the Company; and any Right Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Right Certificate, shall be a proper officer of the Company to sign such
Right Certificate, although at the date of the execution of this Agreement any
such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates, the certificate
number of each of the Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 7.5, Section 11.1.2 and Section 14, at any
time after the close of business on the Distribution Date, and at or prior to
the close of business on the Expiration Date, any Right Certificate or Right
Certificates (other than Right Certificates representing Rights that have become
void pursuant to Section 11.1.2 or that have been exchanged pursuant to Section
27) may be transferred, split up or combined or exchanged for another Right
Certificate or Right Certificates, entitling the registered holder to purchase a
like number of one one-thousandths of a Preferred Share as the Right Certificate
or Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up or combine or exchange any
Right Certificate shall make such request in writing delivered to the Rights
Agent, and shall surrender, together with any required form of assignment and
certificate duly completed, the Right Certificate or Right Certificates to be
transferred, split up or combined or exchanged at the office of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
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surrendered Right Certificate or Right Certificates until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Right Certificate or Right Certificates
and shall have provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request. Thereupon the Rights Agent
shall countersign and deliver to the person entitled thereto a Right Certificate
or Right Certificates, as the case may be, as so requested. The Company may
require payment from the holders of Right Certificates of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up or combination or exchange of such Right Certificates.
Subject to the provisions of Section 11.1.2 , at any time
after the Distribution Date and prior to the Expiration Date, upon receipt by
the Company and the Rights Agent of evidence reasonably satisfactory to them of
the loss, theft, destruction or mutilation of a Right Certificate, and, in case
of loss, theft or destruction, of indemnity or security reasonably satisfactory
to them, and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and upon surrender
to the Rights Agent and cancellation of the Right Certificate if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.
7.1. Exercise of Rights. Subject to Section 11.1.2 and except
as otherwise provided herein, the registered holder of any Right Certificate may
exercise the Rights evidenced thereby in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase and certification on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the aggregate Purchase Price for the
total number of one one-thousandths of a Preferred Share (or other securities,
cash or other assets) as to which the Rights are exercised, at or prior to the
time (the "Expiration Date") that is the earliest of (i) the close of business
on August ___, 2008 (the "Final Expiration Date"), (ii) the time at which the
Rights are redeemed as provided in Section 23 (the "Redemption Date"), (iii) the
closing of any merger or other acquisition transaction involving the Company
pursuant to an agreement of the type described in Sections 1.3(ii)(A)(z) and
13.3, at which time the Rights are deemed terminated, or (iv) the time at which
the Rights are exchanged as provided in Section 27.
7.2. Purchase . The Purchase Price for each one one-thousandth
of a Preferred Share pursuant to the exercise of a Right shall be initially
$_____, shall be subject to adjustment from time to time as provided in Sections
11, 13 and 26 and shall be payable in lawful money of the United States of
America in accordance with Section 7.3.
7.3. Payment Procedures. Upon receipt of a Right Certificate
representing exercisable Rights, with the form of election to purchase and
certification duly executed, accompanied by payment of the aggregate Purchase
Price for the total number of one one-thousandths of a Preferred Share to be
purchased and an amount equal to any applicable transfer
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tax required to be paid by the holder of such Right Certificate in accordance
with Section 9, in cash or by certified or cashier's check or money order
payable to the order of the Company, the Rights Agent shall thereupon promptly
(i)(A) requisition from any transfer agent of the Preferred Shares (or make
available, if the Rights Agent is the transfer agent) certificates for the
number of Preferred Shares to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, or (B) if the
Company shall have elected to deposit the total number of Preferred Shares
issuable upon exercise of the Rights hereunder with a depository agent,
requisition from the depositary agent depositary receipts representing interests
in such number of one one-thousandths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with all
such requests, (ii) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of the issuance of fractional shares in accordance with
Section 14 or otherwise in accordance with Section 11.1.3, (iii) promptly after
receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate. In the
event that the Company is obligated to issue other securities of the Company,
pay cash and/or distribute other property pursuant to Section 11.1.3, the
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate.
7.4. Partial Exercise. In case the registered holder of any
Right Certificate shall exercise less than all the Rights evidenced thereby, a
new Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to the registered
holder of such Right Certificate or to his duly authorized assigns, subject to
the provisions of Section 14.
7.5. Full Information Concerning Ownership. Notwithstanding
anything in this Agreement to the contrary, neither the Rights Agent nor the
Company shall be obligated to undertake any action with respect to a registered
holder of Rights upon the occurrence of any purported exercise as set forth in
this Section 7 unless the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise shall have been duly completed and signed by the registered holder
thereof and the Company shall have been provided with such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased
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or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Right Certificates to the Company, or shall, at
the written request of the Company, destroy such canceled Right Certificates,
and in such case shall deliver a certificate of destruction thereof to the
Company.
Section 9. Reservation and Availability of Capital Stock. The
Company covenants and agrees that from and after the Distribution Date it will
cause to be reserved and kept available out of its authorized and unissued
Preferred Shares (and, following the occurrence of a Trigger Event, out of its
authorized and unissued Common Shares or other securities or out of its shares
held in its treasury) the number of Preferred Shares (and, following the
occurrence of a Trigger Event, Common Shares and/or other securities) that will
be sufficient to permit the exercise in full of all outstanding Rights.
So long as the Preferred Shares (and, following the occurrence
of a Trigger Event, Common Shares and/or other securities) issuable upon the
exercise of Rights may be listed on any national securities exchange or traded
in the over-the-counter market and quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System ("Nasdaq") (including the
National Market or Small Cap Market), the Company shall use its best efforts to
cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on such exchange
or quoted on Nasdaq upon official notice of issuance upon such exercise.
The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares (and, following
the occurrence of a Trigger Event, Common Shares and/or other securities)
delivered upon exercise of Rights shall, at the time of delivery of the
certificates for such shares (subject to payment of the Purchase Price), be duly
and validly authorized and issued and fully paid and nonassessable shares.
From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
Preferred Shares upon the exercise of Rights, to register and qualify such
Preferred Shares under the Securities Act and any applicable state securities or
"Blue Sky" laws (to the extent exemptions therefrom are not available), cause
such registration statement and qualifications to become effective as soon as
possible after such filing and keep such registration and qualifications
effective until the earlier of the date as of which the Rights are no longer
exercisable for such securities and the Expiration Date. The Company may
temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
under the Securities Act (if required) shall have been declared effective.
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The Company further covenants and agrees that it will pay when
due and payable any and all Federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares (or Common Shares and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a person other than, or the issuance or
delivery of certificates for the Preferred Shares (or Common Shares and/or other
securities, as the case may be) in a name other than that of, the registered
holder of the Right Certificate evidencing Rights surrendered for exercise or to
issue or deliver any certificates for Preferred Shares (or Common Shares and/or
other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such Right Certificate at
the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for Preferred Shares (or Common Shares and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares (or Common Shares and/or other securities, as the case may be)
represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the Purchase Price (and any applicable transfer taxes) was made; PROVIDED,
HOWEVER, that if the date of such surrender and payment is a date upon which the
Preferred Shares (or Common Shares and/or other securities, as the case may be)
transfer books of the Company are closed, such person shall be deemed to have
become the record holder of such shares (fractional or otherwise) on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares (or Common Shares and/or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Right Certificate shall not be entitled to
any rights of a holder of Preferred Shares for which the Rights shall be
exercisable, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares or other
securities or property purchasable upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
11.1. Post-Execution Events.
11.1.1. Corporate Dividends, Reclassifications, Etc. In the
event the Company shall at any time after the date of this Agreement (A) declare
and pay a dividend on the Preferred Shares payable in Preferred Shares, (B)
subdivide the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11.1, the
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Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; PROVIDED,
HOWEVER, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon exercise of one Right. If an event occurs which
would require an adjustment under both Section 11.1.1 and Section 11.1.2, the
adjustment provided for in this Section 11.1.1 shall be in addition to, and
shall be made prior to, the adjustment required pursuant to, Section 11.1.2.
11.1.2. Acquiring Person Events; Triggering Events. Subject to
Sections 23.1 and 27, in the event that a Trigger Event occurs, then, from and
after the first occurrence of such event, each holder of a Right, except as
provided below, shall thereafter have a right to receive, upon exercise thereof
at a price per Right equal to the then current Purchase Price multiplied by the
number of one one-thousandths of a Preferred Share for which a Right is then
exercisable (without giving effect to this Section 11.1.2), in accordance with
the terms of this Agreement and in lieu of Preferred Shares, such number of
Common Shares as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the then number of one one-thousandths of a Preferred
Share for which a Right is then exercisable (without giving effect to this
Section 11.1.2) and (y) dividing that product by 50% of the current per share
market price of the Common Shares (determined pursuant to Section 11.4) on the
first of the date of the occurrence of, or the date of the first public
announcement of, a Trigger Event (the "Adjustment Shares"); PROVIDED that the
Purchase Price and the number of Adjustment Shares shall thereafter be subject
to further adjustment as appropriate in accordance with Section 11.6.
Notwithstanding the foregoing, upon the occurrence of a Trigger Event, any
Rights that are or were acquired or beneficially owned by (1) any Acquiring
Person or any Associate or Affiliate thereof, (2) a transferee of any Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such, or (3) a transferee of any Acquiring Person
(or of any such Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect avoidance
of this Section 11.1.2, and subsequent transferees, shall become void without
any further action, and any holder (whether or not such holder is an Acquiring
Person or an Associate or Affiliate of an Acquiring Person) of such Rights shall
thereafter have no right to exercise such Rights under any provision of this
Agreement or otherwise. The Company shall not enter into any transaction of the
type described in this Section 11.1.2 if at the time of such transaction there
are any rights, warrants, instruments or securities outstanding or any
arrangements which, as a result of the consummation of such transaction,
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would eliminate or substantially diminish the benefits intended to be afforded
by the Rights. From and after the Trigger Event, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 that represents Rights that are or
have become void pursuant to the provisions of this paragraph, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or
have become void pursuant to the provisions of this paragraph shall be canceled.
The Company shall use all reasonable efforts to ensure that
the provisions of this Section 11.1.2 are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to any Acquiring Person or its
Affiliates, Associates or transferees hereunder.
From and after the occurrence of an event specified in Section
13.1, any Rights that theretofore have not been exercised pursuant to this
Section 11.1.2 shall thereafter be exercisable only in accordance with Section
13 and not pursuant to this Section 11.1.2.
11.1.3. Insufficient Shares. The Company may at its option
substitute for a Common Share issuable upon the exercise of Rights in accordance
with the foregoing Section 11.1.2 a number of Preferred Shares or fraction
thereof such that the current per share market price of one Preferred Share
multiplied by such number or fraction is equal to the current per share market
price of one Common Share. In the event that upon the occurrence of one or more
of the events listed in Section 11.1.2 above there shall not be sufficient
Common Shares authorized but unissued, or held by the Company as treasury
shares, to permit the exercise in full of the Rights in accordance with the
foregoing Section 11.1.2, the Company shall take all such action as may be
necessary to authorize additional Common Shares for issuance upon exercise of
the Rights, PROVIDED, HOWEVER, that if the Company determines that it is unable
to cause the authorization of a sufficient number of additional Common Shares,
then, in the event the Rights become exercisable, the Company, with respect to
each Right and to the extent necessary and permitted by applicable law and any
agreements or instruments in effect on the date hereof to which it is a party,
shall: (A) determine the excess of (1) the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), over (2) the
Purchase Price (such excess, the "Spread") and (B) with respect to each Right
(other than Rights which have become void pursuant to Section 11.1.2), make
adequate provision to substitute for the Adjustment Shares, upon payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3)
Preferred Shares or other equity securities of the Company (including, without
limitation, shares, or fractions of shares, of preferred stock which, by virtue
of having dividend, voting and liquidation rights substantially comparable to
those of the Common Shares, the Board of Directors of the Company has deemed in
good faith to have substantially the same value as Common Shares) (each such
share of preferred stock or fractions of shares of preferred stock constituting
a "common stock equivalent")), (4) debt securities of the Company, (5) other
assets or (6) any combination of the foregoing having an aggregate value equal
to the Current Value, where such aggregate value has been determined by the
Board of Directors of the Company based upon the advice of a nationally
recognized investment banking firm selected in good faith by the Board of
Directors of the Company; PROVIDED, HOWEVER, that if the Company shall not have
made adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the first occurrence of one of the events listed in
Section 11.1.2 above, then the Company shall be
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obligated to deliver, to the extent necessary and permitted by applicable law
and any agreements or instruments in effect on the date hereof to which it is a
party, upon the surrender for exercise of a Right and without requiring payment
of the Purchase Price, Common Shares (to the extent available) and then, if
necessary, such number or fractions of Preferred Shares (to the extent
available) and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If the Board of Directors of the Company
shall determine in good faith that it is unlikely that sufficient additional
Common Shares could be authorized for issuance upon exercise in full of the
Rights, the thirty (30) day period set forth above may be extended and
re-extended to the extent necessary, but not more than ninety (90) days
following the first occurrence of one of the events listed in Section 11.1.2
above, in order that the Company may seek stockholder approval for the
authorization of such additional shares (such period as may be extended, the
"Substitution Period"). To the extent that the Company determines that some
action need be taken pursuant to the second and/or third sentences of this
Section 11.1.3, the Company (x) shall provide that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11.1.3, the
value of a Common Share shall be the current per share market price (as
determined pursuant to Section 11.4) on the date of the occurrence of a Trigger
Event and the value of any "common stock equivalent" shall be deemed to have the
same value as the Common Shares on such date. The Board of Directors of the
Company may, but shall not be required to, establish procedures to allocate the
right to receive Common Shares upon the exercise of the Rights among holders of
Rights pursuant to this Section 11.1.3. Actions of the Company pursuant to this
Section 11.1.3 by the vote of a majority of the Board of Directors (including,
following a Trigger Event, a majority of the Continuing Directors).
11.2. Dilutive Rights Offering. In case the Company shall fix
a record date for the issuance of rights, options or warrants to all holders of
Preferred Shares entitling them (for a period expiring within 45 calendar days
after such record date) to subscribe for or purchase Preferred Shares (or
securities having the same rights, privileges and preferences as the Preferred
Shares ("equivalent preferred stock")) or securities convertible into Preferred
Shares or equivalent preferred stock at a price per Preferred Share or per share
of equivalent preferred stock (or having a conversion or exercise price per
share, if a security convertible into or exercisable for Preferred Shares or
equivalent preferred stock) less than the current per share market price of the
Preferred Shares (as determined pursuant to Section 11.4) on such record date,
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Preferred Shares
and shares of equivalent preferred stock outstanding on such record date plus
the number of Preferred Shares and shares of equivalent preferred stock which
the aggregate offering price of the total number of Preferred Shares and/or
shares of equivalent preferred stock to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current per share market price and the
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<PAGE> 17
denominator of which shall be the number of Preferred Shares and shares of
equivalent preferred stock outstanding on such record date plus the number of
additional Preferred Shares and/or shares of equivalent preferred stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); PROVIDED, HOWEVER, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. Preferred Shares and shares of equivalent preferred stock
owned by or held for the account of the Company or any Subsidiary of the Company
shall not be deemed outstanding for the purpose of any such computation. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
11.3. Distributions. In case the Company shall fix a record
date for the making of a distribution to all holders of the Preferred Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness, cash, securities or assets (other than a regular
periodic cash dividend at a rate not in excess of 125% of the rate of the last
regular periodic cash dividend theretofore paid or, in case regular periodic
cash dividends have not theretofore been paid, at a rate not in excess of 50% of
the average net income per share of the Company for the four quarters ended
immediately prior to the payment of such dividend, or a dividend payable in
Preferred Shares (which dividend, for purposes of this Agreement, shall be
subject to the provisions of Section 11.1.1(A))) or convertible securities, or
subscription rights or warrants (excluding those referred to in Section 11.2),
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the current per share market
price of the Preferred Shares (as determined pursuant to Section 11.4) on such
record date, less the fair market value (as determined in good faith by the
Board of Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent) of the portion of the cash, assets,
securities or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share and the
denominator of which shall be such current per share market price of the
Preferred Shares (as determined pursuant to Section 11.4); PROVIDED, HOWEVER,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
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11.4. Current Per Share Market Value.
11.4.1. General. For the purpose of any computation hereunder,
the "current per share market price" of any security (a "Security" for the
purpose of this Section 11.4.1) on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the thirty (30)
consecutive Trading Days (as such term is hereinafter defined) immediately prior
to such date; PROVIDED, HOWEVER, that in the event that the current per share
market price of the Security is determined during any period following the
announcement by the issuer of such Security of (i) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares or (ii) any subdivision, combination or reclassification of such
Security, and prior to the expiration of thirty (30) Trading Days after the
ex-dividend date for such dividend or distribution, or the record date for such
subdivision, combination or reclassification, then, and in each such case, the
"current per share market price" shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing price
for each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Security is not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use, or, if on any such date
the Security is not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Security selected by the Board of Directors of the Company. If on any
such date no such market maker is making a market in the Security, the fair
value of the Security on such date as determined in good faith by the Board of
Directors of the Company shall be used. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the Security is
listed or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day. If the Security is not publicly held or not so listed
or traded, or if on any such date the Security is not so quoted and no such
market maker is making a market in the Security, "current per share market
price" shall mean the fair value per share as determined in good faith by the
Board of Directors of the Company or, if at the time of such determination there
is an Acquiring Person, by a majority of the Continuing Directors then in
office, or if there are no Continuing Directors, by a nationally recognized
investment banking firm selected by the Board of Directors, which shall have the
duty to make such determination in a reasonable and objective manner, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
11.4.2. Preferred Shares. Notwithstanding Section 11.4.1, for
the purpose of any computation hereunder, the "current per share market price"
of the Preferred Shares shall be determined in the same manner as set forth
above in Section 11.4.1 (other than the last sentence thereof). If the current
per share market price of the Preferred Shares cannot be determined in the
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manner described in Section 11.4.1, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be an amount equal to 1,000 (as
such number may be appropriately adjusted for such events as stock splits, stock
dividends and recapitalizations with respect to the Common Shares occurring
after the date of this Agreement) multiplied by the current per share market
price of the Common Shares (as determined pursuant to Section 11.4.1). If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, or if on any such date neither the Common Shares nor the
Preferred Shares are so quoted and no such market maker is making a market in
either the Common Shares or the Preferred Shares, "current per share market
price" of the Preferred Shares shall mean the fair value per share as determined
in good faith by the Board of Directors of the Company, or, if at the time of
such determination there is an Acquiring Person, by a majority of the Continuing
Directors then in office, or if there are no Continuing Directors, by a
nationally recognized investment banking firm selected by the Board of Directors
of the Company, which shall have the duty to make such determination in a
reasonable and objective manner, which determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all purposes.
For purposes of this Agreement, the "current per share market price" of one
one-thousandth of a Preferred Share shall be equal to the "current per share
market price" of one Preferred Share divided by 1,000.
11.5. Insignificant Changes. No adjustment in the Purchase
Price shall be required unless such adjustment would require an increase or
decrease of at least 1% in the Purchase Price. Any adjustments which by reason
of this Section 11.5 are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one-hundred
thousandth of a Preferred Share or the nearest one-hundredth of a Common Share
or other share or security, as the case may be.
11.6. Shares Other Than Preferred Shares. If as a result of an
adjustment made pursuant to Section 11.1, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock of the
Company other than Preferred Shares, thereafter the number of such other shares
so receivable upon exercise of any Right shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Sections 11.1,
11.2, 11.3, 11.5, 11.8, 11.9 and 11.13, and the provisions of Sections 7, 9, 10,
13 and 14 with respect to the Preferred Shares shall apply on like terms to any
such other shares.
11.7. Rights Issued Prior to Adjustment. All Rights originally
issued by the Company subsequent to any adjustment made to the Purchase Price
hereunder shall evidence the right to purchase, at the adjusted Purchase Price,
the number of one one-thousandths of a Preferred Share purchasable from time to
time hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
11.8. Effect of Adjustments. Unless the Company shall have
exercised its election as provided in Section 11.9, upon each adjustment of the
Purchase Price as a result of the calculations made in Sections 11.2 and 11.3,
each Right outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted
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Purchase Price, that number of one one-thousandths of a Preferred Share
(calculated to the nearest one-hundred thousandth of a Preferred Share) obtained
by (i) multiplying (x) the number of one one-thousandths of a Preferred Share
covered by a Right immediately prior to this adjustment by (y) the Purchase
Price in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
11.9. Adjustment in Number of Rights. The Company may elect on
or after the date of any adjustment of the Purchase Price to adjust the number
of Rights, in substitution for any adjustment in the number of one
one-thousandths of a Preferred Share issuable upon the exercise of a Right. Each
of the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-thousandths of a Preferred Share for which
a Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11.9, the Company may, as promptly as practicable, cause to be distributed to
holders of record of Right Certificates on such record date Right Certificates
evidencing, subject to Section 14, the additional Rights to which such holders
shall be entitled as a result of such adjustment, or, at the option of the
Company, shall cause to be distributed to such holders of record in substitution
and replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company, new
Right Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Right Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
11.10. Right Certificates Unchanged. Irrespective of any
adjustment or change in the Purchase Price or the number of one one-thousandths
of a Preferred Share issuable upon the exercise of the Rights, the Right
Certificates theretofore and thereafter issued may continue to express the
Purchase Price per share and the number of one one-thousandths of a Preferred
Share which were expressed in the initial Right Certificates issued hereunder.
11.11. Par Value Limitations. Before taking any action that
would cause an adjustment reducing the Purchase Price below one one-thousandth
of the then par value, if any, of the Preferred Shares or other shares of
capital stock issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in
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order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares or other such shares at such adjusted Purchase
Price.
11.12. Deferred Issuance. In any case in which this Section 11
shall require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right exercised after
such record date of that number of Preferred Shares and shares of other capital
stock or securities of the Company, if any, issuable upon such exercise over and
above the Preferred Shares and shares of other capital stock or other
securities, assets or cash of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED,
HOWEVER, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
11.13. Reduction in Purchase Price. Anything in this Section
11 to the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it in its sole discretion
shall determine to be advisable in order that any consolidation or subdivision
of the Preferred Shares, issuance wholly for cash of any of the Preferred Shares
at less than the current market price, issuance wholly for cash of Preferred
Shares or securities which by their terms are convertible into or exchangeable
for Preferred Shares, dividends on Preferred Shares payable in Preferred Shares
or issuance of rights, options or warrants referred to herein above in this
Section 11, hereafter made by the Company to holders of its Preferred Shares
shall not be taxable to such stockholders.
11.14. Company Not to Diminish Benefits of Rights. The Company
covenants and agrees that after the earlier of the Shares Acquisition Date or
Distribution Date it will not, except as permitted by Section 23, Section 26 or
Section 27, take (or permit any Subsidiary to take) any action if at the time
such action is taken it is reasonably foreseeable that such action will
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights.
11.15. Adjustment of Rights Associated with Common Shares.
Notwithstanding anything contained in this Agreement to the contrary, in the
event that the Company shall at any time after the date hereof and prior to the
Distribution Date (i) declare or pay any dividend on the outstanding Common
Shares payable in Common Shares, (ii) effect a subdivision or consolidation of
the outstanding Common Shares (by reclassification or otherwise than by the
payment of dividends payable in Common Shares), or (iii) combine the outstanding
Common Shares into a greater or lesser number of Common Shares, then in any such
case, the number of Rights associated with each Common Share then outstanding,
or issued or delivered thereafter but prior to the Distribution Date or in
accordance with Section 22 shall be proportionately adjusted so that the number
of Rights thereafter associated with each Common Share following any such event
shall equal the result obtained by multiplying the number of Rights associated
with each Common Share immediately prior to such event by a fraction, the
numerator of which shall be the total number of Common Shares outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of Common Shares outstanding immediately
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<PAGE> 22
following the occurrence of such event. The adjustments provided for in this
Section 11.15 shall be made successively whenever such a dividend is declared or
paid or such a subdivision, combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Sections 11 or 13, the
Company shall (a) promptly prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) promptly
file with the Rights Agent and with each transfer agent for the Common Shares or
the Preferred Shares a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained and shall not be deemed to have knowledge of
any such adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power.
13.1. Certain Transactions. In the event that, from and after
the first occurrence of a Trigger Event, directly or indirectly, (A) the Company
shall consolidate with, or merge with and into, any other Person and the Company
shall not be the continuing or surviving corporation, (B) any Person shall
consolidate with the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of the Company or any other
Person or cash or any other property, or (C) the Company shall sell, exchange,
mortgage or otherwise transfer (or one or more of its Subsidiaries shall sell,
exchange, mortgage or otherwise transfer), in one or more transactions, assets
or earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company or one or more wholly-owned Subsidiaries of the Company
in one or more transactions each of which complies with Section 11.14), then,
and in each such case, proper provision shall be made so that (i) each holder of
a Right (other than Rights which have become void pursuant to Section 11.1.2)
shall thereafter have the right to receive, upon the exercise thereof at a price
per Right equal to the then current Purchase Price multiplied by the number of
one one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Trigger Event (as subsequently
adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12), in
accordance with the terms of this Agreement and in lieu of Preferred Shares or
Common Shares, such number of validly authorized and issued, fully paid,
non-assessable and freely tradable Common Shares of the Principal Party (as such
term is hereinafter defined) not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall be equal to the result obtained
by (x) multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right was exercisable
immediately prior to the first occurrence of a Trigger Event (as subsequently
adjusted pursuant to Sections 11.1.1, 11.2, 11.3, 11.8, 11.9 and 11.12) and (y)
dividing that product by 50% of the then current per share market price of the
Common Shares of such Principal Party (determined pursuant to Section 11.4) on
the date of consummation of such consolidation, merger, sale or transfer;
PROVIDED, that the price per Right
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so payable and the number of Common Shares of such Principal Party so receivable
upon exercise of a Right shall thereafter be subject to further adjustment as
appropriate in accordance with Section 11.6 to reflect any events covered
thereby occurring in respect of the Common Shares of such Principal Party after
the occurrence of such consolidation, merger, sale or transfer; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party; and (iv) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its Common Shares in accordance with Section 9) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to its Common Shares thereafter deliverable upon the exercise of
the Rights; PROVIDED that, upon the subsequent occurrence of any consolidation,
merger, sale or transfer of assets or other extraordinary transaction in respect
of such Principal Party, each holder of a Right shall thereupon be entitled to
receive, upon exercise of a Right and payment of the Purchase Price as provided
in this Section 13.1, such cash, shares, rights, warrants and other property
which such holder would have been entitled to receive had such holder, at the
time of such transaction, owned the Common Shares of the Principal Party
receivable upon the exercise of a Right pursuant to this Section 13.1, and such
Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property. The Company shall not consummate
any such consolidation, merger, sale or transfer unless prior thereto the
Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement confirming that the requirements of this Section
13.1 and Section 13.2 shall promptly be performed in accordance with their terms
and that such consolidation, merger, sale or transfer of assets shall not result
in a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to this Section 13.1 and Section
13.2 and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party, at its own expense, shall
(1) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its best
efforts to cause such registration statement to become effective as soon as
practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date and
similarly comply with applicable state securities laws;
(2) use its best efforts, if the Common Shares of the
Principal Party shall be listed or admitted to trading on the New York Stock
Exchange or on another national securities exchange, to list or admit to trading
(or continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Shares of the Principal Party shall not be listed or
admitted to trading on the New York Stock Exchange or a national securities
exchange, to cause the Rights
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and the securities receivable upon exercise of the Rights to be authorized for
quotation on Nasdaq or on such other system then in use;
(3) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(4) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Shares of the Principal Party subject
to purchase upon exercise of outstanding Rights.
In case the Principal Party has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, Common Shares
or common stock equivalents of such Principal Party at less than the then
current market price per share thereof (determined pursuant to Section 11.4) or
securities exercisable for, or convertible into, Common Shares or common stock
equivalents of such Principal Party at less than such then current market price
(other than to holders of Rights pursuant to this Section 13), or (ii) providing
for any special payment, taxes or similar provision in connection with the
issuance of the Common Shares of such Principal Party pursuant to the provision
of Section 13, then, in such event, the Company hereby agrees with each holder
of Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
The Company covenants and agrees that it shall not, at any
time after the Trigger Event, enter into any transaction of the type described
in clauses (A) through (C) of this Section 13.1 if (i) at the time of or
immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (ii)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer or other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13.2 shall have received a distribution of Rights previously owned by such
Person or any of its Affiliates or Associates or (iii) the form or nature of
organization of the Principal Party would preclude or limit the exercisability
of the Rights. The provisions of this Section 13 shall similarly apply to
successive transactions of the type described in clauses (A) through (C) of this
Section 13.1.
13.2. Principal Party. "Principal Party" shall mean:
(i) in the case of any transaction described in (A)
or (B) of the first sentence of Section 13.1: (i) the Person that is the issuer
of the securities into which the Common
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Shares are converted in such merger or consolidation, or, if there is more than
one such issuer, the issuer the Common Shares of which have the greatest
aggregate market value of shares outstanding, or (ii) if no securities are so
issued, (x) the Person that is the other party to the merger, if such Person
survives said merger, or, if there is more than one such Person, the Person the
Common Shares of which have the greatest aggregate market value of shares
outstanding or (y) if the Person that is the other party to the merger does not
survive the merger, the Person that does survive the merger (including the
Company if it survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (C)
of the first sentence in Section 13.1, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons is the
issuer of Common Shares having the greatest aggregate market value of shares
outstanding; PROVIDED, HOWEVER, that in any such case described in the foregoing
clause (A) or (B) of this Section 13.2, if the Common Shares of such Person are
not at such time or have not been continuously over the preceding 12-month
period registered under Section 12 of the Exchange Act, then (1) if such Person
is a direct or indirect Subsidiary of another Person the Common Shares of which
are and have been so registered, the term "Principal Party" shall refer to such
other Person, or (2) if such Person is a Subsidiary, directly or indirectly, of
more than one Person, the Common Shares of all of which are and have been so
registered, the term "Principal Party" shall refer to whichever of such Persons
is the issuer of Common Shares having the greatest aggregate market value of
shares outstanding, or (3) if such Person is owned, directly or indirectly, by a
joint venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2) above
shall apply to each of the owners having an interest in the venture as if the
Person owned by the joint venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case shall bear the obligations
set forth in this Section 13 in the same ratio as its interest in such Person
bears to the total of such interests.
13.3. Approved Acquisitions. Notwithstanding anything
contained herein to the contrary, in the event of any merger or other
acquisition transaction involving the Company pursuant to a merger or other
acquisition agreement between the Company and any Person (or one or more of such
Person's Affiliates or Associates) which agreement has been approved by the
Board of Directors of the Company prior to any Person becoming an Acquiring
Person, this Agreement and the rights of holders of Rights hereunder shall be
terminated in accordance with Section 7.1.
Section 14. Fractional Rights and Fractional Shares.
14.1. Cash in Lieu of Fractional Rights. The Company shall not
be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights (except prior to the Distribution Date in
accordance with Section 11.15). In lieu of such fractional Rights, there shall
be paid to the registered holders of the Right Certificates with regard
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<PAGE> 26
to which such fractional Rights would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole Right. For the
purposes of this Section 14.1, the current market value of a whole Right shall
be the closing price of the Rights for the Trading Day immediately prior to the
date on which such fractional Rights would have been otherwise issuable. The
closing price for any day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the current market
value of the Rights on such date shall be the fair value of the Rights as
determined in good faith by the Board of Directors of the Company, or, if at the
time of such determination there is an Acquiring Person, by a majority of the
Continuing Directors then in office, or if there are no Continuing Directors, by
a nationally recognized investment banking firm selected by the Board of
Directors of the Company, which shall have the duty to make such determination
in a reasonable and objective manner, which determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes.
14.2. Cash in Lieu of Fractional Preferred Shares. The Company
shall not be required to issue fractions of Preferred Shares (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share) upon exercise or exchange of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share). Interests in
fractions of Preferred Shares in integral multiples of one one-thousandth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; PROVIDED, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-thousandth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised or exchanged as herein provided an amount in
cash equal to the same fraction of the current per share market price of one
Preferred Share (as determined in accordance with Section 14.1) for the Trading
Day immediately prior to the date of such exercise or exchange.
14.3. Cash in Lieu of Fractional Common Shares. The Company
shall not be required to issue fractions of Common Shares or to distribute
certificates which evidence fractional Common Shares upon the exercise or
exchange of Rights. In lieu of such fractional
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Common Shares, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would otherwise
be issuable an amount in cash equal to the same fraction of the current market
value of a whole Common Share (as determined in accordance with Section 14.1)
for the Trading Day immediately prior to the date of such exercise or exchange.
14.4. Waiver of Right to Receive Fractional Rights or Shares.
The holder of a Right by the acceptance of the Rights expressly waives his right
to receive any fractional Rights or any fractional shares upon exercise or
exchange of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect
of this Agreement, except the rights of action given to the Rights Agent under
Section 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce this Agreement, and may institute and maintain any suit, action
or proceeding against the Company to enforce this Agreement, or otherwise
enforce or act in respect of his right to exercise the Rights evidenced by such
Right Certificate in the manner provided in such Right Certificate and in this
Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations of
any Person (including, without limitation, the Company) subject to this
Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right by accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will
be transferable only in connection with the transfer of the Common
Shares;
(b) as of and after the Distribution Date, the Right
Certificates are transferable only on the registry books of the Rights
Agent if surrendered at the office of the Rights Agent designated for
such purpose, duly endorsed or accompanied by a proper instrument of
transfer with all required certifications completed; and
(c) the Company and the Rights Agent may deem and
treat the Person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Shares certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the associated Common Shares certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
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Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 24), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder in accordance with a fee schedule to be mutually agreed upon and, from
time to time, on demand of the Rights Agent, its reasonable expenses and counsel
fees and other disbursements incurred in the administration and execution of
this Agreement and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to hold it harmless
against, any loss, liability, or expense, incurred without negligence, bad faith
or willful misconduct on the part of the Rights Agent, for anything done or
omitted by the Rights Agent in connection with the acceptance and administration
of this Agreement, including the costs and expenses of defending against any
claim of liability arising therefrom, directly or indirectly.
The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or the Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, instruction, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any corporation or limited liability company into which the Rights
Agent or any successor Rights Agent may be merged or with which it may be
consolidated, or any corporation or limited liability company resulting from any
merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any corporation or limited liability company succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, PROVIDED that such corporation or limited
liability company would be eligible for appointment as a successor Rights Agent
under the provisions of Section 21. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent
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may countersign such Right Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Right Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
20.1. Legal Counsel. The Rights Agent may consult with legal
counsel selected by it (who may be legal counsel for the Company), and the
opinion of such counsel shall be full and complete authorization and protection
to the Rights Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
20.2. Certificates as to Facts or Matters. Whenever in the
performance of its duties under this Agreement the Rights Agent shall deem it
necessary or desirable that any fact or matter be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board of Directors, the Chief Executive Officer,
the President, the Chief Financial Officer, any Vice President, the Treasurer,
the Secretary or any Assistant Treasurer or Assistant Secretary of the Company
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
20.3. Standard of Care. The Rights Agent shall be liable
hereunder only for its own negligence, bad faith or willful misconduct.
20.4. Reliance on Agreement and Right Certificates. The Rights
Agent shall not be liable for or by reason of any of the statements of fact or
recitals contained in this Agreement or in the Right Certificates (except as to
its countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the Company
only.
20.5. No Responsibility as to Certain Matters. The Rights
Agent shall not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof (except the due execution hereof
by the Rights Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it be responsible
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<PAGE> 30
for any breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for any
change in the exercisability of the Rights (including the Rights becoming void
pursuant to Section 11.1.2) or any adjustment required under the provisions of
Sections 3, 11, 13, 23 or 27 or responsible for the manner, method or amount of
any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice of any such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares or other securities to be issued pursuant to this Agreement or
any Right Certificate or as to whether any Preferred Shares will, when so
issued, be validly authorized and issued, fully paid and nonassessable.
20.6. Further Assurance by Company. The Company agrees that it
will perform, execute, acknowledge and deliver or cause to be performed,
executed, acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of this
Agreement.
20.7. Authorized Company Officers. The Rights Agent is hereby
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from any one of the Chairman of the Board of Directors,
the Chief Executive Officer, the President, the Chief Financial Officer, any
Vice President, the Treasurer, the Secretary or any Assistant Treasurer or
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties under this Agreement, and it shall
not be liable for any action taken or suffered to be taken by it in good faith
in accordance with instructions of any such officer or for any delay in acting
while waiting for these instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights Agent,
set forth in writing any action proposed to be taken or omitted by the Rights
Agent with respect to its duties or obligations under this Agreement and the
date on and/or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable to the Company for any action
taken by, or omission of, the Rights Agent in accordance with a proposal
included in any such application on or after the date specified therein (which
date shall not be less than three business days after the date any such officer
actually receives such application, unless any such officer shall have consented
in writing to an earlier date) unless, prior to taking of any such action (or
the effective date in the case of omission), the Rights Agent shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
20.8. Freedom to Trade in Company Securities. The Rights Agent
and any stockholder, director, officer or employee of the Rights Agent may buy,
sell or deal in any of the Rights or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other capacity
for the Company or for any other legal entity.
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20.9. Reliance on Attorneys and Agents. The Rights Agent may
execute and exercise any of the rights or powers hereby vested in it or perform
any duty hereunder either itself or by or through its attorneys or agents, and
the Rights Agent shall not be answerable or accountable for any act, omission,
default, neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, omission, default, neglect or
misconduct, PROVIDED that reasonable care was exercised in the selection and
continued employment thereof.
20.10. Incomplete Certificate. If, with respect to any Rights
Certificate surrendered to the Rights Agent for exercise or transfer, the
certificate contained in the form of assignment or the form of election to
purchase set forth on the reverse thereof, as the case may be, has not been
completed to certify the holder is not an Acquiring Person (or an Affiliate or
Associate thereof), the Rights Agent shall not take any further action with
respect to such requested exercise or transfer without first consulting with the
Company.
20.11. Rights Holders List. At any time and from time to time
after the Distribution Date, upon the request of the Company, the Rights Agent
shall promptly deliver to the Company a list, as of the most recent practicable
date (or as of such earlier date as may be specified by the Company), of the
holders of record of Rights.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company and to
each transfer agent of the Common Shares and/or Preferred Shares, as applicable,
by registered or certified mail. Following the Distribution Date, the Company
shall promptly notify the holders of the Right Certificates by first-class mail
of any such resignation. The Company may remove the Rights Agent or any
successor Rights Agent upon thirty (30) days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Shares and/or Preferred Shares, as applicable, by registered
or certified mail, and to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the resigning, removed, or incapacitated Rights Agent shall
remit to the Company, or to any successor Rights Agent designated by the
Company, all books, records, funds, certificates or other documents or
instruments of any kind then in its possession which were acquired by such
resigning, removed or incapacitated Rights Agent in connection with its services
as Rights Agent hereunder, and shall thereafter be discharged from all duties
and obligations hereunder. Following notice of such removal, resignation or
incapacity, the Company shall appoint a successor to such Rights Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or of the State of New York or the
State of California (or any other state of the United States so long as such
corporation is authorized to do business as a banking institution
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in the State of New York or California) in good standing, having an office in
the State of New York or the State of California, which is authorized under such
laws to exercise stock transfer or corporate trust powers and is subject to
supervision or examination by Federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $10 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares and/or Preferred Shares, as applicable, and, following the
Distribution Date, mail a notice thereof in writing to the registered holders of
the Right Certificates. Failure to give any notice provided for in this Section
21, however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of Common Shares following the
Distribution Date and prior to the Expiration Date, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement, granted or awarded as of the
Distribution Date, or upon exercise, conversion or exchange of securities
hereinafter issued by the Company, and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; PROVIDED, HOWEVER, that (i) no such Right Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Right Certificate
would be issued, (ii) no such Right Certificate shall be issued if, and to the
extent that, appropriate adjustment shall otherwise have been made in lieu of
the issuance thereof and (iii) at the time of a determination by the Board of
Directors to cause the Company to issue a Right Certificate under clause (b)
above, there must be Continuing Directors then in office and any such
determination shall require the approval of at least a majority of such
Continuing Directors.
Section 23. Redemption.
Section 23.1. Right to Redeem. The Board of Directors of the
Company may, at its option, at any time prior to a Trigger Event, redeem all but
not less than all of the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock split, stock dividend,
recapitalization or similar transaction occurring after the date hereof
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(such redemption price being hereinafter referred to as the "Redemption Price"),
and the Company may, at its option, pay the Redemption Price in Common Shares
(based on the "current per share market price," determined pursuant to Section
11.4, of the Common Shares at the time of redemption), cash or any other form of
consideration deemed appropriate by the Board of Directors. The redemption of
the Rights by the Board of Directors may be made effective at such time, on such
basis and subject to such conditions as the Board of Directors in its sole
discretion may establish.
Section 23.2. Redemption Procedures. Immediately upon the
action of the Board of Directors of the Company ordering the redemption of the
Rights (or at such later time as the Board of Directors may establish for the
effectiveness of such redemption), and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price for
each Right so held. The Company shall promptly give public notice of such
redemption; PROVIDED, HOWEVER, that the failure to give, or any defect in, any
such notice shall not affect the validity of such redemption. The Company shall
promptly give, or cause the Rights Agent to give, notice of such redemption to
the holders of the then outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for value any Rights at
any time in any manner other than that specifically set forth in this Section 23
or in Section 27, and other than in connection with the purchase, acquisition or
redemption of Common Shares prior to the Distribution Date.
Section 24. Notice of Certain Events. In case the Company
shall propose at any time after the earlier of the Shares Acquisition Date and
the Distribution Date (a) to pay any dividend payable in stock of any class to
the holders of Preferred Shares or to make any other distribution to the holders
of Preferred Shares (other than a regular periodic cash dividend at a rate not
in excess of 125% of the rate of the last regular periodic cash dividend
theretofore paid or, in case regular periodic cash dividends have not
theretofore been paid, at a rate not in excess of 50% of the average net income
per share of the Company for the four quarters ended immediately prior to the
payment of such dividends, or a stock dividend on, or a subdivision, combination
or reclassification of the Common Shares), or (b) to offer to the holders of
Preferred Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, or (c) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), or (d) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person (other than pursuant to
a merger or other acquisition agreement of the type described in Section
1.3(ii)(A)(z)), or (e) to effect the liquidation, dissolution or winding up of
the Company, or (f) to declare or pay any dividend on the Common Shares payable
in Common Shares or to effect a subdivision, combination or
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consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to the Rights Agent and to each holder of a Right Certificate, in
accordance with Section 25, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the Preferred Shares
and/or Common Shares, if any such date is to be fixed, and such notice shall be
so given in the case of any action covered by clause (a) or (b) above at least
ten (10) days prior to the record date for determining holders of the Preferred
Shares for purposes of such action, and in the case of any such other action, at
least ten (10) days prior to the date of the taking of such proposed action or
the date of participation therein by the holders of the Preferred Shares and/or
Common Shares, whichever shall be the earlier.
In case any event set forth in Section 11.1.2 or Section 13
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to the Rights Agent and to each holder of a Right
Certificate, in accordance with Section 25, a notice of the occurrence of such
event, which notice shall describe the event and the consequences of the event
to holders of Rights under Section 11.1.2 and Section 13, and (ii) all
references in this Section 24 to Preferred Shares shall be deemed thereafter to
refer to Common Shares and/or, if appropriate, other securities.
Notwithstanding anything in this Agreement to the contrary,
prior to the Distribution Date a filing by the Company with the Securities and
Exchange Commission shall constitute sufficient notice to the holders of
securities of the Company, including the Rights, for purposes of this Agreement
and no other notice need be given.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Leap Wireless International, Inc.
-----------------------
San Diego, California 92121
Attention: Secretary
Subject to the provisions of Section 21 and Section 24, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
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Harris Trust Company of California
-------------------
Attention: Shareholder Services Division
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate (or, prior to
the Distribution Date, to the holder of any certificate representing Common
Shares) shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as shown on the
registry books of the Company.
Section 26. Supplements and Amendments. For so long as the
Rights are then redeemable, the Company may in its sole and absolute discretion,
and the Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement in any respect without the approval of any holders
of Rights or Common Shares. From and after the time that the Rights are no
longer redeemable, the Company may, and the Rights Agent shall, if the Company
so directs, from time to time supplement or amend this Agreement without the
approval of any holders of Rights (i) to cure any ambiguity or to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (ii) to shorten or lengthen any time period
hereunder (which shortening or lengthening, after the time a Person becomes an
Acquiring Person, shall be effective only if there are Continuing Directors and
shall require the approval of at least a majority of such Continuing Directors)
or (iii) to make any other changes or provisions in regard to matters or
questions arising hereunder which the Company may deem necessary or desirable,
including but not limited to extending the Final Expiration Date; PROVIDED,
HOWEVER, that no such supplement or amendment shall adversely affect the
interests of the holders of Rights as such (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person), and no such supplement or
amendment may cause the Rights again to become redeemable or cause this
Agreement again to become amendable other than in accordance with this sentence;
PROVIDED FURTHER, that the right of the Board of Directors to extend the
Distribution Date shall not require any amendment or supplement hereunder. Upon
the delivery of a certificate from an appropriate officer of the Company which
states that the proposed supplement or amendment is in compliance with the terms
of this Section 26, the Rights Agent shall execute such supplement or amendment.
Without limiting the foregoing, at any time prior to such time as any Person
becomes an Acquiring Person, the Company and the Rights Agent may amend this
Agreement to lower the thresholds set forth in Sections 1.1 and 3.1 to not less
than the greater of (i) any percentage greater than the largest percentage of
the outstanding Common Shares then known by the Company to be beneficially owned
by any Person (other than an Exempt Person) and (ii) 10%. Notwithstanding
anything herein to the contrary, any supplement or amendment to this Agreement,
after the time that a Person becomes an Acquiring Person shall require the
affirmative vote of a majority of the Continuing Directors.
Section 27. Exchange.
27.1. Exchange of Common Shares for Rights. The Board of
Directors of the Company may, at its option, at any time after the occurrence of
a Trigger Event, exchange Common Shares for all or part of the then outstanding
and exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11.1.2) by exchanging
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<PAGE> 36
at an exchange ratio of that number of Common Shares having an aggregate value
equal to the Spread (with such value being based on the current per share market
price (as determined pursuant to Section 11.4) on the date of the occurrence of
a Trigger Event) per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
amount per Right being hereinafter referred to as the "Exchange Consideration").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Acquiring Person shall have become
the Beneficial Owner of 50% or more of the Common Shares then outstanding. From
and after the occurrence of an event specified in Section 13.1, any Rights that
theretofore have not been exchanged pursuant to this Section 27.1 shall
thereafter be exercisable only in accordance with Section 13 and may not be
exchanged pursuant to this Section 27.1. The exchange of the Rights by the Board
of Directors may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
27.2. Exchange Procedures. Immediately upon the action of the
Board of Directors of the Company ordering the exchange for any Rights pursuant
to Section 27.1 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive the Exchange Consideration. The
Company shall promptly give public notice of any such exchange; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange shall state the
method by which the exchange of the Common Shares for Rights will be effected
and, in the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the number
of Rights (other than the Rights that have become void pursuant to the
provisions of Section 11.1.2) held by each holder of Rights.
27.3. Insufficient Shares. The Company may at its option
substitute, and, in the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit an exchange of
Rights for Common Shares as contemplated in accordance with this Section 27, the
Company shall substitute to the extent of such insufficiency, for each Common
Share that would otherwise be issuable upon exchange of a Right, a number of
Preferred Shares or fraction thereof (or equivalent preferred stock, as such
term is defined in Section 11.2) such that the current per share market price
(determined pursuant to Section 11.4) of one Preferred Share (or equivalent
preferred share) multiplied by such number or fraction is equal to the current
per share market price of one Common Share (determined pursuant to Section 11.4)
as of the date of such exchange.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
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Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Determination and Actions by the Board of
Directors. The Board of Directors of the Company (in conjunction with the
Continuing Directors as specifically provided in this Agreement) or, where
applicable as specifically provided in this Agreement, the Continuing Directors
shall have the exclusive power and authority to administer this Agreement and to
exercise the rights and powers specifically granted to the Board of Directors of
the Company (in conjunction with the Continuing Directors, as applicable) or the
Continuing Directors or to the Company, or as may be necessary or advisable in
the administration of this Agreement, including, without limitation, the right
and power to (i) interpret the provisions of this Agreement and (ii) make all
determinations deemed necessary or advisable for the administration of this
Agreement (including, without limitation, a determination to redeem or not
redeem the Rights or amend this Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) that are done or made by the Board
of Directors of the Company or the Continuing Directors, as applicable, in good
faith shall (x) be final, conclusive and binding on the Company, the Rights
Agent, the holders of the Rights, as such, and all other parties, and (y) not
subject the Board of Directors or the Continuing Directors, as applicable, to
any liability to the holders of the Rights.
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Heading. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
LEAP WIRELESS INTERNATIONAL, INC.
By ___________________________________
Name:
Title:
HARRIS TRUST COMPANY OF CALIFORNIA
By ___________________________________
Name:
Title:
37
<PAGE> 39
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
LEAP WIRELESS INTERNATIONAL, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-----------------------------
Leap Wireless International, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held on August ___,
1998.
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation of this Corporation, the Board of Directors hereby creates a
series of Preferred Stock, par value $.0001 per share (the "Preferred Stock"),
of the Corporation and hereby states the designation and number of shares, and
fixes the relative rights, powers and preferences, and qualifications,
limitations and restrictions thereof as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be 75,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; PROVIDED, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any class or series of stock of this Corporation ranking
prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred
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Stock, in preference to the holders of Common Stock, par value $.0001
per share (the "Common Stock"), of the Corporation, and of any other
stock ranking junior to the Series A Preferred Stock, shall be entitled
to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in
cash on the first day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $10.00 or (b) subject to the provision for
adjustment hereinafter set forth, 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision, combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under clause (b) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this
Section 2 immediately after it declares a dividend or distribution on
the Common Stock (other than a dividend payable in shares of Common
Stock); provided that, in the event no dividend or distribution shall
have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $10.00 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly
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Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more than
60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any
similar stock, or by law, the holders of shares of Series A Preferred
Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
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(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (both as to dividends and
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation, dissolution or winding up of the Corporation, voluntary or
otherwise no distribution shall be made (1) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received an amount per share
(the "Series A
A-4
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Liquidation Preference") equal to $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other classes and
series of stock of the Corporation, if any, that rank on a parity with
the Series A Preferred Stock in respect thereof, then the assets
available for such distribution shall be distributed ratably to the
holders of the Series A Preferred Stock and the holders of such parity
shares in proportion to their respective liquidation preferences.
(C) Neither the merger or consolidation of the Corporation
into or with another corporation nor the merger or consolidation of any
other corporation into or with the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 6.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth
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in the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable by the Company.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up, junior to all series of any other class
of the Corporation's Preferred Stock, except to the extent that any such other
series specifically provides that it shall rank on a parity with or junior to
the Series A Preferred Stock.
Section 10. Amendment. At any time any shares of Series A
Preferred Stock are outstanding, the Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
separately as a single class.
Section 11. Fractional Shares. Series A Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
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IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chairman of the Board this ___ day
of August, 1998.
------------------------------
Harvey P. White
Chairman of the Board
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EXHIBIT B
[Form of Right Certificate]
Certificate No. R- _______ Rights
NOT EXERCISABLE AFTER AUGUST ___, 2008 OR EARLIER IF NOTICE OF
REDEMPTION OR EXCHANGE IS GIVEN OR IF THE COMPANY IS MERGED OR ACQUIRED
PURSUANT TO AN AGREEMENT OF THE TYPE DESCRIBED IN SECTION 1.3(ii)(A)(z)
OF THE AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER
RIGHT, AND TO EXCHANGE ON THE TERMS SET FORTH IN THE AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION 11.1.2 OF THE AGREEMENT),
RIGHTS BENEFICIALLY OWNED BY OR TRANSFERRED TO AN ACQUIRING PERSON (AS
DEFINED IN THE AGREEMENT), OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
Right Certificate
LEAP WIRELESS INTERNATIONAL, INC.
This certifies that , or registered assigns, is the registered
owner of the number of Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of August ___, 1998, as the same may be amended from time to
time (the "Agreement"), between Leap Wireless International, Inc., a Delaware
corporation (the "Company"), and Harris Trust Company of California, a
_____________ corporation, as Rights Agent (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date and prior to 5:00 P.M.
(California time) on August ___, 2008, at the offices of the Rights Agent, or
its successors as Rights Agent, designated for such purpose, one one-thousandth
of a fully paid, nonassessable share of Series A Junior Participating Preferred
Stock, par value $.0001 per share (the "Preferred Shares") of the Company, at a
purchase price of $______ per one one-thousandth of a Preferred Share, subject
to adjustment (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase and certification duly
executed. The number of Rights evidenced by this Right Certificate (and the
number of one one-thousandths of a Preferred Share which may be purchased upon
exercise thereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of August, ___, 1998 based on the Preferred
Shares as constituted at such date. Capitalized terms used in this Right
Certificate without definition shall have the meanings ascribed to them in the
Agreement. As provided in the Agreement, the Purchase Price and the number of
Preferred Shares which may be purchased upon the exercise of the Rights
evidenced by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference
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<PAGE> 47
and made a part hereof and to which Agreement reference is hereby made for a
full description of the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the holders of the
Right Certificates. Copies of the Agreement are on file at the principal offices
of the Company and the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the offices of the Rights Agent designated for
such purpose, may be exchanged for another Right Certificate or Right
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a Preferred Share as
the Rights evidenced by the Right Certificate or Right Certificates surrendered
shall have entitled such holder to purchase. If this Right Certificate shall be
exercised in part, the holder shall be entitled to receive upon surrender hereof
another Right Certificate or Right Certificates for the number of whole Rights
not exercised.
Subject to the provisions of the Agreement, the Board of
Directors may, at its option, (i) redeem the Rights evidenced by this Right
Certificate at a redemption price of $.01 per Right or (ii) exchange Common
Shares for the Rights evidenced by this Certificate, in whole or in part.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions of
Preferred Shares which are integral multiples of one one-thousandth of a
Preferred Share, which may, at the election of the Company, be evidenced by
depository receipts), but in lieu thereof a cash payment will be made, as
provided in the Agreement.
No holder of this Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise hereof, nor shall anything contained in the
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised as provided in the Agreement.
If any term, provision, covenant or restriction of the
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of the Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
This Right Certificate shall not be valid or binding for any
purpose until it shall have been countersigned by the Rights Agent.
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WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _______________.
Attest: LEAP WIRELESS INTERNATIONAL, INC.
By ______________________ By _________________________________
Title: Title:
Countersigned:
HARRIS TRUST COMPANY OF CALIFORNIA, as Rights Agent
By_____________________________
Authorized Signature
B-3
<PAGE> 49
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED______________________________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address
of transferee)
Rights evidenced by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint__________
Attorney, to transfer the within Right Certificate on the books of the
within-named Company, with full power of substitution.
Dated:___________
________________________________
Signature
Signature Guaranteed:
______________________________
Signatures must be guaranteed by an "eligible guarantor
institution" as defined in Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended.
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<PAGE> 50
_______________________________________________________________________________
The undersigned hereby certifies that:
(1) the Rights evidenced by this Right Certificate are not
beneficially owned by and are not being assigned to an Acquiring Person or an
Affiliate or an Associate thereof; and
(2) after due inquiry and to the best knowledge of the
undersigned, the undersigned did not acquire the Rights evidenced by this Right
Certificate from any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.
Dated:_______________
___________________________
Signature
B-5
<PAGE> 51
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To: LEAP WIRELESS INTERNATIONAL, INC.
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Right Certificate to purchase the
Preferred Shares issuable upon the exercise of such Rights (or such other
securities or property of the Company or of any other Person which may be
issuable upon the exercise of the Rights) and requests that certificates for
such shares be issued in the name of:
_____________________________________________________________
(Please print name and address)
_____________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_____________________________________________________________
(Please print name and address)
_____________________________________________________________
Dated: __________________
______________________
Signature
Signature Guaranteed:
_______________________
Signatures must be guaranteed by an "eligible guarantor
institution" as defined in Rule 17Ad-15 promulgated under the Securities
Exchange Act of 1934, as amended.
B-6
<PAGE> 52
The undersigned hereby certifies that:
(1) the Rights evidenced by this Right Certificate are not
beneficially owned by and are not being assigned to an Acquiring Person or an
Affiliate or an Associate thereof; and
(2) after due inquiry and to the best knowledge of the
undersigned, the undersigned did not acquire the Rights evidenced by this Right
Certificate from any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.
Dated:_______________
__________________________
Signature
________________________________________________________________________________
NOTICE
The signature in the foregoing Form of Assignment and Form of
Election to Purchase must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the certification set forth above in the Form of
Assignment or Form of Election to Purchase is not completed, the Company will
deem the beneficial owner of the Rights evidenced by this Right Certificate to
be an Acquiring Person or an Affiliate or Associate hereof and such Assignment
or Election to Purchase will not be honored.
B-7
<PAGE> 53
EXHIBIT C
As described in the Rights Agreement, Rights which are
held by or have been held an Acquiring Person or Associates
or Affiliates thereof (as defined in the Agreement) and certain
transferees thereof shall become null and void and no longer be transferable.
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On August ___, 1998 the Board of Directors of Leap Wireless
International, Inc. (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each share of common stock, $.0001 par value (the
"Common Shares"), of the Company outstanding at the close of business on August
___, 1998 (the "Record Date"). As long as the Rights are attached to the Common
Shares, the Company will issue one Right (subject to adjustment) with each new
Common Share so that all such shares will have attached Rights. When
exercisable, each Right will entitle the registered holder to purchase from the
Company one one-thousandth of a share of Series A Junior Participating Preferred
Stock (the "Preferred Shares") at a price of $_____ per one one-thousandth of a
Preferred Share, subject to adjustment (the "Purchase Price"). The description
and terms of the Rights are set forth in a Rights Agreement, dated as of August
___, 1998, as the same may be amended from time to time (the "Agreement"),
between the Company and Harris Trust Company of California, as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) ten (10) days following a
public announcement that a person or group of affiliated or associated persons
(other than an Existing Holder (as defined below), unless and until such time as
the Existing Holder becomes the beneficial owner of one or more additional
Common Shares) has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the Common Shares (an "Acquiring Person") or (ii)
ten (10) business days (or such later date as may be determined by action of the
Board of Directors prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) following the commencement or announcement
of an intention to make a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or group of [15]% or
more of the Common Shares (the earlier of (i) and (ii) being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Share certificates outstanding as of the Record Date, by such Common
Share certificate together with a copy of this Summary of Rights. "Existing
Holder" means QUALCOMM Incorporated, together with all of its Affiliates and
Associates (but excluding individual officers, directors and employees of
QUALCOMM Incorporated), and, for purposes of the Rights Agreement, (x) prior to
the consummation of the proposed "spin-off" distribution of Common Shares to the
common stockholders of QUALCOMM Incorporated (the "Spin-Off"), QUALCOMM
Incorporated may acquire one or more additional Common Shares without becoming
an Acquiring Person thereunder, and (y) from and after the consummation of the
Spin-Off, QUALCOMM Incorporated may become the Beneficial Owner of up to
5,500,000 Common Shares (subject to adjustment), provided such beneficial
ownership of Common Shares is acquired solely upon the issuance by the Company
to QUALCOMM Incorporated of that certain Warrant to purchase 5,500,000 Common
Shares (subject to
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<PAGE> 54
adjustment) concurrently with the consummation of the Spin-Off or upon the
exercise of such Warrant in accordance with its terms, without becoming an
Acquiring Person under the Rights Agreement.
The Agreement provides that until the Distribution Date (or
earlier redemption exchange, termination, or expiration of the Rights), the
Rights will be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), new
Common Share certificates issued after the close of business on the Record Date
upon transfer or new issuance of the Common Shares will contain a notation
incorporating the Agreement by reference. Until the Distribution Date (or
earlier redemption, exchange, termination or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares, with or without
such notation or a copy of this Summary of Rights, will also constitute the
transfer of the Rights associated with the Common Shares represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.
The Rights are not exercisable until the Distribution Date.
The Rights will expire on August ___, 2008, subject to the Company's right to
extend such date (the "Final Expiration Date"), unless earlier redeemed or
exchanged by the Company or terminated.
Each Preferred Share purchasable upon exercise of the Rights
will be entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $10.00 per share but will be entitled to an aggregate
dividend of 1,000 times the dividend, if any, declared per Common Share. In the
event of liquidation, dissolution or winding up of the Company, the holders of
the Preferred Shares will be entitled to a minimum preferential liquidation
payment of $1,000 per share (plus any accrued but unpaid dividends) but will be
entitled to an aggregate payment of 1,000 times the payment made per Common
Share. Each Preferred Share will have 1,000 votes and will vote together with
the Common Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 1,000 times the amount received per Common Share. Preferred
Shares will not be redeemable. These rights are protected by customary
antidilution provisions. Because of the nature of the Preferred Share's
dividend, liquidation and voting rights, the value of one one-thousandth of a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares or
convertible securities at less than the current market price of the Preferred
Shares or (iii) upon the distribution to holders of the Preferred Shares of
evidences of indebtedness, cash, securities or assets (excluding regular
periodic cash dividends at a rate not in excess of 125% of the rate of the last
regular periodic cash
C-2
<PAGE> 55
dividend theretofore paid or, in case regular periodic cash dividends have not
theretofore been paid, at a rate not in excess of 50% of the average net income
per share of the Company for the four quarters ended immediately prior to the
payment of such dividend, or dividends payable in Preferred Shares (which
dividends will be subject to the adjustment described in clause (i) above)) or
of subscription rights or warrants (other than those referred to above).
In the event that a Person becomes an Acquiring Person or if
the Company were the surviving corporation in a merger with an Acquiring Person
or any affiliate or associate of an Acquiring Person and the Common Shares were
not changed or exchanged, each holder of a Right, other than Rights that are or
were acquired or beneficially owned by the Acquiring Person (which Rights will
thereafter be void), will thereafter have the right to receive upon exercise
that number of Common Shares having a market value of two times the then current
Purchase Price of the Right. In the event that, after a person has become an
Acquiring Person, the Company were acquired in a merger or other business
combination transaction or more than 50% of its assets or earning power were
sold, proper provision shall be made so that each holder of a Right shall
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the then current Purchase Price of the Right.
At any time after a Person becomes an Acquiring Person and
prior to the earlier of one of the events described in the last sentence of the
previous paragraph or the acquisition by such Acquiring Person of 50% or more of
the outstanding Common Shares, the Board of Directors may cause the Company to
exchange the Rights (other than Rights owned by an Acquiring Person which will
have become void), in whole or in part, for Common Shares at an exchange rate
equal to that number of Common Shares having an aggregate value equal to the
difference between the value of the Common Shares issuable upon exercise of a
Right and the Purchase Price therefor (with such values being based on the
current per share market price, as determined under the Agreement) per Right
(subject to adjustment).
No adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price. No fractional Preferred Shares or Common Shares will be issued (other
than fractions of Preferred Shares which are integral multiples of one
one-thousandth of a Preferred Share, which may, at the election of the Company,
be evidenced by depository receipts), and in lieu thereof, a payment in cash
will be made based on the market price of the Preferred Shares or Common Shares
on the last trading date prior to the date of exercise.
The Rights may be redeemed in whole, but not in part, at a
price of $.01 per Right (the "Redemption Price") by the Board of Directors at
any time prior to the time that an Acquiring Person has become such. The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
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<PAGE> 56
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company beyond those as an existing
stockholder, including, without limitation, the right to vote or to receive
dividends.
Any of the provisions of the Agreement may be amended by the
Board of Directors of the Company for so long as the Rights are then redeemable,
and after the Rights are no longer redeemable, the Company may amend or
supplement the Agreement in any manner that does not adversely affect the
interests of the holders of the Rights.
A copy of the Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to the Company's Registration Statement on
Form 10. A copy of the Agreement is available free of charge from the Company.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Agreement, which is incorporated
herein by reference.
C-4
<PAGE> 1
EXHIBIT 10.1
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
CREDIT AGREEMENT
BY AND AMONG
LEAP WIRELESS INTERNATIONAL, INC.,
AS BORROWER,
QUALCOMM INCORPORATED
AND THE OTHER LENDERS NAMED HEREIN
AND
ABN AMRO BANK N.V.,
AS ADMINISTRATIVE AGENT
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SECTION 1. DEFINITIONS............................................................................................1
1.1 Defined Terms...................................................................................1
1.2 Other Interpretive Provisions..................................................................16
SECTION 2. LOAN FACILITIES.......................................................................................17
2.1 Investment Capital Loan Commitments............................................................17
2.2 Working Capital Loan Commitments...............................................................17
2.3 Permitted Uses of Loan Proceeds................................................................18
2.4 Types of Loans.................................................................................18
2.5 Notice and Manner of Making Loans..............................................................18
2.6 Conversion and Continuation Elections..........................................................20
2.7 Scheduled Payment of Principal of the Loans....................................................21
2.8 Interest Rates; Payment of Interest; Commitment Fee; Calculation of Interest and Fees..........21
(a) Base Rate Loans.......................................................................21
(b) Eurodollar Loans......................................................................21
(c) Commitment Fee........................................................................22
(d) Calculation of Interest and Fees......................................................22
2.9 Payment Procedures.............................................................................22
(a) Payment on Business Days..............................................................22
(b) Place of Payment......................................................................22
(c) Distribution of Payments to Lenders by Administrative Agent...........................23
(d) Default Interest......................................................................23
(e) Application of Payments...............................................................23
(f) Designation of Payment................................................................23
(g) Administrative Agent's Right to Assume Payments Will Be Made By Borrower..............23
2.10 Prepayments of the Loans; Certain Required Payments; Aggregate Commitment Reduction............23
(a) Voluntary Prepayments; Commitment Reductions..........................................23
(b) Mandatory Prepayments; Aggregate Commitment Reduction.................................24
(i) Investment Capital Loans.....................................................24
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(ii) Working Capital Loans........................................................24
(c) Investment Capital Loans in Excess of Aggregate Investment Capital Loan
Commitment; Working Capital Loans in Excess of Aggregate Working Capital Loan
Commitment............................................................................25
(d) Breakage Charge.......................................................................25
(e) Application of Prepayments............................................................25
2.11 Survivability..................................................................................25
2.12 Promissory Notes...............................................................................25
(a) Investment Capital Notes..............................................................25
(b) The Working Capital Notes.............................................................26
2.13 Net Payments...................................................................................26
2.14 Changed Circumstances; Taxes...................................................................27
2.15 Capital Requirements...........................................................................31
2.16 Substitution of Lenders........................................................................32
2.17 Conversion to High Yield Structure.............................................................32
SECTION 3. CONDITIONS OF LENDING.................................................................................33
3.1 Conditions Precedent to Initial Loans..........................................................33
(a) Notes.................................................................................33
(b) Security Agreement....................................................................33
(c) Financing Statements..................................................................33
(d) Collateral Control Agreements.........................................................33
(e) Securities Pledge Agreement...........................................................33
(f) Opinions of Counsel...................................................................33
(g) No Default; Representations and Warranties............................................33
(h) Officer's Certificate.................................................................33
(i) Corporate Proceedings.................................................................34
(j) Consummation of Distribution and Other Transactions...................................34
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(k) Adverse Change........................................................................34
(l) Consents, Approvals...................................................................34
(m) Organizational Documentation; Etc.....................................................34
(n) Litigation............................................................................34
(o) Board Resolutions.....................................................................35
(p) Incumbency Certificates...............................................................35
(q) Evidence of Insurance.................................................................35
(r) No Violation..........................................................................35
(s) Fee Letter............................................................................35
(t) Administrative Agent's Fee Letter.....................................................35
(u) Business Plan.........................................................................35
(v) Additional Matters, Documents or Information..........................................35
3.2 Conditions Precedent to All Loans..............................................................36
SECTION 4. REPRESENTATIONS AND WARRANTIES........................................................................36
4.1 Representations and Warranties of Borrower.....................................................36
(a) Corporate Organization; Structure.....................................................36
(b) Corporate Power; Authorization; Conflicts.............................................37
(c) Approvals.............................................................................37
(d) Enforceability........................................................................37
(e) Financial Statements/Projections......................................................37
(f) Litigation............................................................................37
(g) Use of Proceeds.......................................................................37
(h) Compliance With Laws, Other Agreements................................................38
(i) Event of Default......................................................................38
(j) Collateral Documents..................................................................38
(k) No Subordination......................................................................38
(l) Subsidiaries..........................................................................38
(m) Taxes.................................................................................38
(n) Ownership and Liens...................................................................39
(o) Indebtedness..........................................................................39
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(p) Accuracy of Information Furnished; Complete Disclosure................................39
(q) No Default............................................................................39
(r) No Burdensome Restrictions............................................................39
(s) ERISA Compliance......................................................................39
(t) Other Regulatory Compliance...........................................................40
(u) Environmental Condition...............................................................40
SECTION 5 COVENANTS OF BORROWER..............................................................................41
5.1 Affirmative Covenants..........................................................................41
(a) Compliance With Laws, Other Agreements................................................41
(b) Reporting Requirements................................................................41
(c) Insurance.............................................................................43
(d) Taxes and Other Indebtedness..........................................................43
(e) Maintenance of Existence; Conduct of Business.........................................43
(f) Financial Records, Inspection.........................................................44
(g) Use of Proceeds.......................................................................44
(h) Consents, Approvals...................................................................44
(i) Environmental Condition...............................................................44
(j) Renegotiation of Financial Covenants..................................................44
(k) Further Assurances....................................................................44
5.2 Negative Covenants.............................................................................45
(a) Encumbrances, Liens, Etc..............................................................45
(b) Indebtedness..........................................................................45
(c) Consolidation/Merger/Change of Control................................................45
(d) Disposition of Assets.................................................................45
(e) Investments...........................................................................46
(f) Capital Expenditures..................................................................46
(g) Limitation on Prepayments.............................................................46
(h) Transactions With Affiliates..........................................................46
(i) Dividends; Distributions..............................................................46
(j) Change in Lines of Business...........................................................46
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(k) Modification of the Specified Agreements..............................................47
(l) ERISA Compliance......................................................................47
(m) Other Compliance......................................................................47
5.3 Financial Covenants............................................................................47
SECTION 6. EVENTS OF DEFAULT.....................................................................................47
6.1 Events of Default..............................................................................47
6.2 Remedies.......................................................................................49
6.3 Unmatured Events of Default....................................................................49
6.4 Payment of Subordinated Indebtedness...........................................................50
SECTION 7. ADMINISTRATIVE AGENT..................................................................................50
7.1 Appointment of ABN AMRO Bank N.V. as Administrative Agent......................................50
7.2 Delegation of Duties by Administrative Agent...................................................50
7.3 Liability of Administrative Agent..............................................................50
7.4 Reliance by Administrative Agent...............................................................51
7.5 Notice of Default..............................................................................51
7.6 Non-Reliance by Lenders........................................................................52
7.7 Indemnification................................................................................52
7.8 Successor Administrative Agent.................................................................53
7.9 Matters Regarding the Collateral...............................................................53
SECTION 8. MISCELLANEOUS.........................................................................................54
8.1 Amendments.....................................................................................54
8.2 Notices, Etc...................................................................................56
8.3 No Waiver; Remedies............................................................................58
8.4 Costs, Expenses and Taxes......................................................................58
8.5 Right of Set-Off...............................................................................58
8.6 Binding Effect; Assignments; Governing Law.....................................................59
8.7 Collateral.....................................................................................59
8.8 Nature of Lenders' Obligations.................................................................59
8.9 Non-liability of Lenders.......................................................................59
8.10 Jurisdiction, Venue, Service of Process; Arbitration...........................................60
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(a) Jurisdiction, Venue.................................. 60
(b) Service of Process................................... 60
(c) Waiver of Jury Trial................................. 60
8.11 Conflict in Credit Documents.................................. 60
8.12 Maximum Rate.................................................. 60
8.13 Broker........................................................ 60
8.14 Indemnification............................................... 60
8.15 Headings...................................................... 61
8.16 Counterparts.................................................. 61
8.17 Survival...................................................... 61
8.18 Effectiveness................................................. 61
8.19 Confidentiality............................................... 61
8.20 Conflict in Credit Documents.................................. 62
8.21 Entire Agreement.............................................. 62
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vi.
<PAGE> 8
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is entered into as of August
[___], 1998, by and between LEAP WIRELESS INTERNATIONAL, INC., a Delaware
corporation ("Borrower"), QUALCOMM INCORPORATED, a Delaware corporation
("QUALCOMM"), as a Lender and such other Persons as shall from time to time
become Lenders hereunder (collectively, with QUALCOMM, "Lenders"), and ABN AMRO
BANK N.V., as Administrative Agent.
RECITALS
A. QUALCOMM plans to distribute to its stockholders all of the
outstanding shares of common stock of Borrower and to transfer certain of
QUALCOMM's joint venture and equity interests in various terrestrial-based
wireless telecommunications operating companies to Borrower, all as more fully
described in the Information Statement (defined below).
B. In order to help finance its ongoing operations after the completion
of the above-described distribution and transfer, Borrower desires to obtain
from Lenders certain credit facilities in the aggregate principal amount of up
to $265,000,000.
C. Lenders have agreed to make such credit available to Borrower, but
only for the purposes, upon the terms, subject to the conditions, and in
reliance on the representations and warranties set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, and intending to be legally bound, Borrower,
Lenders and Administrative Agent agree as follows:
SECTION 1. DEFINITIONS.
1.1 DEFINED TERMS. As used in this Agreement, the following terms have
the respective meanings set forth below or set forth in the provision referenced
following such term:
"Administrative Agent" means ABN AMRO Bank N.V. solely when
acting in its capacity as Administrative Agent under any of the Credit Documents
and any successor Administrative Agent.
"Administrative Agent's Fee Letter" means the side letter, by
and among Borrower and Administrative Agent, relating to fees payable from time
to time from Borrower to Administrative Agent in consideration for the services
to be performed by Administrative Agent pursuant to the Credit Documents.
"Administrative Agent's Payment Office" means the address for
payments set forth on the signature page hereto in relation to the
Administrative Agent or such other address as Administrative Agent may from time
to time specify in accordance with SECTION 8.2.
1.
<PAGE> 9
"Affected Loan" has the meaning set forth in SECTION 2.14(a).
"Affiliate" means, with respect to any Person, each other
Person which, directly or indirectly, controls, is controlled by or is under
common control with such Person (excluding any trustee under, or any committee
with responsibility for administering, any pension plan or employee benefit
plan); provided, however, that for purposes of this Agreement, neither QUALCOMM
nor Borrower shall be deemed to be Affiliates of the other. Except as described
in the foregoing proviso, a Person shall be deemed to be "controlled by" another
Person if such other Person possesses, directly or indirectly, power (i) to vote
fifteen percent (15.0%) or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors, managing general
partners or managing members or (ii) to direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
"Aggregate Commitment" means, at any time, an amount equal to
the Aggregate Working Capital Loan Commitment plus the Aggregate Investment
Capital Loan Commitment.
"Aggregate Investment Capital Loan Commitment" means an amount
equal to $229,800,000.
"Aggregate Working Capital Loan Commitment" means an amount
equal to $35,200,000.
"Agreement" means this Credit Agreement, as the same may from
time to time be amended, modified, supplemented or restated as hereinafter
provided.
"Applicable Margin" means, with respect to Base Rate Loans,
4.25%, and, with respect to Eurodollar Loans, 5.25%.
"Asset Sale" means the sale, transfer, lease or other
disposition to any Person other than Borrower or any of its wholly-owned
Subsidiaries of (i) any assets or rights of Borrower, (ii) the stock or assets
of any of the Portfolio Investments to the extent the Net Proceeds of such
disposition may be legally distributed or paid as a dividend to Borrower without
violation of laws or agreements respecting the same and are identified on
SCHEDULE 2.3 to the Disclosure Letter as subject to mandatory prepayment under
Section 2.10(b) or (iii) the sale of any other Pledged Securities; provided,
however, that prior to the third anniversary of the date hereof an Asset Sale
shall not include any of the foregoing items (i), (ii) or (iii) where (A) the
Net Proceeds of such sale, transfer, lease or other disposition have been
invested in Investment Grade Securities in which Administrative Agent has a
first priority, perfected security interest, (B) Requisite Lenders shall have
approved Borrower's proposed reinvestment of such Net Proceeds in "like kind"
assets and (C) such Net Proceeds are indeed invested as so proposed within one
hundred eighty (180) days after such sale, transfer, lease or other disposition;
provided, further, that after the third anniversary of the date hereof an Asset
Sale shall not include the sale, transfer, lease or other disposition of
inventory and equipment in the ordinary course of business where the Net
Proceeds of such sale, transfer, lease or other disposition are reinvested in
"like kind" assets used by Borrower or its Subsidiaries in the ordinary course
of business of Borrower and its Subsidiaries within one hundred eighty (180)
days after such sale, transfer, lease or other disposition.
2.
<PAGE> 10
"Base Rate" means the greater of (i) the rate of interest per
annum publicly announced by Administrative Agent at its headquarters from time
to time as its prime commercial lending rate for U.S. dollar loans, such rate to
be adjusted automatically (without notice) on the effective date of any change
in such publicly announced rate and (ii) the Federal Funds Effective Rate plus
one-half of one percent (0.50%) (rounded upwards, if necessary, to the next
one-eighth of one percent (1/8 of 1%).
"Base Rate Investment Capital Loan" means any Investment
Capital Loan bearing interest at the Base Rate.
"Base Rate Loan" means any Loan bearing interest at the Base
Rate.
"Borrower" has the meaning set forth in the Preamble hereto.
"Borrower Business" means certain of QUALCOMM's joint venture
and equity interests in terrestrial-based wireless telecommunications operating
companies, together with certain other assets and related liabilities, including
significant funding obligations, to be transferred from QUALCOMM to Borrower,
all as more fully described in the Separation and Distribution Agreement.
"Borrowing Request" has the meaning set forth in SECTION
2.5(a).
"Borrowing Request Review Period" has the meaning set forth in
SECTION 2.5(a).
"Business Day" means (i) with respect to a Base Rate Loan, any
day other than a Saturday, Sunday, or other day on which commercial banks in San
Diego, California or New York, New York are authorized or required to close
under the laws of the State of California, the laws of the State of New York or
the laws of the United States of America and (ii) with respect to a Eurodollar
Loan, each of the requirements of the foregoing clause (i) of this definition
and also a day on which dealings in Dollars or Dollar deposits are carried on in
the London interbank market.
"Business Plan" means that certain business plan of Borrower
dated as of [____________], which has been approved by Requisite Lenders, as the
same may from time to time be revised, amended, updated or otherwise modified
with the approval of Requisite Lenders.
"Capital Expenditures" means, with respect to any Person for
any period, expenditures that are capitalized in accordance with GAAP and, for
purposes of this definition, expenditures made during such period for equipment
and services financed under sale/leaseback arrangements or under an operating
lease.
"Capital Lease" means a lease that has been or should be
capitalized on the books of the subject lessee in accordance with GAAP.
"Change of Control" means a transaction or series of
transactions whereby (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
3.
<PAGE> 11
Exchange Act of 1934), directly or indirectly, of Voting Stock of Borrower (or
other securities convertible into such Voting Stock) representing 20% or more of
the combined voting power of all Voting Stock of 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 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 Borrower; or (iii) any
Person or two or more Persons acting in concert shall have acquired by 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 Borrower. Notwithstanding the foregoing, any such transaction or series of
transactions involving QUALCOMM or any of its Affiliates shall not constitute a
Change of Control.
"Closing" means such time as when each and every condition set
forth in SECTION 3.1 has been satisfied or waived by each Lender.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended,
and the Treasury Regulations adopted thereunder.
"Collateral" means all Property and interest in Property, and
all proceeds thereof, now owned or hereafter acquired by Borrower in or upon
which a Lien now or hereafter exists in favor of Lenders or Administrative
Agent, whether under this Agreement or under any other document executed
Borrower and delivered to Administrative Agent or Lenders.
"Collateral Documents" means the Security Agreement, the
Securities Pledge Agreement, the Control Agreements and the Financing
Statements.
"Commitment Fee" means the fee described in SECTION 2.8(c).
"Commitment Fee Inception Date" means the later of the Closing
Date and the date an assignment under SECTION 8.6 shall occur whereby any Lender
other than QUALCOMM or its Subsidiaries shall have ten percent (10%) or more of
the Aggregate Commitments.
"Commitment Percentage" means, as to any Lender, with
reference to the Investment Capital Loans, its Investment Capital Loan
Commitment Percentage; and with reference to the Working Capital Loans, its
Working Capital Loan Commitment Percentage.
"Contingent Obligation" means as to any Person, any guaranty
of Indebtedness of any other Person, whether direct, indirect or contingent,
including any purchase or repurchase agreement or keep-well or other arrangement
of whatever nature having the effect of assuring, indemnifying or holding
harmless any Person against loss with respect to any Indebtedness of such other
Person; provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such contingent obligation is
4.
<PAGE> 12
made, or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by Borrower in good faith.
"Continuation Date" means any date on which Borrower elects or
is deemed to elect to continue a Eurodollar Loan into another Interest Period.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
Property is bound.
"Control Agreements" has the meaning set forth in SECTION
3.1(d).
"Conversion Date" means any date on which Borrower elects or
is deemed to elect to convert a Base Rate Loan to a Eurodollar Loan or a
Eurodollar Loan to a Base Rate Loan.
"Conversion To High Yield Structure" means the conversion
described in SECTION 2.16.
"Credit Documents" means this Agreement, the Notes, if any,
the Collateral Documents and any other agreements, certificates or instruments
that may hereafter be executed and delivered in favor of Administrative Agent or
one or more Lenders pursuant to this Agreement.
"Credit Party" means Borrower and each other party (other than
Administrative Agent and Lenders) to a Credit Document.
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Default Rate" means an interest rate per annum equal to the
rate otherwise then applicable to the Loans plus (i) three percent (3.00%) in
the case of any Event of Default due to the failure to pay any principal,
interest or other amounts when due (including any failure to make payment
required to be made upon the acceleration of any Loans), and (ii) two percent
(2.00%) in the case of any Event of Default other than those specified in the
immediately preceding clause (i) of this definition.
"Disclosure Letter" means the letter designated as such dated
[_____________] from Borrower to Administrative Agent.
"Disposition Value" means, at any time, with respect to
Property, the fair market value thereof, valued at the time of such disposition.
"Distribution" means the distribution to QUALCOMM's
stockholders of all of the outstanding shares of common stock of Borrower
contemplated to occur on or about September 24, 1998, as more fully described in
the Information Statement.
5.
<PAGE> 13
"Distribution Date" means the date on which the Distribution
occurs.
"Dollar," "Dollars" and "$" means dollars in lawful currency
of the United States of America.
"Equipment Agreement" means that certain Master Agreement
Regarding Equipment Procurement dated as of [___________], by and between
QUALCOMM and Borrower, including all schedules and exhibits thereto, as the same
may from time to time be amended, modified, supplemented or restated.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with Borrower within the meaning of Section
414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes
of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by Borrower or any ERISA Affiliate
from a Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (f) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the Company or
any ERISA Affiliate.
"Eurodollar Loan" means any Loan bearing interest at the
Eurodollar Rate.
"Eurodollar Rate" applicable to any Interest Period for any
Loan to be made, continued or converted, means the rate per annum (determined by
Administrative Agent and rounded upward, if necessary, to the next higher 1/16
of 1%) at which deposits in Dollars are offered to Administrative Agent by major
banks in the London interbank market at approximately 11:00 a.m. (London time)
two Business Days before the first day of such Interest Period with respect to
such Loan in an amount approximately equal to the aggregate principal amount of
the Loans subject to such Interest Period and for a period of time comparable to
such Interest Period. The determination of the Eurodollar Rate by Administrative
Agent shall be conclusive absent manifest error.
"Event of Default" means any of the events specified in
SECTION 6.1, provided that any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
6.
<PAGE> 14
"Facility Fee" means those certain fees payable pursuant to
the Fee Letter.
"Federal Funds Effective Rate" means, for any day, a
fluctuating interest rate per annum equal to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by Administrative Agent from three Federal funds brokers
of recognized standing selected by Administrative Agent.
"Fee Letter" means the side letter relating to the Facility
Fee dated as of the date hereof, between Borrower and QUALCOMM.
"Final Maturity Date" means, with respect to each of the
Investment Capital Loan Facility and the Working Capital Loan Facility, the date
which is the last Business Day in September, 2006.
"Financial Statements" means, with respect to any fiscal
quarter or full fiscal year of Borrower, consolidated and consolidating
statements of income and cash flows of Borrower and its Subsidiaries for such
fiscal quarter or full fiscal year of Borrower (and, if the end of such period
of Borrower is not also the end of Borrower's full fiscal year or first fiscal
quarter of its fiscal year, for the elapsed portion of such fiscal year of
Borrower), and consolidated and consolidating balance sheets of Borrower and its
Subsidiaries as of the end of such period of Borrower, setting forth in each
case in comparative form figures for the corresponding period in the preceding
fiscal year of Borrower (and, as applicable, the elapsed portion of the
preceding fiscal year of Borrower or, if such period is a full fiscal year,
corresponding figures from the preceding fiscal year), all prepared in
reasonable detail and in accordance with GAAP consistently applied and which
shall fairly present in all material respects the financial condition of
Borrower and its Subsidiaries.
"Financing Statements" means the UCC-1 financing statements
duly executed by Borrower, as debtor, in favor of Administrative Agent, for the
benefit of Lenders, as secured party, and caused to be filed prior to the
Closing Date in the jurisdictions required by Administrative Agent and Lenders.
"Fixed Rate Notes" has the meaning set forth in SECTION 2.16.
"Form W-8" has the meaning set forth in SECTION
2.14(c)(vii)(B)(1).
"Form 1001" has the meaning set forth in SECTION
2.14(c)(vii)(A)(1).
"Form 4224" has the meaning set forth in SECTION
2.14(c)(vii)(A)(1).
"Funding Date" means each date on or after the Closing Date on
which any of Lenders make a Loan hereunder.
7.
<PAGE> 15
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Indebtedness" means, as to any Person, (a) all indebtedness
of such Person for borrowed money (including, with respect to Borrower, the
Obligations), (b) all obligations under Capital Leases of such Person, (c) to
the extent of the outstanding Indebtedness thereunder, all obligations of such
Person that are evidenced by a promissory note or other instrument representing
an extension of credit to such Person, whether or not for borrowed money, (d)
all obligations of such Person for the deferred purchase price of Property or
services (other than trade or other accounts payable in the ordinary course of
business in accordance with customary industry terms), (e) all obligations of
such Person of the nature described in clauses (a), (b), (c) or (d), above, and
not otherwise included therein which are secured by a Lien on assets of such
Person, whether or not such Person has assumed such obligation or whether or not
such obligation is non-recourse to the credit of such Person, but only to the
extent of the fair market value of the assets so subject to such Lien, (f) all
obligations of such Person arising under acceptance facilities or under
facilities for the discount of accounts receivable of such Person, (g) all
issued and outstanding letters of credit, performance bonds and similar
instruments, (h) all obligations of such Person to a counterparty under any
interest rate protection agreement or other hedging arrangement, (i) any
security which, by its terms or the happening of any event (excluding a change
in control), matures or is mandatorily redeemable or is otherwise exchangeable
into debt at the option of the holder thereof, and (j) all Contingent
Obligations.
"Information Statement" means that Information Statement dated
June 30, 1998 and filed by Borrower on Form 10 with the Securities and Exchange
Commission, as amended.
"Interest Payment Date" means, with respect to any Eurodollar
Loan, the last day of each Interest Period applicable to such Loan and, with
respect to Base Rate Loans, the last Business Day of each calendar quarter and
each date on which a Base Rate Loan is converted into a Eurodollar Loan;
provided, however, that if any Interest Period for a Eurodollar Loan exceeds
three (3) months, interest shall also be paid on the date which falls three (3)
months after the beginning of such Interest Period.
"Interest Period" means, with respect to each Eurodollar Loan,
the period commencing on the date of the making or continuation of or conversion
to such Eurodollar Loan and ending one, three or six months thereafter, as
Borrower may elect in the applicable Borrowing Request or Notice of
Conversion/Continuation; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (c) below) that would otherwise end on a day that
is not a Business Day shall be extended to the next succeeding Business Day
unless, in the case of Eurodollar Loans, such Business Day falls in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day;
8.
<PAGE> 16
(b) any Interest Period applicable to a Eurodollar Loan 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, subject to clause (c) below, end on the last Business
Day of a calendar month;
(c) any Interest Period with respect to a Eurodollar Loan that
would otherwise end after the applicable Final Maturity Date shall end on such
Final Maturity Date;
(d) no Interest Period applicable to any Eurodollar Loan shall
include a principal repayment date for such Eurodollar Loan unless an aggregate
principal amount of Loans at least equal to the principal amount due on such
principal repayment date shall be Base Rate Loans or other Eurodollar Loans
having Interest Periods ending on or before such date;
(e) no Interest Period with respect to a Eurodollar Loan may
include September 30, 2001 unless such date is either the first or the last date
for such Interest Period; and
(f) notwithstanding clauses (c) and (d) above, no Interest
Period applicable to a Eurodollar Loan shall have a duration of less than one
month, and if any Interest Period applicable to such Eurodollar Loan would be
for a shorter period, such Interest Period shall not be available hereunder.
"Investment" means, as to any Person, any direct or indirect
ownership or purchase or other acquisition by such Person of any capital stock,
equity interest, obligations or other securities, or a beneficial interest in
any capital stock, equity interest, obligations (excluding trade payables to
such Person arising in the ordinary course) or other securities of any other
Person (including a Subsidiary), or all or substantially all assets used to
conduct a business or a line of business, or any direct or indirect loan,
advance or capital contribution by such Person to any other Person, or any joint
venture or other arrangement involving the sharing of profits or losses from
joint business activities, including all indebtedness and accounts receivable
from that other Person which are not current assets or did not arise from sales
to that other Person in the ordinary course of business.
"Investment Capital Lender" means any Lender having an
Investment Capital Loan Commitment.
"Investment Capital Loan" has the meaning set forth in SECTION
2.1.
"Investment Capital Loan Commitment" means, with respect to
each Lender, the amount set forth in SCHEDULE 1.1 as such Lender's "Investment
Capital Loan Commitment," as such amount may be amended from time to time.
"Investment Capital Loan Commitment Percentage" means, as to
any Lender, the percentage equivalent of such Lender's Investment Capital Loan
Commitment divided by the Aggregate Investment Capital Loan Commitment.
9.
<PAGE> 17
"Investment Capital Loan Commitment Period" means the period
from and including the Closing Date to but not including the Termination Date or
such earlier date on which the Aggregate Investment Capital Loan Commitment
shall terminate as provided herein.
"Investment Capital Loan Facility" means the investment
capital loan facility, in the amount of $229,800,000 described in SECTION 2 to
be provided by Investment Capital Lenders to Borrower according to each
Investment Capital Lender's Investment Capital Loan Commitment.
"Investment Capital Loan Percentage" means the percentage
equivalent of the then aggregate unpaid principal amount of all Investment
Capital Loans then outstanding divided by the then aggregate unpaid principal
amount of all Loans then outstanding, or if no Loans are then outstanding, the
percentage equivalent of the Aggregate Investment Capital Loan Commitment
divided by the Aggregate Commitment.
"Investment Capital Note" or "Investment Capital Notes" means
those promissory notes, if any, referred to in SECTION 2.12(a).
"Investment Grade Instruments" means: (a) direct obligations
of the government of the United States of America or any agency or
instrumentality thereof or obligations unconditionally guaranteed by the full
faith and credit of the government of the United States of America, (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 of America 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.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
10.
<PAGE> 18
"Laws" means, collectively, all international, foreign,
federal, state and local statutes, treaties, codes, ordinances, rules,
regulations and precedents of any court or other governmental agency.
"Lender" or "Lenders" has the meaning set forth in the
Preamble hereto.
"Lending Office" means, with respect to any Lender, the office
or offices of such Lender specified as its "Domestic Lending Office" under its
name on the applicable signature page hereto, or such other office or offices of
such Lender as it may from time to time notify Borrower and Administrative
Agent.
"Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority or other security agreement or
preferential agreement of any kind or nature whatsoever (including any
conditional sale or other title retention agreement, or any financing lease
having substantially the same economic effect as any of the foregoing).
"Loan" means an Investment Capital Loan or a Working Capital
Loan, and "Loans" means all of such loans, collectively.
"Material Adverse Effect" means a material adverse effect on
(i) the business, Properties, results of operations or financial condition or
prospects of Borrower and its Subsidiaries taken as a whole or (ii) the ability
of Borrower to discharge the Obligations in accordance with their terms.
"Maturity" means the earlier of (i) the Final Maturity Date
and (ii) the date on which (A) the Loans have been accelerated or (B) the Loans
have been prepaid in full and the Aggregate Commitment terminated pursuant to
this Agreement (including pursuant to a Conversion to High Yield Structure).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan," within the
meaning of Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"Net Proceeds" means, with respect to any Asset Sales or any
issuance, raising or receipt of new equity or Indebtedness for borrowed money,
the gross cash consideration received by such Person from such sale, net of
commissions, direct sales costs, normal closing adjustments, taxes attributable
to such sale and professional fees and expenses incurred directly in connection
therewith, to the extent the foregoing are actually paid (or will be paid,
provided that such amounts have been accrued in accordance with GAAP and will be
paid within one year of the date of the closing of such sale of assets or
issuance and sale of common stock or other equity of Borrower in connection with
such sale).
"Non-Bank Lender Tax Certificate" has the meaning set forth in
SECTION 2.14(c)(vii)(B)(1).
11.
<PAGE> 19
"Note" means an Investment Capital Note, if any, or a Working
Capital Note, if any, and "Notes" means all of such notes, collectively.
"Notice of Conversion/Continuation" means a notice given by
Borrower to Administrative Agent in accordance with SECTION 2.6(b),
substantially in the form of EXHIBIT C, with appropriate insertions.
"Obligations" means, collectively, all Indebtedness,
principal, interest, fees, expenses of Administrative Agent and Lenders
(including fees, costs or expenses (other than attorneys' fees and costs)
incurred in connection with the preparation, negotiation, administration and
enforcement of the Credit Documents; and Administrative Agent's and any Lender's
reasonable attorneys' fees and expenses incurred in amending, enforcing or
defending the Credit Documents, whether or not suit is brought) and other
amounts owed to Administrative Agent or any Lender by any Credit Party pursuant
to this Agreement, the Credit Documents or any other agreement, whether absolute
or contingent, due or to become due, now existing or hereafter arising,
including any interest that accrues after the commencement of an insolvency
proceeding (including any proceeding commenced by or against any Credit Party
under any provision of the United States Bankruptcy Code, as amended, or under
any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
any Credit Party's creditors, or proceedings seeking reorganization, arrangement
or other relief) and including any Indebtedness, liability or obligation owing
from any Credit Party to others that Administrative Agent or any Lender may have
obtained by assignment or otherwise.
"Operating Lease" means, as applied to any Person, any lease
(including leases which may be terminated by the lessee at any time) of any
Property which is not a Capital Lease other than any such lease under which that
Person is lessor.
"Other Taxes" has the meaning set forth in SECTION
2.14(c)(ii).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which Borrower sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or in
the case of a multiple employer plan (as described in Section 4064(a) of ERISA)
has made contributions at any time during the immediately preceding five (5)
plan years.
"Permitted Indebtedness" has the meaning set forth in SECTION
5.2(b).
"Permitted Liens" means: (i) Liens for taxes and assessments
or other governmental charges or levies not at the time delinquent or thereafter
payable without penalty; (ii) Liens of carriers, warehousemen, mechanics,
materialmen, landlords, suppliers and lessors incurred in the ordinary course of
business for sums that are not overdue or 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 Borrower) have been
established; (iii) Liens
12.
<PAGE> 20
created to secure the payment of the purchase price of assets or Indebtedness
incurred solely for the purpose of financing or refinancing such purchase price
of assets (including a purchase by conditional sales agreements and other title
retention agreements, but not including Liens securing Capital Leases) on which
the Lien is created, provided that the aggregate amount secured thereby does not
exceed the value of the assets purchased at any one time outstanding and any
such Lien attaches only to the asset or assets so purchased; (iv) Liens securing
appeal and surety bonds (to the extent such Indebtedness is otherwise not
prohibited hereby); (v) Liens securing statutory obligations and performance
obligations under bid bonds, contracts or leases; (vi) Liens on Investment Grade
Instruments to the extent required under the terms of Permitted Indebtedness as
reserves for the payment of principal and interest on such Permitted
Indebtedness; and (vii) other ordinary course Liens which do not materially
interfere with the operation of the business of Borrower, including easements.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, limited liability company, Governmental Authority or other entity of
whatever nature.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which Borrower sponsors or maintains or to which Borrower makes,
is making, or is obligated to make contributions and includes any Pension Plan.
"Pledged Securities" means the equity or debt securities of
the Portfolio Investments held by Borrower and its Subsidiaries as to which an
affirmative pledge is required as set forth in Schedule 2.3 to the Disclosure
Letter now or hereafter issued, and each other certificate or instrument
representing or evidencing Investments (other than Investment Grade Instruments)
owned directly by Borrower, all of which shall, pursuant to the Securities
Pledge Agreement, be delivered to Administrative Agent on behalf of Lenders as
collateral for the Obligations under this Agreement.
"Portfolio Investments" means any or all of the Persons listed
on SCHEDULE 2.3 to the Disclosure Letter.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed and whether tangible or intangible.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA other than any such event for which the 30-day notice
requirement under ERISA has been waived in regulations issued by the PBGC.
"Requirements of Law" means, as to any Person, the certificate
or articles of incorporation and bylaws or other organizational or governing
documents of such Person, and any Law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its Property or to
which or by which such Person or any of its Property is subject.
"Requisite Investment Capital Lenders" means, at any time,
Investment Capital Lenders then holding more than fifty-one percent (51%) of the
then aggregate unpaid principal amount of all Investment Capital Loans then
outstanding or, if no Investment Capital Loans are
13.
<PAGE> 21
then outstanding, Investment Capital Lenders then having more than fifty-one
percent (51%) of the Aggregate Investment Capital Loan Commitment.
"Requisite Lenders" means, at any time, Lenders then holding
more than fifty-one percent (51%) of the then aggregate unpaid principal amount
of all Loans then outstanding or, if no Loans are then outstanding, Lenders then
having more than fifty-one percent (51%) of the Aggregate Commitment.
"Requisite Working Capital Lenders" means, at any time,
Working Capital Lenders then holding more than fifty-one percent (51%) of the
then aggregate unpaid principal amount of all Working Capital Loans then
outstanding or, if no Working Capital Loans are then outstanding, Working
Capital Lenders then having more than fifty-one percent (51%) of the Aggregate
Working Capital Loan Commitment.
"Reserve Percentage" means the reserve percentage applicable
to an Interest Period (expressed as a decimal and rounded upwards, if necessary,
to the next higher 1/100 of 1%) in effect on the date the Eurodollar Rate for
such Interest Period is determined under regulations issued from time to time by
the Board of Governors of the Federal Reserve System for determining the maximum
reserve requirement (including any basic, supplemental, emergency or marginal
reserve requirement) with respect to "eurocurrency liabilities" (as defined
under such regulations) having a term comparable to such Interest Period.
"Responsible Officer" means any of the president, chief
financial officer or treasurer of Borrower.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.
"Securities Pledge Agreement" means the Securities Pledge
Agreement substantially in the form of EXHIBIT F, to be entered into by Borrower
as pledgor in favor of Administrative Agent, on behalf of Lenders, as pledgee,
which shall be acceptable to Administrative Agent and Lenders and adequate to
give to Administrative Agent, on behalf of Lenders, a first priority perfected
security interest in all of the Pledged Securities, including all schedules and
exhibits thereto, in each case as the same from time to time may be amended,
modified, supplemented or restated.
"Security Agreement" means each of the Security Agreement,
substantially in the form of EXHIBIT E, to be entered into by Borrower, as
grantor, and Administrative Agent, on behalf of Lenders, as secured party, and
any required consent agreements pertaining to the grant to Administrative Agent,
on behalf of Lenders, of any collateral, in each case satisfactory to
Administrative Agent and Lenders, including all schedules and exhibits thereto,
in each case as the same from time to time may be amended, modified,
supplemented or restated.
"Separation and Distribution Agreement" means that certain
Separation and Distribution Agreement, dated as of [_____________], by and
between QUALCOMM and Borrower, including all schedules and exhibits thereto, as
the same may from time to time be amended, modified, supplemented or restated.
14.
<PAGE> 22
"Specified Agreements" means the Separation and Distribution
Agreement, the Equipment Agreement and the Tax Agreement, each dated as of
[_____________], by and between QUALCOMM and Borrower, including all schedules
and exhibits thereto, as the same may from time to time be amended, modified,
supplemented or restated.
"Subordinated Indebtedness" means unsecured Indebtedness of
Borrower the payment of the principal of and interest on which and any other
obligations of Borrower in respect thereof is subordinated to the payment of the
principal of and interest (including post-petition interest) on the Loans and
all other obligations and liabilities of Borrower to Lenders and Administrative
Agent hereunder and having terms and conditions first approved in writing by
Requisite Lenders.
"Subsidiary" means, as to any Person, an entity of which a
majority of the shares of stock (or similar equity interests) having ordinary
voting power (other than stock having such power only by reason of the happening
of a contingency) are at the time owned or controlled, directly or indirectly,
through one or more intermediaries, or both, by such Person.
"Taxes" has the meaning set forth in SECTION 2.14(c)(i).
"Termination Date" means September 30, 2000.
"Total Capitalization" means, as of any date, determined for
Borrower on an unconsolidated basis, the sum of (a) Total Debt, (b) the amount
designated by QUALCOMM on the Closing Date as the value of QUALCOMM's
contribution of assets to Borrower in exchange for the issuance of Borrower's
equity securities, (c) the Net Proceeds received by Borrower from any subsequent
issuance of Borrower's equity securities and (d) gains (net of any losses) from
assets sales.
"Total Debt" means, as of any date, determined for Borrower on
an unconsolidated basis the sum (without duplication) of (a) all principal and
interest expense owing under this Agreement, (b) any obligation for borrowed
money, including Subordinated Indebtedness and indebtedness convertible into
equity securities, (c) any security issued by Borrower for cash consideration
which, by its terms or the happening of any event (excluding a change in
control), matures or is mandatorily redeemable or is otherwise exchangeable into
debt at the option of the holder thereof or is redeemable by the holder thereof,
but only to the extent of amounts which mature, are redeemable or are
exchangeable prior to two years after the Final Maturity Date, (d) any
obligation evidenced by a bond, indenture, note or other similar instrument, (e)
any obligation to pay the deferred purchase price of Property or services, (f)
any obligation to purchase securities or other Property, (g) any contractual
obligation, contingent or otherwise, including obligations to reimburse any
other Person in respect of amounts paid under a letter of credit or performance
or other bond issued by such other Person, (h) any obligation of others secured
by a Lien on any asset of Borrower or its Subsidiaries (provided, that such
there is no recourse to Borrower or such Subsidiary), but only to the extent of
the fair market value of the assets so subject to such Lien and (i) any
Indebtedness of others guaranteed by Borrower or its Subsidiaries.
15.
<PAGE> 23
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
"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.
"Working Capital Lender" means any Lender having a Working
Capital Loan Commitment.
"Working Capital Loan" has the meaning set forth in SECTION
2.2.
"Working Capital Loan Commitment" means, with respect to each
Lender, the amount, if any, set forth in SCHEDULE 1.1 as such Lender's "Working
Capital Loan Commitment," as such amount may be amended from time to time.
"Working Capital Loan Commitment Percentage" means, as to any
Lender, the percentage equivalent of such Lender's Working Capital Loan
Commitment, if any, divided by the Aggregate Working Capital Loan Commitment.
"Working Capital Loan Commitment Period" means the period from
and including the Closing Date to and including the Termination Date or such
earlier date on which the Aggregate Working Capital Loan Commitment shall
terminate as provided herein.
"Working Capital Loan Facility" means the $35,200,000 Working
Capital Loan facility described in SECTION 2 to be provided by Working Capital
Lenders to Borrower according to each Working Capital Lender's Working Capital
Loan Commitment.
"Working Capital Loan Percentage" means the percentage
equivalent of the then aggregate unpaid principal amount of all Working Capital
Loans then outstanding divided by the then aggregate unpaid principal amount of
all Loans then outstanding, or if no Loans are then outstanding, the percentage
equivalent of the Aggregate Working Capital Loan Commitment divided by the
Aggregate Commitment.
"Working Capital Note" or "Working Capital Notes" means those
promissory notes, if any, referred to in SECTION 2.12(b).
1.2 OTHER INTERPRETIVE PROVISIONS.
(a) All terms defined in this Agreement shall have their
defined meanings when used in the other Credit Documents and any certificate or
other document made or delivered pursuant hereto, unless the context clearly
indicates otherwise.
(b) As used in this Agreement, the other Credit Documents, and
any certificate or other document made or delivered pursuant hereto, accounting
terms not defined in SECTION 1.1, and accounting terms partly defined in
16.
<PAGE> 24
SECTION 1.1 to the extent not defined, shall have the respective meanings given
to them under GAAP. If any changes in GAAP from time to time hereafter ("GAAP
Changes") occasioned by the promulgation of rules, regulations, pronouncements
and opinions by or required by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions) result in a change in the method of calculation
of any of the financial covenants, standards or other terms or conditions found
in this Agreement, the parties hereto agree to enter into negotiations to amend
such provisions so as to reflect equitably such GAAP Changes with the desired
result that the criteria for evaluating the financial condition and performance
of Borrower shall be the same after such GAAP Changes as if such GAAP Changes
had not been made.
(c) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified. The term "including" is not limiting and means "including,
without limitation," and "including, but not limited to."
(d) Wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and the neuter.
SECTION 2. LOAN FACILITIES.
2.1 INVESTMENT CAPITAL LOAN COMMITMENTS. Upon the terms, subject to the
conditions and in reliance upon the representations and warranties of Borrower
set forth in this Agreement and in the other Credit Documents, each Investment
Capital Lender, severally agrees, in accordance with this SECTION 2, to make
loans to Borrower (an "Investment Capital Loan" and collectively, the
"Investment Capital Loans"), in such Lender's Investment Capital Loan Commitment
Percentage of such aggregate amounts from time to time, from the Closing Date to
and including the Termination Date, which amounts shall be borrowed and repaid
subject to the limitations set forth herein. Investment Capital Loans borrowed
and repaid during the Investment Capital Loan Commitment Period may not be
re-borrowed. At no time shall the aggregate amount of outstanding Investment
Capital Loans exceed the Aggregate Investment Capital Loan Commitment. Each
calculation of the amount of an outstanding Investment Capital Loan under this
Agreement shall be made by excluding any amount of capitalized interest added to
the Loans pursuant to SECTION 2.8.
2.2 WORKING CAPITAL LOAN COMMITMENTS. Upon the terms, subject to the
conditions and in reliance upon the representations and warranties of Borrower
set forth in this Agreement and in the other Credit Documents, each Working
Capital Lender severally agrees, in accordance with this SECTION 2, to make
Working Capital Loans to Borrower (a "Working Capital Loan and collectively, the
"Working Capital Loans"), in such Lender's Working Capital Loan Commitment
Percentage of each borrowing of Working Capital Loans from time to time during
the Working Capital Loan Commitment Period on a revolving basis in an aggregate
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principal amount outstanding not to exceed at any one time such Lender's Working
Capital Loan Commitment, as more fully set forth in this SECTION 2. At no time
shall the aggregate amount of outstanding Working Capital Loans (computed by
excluding any amount of capitalized interest added to the Loans pursuant to
SECTION 2.8) exceed the Aggregate Working Capital Loan Commitment. Each
calculation of the amount of an outstanding Working Capital Loan under this
Agreement shall be made by excluding any amount of capitalized interest added to
the Loans pursuant to SECTION 2.8.
2.3 PERMITTED USES OF LOAN PROCEEDS. Borrower shall (i) use the
Investment Capital Loan proceeds solely to make Portfolio Investments in
accordance with the Business Plan, and in the amounts not exceeding the amounts,
set forth on SCHEDULE 2.3 to the Disclosure Letter and (ii) use the Working
Capital Loan proceeds solely to meet the normal working capital and operating
expenses of Borrower and overhead in accordance with, and not exceeding amounts
budgeted in, the Business Plan, but excluding, among other things, strategic
capital investments in wireless operators and acquisitions of telecommunications
licenses.
2.4 TYPES OF LOANS. Each Investment Capital Loan or Working Capital
Loan shall, in accordance with the terms of this Agreement, be in the form of
either a Base Rate Loan or a Eurodollar Loan; provided, however, that,
notwithstanding anything to the contrary herein, each initial borrowing of
Investment Capital Loans or Working Capital Loans pursuant to SECTION 2.5 shall
be comprised solely of Base Rate Loans until the first day of the calendar month
next succeeding the effective date of such initial borrowing of such Loans. At
no time may Borrower maintain Eurodollar Loans in more than five (5) separate
Interest Periods.
2.5 NOTICE AND MANNER OF MAKING LOANS.
(a) BORROWING REQUESTS. Whenever Borrower desires to obtain a
borrowing of Investment Capital Loans or Working Capital Loans, as applicable,
(provided that Borrower may not request more than two borrowings of Working
Capital Loans during any calendar month) Borrower shall deliver by electronic
facsimile transmission: (A) to each of Administrative Agent and QUALCOMM,
written notice specifying (1) whether such borrowing is to be a borrowing of
Investment Capital Loans or Working Capital Loans, (2) the amount of such
borrowing of Loans and (3) the requested Funding Date for such borrowing of
Loans, which notice shall be in the form of EXHIBIT B (a "Borrowing Request");
and (B) to QUALCOMM, a complete and current copy of the most recent budget in
Borrower's Business Plan (unless previously provided) and all other correct and
complete supporting documentary information necessary to evidence compliance
with SECTION 2.3; provided, however, that such Borrowing Request, budget, and
supporting documentary information pertaining thereto shall be delivered to
Administrative Agent or QUALCOMM (as applicable) no later than five (5) Business
Days prior to the requested Funding Date for such borrowing. After the date on
which QUALCOMM receives each Borrowing Request and the accompanying budget and
other supporting documentary information, QUALCOMM shall have four (4) Business
Days (the "Borrowing Request Review Period") during which to examine such budget
and other supporting documentary information to confirm that the intended use of
the requested Loans is consistent with the permitted uses set forth in SECTION
2.3. QUALCOMM shall, by the end of business on the final Business Day of the
Borrowing Request Review Period, advise Administrative Agent in writing whether
the condition set forth in the preceding sentence has been satisfied and,
provided
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that such condition has been satisfied and the making of such borrowing of
Investment Capital Loans or Working Capital Loans, as applicable, would not
otherwise contravene this Agreement, such Loan shall be advanced to Borrower on
the requested Funding Date.
(b) DISBURSEMENT OF LOANS. Administrative Agent shall promptly
notify each Investment Capital Lender (in the case of borrowings of Investment
Capital Loans) or Working Capital Lender (in the case of borrowings of Working
Capital Loans), as applicable, as to the content of each such Borrowing Request
and whether or not QUALCOMM has advised Administrative Agent that the condition
set forth in the second sentence of SECTION 2.5(a) has been satisfied and that
the making of the borrowing of Investment Capital Loans or Working Capital
Loans, as applicable, would not otherwise contravene this Agreement. Provided
that QUALCOMM has advised Administrative Agent in writing that the conditions
set forth in the second sentence of SECTION 2.5(a) have been satisfied and that
the making of such Loans would not otherwise contravene this Agreement, and
provided, further, that Borrower shall have complied with SECTION 2.5(d), if
applicable, Investment Capital Lenders (in the case of a borrowing of Investment
Capital Loans) or Working Capital Lenders (in the case of a borrowing of Working
Capital Loans), as applicable, shall disburse to Administrative Agent's Payment
Office in immediately available funds by 12:00 noon New York time on the
requested funding date an amount equal to their respective Working Capital Loan
Commitment Percentages or Investment Capital Loan Commitment Percentages, as
applicable, multiplied by the amount of the borrowing of such Loans requested in
such Borrowing Request, and Administrative Agent shall promptly disburse the
aggregate of such amounts in immediately available funds to the deposit account
designated by written notice delivered from Borrower to Administrative Agent
from time to time in accordance with SECTION 8.2.
(c) ADMINISTRATIVE AGENT'S RIGHT TO ASSUME FUNDS AVAILABLE FOR
LOANS. Unless Administrative Agent shall have been notified by any Investment
Capital Lender (in the case of a borrowing of Investment Capital Loans) or any
Working Capital Lender (in the case of a borrowing of Working Capital Loans), as
applicable, no later than the Business Day prior to the respective Funding Date
for such borrowing of Loans that such Lender does not intend to make available
to Administrative Agent immediately available funds equal to such Lender's
Commitment Percentage of the total principal amount of such borrowing of such
Loans, Administrative Agent may (in its sole and absolute discretion) assume
that such Lender has advanced funds in the amount of such Lender's Commitment
Percentage of such borrowing of such Loans to Administrative Agent on the
applicable Funding Date and Administrative Agent may, in reliance upon such
assumption, make available to Borrower corresponding funds. Administrative Agent
agrees to give prompt notice to Borrower in the event it advances funds on
behalf of a Lender under this SECTION 2.5(c); provided that failure to give such
notice shall in no way limit, restrict or otherwise affect Borrower's
obligations or Administrative Agent's or any Lender's rights or remedies under
this Agreement and the other Credit Documents. If Administrative Agent has made
funds available to Borrower based on such assumption and such Loan is not in
fact made available to Administrative Agent by such Lender, Administrative Agent
shall be entitled to recover the corresponding amount of such Loan on demand
from such Lender. If such Lender does not promptly pay such corresponding amount
upon Administrative Agent's demand, Administrative Agent shall notify Borrower
and Borrower shall repay such Loan to Administrative Agent, together with
accrued interest thereon. Administrative Agent also shall be entitled to recover
from such Lender interest on such Loan in respect of each day from
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the date such Loan was made by Administrative Agent to Borrower to the date such
corresponding amount is recovered by Administrative Agent at the Federal Funds
Rate.
(d) BORROWINGS IN EXCESS OF $20,000,000 IN ANY 30 DAY PERIOD.
Notwithstanding anything in this Agreement to the contrary, Lenders shall have
no obligation to advance an Investment Capital Loan to Borrower if the aggregate
of all Investment Capital Loans made within the thirty (30) day period prior to
the making of such Investment Capital Loan together with all Investment Capital
Loans made concurrently therewith shall exceed $20,000,000 unless Administrative
Agent shall have received a Borrowing Request in respect of such Investment
Capital Loan at least thirty (30) days prior to the requested Funding Date set
forth in such Borrowing Request. In the event at any time prior to the
Commitment Fee Inception Date the funding requested in the Borrowing Request
shall not be made on the Funding Date specified therein for any reason other
than the failure of Administrative Agent or any Lender to make funding available
on the terms provided herein, then Borrower shall reimburse to each Lender it
costs and expenses incurred in making such funding available to Borrower, such
amount to be determined in the good faith judgment of each Lender and paid to
each Lender within five (5) Business Days of such Lender's notice to Borrower
requesting reimbursement of the same.
2.6 CONVERSION AND CONTINUATION ELECTIONS.
(a) Borrower may, upon irrevocable written notice to
Administrative Agent:
(i) elect to convert on any Business Day, Base Rate
Loans in an amount equal to $1,000,000 (or any integral multiple of $100,000 in
excess thereof) into Eurodollar Loans; or
(ii) elect to convert on any Interest Payment Date
any Eurodollar Loans maturing on such Interest Payment Date (or any part
thereof) into Base Rate Loans; or
(iii) elect to continue on any Interest Payment Date
any Eurodollar Loans maturing on such Interest Payment Date (or any part thereof
in an amount equal to $1,000,000 or any integral multiple of $100,000 in excess
thereof) as Eurodollar Loans;
provided, that if the aggregate amount of Eurodollar Investment Capital Loans or
Eurodollar Working Capital Loans shall have been reduced by payment, prepayment,
or conversion of any part thereof, to be less than $1,000,000, such Eurodollar
Loans shall automatically convert into Base Rate Loans, and on and after such
date the right of Borrower to continue such Loans as, and convert such Loans
into, Eurodollar Loans shall terminate.
(b) Borrower shall deliver a Notice of Conversion/Continuation
to Administrative Agent by facsimile to be received by Administrative Agent
prior to 1:00 p.m. New York time at least (i) prior to the Commitment Fee
Inception Date, 4 Business Days in advance of the Conversion Date or
Continuation Date, and on or after the Commitment Fee Inception Date, 3 Business
Days in advance of the Conversion Date or Continuation Date, if any Loans are to
be converted into or continued as Eurodollar Loans; and (ii) one Business Day in
advance of the Conversion Date or Continuation Date, if any Loans are to be
converted into Base Rate Loans; specifying: (A) the proposed Conversion Date or
Continuation Date; (B) the
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aggregate amount of Loans to be converted or continued; (C) whether the proposed
conversion, if any, is a conversion from Eurodollar Loans to Base Rate Loans or
from Base Rate Loans to Eurodollar Loans; and (D) the duration of the requested
Interest Period (subject to the provisions of the definition of "Interest
Period").
(c) If, prior to the Commitment Fee Inception Date,
Administrative Agent does not receive a duly completed Notice of
Conversion/Continuation within the time limits specified in SECTION 2.6(b),
Borrower shall be deemed to have elected to convert or continue such Loans in
whole into or as Eurodollar Loans with an Interest Period of three months on the
last day of the then current Interest Period with respect thereto. If, on or
after the Commitment Fee Inception Date, Administrative Agent does not receive a
duly completed Notice of Conversion/Continuation within the time limits
specified in SECTION 2.6(b), Borrower shall be deemed to have elected to convert
or continue such Loans in whole into or as Base Rate Loans on the last day of
the then current Interest Period with respect thereto. Notwithstanding anything
to the contrary herein, any and all Eurodollar Loans shall be converted in whole
into Base Rate Loans on the last day of the then existing Interest Period with
respect thereto if Administrative Agent shall have received notice from Borrower
or a Lender that an Event of Default exists.
(d) Notwithstanding the foregoing, Borrower may not select an
Interest Period that would end, but for the provisions of the definition of
Interest Period, after the applicable Final Maturity Date.
2.7 SCHEDULED PAYMENT OF PRINCIPAL OF THE LOANS. The aggregate
principal amount of the outstanding Investment Capital Loans and the Working
Capital Loans, together with accrued and unpaid interest thereon and other
amounts owing to Administrative Agent, Investment Capital Lenders and Working
Capital Lenders in accordance with this Agreement, shall be due and payable in
full at Maturity.
2.8 INTEREST RATES; PAYMENT OF INTEREST; COMMITMENT FEE; CALCULATION OF
INTEREST AND FEES.
(a) BASE RATE LOANS. Each Base Rate Loan shall bear interest
on the outstanding principal amount thereof at a rate per annum equal to the
Base Rate plus the Applicable Margin, which rate shall change as of the Business
Day next succeeding any change in the Base Rate. Unless Borrower shall have paid
such interest to Administrative Agent for the account of Lenders on or prior to
the Interest Payment Date, such interest shall automatically, without any action
or notice, on each Interest Payment Date occurring during the period from the
Closing Date through and including the earlier of (i) the Interest Payment Date
which ends on the calendar quarter ending on September 30, 2001 and (ii)
Maturity, be added to the outstanding principal amount of the Investment Capital
Loans (in the case of interest accrued in respect of the Investment Capital
Loans) or the Working Capital Loans (in the case of interest accrued in respect
of the Working Capital Loans), as applicable, as a new Base Rate Loan.
Thereafter, such interest shall be payable on each Interest Payment Date and at
Maturity.
(b) EURODOLLAR LOANS. Each Eurodollar Loan shall bear interest
on the outstanding principal amount thereof, for each Interest Period applicable
thereto, at a rate per annum equal to the Eurodollar Rate plus the Applicable
Margin. Unless Borrower shall have
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paid such interest to Administrative Agent for the account of Lenders on or
prior to the Interest Payment Date, such interest shall automatically, without
any action or notice, on each Interest Payment Date occurring during the period
from the Closing Date through and including the earlier of (i) the Interest
Payment Date which ends on the calendar quarter ending on September 30, 2001 and
(ii) Maturity, be added to the outstanding principal amount of the Investment
Capital Loans (in the case of interest accrued in respect of the Investment
Capital Loans) or the Working Capital Loans (in the case of interest accrued in
respect of the Working Capital Loans), as applicable, as a new Base Rate Loan.
Thereafter, such interest shall be payable for such Interest Period on each
Interest Payment Date and at Maturity.
(c) COMMITMENT FEE. Commencing on the Commitment Fee Inception
Date, Borrower shall from time to time pay to Administrative Agent, (i) for the
ratable benefit of Investment Capital Lenders, a commitment fee equal to
one-half of one percent (0.50%) per annum on the average daily amount of the
unutilized portion of the Aggregate Investment Capital Loan Commitment during
each calendar quarter or portion thereof and (ii) for the ratable benefit of
Working Capital Lenders, a commitment fee equal to one-half of one percent
(0.50%) per annum on the average daily amount of the unutilized portion of the
Aggregate Working Capital Loan Commitment during each calendar quarter or
portion thereof. Commitment fees shall be payable on the last Business Day in
each calendar quarter.
(d) CALCULATION OF INTEREST AND FEES. Interest on the Loans
and the Commitment Fee shall be computed on the basis of a 360-day year for all
Eurodollar Loans and fees, and a 365/366-day year for all Base Rate Loans, in
each case for the actual number of days elapsed. In computing interest on any
Loan, the date of the making of such Loan shall be included and the date of
payment shall be excluded; provided, however, that if any Loan is repaid on the
same day on which it is made, such day shall be included in computing interest
on such Loan. Each change in the interest rate of the Base Rate Loans based on
changes in the Base Rate shall be effective on the effective date of such change
and to the extent of such change. Administrative Agent shall give Borrower
prompt written notice of any such change in the Base Rate; provided, however,
that any failure by Administrative Agent to provide Borrower with notice
hereunder shall not affect Lenders' right to make changes in the interest rate
of the Base Rate Loans based on changes in the Base Rate.
2.9 PAYMENT PROCEDURES.
(a) PAYMENT ON BUSINESS DAYS. Whenever any payment due under
this Agreement shall fall due on a day other than a Business Day, the due date
of such payment shall be extended to the next succeeding Business Day (subject,
however, to SUBSECTION (a) of the definition of the term "Interest Period") and
such payment shall be made on such Business Day, and such extension of time
shall be included in the computation of interest.
(b) PLACE OF PAYMENT. Borrower shall make all payments and
prepayments under this Agreement of the principal of and interest on the Loans
and the Commitment Fee to the Administrative Agent's Payment Office, in lawful
money of the United States and in immediately available funds no later than 1:00
p.m., New York time, on the date of payment (which must be a Business Day). All
payments received after 1:00 p.m., New York time, on any Business Day, shall be
deemed to have been received on the next succeeding Business Day.
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After the occurrence and during the continuance of an Event of Default, Borrower
authorizes Lenders to charge from time to time against any or all of Borrower's
deposits maintained with Lenders any amount payable by Borrower hereunder not
paid when due. Each Lender shall promptly notify Administrative Agent of each
such charge and pay over the same to Administrative Agent for application in
accordance with this Agreement
(c) DISTRIBUTION OF PAYMENTS TO LENDERS BY ADMINISTRATIVE
AGENT. Upon receipt of any payment or prepayment of the Commitment Fee, or the
principal of and interest on the Investment Capital Loans or the Working Capital
Loans by or on behalf of Borrower, Administrative Agent shall promptly pay over
to each Lender at its Lending Office its Investment Capital Loan Commitment
Percentage or Working Capital Loan Commitment Percentage, as applicable,
interest in like funds in the sum received.
(d) DEFAULT INTEREST. Upon the occurrence of an Event of
Default and so long as any Event of Default shall be continuing, including after
acceleration (whether before or after entry of judgment), Borrower shall, at the
option of Requisite Lenders, pay interest on the principal amount of each Loan
then outstanding at the Default Rate.
(e) APPLICATION OF PAYMENTS. Except as specifically set forth
herein, all payments under this Agreement shall be credited first to all fees
and other expenses then due to Administrative Agent, next to all fees and other
expenses then due to Lenders, next to all interest then due, and lastly to all
principal then due.
(f) DESIGNATION OF PAYMENT. When making a payment under this
Agreement, Borrower shall clearly specify which Loan, fee or expense such
payment relates to and the nature of the payment.
(g) ADMINISTRATIVE AGENT'S RIGHT TO ASSUME PAYMENTS WILL BE
MADE BY BORROWER. Unless Administrative Agent shall have been notified by
Borrower prior to the date on which any payment to be made by Borrower hereunder
is due that Borrower does not intend to remit such payment, Administrative Agent
may (in its sole and absolute discretion) assume that Borrower has remitted such
payment when so due and Administrative Agent may (in its sole and absolute
discretion) and in reliance upon such assumption, make available to each Lender
on such payment date an amount equal to such Lender's Investment Capital Loan
Commitment Percentage or Working Capital Loan Commitment Percentage, as
applicable, of such assumed payment. If Borrower has not in fact remitted such
payment to Administrative Agent, each Lender shall forthwith on demand repay to
Administrative Agent the amount of such assumed payment made available to such
Lender, together with interest thereon in respect of each date from and
including the date such amount was made available by Administrative Agent to
such Lender to the date such amount is repaid to Administrative Agent, at the
Federal Funds Rate.
2.10 PREPAYMENTS OF THE LOANS; CERTAIN REQUIRED PAYMENTS; AGGREGATE
COMMITMENT REDUCTION.
(a) VOLUNTARY PREPAYMENTS; COMMITMENT REDUCTIONS. Subject to
SECTION 2.10(d), Investment Capital Loans or Working Capital Loans may be
prepaid at any time, without premium or penalty, (1) in the case of Eurodollar
upon three (3) Business Days' notice,
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and (2) in the case of Base Rate Loans, upon one (1) Business Days' notice;
provided, however, that any such prepayment (i) shall be in the minimum
principal amount of $1,000,000, (ii) any interest accrued on the amounts so
prepaid to the date of such payment shall be paid at the time of any such
payment, and (iii) with respect to the prepayment of Investment Capital Loan
shall, if made during the Investment Capital Loan Commitment Period, cause the
Aggregate Investment Capital Loan Commitment to be permanently reduced by the
amount of such prepayment.
(b) MANDATORY PREPAYMENTS; AGGREGATE COMMITMENT REDUCTION.
(i) INVESTMENT CAPITAL LOANS. Net Proceeds
related to Asset Sales shall be paid by Borrower to Administrative Agent within
two (2) Business Days to be applied as a permanent prepayment of the principal
amount of the Investment Capital Loans then outstanding in an amount equal to
(x) the Investment Capital Loan Percentage multiplied by (y) 25% of such Net
Proceeds if such Asset Sale occurs on or after the third anniversary and prior
to the fifth anniversary of the date hereof, and 50% of such Net Proceeds if
such Asset Sale occurs on or after the fifth anniversary of the date hereof.
(ii) WORKING CAPITAL LOANS. Net Proceeds related
to Asset Sales shall be paid by Borrower to Administrative Agent within two (2)
Business Days to be applied as a permanent prepayment of the principal amount of
the Working Capital Loans then outstanding in an amount equal to (x) the Working
Capital Loan Percentage multiplied by (y) 25% of such Net Proceeds if such Asset
Sale occurs on or after the third anniversary and prior to the fifth anniversary
of the date hereof, and 50% of such Net Proceeds if such Asset Sale occurs on or
after the fifth anniversary of the date hereof.
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(c) INVESTMENT CAPITAL LOANS IN EXCESS OF AGGREGATE INVESTMENT
CAPITAL LOAN COMMITMENT; WORKING CAPITAL LOANS IN EXCESS OF AGGREGATE WORKING
CAPITAL LOAN COMMITMENT. Borrower shall immediately prepay (i) a portion of the
Investment Capital Loans to the extent the total outstanding balance of all
Investment Capital Loans exceeds the Aggregate Investment Capital Loan
Commitment and (ii) a portion of the Working Capital Loans to the extent the
total outstanding balance of all Working Capital Loans exceeds the Aggregate
Working Capital Loan Commitment.
(d) BREAKAGE CHARGE. Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss (but excluding loss of margin) or
expense actually incurred by such Lender, including funding costs and
administrative costs, as a consequence of (a) default by Borrower in the
conversion into or continuation of Eurodollar Loans after Borrower has given a
notice thereof, (b) default by Borrower in making any prepayment of Eurodollar
Loans after Borrower gives notice thereof or (c) the making of a prepayment of
Eurodollar Loans on a day which is not the last day of an Interest Period.
(e) APPLICATION OF PREPAYMENTS. Prepayments of Investment
Capital Loans and Working Capital Loans shall be made in inverse order of
maturity.
2.11 SURVIVABILITY. All of Borrower's obligations under this Agreement
shall survive until all Obligations are fully satisfied and Lenders' obligations
to make the Loans hereunder expire. Notwithstanding the foregoing, Borrower's
obligations set forth in SECTIONS 8.4 and 8.14 shall survive Borrower's payment
of all obligations under the Credit Documents and the expiration of Lenders'
obligations to make Loans hereunder.
2.12 PROMISSORY NOTES.
(a) INVESTMENT CAPITAL NOTES. Each Investment Capital Lender
shall maintain in accordance with its usual practice an account or accounts
evidencing the Indebtedness of Borrower to such Lender resulting from each
Investment Capital Loan owing to such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time hereunder in respect of such Loans. Borrower agrees that upon notice by any
Investment Capital Lender to Borrower (with a copy of such notice to QUALCOMM)
to the effect that a promissory note or other evidence of Indebtedness is
required or appropriate in order for such Lender to evidence (whether for
purposes of pledge, enforcement or otherwise) the Investment Capital Loans owing
to, or to be made by, such Lender, Borrower shall promptly execute and deliver
to such Lender, with a copy to QUALCOMM, a promissory note substantially in the
form of EXHIBIT A-1 or in form and substance reasonably satisfactory to Borrower
and such Lender (each an "Investment Capital Note"), with appropriate
insertions, due on the earlier of the applicable Final Maturity Date or
Maturity, and payable to the order of such Lender in a principal amount equal to
the Investment Capital Loan Commitment of such Lender. Notwithstanding anything
to the contrary herein, Borrower agrees that the books and records of
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the Lender maintained to evidence such matters shall, in the absence of manifest
error, be prima facie evidence of the matters noted or recorded; provided,
however, that any failure by the Lender to make such notations or recordations
shall not reduce Borrower's liability thereunder.
(b) THE WORKING CAPITAL NOTES. Each Working Capital Lender
shall maintain in accordance with its usual practice an account or accounts
evidencing the Indebtedness of Borrower to such Lender resulting from each
Working Capital Loan owing to such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time hereunder. Borrower agrees that upon notice by any Working Capital Lender
to Borrower (with a copy of such notice to QUALCOMM) to the effect that a
promissory note or other evidence of Indebtedness is required or appropriate in
order for such Lender to evidence (whether for purposes of pledge, enforcement
or otherwise) the Working Capital Loans owing to, or to be made by, such Lender,
Borrower shall promptly execute and deliver to such Lender, with a copy to
QUALCOMM, a promissory note substantially in the form of EXHIBIT A-2 or in form
and substance reasonably satisfactory to Borrower and such Lender (each a
"Working Capital Note"), with appropriate insertions, due on the earlier of the
applicable Final Maturity Date or Maturity, and payable to the order of such
Lender in a principal amount equal to the Working Capital Loan Commitment of
such Lender. Notwithstanding anything to the contrary herein, Borrower agrees
that the books and records of the Lender maintained to evidence such matters
shall, in the absence of manifest error, be prima facie evidence of the matters
noted or recorded; provided, however, that any failure by the Lender to make
such notations or recordations shall not reduce Borrower's liability thereunder.
2.13 NET PAYMENTS. Borrower's obligation to make payments and perform
all other obligations hereunder, and the rights of Administrative Agent and
Lenders in and to such payments and performance, shall be absolute and
unconditional and shall not be subject to any abatement, reduction, set-off,
defense, counterclaim or recoupment for any reason whatsoever, including
abatements or reductions due to any present or future claims of Borrower against
Administrative Agent or any Lender under this Agreement, the Specified
Agreements or otherwise, or against any other Person for whatever reason. Except
as otherwise expressly provided herein, this Agreement shall not terminate, nor
shall the obligations of Borrower be affected, by reason of (a) any defect in or
damage to, or any loss or destruction of, any of the equipment or services
provided pursuant to the Equipment Agreement from any cause whatsoever, (b) the
interference with the use of any of the terrestrial-based wireless
telecommunications operating systems of Borrower or any of its portfolio
companies by Administrative Agent, any Lender or any other Person, (c) any
defect in title to, or Lien on, any of the terrestrial-based wireless
telecommunications operating systems (or any part thereof) of Borrower or any of
its portfolio companies, (d) any bankruptcy, insolvency, reorganization or other
proceeding relating to, or any action taken by any trustee or receiver of,
Administrative Agent, any Lender or any other Person, or (e) for any other
cause, whether similar or dissimilar to the foregoing, any present or future law
or regulation to the contrary notwithstanding, whether or not such cause shall
give rise to a claim by Borrower against any Lender under the Equipment
Agreement or otherwise, it being the express intention of the parties hereto
that all amounts payable by Borrower hereunder shall be, and continue to be,
payable in all events unless the obligation to pay shall be terminated pursuant
to the express provisions of this Agreement. All payments made by Borrower
hereunder as required hereby shall be final, and Borrower shall not seek to
recover any such payment or any part thereof for any reason whatsoever. Nothing
in this
26.
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Agreement shall, however, release any claim Borrower may have against
Administrative Agent or any Lender, whether in connection with the Equipment
Agreement or otherwise. If for any reason whatsoever this Agreement shall be
terminated in whole or in part by operation of law or otherwise, Borrower shall
nonetheless, to the extent permitted by applicable law, pay to Administrative
Agent, on behalf of Lenders, an amount equal to each payment payable hereunder
at the time and in the manner that such payment would have become due and
payable under the terms of this Agreement if it had not been terminated in whole
or in part.
2.14 CHANGED CIRCUMSTANCES; TAXES.
(a) In the event that:
(i) on any date on which the Eurodollar Rate would
otherwise be set, Administrative Agent shall have determined in good faith
(which determination shall be final and conclusive) that adequate and fair means
do not exist for ascertaining the Eurodollar Rate, or
(ii) at any time Administrative Agent or any Lender
shall have determined in good faith (which determination shall be final and
conclusive) that:
(A) the making or continuation of or
conversion of any Loan to a Eurodollar Loan has been made impracticable or
unlawful by (1) the occurrence of a contingency that materially and adversely
affects the interbank eurodollar market or (2) compliance by any Lender in good
faith with any applicable law or governmental regulation, guideline or order or
interpretation or change thereof by any Governmental Authority charged with the
interpretation or administration thereof or with any request or directive of any
such Governmental Authority (whether or not having the force of law); or
(B) the Eurodollar Rate shall no longer
represent the effective cost to any Lender for U.S. dollar deposits in the
interbank market for deposits in which banks of the United States of America
regularly participate (including due to the imposition of a Reserve Percentage);
then, and in any such event, such Lender shall forthwith so notify
Administrative Agent and Borrower thereof. Until Administrative Agent or such
Lender notifies Borrower that the circumstances giving rise to such notice no
longer apply, the obligation of Lenders to allow selection by Borrower of the
type of Loan affected by the contingencies described in this SECTION 2.14
(herein called "Affected Loans") shall be suspended. If at the time
Administrative Agent or a Lender so notifies Borrower, Borrower has previously
given Administrative Agent a Borrowing Request or a Notice of
Conversion/Continuation with respect to one or more Affected Loans but such
Loans have not yet gone into effect, such notification shall be deemed to be
void and Borrower may request Loans of a non-affected type by giving a
substitute Borrowing Request or Notice of Conversion/Continuation pursuant to
this Agreement.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given) Borrower shall, with respect to the
outstanding Affected Loans, prepay the same, together with interest thereon and
any amounts required to be paid pursuant to SECTION 2.10(d), and may request a
Loan of another type in accordance with this Agreement, by giving a Borrowing
Request or a Notice of Conversion/Continuation pursuant to this Agreement;
27.
<PAGE> 35
provided that any such prepayment shall not be deemed to constitute a prepayment
pursuant to SECTION 2.10.
(b) In case any law, regulation, treaty or official directive
or the interpretation or application thereof by any court or by any Governmental
Authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other Governmental Authority
(whether or not having the force of law):
(i) subjects any Lender to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for such taxes as are imposed on or measured by each Lender's net income
by the jurisdiction under the laws of which such Lender is organized or
maintains a place of business or is otherwise connected (other than a connection
resulting solely from the execution, delivery, or performance of this Agreement
and the other Credit Documents) or any political subdivision thereof), or
(ii) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, any Lender
(including any imposition of a Reserve Percentage), or
(iii) imposes upon any Lender any other condition
with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to such Lender,
reduce the income receivable by such Lender or impose any expense upon such
Lender with respect to any Eurodollar Loans, such Lender shall notify Borrower
thereof. Borrower agrees to pay to such Lender the amount of such increase in
cost, reduction in income or additional expense as and when such cost, reduction
or expense is incurred or determined, upon presentation by such Lender of a
statement in the amount and setting forth such Lender's calculation thereof,
which statement shall be deemed true and correct absent manifest error.
(c) (i) Bookmark not defined. Any and all payments by
Borrower to each Lender under this Agreement shall be made free and clear of,
and without deduction or withholding for, any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender, such taxes (including
income taxes, taxes on profits and franchise taxes) as are imposed on or
measured by each Lender's net income or profits by the jurisdiction under the
laws of which such Lender is organized or maintains a place of business or is
otherwise connected (other than a connection resulting solely from the
execution, delivery, or performance of this Agreement and the other Credit
Documents) or any political subdivision thereof (all such non-excluded taxes,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").
(ii) In addition, Borrower shall pay any present or
future stamp 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 or registration of, or otherwise with respect to, this
Agreement or any other Credit Documents (hereinafter referred to as "Other
Taxes").
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<PAGE> 36
(iii) Borrower shall indemnify and hold harmless each
Lender for the full amount of Taxes or Other Taxes (including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this SECTION 2.14)
paid by such Lender and any liability (including penalties, interest, additions
to tax and expenses, except for, in the event such Lender fails to deliver
notice of such assertion of Taxes or Other Taxes to Borrower within one hundred
eighty (180) days after it has received notice of such assertion or imposition
of Taxes or Other Taxes, any such penalties, interest or expenses which would
not have arisen but for the failure of such Lender to so notify Borrower of such
assertion or imposition of Taxes or Other Taxes) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made within thirty
(30) days from the date such Lender makes written demand therefor.
(iv) If Borrower shall be required by law to deduct
or withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender, then:
(A) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this SECTION 2.14) such Lender
receives an amount equal to the sum it would have received had no such
deductions been made;
(B) Borrower shall make such deductions; and
(C) Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(v) Within thirty (30) days after the date of payment
by Borrower of Taxes or Other Taxes, Borrower shall furnish to Administrative
Agent and each Lender the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment satisfactory to Administrative
Agent.
(vi) If Borrower fails to pay any Taxes or Other
Taxes when due to the appropriate
taxing authority or fails to furnish to each Lender the required receipts or
other required documentary evidence, Borrower shall indemnify Lenders for any
incremental Taxes or Other Taxes, interest or penalties that may become payable
by any of Lenders as a result of any such failure.
(vii) Each Lender which is a foreign Person (i.e., a
Person other than a United States Person for United States federal income tax
purposes) agrees that:
(A) in the case of any Lender which is a
"bank" within the meaning of Section 881(c)(3)(A) of the Code,
(1) it shall, no later than the
Closing Date (or, in the case of a Lender which becomes a party hereto pursuant
to this Agreement after the Closing Date, the date upon which such Lender
becomes a party hereto) deliver to Borrower and Administrative Agent two (2)
accurate and complete signed originals of IRS Form 4224 or any successor thereto
("Form 4224"), or two accurate and complete signed originals of IRS Form 1001 or
any successor thereto ("Form 1001"), as appropriate, in each case indicating
that such
29.
<PAGE> 37
Lender is on the date of delivery thereof entitled to receive payments of
principal, interest and fees under this Agreement free from withholding of
United States federal income tax;
(2) if at any time a change in
circumstances necessitates any Lender's filing a new Form 4224 or Form 1001, it
shall within thirty (30) days after such change becomes effective deliver to
Borrower and Administrative Agent in replacement for, or in addition to, the
forms previously delivered by it hereunder, two accurate and complete signed
originals of Form 4224, or two accurate and complete signed originals of Form
1001, as appropriate, in each case indicating that such Lender is on the date of
delivery thereof entitled to receive payments of principal, interest and fees
under this Agreement free from withholding of United States federal income tax;
(B) in the case of any Lender other than a
Lender described in clause (A) above,
(1) it shall, no later than the
Closing Date (or, in the case of a Lender which becomes a party hereto pursuant
to this Agreement after the Closing Date, the date upon which such Lender
becomes a party hereto) deliver to Borrower and Administrative Agent two (2)
accurate and complete signed originals of a certificate substantially in the
form of EXHIBIT D (any such certificate, a "Non-Bank Lender Tax Certificate")
and two accurate and complete signed originals of IRS Form W-8 or any successor
thereto ("Form W-8") certifying to such Lender's legal entitlement (assuming
compliance by Borrower with the terms of this Agreement) to an exemption whereby
such Lender is on the date of delivery thereof entitled to receive payments of
principal, interest and fees under this Agreement free from withholding of
United States Federal income tax;
(2) if at any time a change in
circumstances necessitates any Lender's filing a new Form W-8, it shall within
thirty (30) days after such change becomes effective deliver to Borrower and
Administrative Agent in replacement for, or in addition to, the forms previously
delivered by it hereunder, two accurate and complete signed originals of Form
W-8 certifying to such Lender's legal entitlement (assuming compliance by
Borrower with the terms of this Agreement) to an exemption whereby such Lender
is on the date of delivery thereof entitled to receive payments of principal,
interest and fees under this Agreement free from withholding of United States
federal income tax;
(C) it shall, before or within thirty (30)
days after the occurrence of any event (including the passing of time but
excluding any event mentioned in (A) or (B), above) requiring a change in or
renewal of the most recent Form 4224, Form 1001 or Form W-8 previously delivered
by such Lender, deliver to Borrower and Administrative Agent two accurate and
complete original signed copies of Form 4224, Form 1001 or Form W-8 in
replacement for the forms previously delivered by such Lender; and
(D) it shall, promptly upon Borrower's
reasonable request to that effect, deliver to Borrower and Administrative Agent
copies of such other forms or similar documentation as may be required from time
to time by any applicable law, treaty, rule or regulation in order to establish
such Lender's tax status for withholding purposes.
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(viii) Borrower will not be required to pay any
additional amounts in respect of United States federal income tax pursuant to
SECTION 2.14(c)(iv) to any Lender:
(A) if the obligation to pay such additional
amounts would not have arisen but for a failure by such Lender to comply with
its obligations under SECTION 2.14(c)(vii) in respect of such Lending Office; or
(B) if such Lender shall have delivered to
Borrower and Administrative Agent a Form 4224, Form 1001 or Form W-8 in respect
of such Lending Office pursuant to SECTION 2.14(c)(vii), and such Lender shall
not at any time be entitled to exemption from deduction or withholding of United
States federal income tax in respect of payments by Borrower hereunder for the
account of such Lending Office for any reason other than a change in United
States law or regulations or in the official interpretation of such law or
regulations by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) after the date
of delivery of such form.
(ix) If, at any time, Borrower requests any Lender to
deliver any forms or other documentation in addition to those required pursuant
to SECTION 2.14(c)(vii)(D), then Borrower shall, on demand of such Lender,
reimburse such Lender for any costs and expenses (including reasonable attorney
costs) reasonably incurred by such Lender in the preparation or delivery of such
forms or other documentation.
(x) If Borrower is required to pay additional amounts
to any Lender pursuant to SECTION 2.14(c) OR SECTION 2.15, then such Lender
shall use its reasonable best efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by such Lender which may thereafter accrue
if such change in the judgment of such Lender is not otherwise materially
disadvantageous to such Lender.
2.15 CAPITAL REQUIREMENTS. If after the date hereof any Lender
determines that (i) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for lenders, banks or bank holding
companies, or any change in the interpretation or application thereof by any
Governmental Authority charged with the administration thereof, or (ii)
compliance by such Lender or any of its Affiliates with any guideline, request
or directive of any such entity implemented after the date hereof regarding
capital adequacy (whether or not having the force of law), has the effect of
reducing the return on such Lender's or such Affiliate's capital as a
consequence of such Lender's commitment to make Eurodollar Loans hereunder to a
level below that which such Lender or such Affiliate could have achieved but for
such adoption, change or compliance (taking into consideration such Lender's or
such Affiliate's then existing policies with respect to capital adequacy and
assuming the full utilization of such entity's capital) by any amount deemed by
such Lender to be material, then such Lender shall notify Borrower thereof.
Borrower agrees to pay to such Lender the amount of such reduction in the return
on capital as and when such reduction is determined, upon presentation by such
Lender of a statement in the amount and setting forth such Lender's calculation
thereof, which statement shall be deemed true and correct absent manifest error.
In determining such amount, such Lender may use any reasonable averaging and
attribution methods.
31.
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2.16 SUBSTITUTION OF LENDERS. In the event any Lender has demanded
compensation under SECTION 2.14(b) or under SECTION 2.15 which compensation
increases the effective lending rate of the Lender in excess of the rate of the
other Lenders, Borrower shall have the right to substitute for such Lender (the
"Affected Lender") another financial institution which shall be reasonably
acceptable to Administrative Agent and Requisite Lenders, for such Affected
Lender to assume the Investment Capital Loan Commitment and Working Capital Loan
Commitment of such Affected Lender and to purchase the Notes, if any, of such
Affected Lender. Such assumption and purchase shall be effected in accordance
with SECTION 8.6 hereof and by execution and delivery of an Assignment and
Acceptance described therein; provided, however, that the Affected Lender's
obligation to assign and sell its Investment Capital Loan Commitment, Working
Capital Loan Commitment and Notes, if any, shall be subject to the condition
that all amounts owing to such Affected Lender (including principal, accrued and
unpaid interest and fees, and all amounts owing to such Affected Lender under
SECTIONS 2.14(b), 2.15 AND 8.4) shall have been paid in full.
2.17 CONVERSION TO HIGH YIELD STRUCTURE. At any time and from time to
time, Requisite Lenders may cause all, but not less than all, of the Loans then
outstanding, together with the obligations of Borrower under this Agreement
relating thereto, to be converted to fixed rate obligations which may, at the
election of Requisite Lenders be secured or unsecured, but shall in either case
have other terms, covenants and conditions substantially similar to those of
high yield debt issuances for wireless communications companies at the time of
such proposed conversion (collectively, the "Fixed Rate Notes"); provided,
however, that such conversion may delayed by Borrower for such period as
Borrower's board of directors determines to be reasonably necessary to that such
conversion will not interfere with Borrower's other financing activities. After
notification to Borrower and Administrative Agent by QUALCOMM that Requisite
Lenders have elected to exercise such right, Borrower shall promptly provide its
active and good faith assistance with any Conversion to High Yield Structure,
including providing such information in such form as may be requested by
QUALCOMM, Requisite Lenders or Lenders' placement agents or other agents in
connection with the negotiation and preparation of any registration statements
and prospectuses, the sale or placement of the Fixed Rate Notes (including the
availability of Borrower's senior management for active participation in "road
shows," and doing all such other acts as are necessary and appropriate for the
expedient sale or placement of the Fixed Rate Notes). Upon each such conversion,
Borrower shall execute and deliver to the purchasers of Fixed Rate Notes (or a
trust established to effectuate such transaction) Fixed Rate Notes evidencing
the Loans so converted. Borrower acknowledges that, in the event the Fixed Rate
Notes contemplated to be issued under any Conversion to High Yield Structure are
not exempt from the registration requirements of the Securities Act of 1933, as
amended, Borrower shall be the registrant for such Conversion to High Yield
Structure and Borrower shall prepare and file with the Securities and Exchange
Commission a registration statement and use commercially reasonable efforts to
cause such registration statement to become and remain effective and use
commercially reasonable efforts to register or qualify the Fixed Rate Notes
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as are necessary to effect the sale of the Fixed Rate
Notes. Notwithstanding the foregoing, Requisite Lenders shall not cause a
Conversion To High Yield Structure to occur if the yield to maturity of the
Fixed Rate Notes is anticipated in the good faith of Borrower and Requisite
Lenders and their respective financial advisors to exceed, or actually does
exceed, fourteen percent (14%) per annum.
32.
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SECTION 3. CONDITIONS OF LENDING.
3.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of Lenders to
make the initial Investment Capital Loans and the initial Working Capital Loans
in favor of Borrower is subject to the satisfaction or waiver of the following
conditions at the time of or immediately prior to the initial Funding Date which
in no event shall be later than September 25, 1998.
(a) NOTES. Borrower shall have duly executed and delivered, to
each Investment Capital Lender which has requested an Investment Capital Note,
and to each Working Capital Lender which has requested a Working Capital Note,
an Investment Capital Note and Working Capital Note, as applicable.
(b) SECURITY AGREEMENT. There shall have been delivered to
Administrative Agent the Security Agreement, duly executed by Borrower.
(c) FINANCING STATEMENTS. The Financing Statements, each
naming and duly executed by Borrower, as debtor, and Administrative Agent, as
secured party, including a description of the personal property collateral
granted or pledged by Borrower to Administrative Agent, on behalf of Lenders, as
security for the Obligations, shall have been caused to have been filed with
such Governmental Authorities as Administrative Agent and Lenders shall have
determined.
(d) COLLATERAL CONTROL AGREEMENTS. Separate written collateral
control agreements ("Control Agreements") (1) executed by Administrative Agent,
Borrower and each depository institution at which Borrower maintains a deposit
account; and (2) executed by Administrative Agent, Borrower and each securities
intermediary at which Borrower maintains an investment, brokerage or similar
account which holds financial assets (as defined in Section 8102(a)(9) of the
UCC) owned beneficially by Borrower, each satisfactory to Lenders.
(e) SECURITIES PLEDGE AGREEMENT. There shall have been
delivered to Administrative Agent the Securities Pledge Agreement, duly executed
by Borrower, together with the certificates representing the Pledged Securities
pursuant thereto and appropriate undated stock powers executed in blank for such
certificates.
(f) OPINIONS OF COUNSEL. Lenders and Administrative Agent
shall have received a legal opinion dated the Closing Date from Latham &
Watkins, counsel to Borrower, together with such opinions of local counsel in
the jurisdiction of each Portfolio Investment whose securities have been
transferred to Borrower in connection with the Distribution or are pledged to
Administrative Agent under the Securities Pledge Agreement, all in form and
substance satisfactory to Lenders' and Lenders' respective counsel.
(g) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of
making the initial Loan and also after giving effect thereto (i) there shall
exist no Default or Event of Default, and (ii) all representations and
warranties contained herein and in the other Credit Documents in effect at such
time shall be true and correct.
(h) OFFICER'S CERTIFICATE. Administrative Agent shall have
received certificates dated such date, signed by the president and chief
financial officer (such certificate
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and all other certificates delivered under this Agreement to be in such Person's
corporate, not individual, capacity) of Borrower stating that all of the
applicable conditions set forth in this SECTION 3.1 have been satisfied as of
such date.
(i) CORPORATE PROCEEDINGS. All corporate and legal proceedings
and all instruments and agreements in connection with the transactions
contemplated by this Agreement and the other Credit Documents shall be
reasonably satisfactory in form and substance to Lenders, and Lenders shall have
received all information and copies of all certificates, documents and papers,
including records of corporate proceedings and governmental approvals, if any,
which Lenders may have reasonably requested in connection therewith, such
documents and papers where appropriate to be certified by proper corporate
officers or Governmental Authorities.
(j) CONSUMMATION OF DISTRIBUTION AND OTHER TRANSACTIONS.
Administrative Agent shall have received evidence satisfactory to Lenders that
the Distribution has been consummated, the Borrower Business has been
transferred to Borrower and the other transactions described in the Information
Statement as occurring in connection with the Distribution have occurred, and
that there exist no material defaults under any of the Specified Agreements.
(k) ADVERSE CHANGE. Nothing shall have occurred, including the
termination of any contract, lease or other agreement, the incurrence of any
damage, destruction or loss (whether or not covered by insurance), the
occurrence of any employee strike, work-stoppage, slow-down or lock-out or any
substantial threat directed to Borrower or any of its Affiliates of any imminent
strike, work-stoppage, slow-down or lock-out, which Lenders shall reasonably
determine has, or is reasonably expected to have, a Material Adverse Effect.
(l) CONSENTS, APPROVALS. All necessary governmental and third
party consents, approvals and licenses in connection with the transactions
contemplated by the Specified Agreements and the Credit Documents and otherwise
referred to herein to be obtained on or before the initial Funding Date shall
have been obtained and remain in effect; and all applicable waiting periods
shall have expired without any action being taken by any competent Governmental
Authority which restrains, prevents or imposes materially adverse conditions
upon the consummation of this Agreement or the Specified Agreements.
(m) ORGANIZATIONAL DOCUMENTATION; ETC. Administrative Agent
and each Lender shall have received copies of the Certificate of Incorporation
and Bylaws of Borrower, any agreements entered into by any such entity governing
the terms and relative rights of its capital stock, certified as true and
complete by an appropriate corporate officer or Governmental Authority, and a
Certificate of Good Standing and franchise tax good standing issued by the
Delaware Secretary of State and appropriate government officials for each other
state in which Borrower is qualified to do business or in which the failure to
so qualify could with reasonable likelihood have a Material Adverse Effect, and
the provisions of the foregoing shall be reasonably satisfactory to Lenders.
(n) LITIGATION. There shall be no actions, suits or
proceedings pending or threatened with respect to Borrower or any Subsidiary
that (i) might reasonably be expected to
34.
<PAGE> 42
have a Material Adverse Effect, or (ii) have a material adverse effect on the
ability of Borrower to perform its obligations under the Specified Agreements or
the rights or remedies of QUALCOMM under the Specified Agreements. There shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunctive relief or other restraint pending or notified with
respect to the performance of any of the Specified Agreements, the Credit
Documents, or the making of any Loan hereunder.
(o) BOARD RESOLUTIONS. Administrative Agent and Lenders shall
have received resolutions of Borrower's Board of Directors approving and
authorizing the execution, delivery and performance of the Credit Documents to
which it is a party and the transactions contemplated thereby, in form and
substance reasonably satisfactory to Lenders and their respective counsel, such
resolutions certified as of the initial Funding Date by Borrower's corporate
Secretary or an Assistant Secretary, as applicable, as being in full force and
effect without modification or amendment.
(p) INCUMBENCY CERTIFICATES. Administrative Agent and Lenders
shall have received signature and incumbency certificates of Borrower's officers
executing this Agreement or the other Credit Documents to which it is or is to
be a party.
(q) EVIDENCE OF INSURANCE. Administrative Agent and Lenders
shall have received certificates and binders with respect to insurance required
by this Agreement.
(r) NO VIOLATION. The consummation of the transactions
contemplated hereby shall not contravene, violate or conflict with, nor involve
Administrative Agent or Lenders in a violation of, any Requirement of Law,
including applicable usury law, and evidence satisfactory to Administrative
Agent and Lenders shall have been received as to the compliance with applicable
usury law including at a minimum the obtaining of a qualification permit or
exemption from the California Corporations Commissioner or evidence that certain
equity securities of Borrower are traded on the NASDAQ National Market System.
(s) FEE LETTER. QUALCOMM shall have received the Fee Letter,
duly executed by Borrower and accepted by QUALCOMM, together with the payment of
such fees and delivery of such other items as are set forth in the Fee Letter to
be paid or delivered on the Closing Date (the payment or delivery of which shall
be deemed to be a concurrent condition).
(t) ADMINISTRATIVE AGENT'S FEE LETTER. Administrative Agent
shall have received the Administrative Agent's Fee Letter, duly executed by
Borrower and by Administrative Agent, together with the payment of such fees as
are set forth in the Administrative Agent's Fee Letter to be paid on the Closing
Date (the payment of which shall be deemed to be a concurrent condition).
(u) BUSINESS PLAN. Lenders shall have reviewed and approved in
form and substance the Business Plan.
(v) ADDITIONAL MATTERS, DOCUMENTS OR INFORMATION. Lenders
shall have received each additional document, instrument, legal opinion or item
of information reasonably requested by any Lender, including a copy of any debt
instrument, security agreement or other material contract to which Borrower or
any of Borrower's Subsidiaries may be a party, and all
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corporate and other proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by this Agreement, the
other Credit Documents and the Specified Agreements shall be reasonably
satisfactory in form and substance to Lenders, and Lenders shall have received
such other documents, legal opinions and other opinions in respect of any aspect
or consequence of the transactions contemplated hereby.
The acceptance of the proceeds of the initial Loan shall constitute a
representation and warranty by Borrower to Administrative Agent and Lenders that
all of the applicable conditions specified above exist as of that time. All of
the agreements, certificates, legal opinions and other documents and papers
referred to in this SECTION 3.1, unless otherwise specified, shall be delivered
to Lenders and shall be reasonably satisfactory in form and substance to
Lenders.
3.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of Lenders to
make any Loan shall be subject to the further conditions precedent that:
(a) On the date of such Loan the following statements shall be
true:
(i) All representations and warranties contained
herein and in the other Credit Documents in effect at such time shall be true
and correct with the same effect (except for any representation and warranty
that speaks only as of a specific date, which shall be true and correct in all
material respects as of such date) as though such representations and warranties
had been made on and as of the date of the making of such Loan; and
(ii) No Default or Event of Default has occurred and
is continuing or would result from the making of such Loan.
(iii) As to any Investment Capital Loan made after
the Closing Date there shall not have occurred with respect to any Portfolio
Investment as to which Borrower is not then contractually obligated to make such
Investment any material adverse change in the results of operations, financial
condition or prospects of any Person in which such Portfolio Investment is made.
(b) Lenders shall have received such other approvals, opinions
or documents as Lenders may reasonably request in connection with the requested
Loan.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
4.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower hereby
warrants and represents to each Lender as follows, in each case after giving
effect to the Distribution and the transactions described in the Information
Statement as occurring in connection with the Distribution, and agrees that each
of said warranties and representations shall be deemed to survive until the
full, complete and indefeasible payment and performance of the Obligations and
shall apply anew to each borrowing hereunder:
(a) CORPORATE ORGANIZATION; STRUCTURE. Borrower and each of
its direct Subsidiaries are corporations duly incorporated, validly existing and
in good standing under the
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laws of their respective places of incorporation, have the power and authority
to own their Property and carry on their business as now being conducted, and
are qualified as foreign corporations and in good standing in each jurisdiction
where the nature of their business or assets requires such qualification except
where the failure to so qualify would not be reasonably likely to result in a
Material Adverse Effect. The ownership structure of Borrower and each of its
Subsidiaries as of the date hereof is as set forth in SCHEDULE 4.1(a) to the
Disclosure Letter.
(b) CORPORATE POWER; AUTHORIZATION; CONFLICTS. The execution,
delivery and performance by Borrower and each Subsidiary of Borrower which may
become a party to any Credit Document are within their corporate powers, have
been duly authorized by all necessary corporate action, and do not (i)
contravene such Person's certificate of incorporation or bylaws, (ii) violate
any law or regulation or any contractual restriction binding on or affecting
such Person, except where such violation would not be reasonably likely to have
a Material Adverse Effect, or (iii) result in or require the creation of any
Lien other than Permitted Liens, upon or with respect to any of the Properties
of Borrower or any such Subsidiaries.
(c) APPROVALS. No consent, order, authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority or
regulatory body is required for (i) the due execution, delivery and performance
of any Credit Document by Borrower or by any Subsidiary of Borrower or (ii) the
legality, validity, binding effect or enforceability of any such Credit
Document.
(d) ENFORCEABILITY. This Agreement is, each other Credit
Document to which Borrower is or will be a party when delivered hereunder will
be, legal, valid and binding obligations of such Person enforceable against it
in accordance with their respective terms, provided that the enforceability of
any of such documents may be subject to or limited by bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting the rights of creditors generally and the application of equitable
principles.
(e) FINANCIAL STATEMENTS/PROJECTIONS. All pro forma financial
statements giving effect to the transactions described in the Information
Statement, financial forecasts and projections delivered to Administrative Agent
or Lenders have been reasonably prepared as of the Closing Date.
(f) LITIGATION. To the best of Borrower's knowledge, there are
no pending or threatened actions, suits, investigations or proceedings against
Borrower, any of its direct Subsidiaries or Person in which Borrower has made a
Portfolio Investment or against any of their respective Properties or revenues
before any court, governmental department, commission, board, bureau,
instrumentality or agency or arbitrator except as described on SCHEDULE 4.1(f)
to the Disclosure Letter. There is no pending or threatened action, suit,
investigation or proceeding against Borrower, any direct Subsidiary of Borrower
or Person in which Borrower has made a Portfolio Investment or against any of
their respective Properties or revenues before any court, governmental
department, commission, board, bureau, instrumentality or agency or arbitrator
which might have a Material Adverse Effect.
(g) USE OF PROCEEDS. The proceeds of all Investment Capital
Loans and Working Capital Loans shall be used solely as described in SECTION
2.3.
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(h) COMPLIANCE WITH LAWS, OTHER AGREEMENTS. Except as
disclosed in SCHEDULE 4.1(h) to the Disclosure Letter, neither Borrower, any of
its direct Subsidiaries nor Persons in which Borrower has made a Portfolio
Investments is in violation or default with respect to their respective
certificates of incorporation, bylaws or any applicable laws, rules or
regulations where such violation or default would be reasonably likely to have a
Material Adverse Effect, nor has Borrower, any of its direct Subsidiaries nor
Persons in which Borrower has made a Portfolio Investment violated any statutes,
laws, regulations, or ordinances applicable to them or violated or defaulted
with respect to any order, writ, decree or judgment of any court or
administrative agency or violated or defaulted (nor is there any waiver in
effect which, if not in effect, would result in a violation or default) under
any mortgage, indenture, lease, contract or other agreement or instrument
binding upon Borrower, its direct Subsidiaries or Persons in which Borrower has
made a Portfolio Investment, where such violation or default would be reasonably
likely to have a Material Adverse Effect.
(i) EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
(j) COLLATERAL DOCUMENTS. Except for Permitted Liens and Liens
noted in SCHEDULE 4.1(j) to the Disclosure Letter, the provisions of the
Collateral Documents are effective to create and maintain in favor of
Administrative Agent for the benefit of Lenders a legal, valid and enforceable
first priority perfected security interest in the Pledged Securities and the
collateral granted thereunder.
(k) NO SUBORDINATION. The obligations of Borrower under this
Agreement or under any other contracts or instruments executed by Borrower in
connection therewith and herewith (i) are not subordinated in right of payment
to any other obligation of Borrower and (ii) will at all times rank prior to all
present and future unsecured Indebtedness of Borrower.
(l) SUBSIDIARIES. As of the Closing Date neither Borrower nor
any of its Subsidiaries has any Subsidiaries other than as disclosed in SCHEDULE
4.1(l) to the Disclosure Letter.
(m) TAXES. Each of Borrower and Borrower's Subsidiaries has
filed or has caused to be filed all material tax returns which it is required to
file or has obtained extensions for the filing thereof, and each of Borrower and
Borrower's Subsidiaries has paid (i) all taxes shown to be due and payable on
said returns or on any assessments made against it or against any of its
Property (other than those the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of Borrower or
Borrower's Subsidiaries, as the case may be) and (ii) all other taxes, fees or
other charges imposed on it or imposed on any of its Property by any
Governmental Authority (other than those the amount or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of Borrower or Borrower's Subsidiaries, as the case may be), and no claims
are being asserted with respect to any such taxes, fees or other charges (other
than those the amount or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of Borrower or Borrower's
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Subsidiaries, as the case may be). No tax Liens have been filed with respect to
any such taxes, fees or other charges (other than those the amount or validity
of which is currently being contested in good faith by appropriate proceedings
and with respect to which reserves in conformity with GAAP have been provided on
the books of Borrower or Borrower's Subsidiaries, as the case may be).
(n) OWNERSHIP AND LIENS. Except as shown in SCHEDULE 4.1(n) to
the Disclosure Letter, Borrower and its Subsidiaries own and have good and
marketable title in fee simple absolute to, or valid leasehold interests in, all
of their respective Properties, including the Properties and leasehold interests
reflected in the Financial Statements or footnotes thereto (other than any
Properties disposed of in the ordinary course of business or otherwise in
compliance with this Agreement) referred to in SECTION 4.1(e) and, except as set
forth in SCHEDULE 4.1(n) to the Disclosure Letter, none of the Properties owned
by Borrower or its Subsidiaries and none of their respective leasehold interests
are subject to any Lien, except Permitted Liens.
(o) INDEBTEDNESS. SCHEDULE 4.1(o) to the Disclosure Letter is
a complete and correct list of all Indebtedness, credit agreements, indentures,
purchase agreements, guaranties, Capital Leases and other investments,
agreements and arrangements presently in effect providing for or relating to
extensions of credit (including agreements and arrangements for the issuance of
letters of credit or for acceptance financing, but not including non-delinquent
trade credit providing for payment within ninety (90) days of invoice) involving
$100,000 or more in respect of which Borrower or any of its Subsidiaries is in
any manner directly or contingently obligated. The maximum principal or face
amounts of the credits in question, which are outstanding and which can be
outstanding, are correctly stated, and all Liens of any nature given or agreed
to be given as security therefor are correctly described or indicated in such
Schedule.
(p) ACCURACY OF INFORMATION FURNISHED; COMPLETE DISCLOSURE.
Neither this Agreement nor any certificate, data, report, statement or other
information furnished to Lenders by or on behalf of Borrower or any of
Borrower's Subsidiaries in connection with the transactions contemplated hereby
or by the other Credit Documents contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. There is no fact known to Borrower which would be
reasonably likely to have a Material Adverse Effect which has not been disclosed
herein or in such other documents, certificates and statements furnished to
Lenders for use in connection with the transaction contemplated hereby.
(q) NO DEFAULT. Neither Borrower nor any of its Subsidiaries
is in default under or with respect to any Contractual Obligation in any respect
which would with reasonable likelihood lead to a Material Adverse Effect.
(r) NO BURDENSOME RESTRICTIONS. No Contractual Obligation of
Borrower or any of its Subsidiaries and no Requirement of Law, insofar as
Borrower may reasonably foresee, may result in a Material Adverse Effect.
(s) ERISA COMPLIANCE.
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(i) Each Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law. Each Plan which is intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the IRS and to the best
knowledge of Borrower, nothing has occurred which would cause the loss of such
qualification. Borrower and each ERISA Affiliate have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(ii) There are no pending or, to the best knowledge
of Borrower, threatened claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse Effect. There has been no
prohibited transaction or violation of the fiduciary responsibility rules with
respect to any Plan which has resulted or would reasonably be expected to result
in a Material Adverse Effect.
(iii) (i) No ERISA Event has occurred or is
reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension
Liability; (iii) neither Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability under Title IV of ERISA with respect
to any Pension Plan (other than premiums due and not delinquent under Section
4007 of ERISA); (iv) neither Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; (v) neither Borrower nor any ERISA Affiliate has engaged in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA; (vi) neither Borrower
nor any ERISA Affiliate has any liability with respect to "expected post
retirement benefit obligations" within the meaning of Statement of Financial
Accounting Standards No. 106; and (vii) "no prohibited transaction" (as defined
in Section 406 of ERISA and Section 4975 of the Code) that would have a Material
Adverse Effect on Borrower or any ERISA Affiliate has occurred with respect to
any Plan.
(t) OTHER REGULATORY COMPLIANCE. Borrower is not subject to
regulation as an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act.
(u) ENVIRONMENTAL CONDITION. None of Borrower's Properties has
ever been used by Borrower or, to the best of Borrower's knowledge, by previous
owners or operators, in the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower's knowledge, none of
Borrower's Properties has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no Lien arising under any environmental
protection statute has attached to any revenues or to any
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Property owned by Borrower or any of its Subsidiaries; and Borrower has never
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal, state or other Governmental Authority
concerning any action or omission by Borrower resulting in the releasing, or
otherwise disposing of hazardous waste or hazardous substances into the
environment.
SECTION 5. COVENANTS OF BORROWER.
5.1 AFFIRMATIVE COVENANTS. So long as any of the Obligations shall
remain unpaid or unsatisfied or any Credit Party shall have any other obligation
to Administrative Agent or any Lender hereunder or any Lender shall have any
commitment hereunder (whichever is later), Borrower shall, and as to each
covenant below expressly requiring compliance by its Subsidiaries, shall not
permit any Subsidiary to, directly or indirectly:
(a) COMPLIANCE WITH LAWS, OTHER AGREEMENTS. With respect to
Borrower and its Subsidiaries, comply with respect to: (i) their respective
certificates of incorporation, bylaws or any applicable laws, rules or
regulations where failure to so comply would be reasonably likely to have a
Material Adverse Effect, (ii) orders, writs, decrees or judgments of any court
or administrative agency and (iii) mortgages, indentures, leases, contracts or
other agreements or instruments binding upon Borrower or its Subsidiaries, where
failure to so comply would be reasonably likely to have a Material Adverse
Effect.
(b) REPORTING REQUIREMENTS. Furnish to each Lender copies of
each of the following:
(i) As soon as available and in any event within
ninety (90) days after the end of each fiscal year of Borrower, audited
Financial Statements for the immediately preceding fiscal year (provided that
consolidating figures for such Financial Statements may be unaudited), certified
in a manner reasonably acceptable to Lenders by an independent public accountant
firm acceptable to Lenders, and an opinion of such accountants relating to such
Financial Statements, accompanied by (w) a compliance certificate (with
calculations in reasonable detail), in form satisfactory to Lenders, signed by
Borrower's chief financial officer, certifying (A) that the Financial Statements
attached were prepared in accordance with GAAP and fairly present in all
material respects the financial condition of such Person, (B) that the
calculation of the financial covenants with respect to the Financial Statements,
is accurate and as required under this Agreement, (C) that Borrower has taken
all steps to pledge all collateral required to be pledged under the Securities
Pledge Agreement and (D) that such officer is familiar with the terms of this
Agreement and that no Default or Event of Default has occurred or is continuing
under this Agreement, or if such a Default or Event of Default has occurred and
is continuing, containing a statement as to the nature thereof and the steps
being taken with respect thereto, (x) copies of any and all management letters
relating to the audits of such Financial Statements, (y) a certificate of
accountants of Borrower stating that in making the examination necessary for
their certification they have obtained no knowledge of any Default or Event of
Default with respect to the financial covenants required under this Agreement
which has occurred and is continuing, or if, in the opinion of such accountants,
a Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof, and (z) an annual
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budget of Borrower and its Subsidiaries prepared by Borrower's chief financial
officer in form and detail satisfactory to Lenders;
(ii) As soon as available and in any event within
forty-five (45) days of the end of each fiscal quarter of Borrower, unaudited
Financial Statements for the accounting period then ended, accompanied by a
compliance certificate (with calculations in reasonable detail) signed by
Borrower's chief financial officer, certifying (A) that the Financial Statements
attached were prepared in accordance with GAAP and fairly present in all
material respects the financial condition of such Person as of such date (except
as to the absence of notes and subject to year-end adjustments), (B) that the
calculation of the financial covenants with respect to such Financial
Statements, is accurate and as required under this Agreement, (C) that Borrower
has taken all steps to pledge all collateral required to be pledged under the
Securities Pledge Agreement and (D) that such officer is familiar with the terms
of this Agreement and that no Default or Event of Default has occurred or is
continuing under this Agreement, or if such a Default or Event of Default has
occurred and is continuing, containing a statement as to the nature thereof and
the steps being taken with respect thereto;
(iii) As soon as available and in any event within
thirty (30) days of the end of each month of Borrower, such financial statements
generated for the month then ended, signed by Borrower's chief financial
officer, certifying (A) such financial statements are the same financial
statements prepared for and presented to Borrower's management for such period,
(B) that Borrower has each taken all steps to pledge all collateral required to
be pledged under the Securities Pledge Agreement and (C) that such officer is
familiar with the terms of this Agreement and that no Default or Event of
Default has occurred or is continuing under this Agreement, or if such a Default
or Event of Default has occurred and is continuing, containing a statement as to
the nature thereof and the steps being taken with respect thereto;
(iv) Promptly after the sending or filing thereof,
copies of all reports which Borrower sends to its securities holders and, to the
extent not included in such reports, any and all monthly, quarterly and audited
annual financial statements of Borrower, any and all press releases that
Borrower issues or, as reasonably requested by any Lender, other information
(whether or not publicly filed);
(v) Promptly after any Responsible Officer of
Borrower has knowledge thereof, give notice to each Lender of: (A) the
occurrence of any Default or Event of Default; (B) any material default or event
of default under any contractual obligation of Borrower or any of its
Subsidiaries; (C) any litigation or proceeding affecting Borrower or any of its
Subsidiaries which might have a Material Adverse Effect; and (D) any notice of
termination of any of the Specified Agreements. Each notice pursuant to this
subsection shall be accompanied by a certificate of a responsible officer
setting forth details of the occurrence referred to therein and stating what
action Borrower proposes to take with respect thereto; and
(vi) Promptly after the occurrence of any of the
following events affecting Borrower or any ERISA Affiliate (but in no event more
than 10 days after such event), deliver to each Lender a copy of any notice with
respect to such event that is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to Borrower or any ERISA Affiliate with
respect to such event: (i) an ERISA Event; (ii) a material increase in
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the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or
the commencement of contributions to, any Plan subject to Section 412 of the
Code by Borrower or any ERISA Affiliate; (iv) the adoption of any amendment to a
Plan subject to Section 412 of the Code, if such amendment results in a material
increase in contributions or Unfunded Pension Liability; (v) a "prohibited
transaction" (as defined in Section 406 of ERISA and Section 4975 of the Code)
that would result in any material liability to Borrower or any ERISA Affiliate;
or (vi) any challenge by the IRS to the tax qualification of any Pension Plan
under Section 401 or 501 of the Code.
(c) INSURANCE. With respect to Borrower and its Subsidiaries,
maintain, and cause each Subsidiary to maintain, insurance with responsible and
reputable insurance companies and associations reasonably satisfactory to
Lenders, in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar Properties, including
coverage for general liability and hazard coverages reasonably satisfactory to
Lenders. All policies of insurance shall be endorsed (i) as so that if at any
time should they be canceled, or coverage be reduced which materially affects
the interests of Lenders or Administrative Agent, such cancellation or reduction
shall not be effective as to Lenders or Administrative Agent for thirty (30)
days after receipt by Administrative Agent of written notice from such insurer
of such cancellation or reduction and (ii) to name Administrative Agent, on
behalf of Lenders, as loss payee, and as further set forth in the Collateral
Documents.
(d) TAXES AND OTHER INDEBTEDNESS. With respect to Borrower and
its Subsidiaries, promptly pay and discharge when due, and cause each Subsidiary
to promptly pay and discharge when due, any and all Indebtedness (other than
Permitted Indebtedness), Liens (other than Permitted Liens), charges, taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any of its Properties prior to the date upon which
penalties accrue thereon, and lawful claims which, if unpaid, are or might
become a Lien (other than a Permitted Lien) or material charge upon its Property
or otherwise would be reasonably likely to have a Material Adverse Effect,
except for items being contested by Borrower in good faith where Borrower has
provided adequate reserves to satisfy such item if the contest is not
successful.
(e) MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. Except as
otherwise permitted by this Agreement, preserve and maintain its corporate
existence, its business substantially as contemplated in the Business Plan to be
conducted, and all of its rights, licenses, privileges and franchises necessary
or desirable in the normal conduct of said business. Borrower shall conduct its
business in an orderly, efficient and regular manner, keep its Properties useful
or necessary in its business in good working order and condition, and from time
to time make all needed repairs, renewals and replacements thereto, so that the
efficiency of its Properties shall be usefully preserved. Borrower shall comply
with all applicable orders, writs, decrees and judgments, with its certificate
of incorporation and bylaws, and with the terms of all mortgages, indentures,
leases, contracts and other agreements and instruments binding upon it or its
Property, except to the extent that the failure to comply with such mortgages,
indentures, leases, contracts, agreements or instruments would not be reasonably
likely to have a Material Adverse Effect.
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(f) FINANCIAL RECORDS, INSPECTION. With respect to Borrower
and its Subsidiaries, keep and maintain, and cause each of its Subsidiaries to
keep and maintain, accurate books of record and account in accordance with GAAP
consistently applied. On reasonable notice, which shall in no event need to be
longer than fourteen (14) Business Days, Borrower shall permit, and cause each
Subsidiary to permit, Administrative Agent, Lenders or representatives thereof,
during customary business hours and as often as Administrative Agent or Lenders
may reasonably request, to inspect, audit and examine its books and records, to
take extracts therefrom, to inspect its Properties and assets and to discuss its
affairs, finances and accounts with its principal officers and its independent
public accountants.
(g) USE OF PROCEEDS. Use the proceeds of the Investment
Capital Loans and the Working Capital Loans solely as described in SECTION 2.3.
(h) CONSENTS, APPROVALS. From time to time obtain all material
necessary governmental and third party consents, approvals and licenses in
connection with the transactions contemplated by the Specified Agreements and
the Credit Documents and such consents, approvals and licenses shall remain in
effect, including all required consents from Borrower's contractual
counterparties to the assignment to Administrative Agent or Lenders or their
designees of revenue producing agreements.
(i) ENVIRONMENTAL CONDITION. Use its Properties in such a
manner as to comply with all environmental protection statutes and shall not use
its Properties for the disposal of, or to produce, store, handle, treat,
release, or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; Borrower shall use its commercially reasonable
efforts to ensure that (i) none of its Properties will be designated or
identified in any manner pursuant to any environmental protection statute as a
hazardous waste or hazardous substance disposal site, or a candidate for closure
pursuant to any environmental protection statute and (ii) no Lien arising under
any environmental protection statute will attach to any revenues or to any
Property owned by Borrower.
(j) RENEGOTIATION OF FINANCIAL COVENANTS. Prior to Borrower,
after the date hereof, obtaining additional equity or Subordinated Indebtedness,
Borrower shall negotiate in good faith new values for the financial covenant set
forth in SECTIONS 5.3 in order to give effect to such proposed incremental
capital, and Borrower and Requisite Lenders shall reach agreement and enter into
an amendment to this Agreement modifying such financial covenants.
(k) FURTHER ASSURANCES. In addition to the obligations and
documents which this Agreement expressly requires it to execute, acknowledge,
deliver and perform, Borrower shall execute and acknowledge (or cause to be
executed and acknowledged) and deliver to Administrative Agent all documents,
and take all actions, that may be reasonably requested by Administrative Agent
or Lenders from time to time to confirm the rights created or now or hereafter
intended to be created under the Credit Documents, to protect and further the
validity, priority and enforceability of the Liens created under the Collateral
Documents, to subject to the Liens created under the Collateral Documents any
Property intended by the terms of any Credit Document to be covered by the
Collateral Documents, or otherwise to carry out the purposes of the Credit
Documents and the transactions contemplated hereunder and thereunder.
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5.2 NEGATIVE COVENANTS. So long as any of the Obligations shall remain
unpaid or unsatisfied or any Credit Party shall have any other obligations to
make payments to Administrative Agent or Lenders hereunder or Lenders shall have
any commitment hereunder (whichever is later), Borrower shall not, and as to
each covenant below expressly requiring compliance by its Subsidiaries, shall
not permit any Subsidiary to, directly or indirectly:
(a) ENCUMBRANCES, LIENS, ETC. Except for Liens in favor of
Administrative Agent and Lenders and except for Permitted Liens and Liens
disclosed in SCHEDULE 4.1(n) to the Disclosure Letter,
(i) As to Borrower, create, incur, assume or suffer
to exist any Lien of any nature, upon or with respect to any Properties, now
owned or hereafter acquired by Borrower, and
(ii) As to Borrower and its Subsidiaries, create,
incur, assume or suffer to exist any Lien of any nature upon or with respect to
any equity interest in any Portfolio Investment as to which a negative pledge is
required as set forth on SCHEDULE 2.3 to the Disclosure Letter.
(b) INDEBTEDNESS. Incur, create, assume or permit to exist any
Indebtedness except: (i) the Obligations; (ii) Indebtedness under the Fixed Rate
Notes; (iii) purchase money Indebtedness, provided that (A) such purchase money
financing arrangements are entered into in the ordinary course of business on an
arms'-length basis; and (B) such other vendors shall have entered into
intercreditor agreements with Administrative Agent satisfactory to Requisite
Lenders, in their sole and absolute discretion, which agreements shall provide
for, without limitation, (1) agreement as to the terms and conditions pertaining
to the disposition of shared collateral and (2) pari passu status as to all
shared collateral; (iv) obligations under Capital Leases and Operating Leases;
(v) interest rate swaps or caps that are bona fide hedges of floating rate
liabilities and do not subject Borrower or any of its Subsidiaries to
speculative risks; (vi) Subordinated Indebtedness and (vii) other Indebtedness;
provided, however, that in no event shall Indebtedness be permitted to be
incurred or maintained hereunder to the extent that the same shall cause the
financial covenant set forth in SECTION 5.3 to be violated. Collectively, the
Indebtedness described in this SECTION 5.2(b) is referred to as "Permitted
Indebtedness."
(c) CONSOLIDATION/MERGER/CHANGE OF CONTROL. Consolidate with
or merge into any other Person or permit any other Person to merge into it or
permit a Change of Control to occur.
(d) DISPOSITION OF ASSETS. With respect to Borrower, cause or
allow to occur an Asset Sale; provided, however, that Borrower may effect Asset
Sales if (i) immediately after giving effect thereto no Default or Event of
Default would exist; (ii) in the good faith opinion of Borrower's board of
directors, such Asset Sale is in exchange for consideration having a fair market
value at least equal to the property exchanged and is in the best interests of
Borrower; (iii) at least 80% of the consideration received by Borrower or such
Subsidiary in such Asset Sale is in the form of cash; and (iv) the Disposition
Value of all property that was the subject of any Asset Sale occurring in the
immediately preceding four fiscal quarters of Borrower would not exceed 35% of
the total consolidated assets of Borrower and its Subsidiaries.
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(e) INVESTMENTS. Make or permit to remain outstanding any
Investment other than (i) Investment Grade Instruments, (ii) loans and advances
to employees for business expenses, relocation, medical purposes and other
purposes in the ordinary course of business, in the aggregate not to exceed
$250,000 at any time outstanding, (iii) Investments in Subsidiaries listed on
SCHEDULE 4.1(l) to the Disclosure Letter, (iv) direct and indirect Investments
in the Persons described in SCHEDULE 2.3 to the Disclosure Letter, provided that
(A) such Investments do not exceed the amounts set forth in such Schedule, (B)
such Investments are made in accordance with the Business Plan, and (C) except
as expressly described in such Schedule, Administrative Agent has and maintains
a first priority perfected security interest in the equity interests of each
such Person, as evidenced by documents in form and substance satisfactory to
Requisite Lenders, including an opinion of local counsel satisfactory to
Requisite Lenders in respect of Investments in foreign entities and (v) other
Investments, provided, that such other Investments are not made with the
proceeds of any Loans.
(f) CAPITAL EXPENDITURES. Incur or make or commit to incur or
make Capital Expenditures from the proceeds of Loans in any fiscal year in
excess of amounts set forth in the Business Plan or make or commit to incur or
make Capital Expenditures if the incurrence of such Capital Expenditure would
result in or cause an Event of Default or a Default.
(g) LIMITATION ON PREPAYMENTS. Make or commit to make any
prepayment or voluntary redemptions of any Indebtedness except prepayments of
any amounts payable hereunder and permitted to be paid hereby, provided,
however, that Borrower may refinance any such Indebtedness if the Indebtedness
created in such refinancing transaction has a weighted average life to maturity
not less than the Indebtedness refinanced. .
(h) TRANSACTIONS WITH AFFILIATES. With respect to Borrower and
its Subsidiaries, except for reasonable management, operating and tax sharing
agreements, enter into any transaction, including the purchase, sale, or
exchange of Property or the rendering of any service, with any Affiliate, except
in the ordinary course of, and pursuant to the reasonable requirements of, its
business or upon fair and reasonable terms no less favorable to it than it would
obtain in a comparable arm's-length transaction with a Person not an Affiliate;
provided, however, that no violation of this covenant shall exist in respect of
past practices of QUALCOMM that are continued by Borrower after the Closing Date
and in respect of transactions of Borrower with QUALCOMM which are consistent
with past dealings between separate business units within QUALCOMM.
(i) DIVIDENDS; DISTRIBUTIONS. With respect to Borrower,
declare or pay cash dividends upon any of its stock or distribute any of its
Property or redeem, retire, purchase or acquire, directly or indirectly, any of
its stock, or make any change in its capital structure.
(j) CHANGE IN LINES OF BUSINESS. With respect to Borrower and
its Subsidiaries, engage to any substantial extent in any business other than
the businesses described in the Information Statement and the Business Plan;
provided, however, that this covenant shall not restrict Borrower or its
Subsidiaries from engaging in any business to the extent such business is not
financed with Loans.
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(k) MODIFICATION OF THE SPECIFIED AGREEMENTS. Without the
prior written approval of Requisite Lenders, amend, modify, supplement or
restate any of the Specified Agreements in a manner which might materially
negatively affect the ability of any Credit Party to perform its obligations
under this Agreement and the other Credit Documents.
(l) ERISA COMPLIANCE. (a) engage, or suffer or permit any
ERISA Affiliate to engage, in a "prohibited transaction" (as defined in Section
406 of ERISA and Section 4975 of the Code) or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted or could
reasonably expected to result in liability of Borrower in an aggregate amount in
excess of $250,000; (b) engage, or suffer or permit any ERISA Affiliate to
engage, in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA; or (c) incur, or suffer or permit any ERISA Affiliate to incur, any
obligation to contribute to a Pension Plan required by a collective bargaining
agreement or as a consequence of the acquisition of an ERISA Affiliate, unless
(A) Borrower shall notify Administrative Agent in writing that it intends to
incur such obligation and (B) after Administrative Agent's receipt of such
notice, Requisite Lenders consent to the establishment or maintenance of, or
Borrower's incurring an obligation to contribute to, the Pension Plan, which
consent may not unreasonably be withheld but may be subject to such reasonable
conditions as Requisite Lenders may require.
(m) OTHER COMPLIANCE. Become subject to regulation as an
"investment company" or as a Person controlled by an "investment company,"
within the meaning of the Investment Company Act of 1940, or become principally
engaged in, or undertake as one of its important activities, the business of
extending credit for the purpose of purchasing or carrying margin stock, or use
the proceeds of any Loan for such purpose, or fail to comply with the Federal
Fair Labor Standards Act, in each case which violation would be reasonably
likely to have a Material Adverse Effect.
5.3 FINANCIAL COVENANTS. As of any day during each period set forth
below and so long as any of the Obligations shall remain unpaid or unsatisfied
or any Credit Party shall have any other obligation to make payments to
Administrative Agent or Lenders hereunder, Borrower shall not at any time permit
the quotient obtained by dividing Total Debt by Total Capitalization, in each
case with respect to Borrower, to exceed the following levels during the
indicated periods:
<TABLE>
<CAPTION>
PERIOD LEVEL
<S> <C>
Closing Date through 4th anniversary thereof 70%
After the 4th anniversary of the Closing Date 50%
</TABLE>
SECTION 6. EVENTS OF DEFAULT.
6.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default:
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(a) Borrower shall fail to pay when due any principal of, or
interest on, any Loan, or Borrower shall fail to pay when due any fees or other
amounts payable under this Agreement and any such failure shall continue for
five (5) days; or
(b) Any representation or warranty made by Borrower (or any of
its officers), under or in connection with this Agreement or any other Credit
Document shall prove to have been incorrect in any material respect when made or
deemed made; or
(c) Borrower, or any Subsidiary of Borrower to the extent
applicable, shall fail to perform or observe any other term, covenant or
agreement on its part to be performed or observed and contained in this
Agreement or any other Credit Document and such failure shall continue for
thirty (30) days after Borrower has knowledge of such failure (provided,
however, that the breach of SECTIONS 5.1(b)(vi) and (g), 5.2(a) - (g), (i) and
(k) - (m) and 5.3 shall, immediately upon any such breach, constitute an Event
of Default); or
(d) (i) Borrower shall fail to pay any of its Material
Indebtedness (excluding Indebtedness incurred under this Agreement) or any
interest or premium thereon, when due (whether by scheduled maturity, required
prepayment, 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 Material Indebtedness; (ii) Borrower shall commit
any other default under any agreement or instrument relating to any such
Material Indebtedness, or any other event, shall occur and shall continue after
the applicable grace period, if any, specified in such agreement or instrument,
if the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Material Indebtedness; (iii) any such
Material Indebtedness shall be declared to be due and payable, or required to be
prepaid, prior to the stated maturity thereof; or (iv) Borrower shall commit a
material default under any of the Specified Agreements and such default shall
continue after the applicable grace period specified in such agreement. As used
in this SECTION 6.1, "Material Indebtedness" shall mean any Indebtedness of
Borrower or its Subsidiaries in excess of $1,000,000; or
(e) Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its Property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
assignment for the benefit of its or any of its creditors, (iv) be dissolved or
liquidated in full or in part, (v) become insolvent (as such term may be defined
or interpreted under any applicable statute), (vi) commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or consent to any such relief or to the
appointment of or taking possession of its Property by any official in an
involuntary case or other proceeding commenced against it, or (vi) take any
action for the purpose of effecting any of the foregoing; or
(f) Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of Borrower or of all or a substantial part of any of
its Property, or an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to Borrower under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be dismissed or
discharged within 90 days of commencement; or
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(g) Borrower shall fail to pay and discharge any judgment or
order, or levy of any attachment, execution or other process against its assets
and such judgment, order, levy or other process shall remain undischarged,
unvacated, unbonded or unstayed for a period of sixty (60) days or in any event
five (5) days prior to the time of any proposed sale under any such judgment or
levy; or
(h) If any of the Specified Agreements or any Credit Document,
including this Agreement, the Security Agreement or the Securities Pledge
Agreement, shall for any reason be, or be asserted to be, unenforceable or cease
to be in full force and effect or shall cease to give Administrative Agent and
Lenders the Liens, rights, powers and privileges purported to be created thereby
(including a perfected security interest in, and Lien on, all of the collateral
subject thereto) in favor of Lenders, superior to and prior to the rights of all
third Persons and subject to no other Liens (except to the extent expressly
permitted herein or therein; or
(i) (i) an ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of Borrower under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of $250,000;
(ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans
at any time exceeds $250,000; or (iii) Borrower or any ERISA Affiliate shall
fail to pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201
of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$250,000; or
(j) An event shall have occurred which would be reasonably
likely to result in a Material Adverse Effect; or
(k) A Change of Control shall occur.
6.2 REMEDIES. Immediately and without notice upon the occurrence of an
Event of Default specified in SECTION 6.1(e), 6.1(f) or SECTION 6.1(h), or, at
the option of Requisite Lenders, upon the occurrence of any other Event of
Default, (i) all amounts and obligations owed to Administrative Agent and
Lenders pursuant to this Agreement and the other Credit Documents shall
immediately become due and payable (including any unpaid commitment or facility
fees) and (ii) the obligation of Lenders to make any Loan under this Agreement
or the other Credit Documents and all commitments hereunder shall be terminated,
all without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, and (iii) without the expiration of any other period of
grace, except for a notice of foreclosure as provided in the Securities Pledge
Agreement, Administrative Agent or any Lender may immediately enforce payment of
the amounts owed it hereunder and exercise any and all other rights and remedies
granted to it by this Agreement or any of the other Credit Documents or at law,
in equity or otherwise.
6.3 UNMATURED EVENTS OF DEFAULT. Upon the occurrence of any Default,
the obligation of Lenders to make any Loans under this Agreement or the other
Credit Documents shall be suspended until such event is either waived by
Requisite Lenders or, to the extent allowed hereunder, cured by Borrower.
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6.4 PAYMENT OF SUBORDINATED INDEBTEDNESS. Upon the occurrence and
during the continuance of an Event of Default, Administrative Agent, at the
request of Requisite Lenders, on behalf of Lenders, may deliver to Borrower
written notice, or telephonic notice promptly confirmed in writing, directing
Borrower to make no further payments on account of any Subordinated
Indebtedness. Immediately upon receipt of such notice, Borrower shall cease
making and shall make no further payments of any nature whatsoever on account of
such Subordinated Indebtedness (except as otherwise permitted by the terms of
subordination of such Subordinated Indebtedness), whether such payments are owed
to the holder of such Subordinated Indebtedness or to some other Person, unless
and until Requisite Lenders have waived such Event of Default in writing or
shall have otherwise consented to such payment in writing in advance, such
consent being at Requisite Lenders' sole and absolute discretion.
SECTION 7. ADMINISTRATIVE AGENT.
7.1 APPOINTMENT OF ABN AMRO BANK N.V. AS ADMINISTRATIVE AGENT. Lenders
hereby designate and appoint ABN AMRO Bank N.V. as Administrative Agent to act
in an administrative function as specified under this Agreement and the other
Credit Documents and irrevocably authorizes Administrative Agent to take such
action on its behalf under and subject to the provisions of this Agreement and
each other Credit 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
Credit Document, together with such other powers, in the judgment of
Administrative Agent, as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement or any other Credit
Document, Administrative Agent shall not have any duties or responsibilities,
except those expressly set forth herein or therein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Credit Document or otherwise exist against Administrative
Agent.
7.2 DELEGATION OF DUTIES BY ADMINISTRATIVE AGENT. Administrative Agent
may execute any of its duties under this Agreement by or through Administrative
Agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. Administrative Agent
shall not be responsible for the negligence or misconduct of any Administrative
Agent or attorney-in-fact that it selects with reasonable care.
7.3 LIABILITY OF ADMINISTRATIVE AGENT. None of Administrative
Agent-Related Persons (defined below) shall (a) be liable for any action taken
or omitted to be taken by any of them under or in connection with this Agreement
or any other Credit Document (except for its own gross negligence or willful
misconduct), or (b) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by Borrower or any Affiliate
of Borrower, or any officer thereof, contained in this Agreement or in any other
Credit Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under or
in connection with, this Agreement or any other Credit Document, or for the
value of any Collateral or the validity, priority, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any Credit Document, or for
any failure of Borrower or any other party to any Credit Document to perform its
obligations hereunder or thereunder. No Administrative Agent-Related Person
shall be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the
50.
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agreements contained in, or conditions of, this Agreement or any other Credit
Document, or to inspect the Properties, books or records of Borrower or any of
Borrower's Affiliates. "Administrative Agent-Related Persons" shall mean
Administrative Agent and any successor Administrative Agent, together with their
respective Affiliates, and the employees, agents and attorneys-in-fact of such
persons.
7.4 RELIANCE BY ADMINISTRATIVE AGENT.
(a) Administrative Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document 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 Borrower),
independent accountants and other experts selected by Administrative Agent.
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Credit Document unless it shall first
receive such advice or concurrence of Requisite Lenders as it deems appropriate
and indemnification for all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action, provided, however, that
Administratiave Agent shall be justified in refusing to take action if such
action is in violation of law or the terms of this Agreement or any other Credit
Document, based on the advise of Administrative Agent's legal counsel.
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Credit Document in
accordance with a request or consent of Requisite Lenders and such request and
any action taken or failure to act pursuant thereto shall be binding upon all of
Lenders.
(b) For purposes of determining compliance with the conditions
precedent specified in SECTION 3, each Lender that has executed this Agreement
or shall hereafter execute and deliver an Assignment and Acceptance in
accordance with SECTION 8.6 shall be deemed to have consented to, approved or
accepted or to be satisfied with each document or other matter either sent by
Administrative Agent to such Lender for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by or
acceptable or satisfactory to such Lender, unless an officer of Administrative
Agent responsible for the transactions contemplated by the Credit Documents
shall have received notice from such Lender prior to the initial borrowing
specifying its objection thereto and either such objection shall not have been
withdrawn by notice to Administrative Agent to that effect or such Lender shall
not have made available to Administrative Agent its ratable portion of such
borrowing.
7.5 NOTICE OF DEFAULT. Administrative Agent shall not 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 Administrative Agent on behalf and for the benefit of Lenders,
unless Administrative Agent shall have received written notice from a Lender or
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
Administrative Agent receives such a notice, Administrative Agent shall give
notice thereof to each Lender. Administrative Agent shall take such action with
respect to such Default or Event of Default as shall be requested by Requisite
Lenders in accordance with SECTION 6; provided, however, that unless and until
Administrative Agent shall have received any such request, Administrative
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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 in the best interest of Lenders.
7.6 NON-RELIANCE BY LENDERS. Each Lender expressly acknowledges that
none of Administrative Agent-Related Persons has made any representation or
warranty to it and that no act by Administrative Agent hereafter taken,
including any review of the affairs of Borrower, shall be deemed to constitute
any representation or warranty by Administrative Agent to such Lender. Each
Lender confirms to Administrative Agent that it has not relied, and will not
rely hereafter, on Administrative Agent to check or inquire on such Lender's
behalf into the adequacy, accuracy or completeness of any information provided
by Borrower or any other Person under or in connection with the Credit Documents
or the transactions herein contemplated (whether or not the information has been
or is hereafter distributed to such Lender by Administrative Agent). Each Lender
represents to Administrative Agent that it has, independently and without
reliance upon Administrative Agent and based on such 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 Borrower, and all applicable regulatory laws relating to the
transactions contemplated thereby, and made its own decision to enter into this
Agreement and the other Credit Documents and extend credit to Borrower under and
pursuant to this Agreement. Each Lender also represents that it will,
independently and without reliance upon Administrative Agent and based on such
documents and appraisals and decisions in taking or not taking action under this
Agreement and the other Credit 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 Borrower. Except
for notices, reports and other documents expressly herein required to be
furnished to Lenders by Administrative Agent, Administrative Agent shall not
have any duty or responsibility to provide to any Lender any credit or other
information concerning the business, prospects, operations, Property, financial
and other condition or creditworthiness of Borrower which may come into the
possession of any Administrative Agent-Related Persons. Administrative Agent
shall not be responsible to any Lender for the execution, effectiveness,
priority, genuineness, validity, enforceability, collectibility or sufficiency
of this Agreement the Credit Documents or for any representations or warranties,
recitals or statements made herein or therein or made in any written or oral
statements, or in any financial or other statements, instruments, reports or
certificates or any other documents furnished or made available by
Administrative Agent to Lenders or by or on behalf of Borrower to Administrative
Agent or any Lender in connection with the Credit Documents or the transactions
contemplated thereby or for the financial condition or business affairs of
Borrower or any Person liable for payment of the Obligations, nor shall
Administrative Agent be required to ascertain or inquire as to the performance
or observance of any of the terms, conditions, provisions, covenants or
agreements contained in any of the Credit Documents or as to the use of proceeds
of the Loans or as to the existence or possible existence of any Default or
Event of Default.
7.7 INDEMNIFICATION. Whether or not the transactions contemplated
hereby are consummated, Lenders shall indemnify upon demand Administrative
Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower
and without limiting the obligation of Borrower to do so) ratably from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind
whatsoever which may at any time (including at any time following the repayment
of the Loans or the
52.
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termination or the resignation of the related Administrative Agent) be imposed
on, incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any of the other Credit Documents or the
transactions contemplated hereby or thereby or any action taken or omitted by
any such Person under or in connection with any of the foregoing; provided,
however, that no Lender shall be liable for the payment to Administrative
Agent-Related Persons of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from such Person's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender shall reimburse Administrative Agent
upon demand for its ratable share of any costs or other out-of-pocket expenses
(including reasonable attorneys' expenses and disbursements) incurred by
Administrative Agent in connection with the preparation, execution,
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 or any other Credit Document to
the extent that Administrative Agent has not previously been reimbursed for such
expenses by or on behalf of Borrower. Without limiting the generality of the
foregoing, if the IRS or any Administrative Agent did not properly withhold tax
from amounts paid to or for the account of any Lender (because the appropriate
form was not delivered, was not properly executed, or because such Lender failed
to notify 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 shall indemnify Administrative Agent fully for all amounts
paid, directly or indirectly, by Administrative Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to Administrative Agent under this SECTION
7.7, together with all costs and expenses (including reasonable attorneys'
expenses and disbursements). The obligations of Lenders in this SECTION 7.7
shall survive the repayment of all Obligations and the termination of the Credit
Documents.
7.8 SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may, and at
the request of Requisite Lenders shall, resign as Administrative Agent upon 30
days' notice to Lenders. If Administrative Agent shall resign as Administrative
Agent under this Agreement and the other Credit Documents, then Requisite
Lenders shall appoint from among Lenders a successor Administrative Agent for
Lenders. If no successor Administrative Agent is appointed prior to the
effective date of the resignation of Administrative Agent, Administrative Agent
may appoint, after consulting with Lenders and Borrower, a successor
Administrative Agent from among Lenders. Upon the acceptance of its appointment
as successor Administrative Agent hereunder and under the other Credit
Documents, such successor Administrative Agent shall succeed to the rights,
powers and duties of Administrative Agent, the term "Administrative Agent" shall
mean such successor Administrative Agent effective upon its appointment, and the
former Administrative Agent's appointment, rights, powers and duties as
Administrative Agent shall be terminated. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of this SECTION 7
and SECTIONS 8.4 and 8.14 shall continue to inure to its benefit as to actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Credit Documents.
7.9 MATTERS REGARDING THE COLLATERAL.
(a) Administrative Agent is authorized on behalf of Lenders,
without the necessity of any notice to or further consent from Lenders, from
time to time to take any action
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with respect to any Collateral or the Collateral Documents which may be
necessary to perfect and maintain perfected the security interest in and Liens
upon the Collateral granted pursuant to the Collateral Documents; provided,
however, that Administrative Agent shall not be responsible for the
effectiveness of such Collateral Document as provided in SECTION 7.6.
(b) Lenders irrevocably authorize Administrative Agent, at its
option and in its discretion, to release any Lien granted to or held by
Administrative Agent upon any Collateral (i) upon termination of the Commitments
and payment in full of all Loans and all other Obligations payable under this
Agreement and under any other Credit Document; (ii) constituting Property sold
or to be sold or disposed of as part of or in connection with any disposition
permitted hereunder; (iii) constituting Property in which Borrower did not own
an interest at the time the Lien was granted or at any time thereafter; (iv)
constituting Property leased to Borrower under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to expire
and which has not been, and is not intended by Borrower to be, renewed or
extended; (v) consisting of an instrument evidencing Indebtedness or another
debt instrument, if the indebtedness evidenced thereby has been paid in full; or
(vi) if approved, authorized or ratified in writing by Requisite Lenders or all
Lenders, as the case may be, as provided in SECTION 8.1. Upon request by
Administrative Agent at any time, Lenders shall confirm in writing
Administrative Agent's authority to release particular types or items of
Collateral pursuant to this SECTION 7.9(b). Requisite Lenders may also deliver
written directions to Administrative Agent not to take any specific action
permitted by this SECTION 7.9(b) and, following receipt of such notice, but
subject to the other terms of this Agreement, Administrative Agent shall cease
from taking such action.
SECTION 8. MISCELLANEOUS.
8.1 AMENDMENTS. No amendment or waiver of any provision of this
Agreement or any of the other Credit Documents, nor consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by Requisite Lenders and acknowledged by 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 such amendment, waiver or consent shall, unless in writing and signed by all
Lenders (other than any Lender which is in default of its obligations hereunder)
and Borrower and acknowledged by Administrative Agent, do any of the following:
(a) increase or extend the Aggregate Investment Capital Loan
Commitment or any Investment Capital Lender's Investment Capital Loan Commitment
Percentage (or reinstate any such commitment terminated hereunder); or increase
or extend the Aggregate Working Capital Loan Commitment or any Working Capital
Lender's Working Capital Loan Commitment Percentage (or reinstate any such
commitment terminated hereunder);
(b) postpone or delay any date fixed by this Agreement or any
other Credit Document for any payment or prepayment of amounts due to Lenders
hereunder or under any other Credit Document other than payments of principal,
interest and commitment fees solely with respect to either the Investment
Capital Loan Facility or the Working Capital Facility;
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(c) reduce the amount of any amounts payable to Lenders (or
any of them) hereunder or under any other Credit Document other than payments of
principal, interest and commitment fees solely with respect to either the
Investment Capital Loan Facility or the Working Capital Facility;
(d) change the percentage of the Aggregate Commitment, the
Aggregate Investment Capital Loan Commitment or the Aggregate Working Capital
Loan Commitment or of the aggregate unpaid principal amount of the Loans, the
Investment Capital Loans or the Working Capital Loans, as applicable, which is
required for Lenders, Investment Capital Lenders or Working Capital Lenders, as
applicable, to take any action hereunder;
(e) release all or any substantial part of the collateral
granted or pledged under any of the Collateral Documents, except as otherwise
may be provided in the Collateral Documents; or
(f) amend this SECTION 8.1 or any provision herein expressly
providing for consent or other action by all Lenders, all Investment Capital
Lenders or all Working Capital Lenders;
provided further, that no amendment or waiver shall, unless in writing and
signed by Administrative Agent in addition to Requisite Lenders, Requisite
Investment Capital Lenders or Requisite Working Capital Lenders, as applicable,
or all Lenders, all Investment Capital Lenders or all Working Capital Lenders,
as applicable, affect the rights or duties of Administrative Agent under this
Agreement or any other Credit Document.
Notwithstanding anything to the contrary in this SECTION 8.1, no
amendment or waiver of any provision of this Agreement or any of the other
Credit Documents relating solely to the terms and conditions of the Investment
Capital Loan Facility (including as to those matters set forth in this Agreement
expressly requiring the approval of Requisite Investment Capital Lenders), nor
consent to any departure by Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by Requisite Investment Capital
Lenders; provided, however, that no such amendment, waiver or consent shall,
unless in writing and signed by all Investment Capital Lenders (other than any
Investment Capital Lender which is in default of its obligations hereunder) and
Borrower and acknowledged by Administrative Agent, do any of the following:
(g) postpone or delay any date fixed by this Agreement or any
other Credit Document for any payment or prepayment of principal, interest, fees
or other amounts due to Investment Capital Lenders (or any of them) solely with
respect to the Investment Capital Loan Facility hereunder or under any other
Credit Document; or
(h) reduce the principal of, or the rate of interest specified
herein on any Investment Capital Loan (except in connection with a waiver of
applicability of any post-default increase in interest rates), or any fees or
other amounts payable to Investment Capital Lenders with respect to the
Investment Capital Loan Facility hereunder or under any other Credit Document.
55.
<PAGE> 63
Notwithstanding anything to the contrary in this SECTION 8.1, no
amendment or waiver of any provision of this Agreement or any of the other
Credit Documents relating solely to the terms and conditions of the Working
Capital Loan Facility (including as to those matters set forth in this Agreement
expressly requiring the approval of Requisite Working Capital Lenders), nor
consent to any departure by Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by Requisite Working Capital
Lenders; provided, however, that no such amendment, waiver or consent shall,
unless in writing and signed by all Working Capital Lenders (other than any
Working Capital Lender which is in default of its obligations hereunder) and
Borrower and acknowledged by Administrative Agent, do any of the following:
(i) postpone or delay any date fixed by this Agreement or any
other Credit Document for any payment or prepayment of principal, interest, fees
or other amounts due to Working Capital Lenders (or any of them) solely with
respect to the Working Capital Loan Facility hereunder or under any other Credit
Document; or
(j) reduce the principal of, or the rate of interest specified
herein on any Working Capital Loan (except in connection with a waiver of
applicability of any post-default increase in interest rates), or any fees or
other amounts payable to Working Capital Lenders solely with respect to the
Working Capital Loan Facility hereunder or under any other Credit Document.
8.2 NOTICES, ETC. Except as to those notices and other communications
which are expressly authorized to be sent telephonically, all notices and other
communications provided for hereunder shall be in writing (including facsimile
communication) and sent by certified mail, overnight courier service, telecopied
or delivered, and addressed to Borrower, Administrative Agent or such Lender at
its address shown, or at such other address as it may, by written notice
received by the other parties to this Agreement, have designated as its address
for such purposes. Administrative Agent or any Lender giving any waiver, consent
or notice to, or making any request upon, Borrower hereunder shall promptly
notify the other parties to this Agreement at the addresses set forth below:
Borrower Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, California 92121
Attention: President
Fax No.: [____________]
With a copy to:
Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, California 92121
Attention: General Counsel
Fax No.: [_____________]
56.
<PAGE> 64
Administrative Agent ABN AMRO Bank N.V.
Agency Services
1325 Avenue of the Americas, 9th Floor
New York, New York 10019
Attention: Linda Boardman, Vice President
and Director
Fax No.: (212) 314-1711
Phone No.: (212) 314-1724
With a copy to:
ABN AMRO Bank N.V.
Los Angeles Branch
300 South Grand Avenue
Suite 2650
Los Angeles, California 90071
Attention: Credit Administration
Fax No.: (213) 687-2390
Lender QUALCOMM Incorporated
6455 Lusk Boulevard
San Diego, California 92121-2779
Attention: Vice President, Customer Finance
Fax No. (619) 658-4203
With copy to:
QUALCOMM Incorporated
6455 Lusk Boulevard
San Diego, California 92121-2779
Attention: General Counsel
Fax No. (619) 658-2500
The address for notices for Persons which subsequently become Lenders hereunder
shall be as noted in the assignment and acceptance documentation to which such
Person becomes a party. Except as set forth below, all such notices and
communications shall, when mailed or telecopied, be effective, if deposited in
the mails, two (2) Business Days after deposit in the mails, or if telecopied,
upon being telecopied, with receipt telephonically confirmed by sender,
respectively, addressed as aforesaid; provided, however, that notices to Lenders
or Administrative Agent pursuant to the provisions of SECTION 2 shall not be
effective, as of a given Business Day, unless
57.
<PAGE> 65
actually received by Lenders or Administrative Agent or both, as applicable,
prior to 1:00 p.m. New York time, on said Business Day. Notices given to Lenders
or Administrative Agent pursuant to the provisions of SECTION 2 which are
received after 1:00 p.m. New York time on a Business Day shall be considered
effective as of the next succeeding Business Day. Each of such notices specified
in SECTION 2 shall be given by telephone, facsimile or delivery of such notice.
Neither Lenders nor Administrative Agent shall incur any liability to Borrower
in acting upon any telephone or facsimile notice referred to in SECTION 2 which
Lenders or Administrative Agent believe in good faith to have been given by a
duly authorized officer or other person authorized to borrow on behalf of
Borrower. Each such telephonic or facsimile notice shall be irrevocable and
binding on Borrower.
8.3 NO WAIVER; REMEDIES. No failure on the part of Administrative Agent
or Lenders to exercise, and no delay in exercising, any right under any Credit
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Credit Document preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
the Credit Documents are cumulative and not exclusive of any remedies provided
by law.
8.4 COSTS, EXPENSES AND TAXES. Borrower agrees to pay Administrative
Agent or Lenders, as the case may be, on demand, whether or not any Loan is made
hereunder, (i) all reasonable fees and expenses, including reasonable attorneys'
fees, incurred by Administrative Agent and Lenders in connection with the
negotiation of and/or the preparation of amendments to and waivers under the
Credit Documents, (ii) all reasonable costs and expenses, if any (including
reasonable counsel fees and expenses), incurred by Administrative Agent and
Lenders in connection with the enforcement and administration of the Credit
Documents and the other documents to be delivered under the Credit Documents and
(iii) any and all recording and filing fees associated with the foregoing and
any future stamp, excise and other similar taxes with respect to the foregoing,
and Borrower agrees to indemnify and hold Administrative Agent and Lenders
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission to pay Lenders any such taxes. As used herein,
"attorneys' fees" shall include, without limitation, allocable costs of
Administrative Agent's and Lenders' in-house legal counsel and staff.
8.5 RIGHT OF SET-OFF.
(a) Upon the occurrence and during the continuance of any
Event of Default, Administrative Agent and Lenders are 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 Lenders
to or for the credit or the account of Borrower against any and all of the
obligations of Borrower now or hereafter existing under any Credit Document,
irrespective of whether or not Administrative Agent or Lenders shall have made
any demand under such Credit Document and although such obligations may be
unmatured. Lenders agree promptly to notify 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 Lenders under this
Section are in addition to other rights and remedies (including other rights of
set-off) which Lenders may have.
58.
<PAGE> 66
(b) Borrower's obligations to make payments and perform all
other obligations hereunder, and the rights of Administrative Agent and Lenders
in and to such payments and performance, are absolute and unconditional and
shall not be subject to any abatement, reduction, set-off, defense, counterclaim
or recoupment for any reason whatsoever.
8.6 BINDING EFFECT; ASSIGNMENTS; GOVERNING LAW. This Agreement and the
other Credit Documents shall be binding upon and inure to the benefit of
Borrower, Lenders and Administrative Agent and their respective successors and
assigns. Borrower shall not have the right to assign its rights or delegate its
duties hereunder or any interest herein without the prior written consent of
Lenders and Administrative Agent. Lenders may assign or sell participation
interests in all or any part of their interests under this Agreement or any of
the other Credit Documents; provided, however, no Lender shall transfer or grant
any participating interest under which the participant shall have rights to
approve any amendment, consent or waiver with respect to this Agreement except
to the extent such amendment, consent or waiver would require unanimous consent
as described in SECTION 8.1; and provided, further, that no assignment of a
Lender's Loans and portion or the Aggregate Commitment shall be in an aggregate
amount of less than $2,500,000; and provided, finally, that prior to the fourth
anniversary hereof QUALCOMM in its capacity as a Lender hereunder shall not make
any assignment of its interests under this Agreement if, as a result of such
assignment, QUALCOMM's percentage portion of all Loans then outstanding, all
Investment Capital Commitments and all Working Capital Commitments, respectively
would, in each case be less than 51%. Lenders may, subject to SECTION 8.19,
disclose the Credit Documents and any financial or other information relating to
Borrower to any potential assignee or participant. The form of Assignment and
Acceptance is attached hereto as EXHIBIT G. This Agreement and the other Credit
Documents shall be governed by, and construed in accordance with, the laws of
the State of California.
8.7 COLLATERAL. The obligations of Borrower under this Agreement are
secured by the Collateral Documents.
8.8 NATURE OF LENDERS' OBLIGATIONS. Nothing contained in this
Agreement, any other Credit Document or the Specified Agreements and no action
taken by Lenders pursuant hereto or thereto may, or may be deemed to, make
Administrative Agent or Lenders a partnership, an association, a joint venture,
or other entity, with Borrower.
8.9 NON-LIABILITY OF LENDERS. The relationship between Borrower and
Lenders is, and shall at all times remain, solely that of borrower and lender,
and Lenders and Administrative Agent neither undertake nor assume any
responsibility or duty to Borrower to review, inspect, supervise, pass judgment
upon, or inform Borrower of any matter in connection with any phase of
Borrower's business, operations, or condition, financial or otherwise. Borrower
shall rely entirely upon its own judgment with respect to such matters, and any
review, inspection, supervision, exercise of judgment, or information supplied
to Borrower by Administrative Agent or any of Lenders in connection with any
such matter is for the protection of Administrative Agent and Lenders, and
neither Borrower nor any third party is entitled to rely thereon.
59.
<PAGE> 67
8.10 JURISDICTION, VENUE, SERVICE OF PROCESS; ARBITRATION.
(a) JURISDICTION, VENUE. BORROWER, ADMINISTRATIVE AGENT AND
EACH LENDER HEREBY AGREE THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE
STATE OF CALIFORNIA IN THE COUNTY OF SAN DIEGO OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF CALIFORNIA AS ADMINISTRATIVE AGENT OR ANY
LENDER MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, EACH OF BORROWER,
LENDERS AND ADMINISTRATIVE AGENT ACCEPTS AND CONSENTS TO, FOR ITSELF AND IN
RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS AND AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE, UNLESS
WAIVED BY ADMINISTRATIVE AGENT AND EACH LENDER IN WRITING, WITH RESPECT TO ANY
ACTION OR PROCEEDING BROUGHT BY BORROWER AGAINST ADMINISTRATIVE AGENT OR ANY
LENDER. NOTHING HEREIN SHALL LIMIT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT
TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE
BASIS OF FORUM NON CONVENIENS.
(b) SERVICE OF PROCESS. SERVICE OF PROCESS ON BORROWER,
ADMINISTRATIVE AGENT OR ANY LENDER IN ANY ACTION SUBJECT TO THIS SECTION 8.10
SHALL BE EFFECTIVE IF MAILED TO SUCH PARTY AT THE ADDRESS FOR NOTICES SPECIFIED
IN SECTION 8.2.
(c) WAIVER OF JURY TRIAL. BORROWER, EACH LENDER AND
ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS.
8.11 CONFLICT IN CREDIT DOCUMENTS. To the extent there is any actual
irreconcilable conflict between the provisions of this Agreement and any other
Credit Document, the provisions of this Agreement shall prevail.
8.12 MAXIMUM RATE. In no event whatsoever shall the interest rate and
other charges charged hereunder exceed the highest rate permissible under any
law which a court of competent jurisdiction shall, in a final determination,
deem applicable hereto. In the event that a court determines that Lenders have
received interest and other charges hereunder in excess of the highest rate
applicable hereto, Lenders shall promptly refund such excess amount to Borrower
and the provisions hereof shall be deemed amended to provide for such
permissible rate.
8.13 BROKER. Borrower and Lenders represent and warrant to each other
that, with respect to the financing transaction herein contemplated, no Person
is entitled to any brokerage fee or other commission as a result of their
respective conduct and each agrees to indemnify and hold the other harmless
against any and all such claims for which the indemnitor is responsible.
8.14 INDEMNIFICATION. Borrower agrees to indemnify, save, and hold
harmless Administrative Agent, Lenders and their directors, officers, agents,
attorneys and employees (collectively, the "indemnitees") from and against: (i)
any and all claims, demands, actions, or
60.
<PAGE> 68
causes of action that are asserted against any indemnitee by any Person if the
claim, demand, action, or cause of action arises out of or relates to a claim,
demand, action, or cause of action that the Person asserts or may assert against
Borrower, or any officer, director or shareholder of Borrower in their capacity
as such, (ii) any and all claims, demands, actions or causes of action that are
asserted against any indemnitee (other than by Borrower or by another
indemnitee) if the claim, demand, action or cause of action arises out of or
relates to the Loans, the use of proceeds of any Loans, or the relationship of
Borrower and Lenders under this Agreement or any transaction contemplated
pursuant to this Agreement, (iii) any administrative or investigative proceeding
by any governmental agency arising out of or related to a claim, demand, action
or cause of action described in clauses (i) or (ii) above; and (iv) any and all
liabilities, losses, costs, or expenses (including outside attorneys' fees,
in-house counsel fees and disbursements) that any indemnitee suffers or incurs
as a result of any of the foregoing; provided, that Borrower shall have no
obligation under this SECTION 8.14 to any Lender or Administrative Agent with
respect to any of the foregoing arising out of the gross negligence or willful
misconduct of such Lender or Administrative Agent.
8.15 HEADINGS. Headings in this Agreement are for convenience of
reference only and are not part of the substance hereof.
8.16 COUNTERPARTS. This Agreement may be executed in identical original
counterparts, each of which will be deemed to be an original and taken together
shall constitute one and the same instrument.
8.17 SURVIVAL. All indemnities herein shall survive the execution and
delivery of this Agreement and the making and repayment of all Loans.
8.18 EFFECTIVENESS. This Agreement shall become effective on the date
on which Borrower, Lenders and Administrative Agent shall have signed a copy
hereof and shall have delivered the same to the other parties.
8.19 CONFIDENTIALITY. Each of Administrative Agent and Lenders agrees
that it will use its reasonable best efforts to keep confidential and to cause
any representative designated under SECTION 5.1(g) to keep confidential any
material non-public information from time to time supplied to it under this
Agreement; provided, however, that nothing herein shall prohibit Administrative
Agent or any Lender from disclosing such information (i) to the extent
Administrative Agent or such Lender in good faith believes it is required by
statute, rule, regulation or judicial process to divulge such information to any
Person as required by such authority, (ii) to Administrative Agent's or such
Lender's counsel, (iii) to Administrative Agent's or such Lender's examiners,
regulators, advisors, auditors or comparable Persons, (iv) to any of
Administrative Agent's or such Lender's Affiliates, (v) to any other Lender or
any assignee, transferee or participant of all or any portion of Administrative
Agent's or any Lender's rights under this Agreement or the other Credit
Documents who is notified of the confidential nature of the information and
agrees to be bound by this provision or provisions reasonably comparable hereto,
or (vi) any other Person in connection with any litigation to which any of
Lenders is a party; and provided, further, that no Lender or Administrative
Agent shall have any obligation under this SECTION 8.19 to the extent any such
information
61.
<PAGE> 69
becomes available on a non-confidential basis from a source other than Borrower
or its Subsidiaries or that any information becomes publicly available other
than by a breach of this SECTION 8.19. Each Lender agrees it will use all
confidential information exclusively for the purpose of evaluating, monitoring,
selling, protecting or enforcing its rights under this Agreement and the other
Credit Documents. Without affecting any other rights of Borrower, each Lender
agrees that Borrower shall be entitled to seek the remedies of injunction and
specific performance for any breach of the provisions of this SECTION 8.19.
8.20 CONFLICT IN CREDIT DOCUMENTS. To the extent there is any actual
irreconcilable conflict between the provisions of this Agreement and any other
Credit Document, the provisions of this Agreement shall prevail.
8.21 ENTIRE AGREEMENT. This Agreement, the other Credit Documents and
the documents and agreements executed in connection herewith and therewith
constitute the final agreement of the parties hereto and supersede any prior
agreement or understanding, written or oral, with respect to the matters
contained herein and therein.
62.
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunder duly authorized, as of the date
first above written.
BORROWER: LEAP WIRELESS INTERNATIONAL, INC.,
a Delaware corporation
By:
-------------------------------------
Harvey P. White,
President and Chief Executive Officer
By:
-------------------------------------
Tom Williardson,
Senior Vice President, Finance and Treasurer
ADMINISTRATIVE AGENT: ABN AMRO BANK N.V., AS ADMINISTRATIVE AGENT
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
Administrative Agent's Payment Office
ABN AMRO Bank N.V.
1325 Avenue of the Americas, 9th Floor
New York, New York 10019
ABA No. 026009580
F/O ABN AMRO Bank N.V. - Chicago CPU
Acct. No. 650-001-1789-41
REF: CPU 00436844 QUALCOMM
LENDER: QUALCOMM INCORPORATED
By:
-------------------------------------
Name:
CREDIT AGREEMENT
63.
<PAGE> 71
Title:
Domestic Lending Office
QUALCOMM Incorporated
6455 Lusk Blvd.
San Diego, California 92121
Attention: Vice President - Customer Finance
Fax No. (619) 658-4203
With Copy to: General Counsel
CREDIT AGREEMENT
<PAGE> 72
SCHEDULE 1.1
COMMITMENTS
<TABLE>
<CAPTION>
INVESTMENT CAPITAL LOAN COMMITMENT WORKING CAPITAL LOAN COMMITMENT
<S> <C> <C>
QUALCOMM Incorporated $229,800,000 $35,200,000
</TABLE>
<PAGE> 73
INDEX OF SCHEDULES
Schedule 1.1 -- Commitments
INDEX OF EXHIBITS
Exhibit A-1 -- Form of Investment Capital Note
Exhibit A-2 -- Form of Working Capital Note
Exhibit B -- Form of Borrowing Request
Exhibit C -- Form of Notice of Conversion/Continuation
Exhibit D -- Form of Non-Bank Lender Tax Certificate
Exhibit E -- Form of Security Agreement
Exhibit F -- Form of Securities Pledge Agreement
Exhibit G -- Form of Assignment and Acceptance
<PAGE> 74
EXHIBIT A-1
FORM OF INVESTMENT CAPITAL NOTE
$________________ [ DATE ]
San Diego, California, U.S.A.
LEAP WIRELESS INTERNATIONAL, INC., a Delaware corporation ("Borrower"),
for value received, hereby promises to pay to the order of [ NAME OF LENDER ], a
corporation duly organized under the laws of the State of [______________]
("Lender"), at the offices of [________________________] or at such other office
as the Administrative Agent may specify from time to time, in lawful money of
the United States of America at Maturity (as defined in that certain Credit
Agreement dated as of _______________, 1998, by and among Borrower, the Lenders
and ABN AMRO Bank N.V., as Administrative Agent, as the same may from time to
time amended, modified, supplemented or restated, the "Credit Agreement"), the
lesser of (i) the principal amount of _______________________________________
Dollars ($______________) or (ii) the principal amount of all Investment Capital
Loans outstanding in favor of Lender at Maturity. Borrower further agrees (a) to
make scheduled repayments of principal in the amounts and on the dates provided
in the Credit Agreement and (b) to pay interest on the unpaid principal balance
hereof from time to time outstanding, in like money and funds, for the period
commencing on the date hereof until paid in full, at the rates per annum and on
the dates provided in the Credit Agreement. All remaining accrued but unpaid
interest shall in any event be due and payable upon Maturity. All capitalized
terms used and not otherwise defined herein shall have the meanings given to
such terms in the Credit Agreement.
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of the Credit Agreement and the other Credit
Documents, but neither this reference to the Credit Agreement and the other
Credit Documents nor any provision thereof shall affect or impair the absolute
and unconditional obligation of the undersigned maker of this Note to pay the
principal of and interest on this Note as herein provided.
In case an Event of Default (as defined in the Credit Agreement) shall
occur, the aggregate unpaid principal of and accrued interest on this Note shall
become or may be declared to be due and payable in the manner and with the
effect provided in the Credit Agreement.
The undersigned may, at its option, prepay all or any part of the
principal of this Note before maturity upon the terms provided in the Credit
Agreement. In addition, the undersigned shall, upon the terms provided in the
Credit Agreement, be obligated to make certain prepayments of the principal of
this Note in certain amounts before maturity.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
1.
<PAGE> 75
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
State of California (without giving effect to any conflict of laws provisions
contained therein).
LEAP WIRELESS INTERNATIONAL, INC..,
a Delaware corporation
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
2.
<PAGE> 76
EXHIBIT A-2
FORM OF WORKING CAPITAL NOTE
$__________ [ DATE ]
San Diego, California, U.S.A.
LEAP WIRELESS INTERNATIONAL, INC., a Delaware corporation ("Borrower"),
for value received, hereby promises to pay to the order of [ NAME OF LENDER ], a
corporation duly organized under the laws of the State of [______________]
("Lender"), at the offices of [________________________], or at such other
office as the Administrative Agent may specify from time to time, in lawful
money of the United States of America at Maturity (as defined in that certain
Credit Agreement dated as of _______________, 1998, by and among Borrower, the
Lenders and ABN AMRO Bank N.V., as Administrative Agent, as the same may from
time to time amended, modified, supplemented or restated, the "Credit
Agreement"), the lesser of (i) the principal amount of
_____________________________________ Dollars ($________________) or (ii) the
principal amount of all Working Capital Loans outstanding in favor of Lender at
Maturity. Borrower further agrees (a) to make scheduled repayments of principal
in the amounts and on the dates provided in the Credit Agreement and (b) to pay
interest on the unpaid principal balance hereof from time to time outstanding,
in like money and funds, for the period commencing on the date hereof until paid
in full, at the rates per annum and on the dates provided in the Credit
Agreement. All remaining accrued but unpaid interest shall in any event be due
and payable upon Maturity. All capitalized terms used and not otherwise defined
herein shall have the meanings given to such terms in the Credit Agreement.
This Note is issued pursuant to, and entitled to the benefits of, and
is subject to, the provisions of the Credit Agreement and the other Credit
Documents, but neither this reference to the Credit Agreement and the other
Credit Documents nor any provision thereof shall affect or impair the absolute
and unconditional obligation of the undersigned maker of this Note to pay the
principal of and interest on this Note as herein provided.
In case an Event of Default (as defined in the Credit Agreement) shall
occur, the aggregate unpaid principal of and accrued interest on this Note shall
become or may be declared to be due and payable in the manner and with the
effect provided in the Credit Agreement.
The undersigned may, at its option, prepay all or any part of the
principal of this Note before maturity upon the terms provided in the Credit
Agreement. In addition, the undersigned shall, upon the terms provided in the
Credit Agreement, be obligated to make certain prepayments of the principal of
this Note in certain amounts before maturity.
The undersigned maker hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
1.
<PAGE> 77
This instrument shall have the effect of an instrument executed under
seal and shall be governed by and construed in accordance with the laws of the
State of California (without giving effect to any conflict of laws provisions
contained therein).
LEAP WIRELESS INTERNATIONAL, INC..,
a Delaware corporation
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
2.
<PAGE> 78
EXHIBIT B
FORM OF BORROWING REQUEST
Date: ____________________
To: [______________________________]
Re: Credit Agreement dated as of ____________, 1998 (as the same may from
time to time be amended, modified or supplemented or restated, the
"Credit Agreement"), by and among Leap Wireless International, Inc., as
Borrower, QUALCOMM Incorporated ("QUALCOMM") and the other Lenders
named therein (collectively, the "Lenders"), and ABN AMRO Bank N.V., as
Administrative Agent on behalf of the Lenders
Ladies and Gentlemen:
The undersigned, LEAP WIRELESS INTERNATIONAL, INC. ("Borrower") refers to the
Credit Agreement, the terms defined therein being used herein as therein
defined, and hereby each gives you notice irrevocably, pursuant to SECTION
2.5(a) of the Credit Agreement, of the borrowing of a [Working Capital Loan]
[Investment Capital Loan] as specified herein:
1. The aggregate amount of the requested borrowing is
$__________________.
2. The Funding Date, which shall be a Business Day, of the requested
borrowing is _____________, 199__/200__.
The undersigned hereby certifies that the following statements are true and on
the date hereof, and will be true on the date of the proposed borrowing, before
and after giving effect thereto and to the application of the proceeds
therefrom:
(a) the representations and warranties of Borrower contained
in SECTION 4 of the Credit Agreement are true and correct as though made on and
as of such date (except to the extent such representations and warranties relate
to an earlier date, in which case they are true and correct as of such date);
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed borrowing;
(c) the requested borrowing will not cause the aggregate
principal amount of all outstanding [Working Capital Loans] [Investment Capital
Loans] to exceed, as of the designated funding date, the [Aggregate Working
Capital Loan Commitment] [Aggregate Investment Capital Loan Commitment.]; and
(d) attached hereto as SCHEDULE 1 (to be delivered to QUALCOMM
only) is (i) a complete and current copy of Borrower's budget and (ii) all other
correct and complete
1.
<PAGE> 79
supporting documentary information necessary to evidence compliance with SECTION
2.3 of the Credit Agreement.
LEAP WIRELESS INTERNATIONAL, INC..,
a Delaware corporation
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
2.
<PAGE> 80
SCHEDULE 1 TO BORROWING REQUEST
DATED _____________, 19__/200__
BUDGET AND SUPPORTING DOCUMENTARY INFORMATION
Schedule 1
<PAGE> 81
EXHIBIT C
FORM OF NOTICE OF CONVERSION/CONTINUATION
Date: ____________________
To: [____________________]
Attention: __________________
Re: The Credit Agreement dated as of ____________, 1998 (as the same may
from time to time be amended, modified or supplemented or restated, the
"Credit Agreement"), by and among Leap Wireless International, Inc., as
Borrower, QUALCOMM Incorporated ("QUALCOMM") and the other Lenders
named therein (collectively, the "Lenders"), and ABN AMRO Bank N.V., as
Administrative Agent on behalf of the Lenders
Ladies and Gentlemen:
The undersigned, LEAP WIRELESS INTERNATIONAL, INC., ("Borrower"), refers to the
Credit Agreement, the terms defined therein being used herein as therein
defined, and hereby each gives you notice irrevocably, pursuant to SECTION
2.6(b) of the Credit Agreement, of the [conversion] [continuation] of the
[Working Capital Loans] [Investment Capital Loans] specified herein, that:
1. The date of the [conversion] [continuation] is _____________,
19__/200__.
2. The aggregate amount of the proposed [Working Capital Loans]
[Investment Capital Loans] [converted] is $______________ or [continued] is
$______________.
3. The [Working Capital Loans] [Investment Capital Loans] are to be
[converted into] [continued as] [Eurodollar Loans] [Base Rate Loans].
4. [If applicable:] The duration of the Interest Period for the
Eurodollar Loans included in the [conversion] [continuation] shall be
___________ months. The undersigned hereby certifies that the following
statements are true on the date hereof, and will be true on the date of the
proposed [conversion] [continuation], before and after giving effect thereto and
to the application of the proceeds therefrom:
(a) the representations and warranties of Borrower contained
in SECTION 4 of the Credit Agreement are true and correct as though made on and
as of such date (except to the extent such representations and warranties relate
to an earlier date, in which case they are true and correct as of such date);
and
<PAGE> 82
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed borrowing.
LEAP WIRELESS INTERNATIONAL, INC..,
a Delaware corporation
By:
-----------------------------------
Name:
----------------------------------
Title:
---------------------------------
2.
<PAGE> 83
EXHIBIT D
FORM OF NON-BANK LENDER TAX CERTIFICATE
Reference is hereby made to the Credit Agreement dated as of _________,
1998 (as the same may from time to time be amended, modified or supplemented or
restated, the "Credit Agreement"), by and among Leap Wireless International,
Inc., a Delaware corporation, as the borrower ("Borrower"), QUALCOMM
Incorporated ("QUALCOMM") and the other Lenders named therein (collectively,
the "Lenders"), and ABN AMRO Bank N.V., as Administrative Agent on behalf of
the Lenders. Pursuant to the provisions of SECTION 2.14(c)(vii) of the Credit
Agreement, the undersigned hereby certifies that it is not a "bank" as such
term is used in Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended and the Treasury Regulations adopted thereunder.
NAME OF LENDER:
---------------------------------
By: -----------------------------
Name: ---------------------------
Title: --------------------------
<PAGE> 84
EXHIBIT E
FORM OF SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of _______, 1998, is made by LEAP
WIRELESS INTERNATIONAL, INC., a Delaware corporation (the "Grantor"), in favor
of the Agent on behalf and for the benefit of the Lenders (as such terms are
defined below).
I.
RECITALS
A. The Grantor is entering into that Credit Agreement dated as of the
date hereof (as the same may from time to time be amended, modified,
supplemented or restated, the "Credit Agreement"), among Grantor, as borrower,
QUALCOMM INCORPORATED, a Delaware corporation ("QUALCOMM"), and the Persons from
time to time party thereto and named as Lenders therein (the "Lenders"), and ABN
AMRO Bank N.V., as Agent (in such capacity, the "Agent"), pursuant to which the
Lenders agree to make certain loans in favor of the Grantor (the "Loans") for
the purposes, upon the terms and subject to the conditions set forth in the
Credit Agreement.
B. The Lenders are willing to make the Loans available to the Grantor,
but only upon the condition, among others, that the Grantor shall have executed
and delivered to the Agent this Security Agreement.
II.
AGREEMENT
NOW, THEREFORE, in order to induce the Lenders to enter into the Credit
Agreement and to make the Loans available thereunder, and in consideration of
the Agent agreeing to act in such capacities thereunder, and for other good and
valuable consideration, and intending to be legally bound, the Grantor hereby
represents, warrants, covenants and agrees as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, (a) the
capitalized terms defined in the Credit Agreement are used herein as therein
defined and (b) the following capitalized terms shall have the following
meanings (such meanings being equally applicable to both the singular and plural
forms of the terms defined):
"Account Debtor" means any "account debtor," as such term is defined in
Section 9105(1)(a) of the UCC.
"Account" means any "account," as such term is defined in Section 9106
of the UCC, now owned or hereafter acquired by the Grantor or in which the
Grantor now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to the Grantor (including, without limitation, under any
trade name, style or division
1.
<PAGE> 85
thereof) whether arising out of goods sold or services rendered by the Grantor
or from any other transaction, whether or not the same involves the sale of
goods or the performance of services or both by the Grantor (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of the Grantor's rights in, to and under
all of its respective purchase orders or receipts now owned or hereafter
acquired by it for goods or services, and all of Grantor's rights to any goods
represented by any of the foregoing (including, without limitation, unpaid
seller's rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), and all monies due or to
become due to the Grantor under all purchase orders and contracts for the sale
of goods or the performance of services or both by the Grantor (whether or not
yet earned by performance on the part of the Grantor or in connection with any
other transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts and all collateral security and guaranties of any kind given by any
Person with respect to any of the foregoing.
"Chattel Paper" means any "chattel paper," as such term is defined in
Section 9105(1)(b) of the UCC, now owned or hereafter acquired by the Grantor or
in which the Grantor now holds or hereafter acquires any interest.
"Collateral" shall have the meaning assigned to such term in SECTION 2
of this Security Agreement.
"Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which the Grantor may now or hereafter have any right,
title or interest, including, without limitation, (i) any and all reseller
contracts and (ii) with respect to an Account, any agreement relating to the
terms of payment or the terms of performance thereof.
"Copyrights" means all of the following now owned or hereafter acquired
by the Grantor or in which the Grantor now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
"Copyright License" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
the Grantor or in which the Grantor now holds or hereafter acquires any
interest.
"Deposit Account" means any "deposit account," as such term is defined
in Section 9105(e) of the UCC, and includes, without limitation, any demand,
time, savings passbook or like account now or hereafter maintained with a bank,
savings and loan association, credit union or like organization (including any
Lender), by or for the benefit of Grantor, or in which Grantor now holds or
hereafter acquires any interest, and all funds and amounts therein, whether or
not restricted or designated for a particular purpose.
2.
<PAGE> 86
"Documents" means any "documents," as such term is defined in Section
9105(1)(f) of the UCC, now owned or hereafter acquired by the Grantor or in
which the Grantor now holds or hereafter acquires any interest.
"Equipment" means any "equipment," as such term is defined in Section
9109(2) of the UCC, now or hereafter owned or acquired by the Grantor or in
which the Grantor now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, all machinery, equipment, base station
transceiver subsystems, intelligent base system controllers, furnishings, trucks
and other vehicles, boats, tractors, trailers, railcars and other rolling stock,
aircraft, aircraft engines, avionics, tanks, pumps, filters, generators,
computers and other electronic data-processing and any other office equipment of
any nature whatsoever, laboratory equipment, and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
"Fixtures" means "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by the Grantor or in
which the Grantor now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, regardless of where located, all of
the fixtures, systems, machinery, apparatus, equipment and fittings of every
kind and nature whatsoever and all appurtenances and additions thereto and
substitutions or replacements thereof, now or hereafter attached or affixed to
or constituting a part of, or located in or upon, real property wherever
located, including, without limitation, all heating, electrical, mechanical,
lighting, lifting, plumbing, ventilating, air-conditioning and air cooling,
refrigerating, food preparation, incinerating and power, loading and unloading,
signs, escalators, elevators, boilers, communication, switchboards, tanks,
pumps, filters, sprinkler and other fire prevention and extinguishing fixtures,
systems, machinery, apparatus and equipment, and all engines, motors, dynamos,
machinery, pipes, pumps, tanks, conduits and ducts constituting a part of any of
the foregoing, together with all right, title and interest of the Grantor in and
to all extensions, improvements, betterments, renewals, substitutes, and
replacements of, and all additions and appurtenances to any of the foregoing
property, and all conversions of the security constituted thereby, immediately
upon any acquisition or release thereof or any such conversion, as the case may
be.
"General Intangibles" means any "general intangibles," as such term is
defined in Section 9106 of the UCC, now owned or hereafter acquired by the
Grantor or in which the Grantor now holds or hereafter acquires any interest
and, in any event, shall include, without limitation, all right, title and
interest which the Grantor may now or hereafter have in or under any Contract,
customer lists, Copyrights, Trademarks, Patents, rights in Intellectual
Property, interests in partnerships, limited liability companies, joint ventures
and other business associations, Licenses, permits, copyrights, trade secrets,
proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how,
software, data bases, data, skill, expertise, recipes, experience, processes,
models, drawings, materials and records, goodwill (including, without
limitation, the goodwill associated with any Trademark, Trademark registration
or Trademark licensed under any Trademark License), claims in or under insurance
policies, including unearned premiums, uncertificated securities, cash and other
forms of money or currency, Deposit Accounts
3.
<PAGE> 87
(including as defined in Section 9105(e) of the UCC), rights to receive tax
refunds and other payments and rights of indemnification.
"Instruments" means any "instrument," as such term is defined in
Section 9105(1)(i) of the UCC now owned or hereafter acquired by the Grantor or
in which the Grantor now holds or hereafter acquires any interest, including,
without limitation, all notes, certificated securities, and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitutes, Chattel Paper.
"Intellectual Property" means all Copyrights, Trademarks, Patents,
trade secrets, customer lists, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records.
"Inventory" means any "inventory," as such term is defined in Section
9109(4) of the UCC, wherever located, now or hereafter owned or acquired by the
Grantor or in which the Grantor now holds or hereafter acquires any interest,
and, in any event, shall include, without limitation, all inventory, all raw
materials and work in process therefor, finished goods thereof, and materials
used or consumed in the manufacture or production thereof, merchandise, tickets,
goods and other personal property which are held by or on behalf of the Grantor
for sale or lease or are furnished or are to be furnished under a contract of
service or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in the Grantor's business, or the processing,
packaging, promotion, delivery or shipping of the same, and all finished goods
whether or not such inventory is listed on any schedules, assignments or reports
furnished to the Agent from time to time and whether or not the same is in
transit or in the constructive, actual or exclusive occupancy or possession of
the Grantor or is held by the Grantor or by others for the Grantor's accounts,
including, without limitation, all goods covered by purchase orders and
contracts with suppliers and all goods billed and held by suppliers and all
inventory which may be located on premises of the Grantor or of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents or other
persons.
"Investment Property" means any "investment property," as such term is
defined in Section 9115(1)(f) of the UCC), now owned or hereafter acquired by
Grantor or in which Grantor now holds or hereafter acquires any interest,
including, without limitation, all securities, whether certificated or
uncertificated, security entitlements, Securities Accounts, commodity contracts,
commodity accounts and financial assets, as such terms are defined in the UCC.
"License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by the Grantor or in which the Grantor now holds or hereafter acquires any
interest.
"Patent License" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by the Grantor or in which the Grantor now holds or hereafter
acquires any interest.
4.
<PAGE> 88
"Patents" means all of the following now owned or hereafter acquired by
the Grantor or in which the Grantor now holds or hereafter acquires any
interest: (a) letters patent of the United States or any other county, all
registrations and recordings thereof, and all applications for letters patent of
the United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to issue in any such applications.
"Proceeds" means "proceeds," as such term is defined in Section 9306(1)
of the UCC and, in any event, shall include, without limitation, (a) any and all
Accounts, Chattel Paper, Instruments, Investment Property, cash or other forms
of money or currency or other proceeds payable to the Grantor from time to time
in respect of the Collateral, (b) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to the Grantor from time to time with
respect to any of the Collateral, (c) any and all payments (in any form
whatsoever) made or due and payable to the Grantor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of Governmental Authority), (d) any claim of
the Grantor against third parties (i) for past, present or future infringement
of any Patent or Patent License or (ii) for past, present or future infringement
or dilution of any Trademark or Trademark License or for injury to the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark License, (e) all certificates, dividends, cash, Instruments
and other property received or distributed in respect of or in exchange for any
Investment Property, (f) all cash and other proceeds received under and in
respect of any letter of credit or other support obligation, and (g) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral.
"Secured Obligations" means all loans, advances, debts, liabilities and
obligations, for monetary amounts owed by the Grantor to the Lenders, Agent or
the Agent, whether due or to become due, matured or unmatured, liquidated or
unliquidated, contingent or non-contingent, and all covenants and duties
regarding such amounts, of any kind or nature, present or future, arising under
the Credit Agreement or any other Credit Document, including, without
limitation, under any of the Notes, the Fixed Rate Notes (upon any Conversion to
High Yield Structure), interest rate or currency swap or other hedging
agreements, whether or not evidenced by any note, agreement or other document or
instrument. This term includes, without limitation, all principal, interest
(including interest that accrues after the commencement of a case against the
Grantor or any Affiliate of the Grantor under the United States Bankruptcy
Code), fees, including, without limitation, any and all closing fees, prepayment
fees, commitment fees, loan fees, agent fees, Attorney Costs and any and all
other fees, expenses, costs or other sums chargeable to the Grantor under any of
the Credit Documents.
"Securities Account" means any "securities account," as such term is
defined in Section 8501(a) of the UCC.
"Security Agreement" means this Security Agreement and all Schedules
hereto, as the same may from time to time be amended, modified, supplemented or
restated.
5.
<PAGE> 89
"Trademark License" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
the Grantor or in which the Grantor now holds or hereafter acquires any
interest.
"Trademarks" means any of the following now owned or hereafter acquired
by the Grantor or in which the Grantor now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Agent's security interest in any collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection of priority and for purposes of
definitions related to such provisions.
SECTION 2. GRANT OF SECURITY INTEREST. As security for the full,
complete and final payment when due (whether at stated maturity, by acceleration
or otherwise) of all the Secured Obligations and in order to induce the Lenders
and the Agent to enter into the Credit Agreement and the Lenders to make the
Loans available to and for the benefit of the Grantor upon the terms and subject
to the conditions thereof, the Grantor hereby assigns, conveys, mortgages,
pledges, hypothecates and transfers to the Agent, on behalf and for the benefit
of itself and the Lenders, and hereby grants to the Agent, on behalf and for the
benefit of itself and the Lenders, a security interest in and to all of the
Grantor's right, title and interest in, to and under each of the following (all
of which being hereinafter collectively called the "Collateral"):
(a) All Accounts;
(b) All Chattel Paper;
(c) All Contracts;
(d) All Documents;
(e) All Equipment;
(f) All Fixtures;
(g) All General Intangibles;
6.
<PAGE> 90
(h) All Instruments;
(i) All Inventory;
(j) All Investment Property;
(k) All other goods and personal property of the Grantor
whether tangible or intangible and whether now or hereafter owned or existing,
leased, consigned by or to, or acquired by, the Grantor and wherever located;
and
(l) To the extent not otherwise included, all Proceeds of each
of the foregoing and all accessions to, substitutions and replacements for, and
rents, profits and products of each of the foregoing.
Notwithstanding anything to the contrary contained herein, the Grantor
shall be deemed not to have assigned to the Agent, or have granted to the Agent,
on behalf and for the benefit of itself and the Lenders, a security interest in
any Collateral to the extent such assignment, or the grant of such security
interest, would violate any governmental statute, rule, regulation or order
relating to communications licenses.
SECTION 3. RIGHTS OF THE AGENT; COLLECTION OF ACCOUNTS.
(a) Notwithstanding anything contained in this Security
Agreement to the contrary, the Grantor expressly agrees that it shall remain
liable under each of its Contracts and each of its Licenses to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder and that it shall perform all of its duties and obligations
thereunder, all in accordance with and pursuant to the terms and provisions of
each such Contract or License. Neither the Agent nor any Lender shall have any
obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting to the Agent of a security
interest therein or the receipt by the Agent or any Lender of any payment
relating to any Contract or License pursuant hereto, nor shall the Agent or any
Lender be required or obligated in any manner to perform or fulfill any of the
obligations of the Grantor under or pursuant to any Contract or License, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(b) The Agent authorizes the Grantor to collect its Accounts;
provided that the Agent may, upon the occurrence and during the continuation of
any Event of Default and without notice, limit or terminate said authority at
any time. If required by the Agent at any time during the continuation of any
Event of Default, any Proceeds, when first collected by the Grantor, received in
payment of any such Account or in payment for any of its Inventory or on account
of any of its Contracts shall be promptly deposited by the Grantor in precisely
the form received (with all necessary endorsements) in a special bank account
maintained by the Agent subject to withdrawal by the Agent only, as hereinafter
provided, and until so turned over shall be deemed to be held in trust by the
Grantor for and as the Agent's property, on behalf and for the benefit of the
Lenders, and shall not be commingled with the Grantor's other funds or
properties. Such
7.
<PAGE> 91
Proceeds, when deposited, shall continue to be collateral security for all of
the Secured Obligations and shall not constitute payment thereof until applied
as hereinafter provided. Upon the occurrence and during the continuation of any
Event of Default, the Agent may, in its sole discretion, after consultation with
Required Lenders, apply all or a part of the funds on deposit in said special
account to the principal of or interest on or both in respect of any of the
Secured Obligations in accordance with the provisions of SUBSECTION 7(d), below,
and any part of such funds which the Agent elects not so to apply and deem not
required as collateral security for the Secured Obligations shall be paid over
from time to time by the Agent to the Grantor. If an Event of Default has
occurred and is continuing, at the request of the Agent, the Grantor shall
deliver to the Agent all original and other documents evidencing, and relating
to, the sale and delivery of such Inventory and the Grantor shall deliver all
original and other documents evidencing and relating to, the performance of
labor or service which created such Accounts, including, without limitation, all
original orders, invoices and shipping receipts.
(c) The Agent may at any time, upon the occurrence and during
the continuation of any Event of Default, after first notifying the Grantor of
its intention to do so, notify Account Debtors of the Grantor, parties to the
Contracts of the Grantor, obligors in respect of Instruments of the Grantor and
obligors in respect of Chattel Paper of the Grantor that the Accounts and the
right, title and interest of the Grantor in and under such Contracts,
Instruments, and Chattel Paper have been assigned to the Agent, on behalf and
for the benefit of the Lenders, and that payments shall be made directly to the
Agent. Upon the request of the Agent, the Grantor shall so notify such Account
Debtors, parties to such Contracts, obligors in respect of such Instruments and
obligors in respect of such Chattel Paper. Upon the occurrence and during the
continuation of an Event of Default, the Agent may, in its name, or in the name
of others communicate with such Account Debtors, parties to such Contracts,
obligors in respect of such Instruments and obligors in respect of such Chattel
Paper to verify with such parties, to the Agent's satisfaction, the existence,
amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Grantor hereby
represents and warrants to the Agent that:
(a) The Grantor is the sole legal and equitable owner or, as
to Intellectual Property licensed from other Persons, licensee of each item of
the Collateral in which it purports to grant a security interest hereunder,
having good, marketable and insurable title or rights thereto free and clear of
any and all Liens, except for the Permitted Liens.
(b) No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering all or
any part of the Collateral exists, except such as may have been filed by the
Grantor in favor of the Agent pursuant to this Security Agreement or such as
relate to other Permitted Liens.
(c) This Security Agreement creates a legal and valid security
interest on and in all of the Collateral in which the Grantor now has rights,
and all filings and other actions necessary or desirable to perfect and protect
such security interest have been duly taken. Accordingly, the Agent has a fully
perfected first priority security interest in all of the Collateral in which the
Grantor now has rights to the extent a security interest in such Collateral may
be
8.
<PAGE> 92
perfected by (i) the filing of UCC financing statements, (ii) the delivery into
the Agent's possession of the execution originals to all Chattel Paper and
Instruments, (iii) the delivery of collateral control agreements duly executed
by the depository institution or the security intermediary (as defined in
Section 8102(a)(14) of the UCC), as applicable, at which Grantor maintains its
Deposit Accounts, or its Securities Accounts and (iv) the delivery of written
notice of such security interest to all issuers and underwriters of insurance
policies maintained by the Grantor, subject only to the Permitted Liens. This
Security Agreement will create a legal and valid security interest in the
Collateral in which the Grantor later acquires rights, when the Grantor acquires
those rights, subject only to the Permitted Liens.
(d) The Grantor's chief executive office, principal place of
business, and the place where the Grantor maintains its records concerning the
Collateral are presently located at the address(es) set forth on SCHEDULE I
attached to this Security Agreement and incorporated herein by this reference.
The Grantor shall not change such chief executive office or principal place of
business or remove or cause to be removed, except in the ordinary course of
business, the records concerning the Collateral from those premises without
prior written notice to the Agent.
(e) All Collateral with respect to which a security interest
may be perfected by the secured party's taking possession thereof, including,
without limitation, all Chattel Paper and Instruments, is set forth on SCHEDULE
II attached to this Security Agreement and incorporated herein by this
reference. All action necessary or desirable to protect and perfect such
security interest in each item set forth on SCHEDULE II, including, without
limitation, the delivery of all originals thereof to the Agent, has been duly
taken. The security interest of the Agent in the Collateral listed on SCHEDULE
II is prior in right and interest to all other Liens and is enforceable as such
against creditors of and purchasers from the Grantor.
(f) The amount represented by the Grantor to the Agent from
time to time as owing by each Account Debtor or by all Account Debtors in
respect of the Accounts of the Grantor shall at such time be the correct amount
actually and unconditionally owing by such Account Debtors thereunder.
(g) All Copyrights, Copyright Licenses, Patents, Patent
Licenses, Trademarks and Trademark Licenses owned, held or in which the Grantor
otherwise has any rights are listed on SCHEDULE III attached to this Security
Agreement and incorporated herein by this reference. The Grantor shall amend
SCHEDULE III from time to time to reflect any additions to or deletions from
this list.
(h) The names and addresses of all financial institutions with
which the Grantor maintains its Deposit Accounts and the account numbers and
account names of such Deposit Accounts are listed on SCHEDULE IV.1 attached to
this Security Agreement and incorporated herein by this reference. The names and
addresses of all security intermediaries with which the Grantor maintains its
Securities Accounts and the account numbers and account names of such Securities
Accounts are listed on SCHEDULE IV.2 attached to this Security Agreement and
incorporated herein by reference. The Grantor shall amend SCHEDULES IV.1 and
IV.2 from time to time within twenty (20) Business Days after opening any
additional Deposit
9.
<PAGE> 93
Account or Securities Account, or closing or changing the account number or
account name on any existing Deposit Account or Securities Account.
SECTION 5. COVENANTS. The Grantor covenants and agrees with the Agent
that from and after the date of this Security Agreement and until the Secured
Obligations have been completely and indefeasibly paid and performed in full:
5.1 FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time and
from time to time, upon the written request of the Agent, and at the sole
expense of the Grantor, the Grantor shall promptly and duly execute and deliver
any and all such further instruments and documents and take such further action
as the Agent may reasonably deem desirable to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, (a) using its best efforts to secure all consents and
approvals from any and all Governmental Authorities or other Person necessary or
appropriate for the assignment to the Agent of any Contract or License held by
the Grantor or in which the Grantor has any rights not heretofore assigned, (b)
filing any financing or continuation statements under the UCC with respect to
the security interests granted hereby, (c) filing or cooperating with the Agent
in filing any forms or other documents required to be filed with the United
States Patent and Trademark Office, United States Copyright Office, or any
filings in any foreign jurisdiction or under any international treaty, required
to secure or protect the Agent's interest in the Collateral (d) transferring
Collateral to the Agent's possession (if a security interest in such Collateral
can be perfected by possession), (e) placing the interest of the Agent as
lienholder on the certificate of title (or other evidence of ownership) of any
vehicle or watercraft owned by the Grantor or in or with respect to which the
Grantor holds a beneficial interest, (f) as to any new Deposit Account or
Securities Account to be opened by the Grantor, as applicable, executing and
delivering, and causing the applicable depository institution or security
intermediary to execute and deliver, a collateral control agreement with respect
to each new Deposit Account or Securities Account, and (g) as to any new
insurance policy to be maintained by the Grantor, to execute and deliver to the
insurance company issuing such policy a Notice of Security Interest in Insurance
Policy. The Grantor also hereby authorizes the Agent to file any such financing
or continuation statement without the signature of the Grantor. If any amount
payable under or in connection with any of the Collateral is or shall become
evidenced by any Instrument, such Instrument, other than checks and notes
received in the ordinary course of business, shall be duly endorsed in a manner
satisfactory to the Agent and delivered to the Agent immediately upon the
Grantor's receipt thereof.
5.2 MAINTENANCE OF RECORDS. The Grantor shall keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments received and
all credits granted with respect to the Collateral and all other dealings with
the Collateral. The Grantor shall mark its books and records pertaining to the
Collateral to evidence this Security Agreement and the security interests
granted hereby. All Chattel Paper shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to the
security interest of QUALCOMM Incorporated, as the Agent on behalf and for the
benefit of the Lenders named in a Credit Agreement dated as of ______, 1998, as
the same may thereafter from time to time be amended, modified, supplemented or
restated."
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5.3 INDEMNIFICATION. In any suit, proceeding or action brought
by the Agent or any Lender relating to any Account, Chattel Paper, Contract,
General Intangible, Instrument or Document for any sum owing thereunder, or to
enforce any provision of any Account, Chattel Paper, Contract, General
Intangible, Instrument or Document, the Grantor shall save, indemnify and keep
the Agent and such Lender harmless from and against all expense, loss or damage
suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder arising out of a
breach by the Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favor of, such
obligor or its successors from the Grantor, and all such obligations of the
Grantor shall be and remain enforceable against and only against the Grantor and
shall not be enforceable against the Agent or such Lender.
5.4 COMPLIANCE WITH TERMS OF ACCOUNTS, ETC. In all material
respects, the Grantor shall perform and comply with all obligations in respect
of Accounts, Chattel Paper, Contracts, Documents, Instruments and Licenses and
all other agreements to which it is a party or by which it is bound.
5.5 LIMITATION ON LIENS ON COLLATERAL. The Grantor shall not
create, permit or suffer to exist, and shall defend the Collateral against and
take such other action as is necessary to remove, any Lien on the Collateral,
except the Permitted Liens to the extent so permitted under the Credit
Agreement. The Grantor shall further defend the right, title and interest of the
Agent in and to any of the Grantor's rights under the Chattel Paper, Contracts,
Documents, General Intangibles, Instruments, Investment Property and Deposit
Accounts and to the Equipment, Fixtures and Inventory and in and to the Proceeds
thereof against the claims and demands of all Persons whomsoever.
5.6 LIMITATIONS ON MODIFICATIONS OF ACCOUNTS, ETC. Upon the
occurrence and during the continuation of any Event of Default, the Grantor
shall not, without the Agent's prior written consent, grant any extension of the
time of payment of any of the Accounts, Chattel Paper, Instruments or amounts
due under any Contract or Document, compromise, compound or settle the same for
less than the full amount thereof, release, wholly or partly, any Person liable
for the payment thereof, or allow any credit or discount whatsoever thereon
other than trade discounts granted in the ordinary course of business of the
Grantor.
5.7 MAINTENANCE OF INSURANCE. The Grantor shall maintain, with
financially sound and reputable companies, the insurance policies with limits
and coverage provisions as required in the Credit Agreement.
5.8 TAXES, ASSESSMENTS, ETC. The Grantor shall pay before they
become delinquent all property and other taxes, assessments and government
charges or levies imposed upon, and all claims (including claims for labor,
materials and supplies) against, the Equipment, Fixtures or Inventory, except to
the extent the validity thereof is being contested in good faith and adequate
reserves are being maintained in connection therewith.
5.9 LIMITATIONS ON DISPOSITION. The Grantor shall keep the
Collateral separate and identifiable from other property located on the same
premises as the Collateral, and
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the Grantor shall not sell, lease, transfer or otherwise dispose of any of the
Collateral, or attempt or contract to do so except as permitted by the Credit
Agreement.
5.10 FURTHER IDENTIFICATION OF COLLATERAL. The Grantor shall,
if so requested by the Agent, furnish to the Agent, not more than four times per
year, unless an Event of Default shall have occurred and be continuing, in which
case the Grantor shall furnish as often as the Agent shall request, statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Agent may reasonably request,
all in reasonable detail.
5.11 NOTICES. The Grantor shall advise the Agent promptly, in
reasonable detail, of (a) any material Lien, other than Permitted Liens,
attaching to or asserted against any of the Collateral, (b) any material change
in the composition of the Collateral and (c) the occurrence of any other event
which might have or result in a material adverse change with respect to the
Collateral or the security interest created hereunder.
5.12 RIGHT OF INSPECTION AND AUDIT. The Grantor shall permit
the Agent and the Lenders such rights of inspection and audit except as limited
in the Credit Agreement. In addition, upon reasonable notice to the Grantor
(unless an Event of Default has occurred and is continuing, in which case no
notice is necessary), the Agent and its agents and representatives shall also
have the right during the Grantor's ordinary business hours, to enter into and
upon any premises where any of the Equipment, Fixtures or Inventory is located
for the purpose of conducting audits and making physical verifications of such
Equipment, Fixtures and Inventory and test verifications of the Accounts in any
manner and through any medium that it considers advisable, and the Grantor
agrees to furnish all such assistance and information as the Agent may
reasonably require in connection therewith.
5.13 MAINTENANCE OF FACILITIES. The Grantor shall maintain and
protect its properties, assets and facilities, including, without limitation,
its Equipment and Fixtures in good order and working repair and condition
(taking into consideration ordinary wear and tear) and from time to time make or
cause to be made all needful and proper repairs, renewals and replacements
thereto and shall competently manage and care for its property in accordance
with prudent industry practices.
5.14 CONTINUOUS PERFECTION. The Grantor shall not change its
name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9402(7) of the UCC (or any other then
applicable provision of the UCC) unless the Grantor shall have given the Agent
prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or requested by
the Agent to amend such financing statement or continuation statement so that it
is not seriously misleading.
5.15 COVENANTS REGARDING INTELLECTUAL PROPERTY.
(a) The Grantor shall notify the Agent immediately if
it knows that any application or registration relating to any Copyright, Patent
or Trademark which is material
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to the conduct of the Grantor's business may become abandoned, or of any adverse
determination or development (including, without limitation, the institution of,
or any such determination or development in, any proceeding in the United States
Patent and Trademark Office, the United States Copyright Office, or any court)
regarding the Grantor's ownership or license of any Copyright, Patent or
Trademark which is material to the conduct of the Grantor's business, its right
to register the same, or to keep and maintain the same.
(b) The Grantor shall take all commercially
reasonable steps necessary to prevent any misuse, infringement,
misappropriation, unauthorized use or abandonment of its Copyrights, Patents,
Trademarks or other Intellectual Property, whether owned or licensed. The
Grantor's efforts pursuant to this SECTION 5.15 shall include, but not be
limited to: (i) establishing prudent security measures and procedures governing
access to, and use of, property protected by Copyrights, Trademarks or Patents
or of Intellectual Property owned or licensed by the Grantor or developed by any
Person on behalf of the Grantor; (ii) establishing and maintaining in force any
agreements with employees and consultants or any written terms of employment, as
are customarily used in the Grantor's industry for the protection of
Intellectual Property; and (iii) vigorous enforcement of the Grantor's rights in
any Intellectual Property.
(c) In no event shall the Grantor, either itself or
through any agent, employee, licensee or designee, file an application for the
registration of any Patent or Trademark with the United States Patent and
Trademark Office, any Copyright with the United States Copyright Office, or any
similar office or agency in any other country or any political subdivision
thereof unless it promptly informs the Agent and, upon request of the Agent,
executes and delivers any and all agreements, instruments, documents, and papers
as the Agent may reasonably request to evidence the Agent's security interest in
such Copyright, Patent or Trademark, including, with respect to Trademarks, the
goodwill of the Grantor, relating thereto or represented thereby.
(d) The Grantor shall take all necessary action to
maintain and pursue each application (and to obtain the relevant registration)
and to maintain the registration of each of the Copyrights, Patents and
Trademarks which is material to the conduct of the Grantor's business,
including, without limitation, the filing of applications for renewal,
affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings.
(e) In the event that any Copyright, Patent or
Trademark is infringed, misappropriated or diluted by a third party, the Grantor
shall notify the Agent promptly after the Grantor learns thereof and shall,
unless the Grantor shall reasonably determine that such Copyright, Patent or
Trademark is not material to the conduct of the Grantor's business, promptly sue
for infringement, misappropriation or dilution and to recover any and all
damages for such infringement, misappropriation or dilution and take such other
actions as the Grantor shall reasonably deem appropriate under the circumstances
to protect such Copyright, Patent or Trademark.
SECTION 6. THE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Subject to SECTION 6(b) below, the Grantor hereby
irrevocably constitutes and appoints the Agent, and any officer or agent
thereof, with full power of substitution, as its
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true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Grantor and in the name of the Grantor or in its own
name, from time to time at the Agent's discretion, for the purpose of carrying
out the terms of this Security Agreement, to take any and all appropriate action
and to execute and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby gives the Agent
the power and right, on behalf of the Grantor, without notice to or assent by
the Grantor to do the following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all monies due or to become due under any
Collateral and, in the name of the Grantor in its own name or otherwise to take
possession of, endorse and collect any checks, drafts, notes, acceptances or
other Instruments for the payment of monies due under any Collateral and to file
any claim or to take or commence any other action or proceeding in any court of
law or equity or otherwise deemed appropriate by the Agent for the purpose of
collecting any and all such monies due under any Collateral whenever payable;
(ii) to pay or discharge any Liens, including,
without limitation, any tax lien, levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof, which actions shall be for the benefit of the Lenders and the
Agent and not the Grantor; and
(iii) to (1) direct any person liable for any payment
under or in respect of any of the Collateral to make payment of any and all
monies due or to become due thereunder directly to the Agent or as the Agent
shall direct, (2) receive payment of any and all monies, claims and other
amounts due or to become due at any time arising out of or in respect of any
Collateral, (3) sign and endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other Instruments and
Documents constituting or relating to the Collateral, (4) commence and prosecute
any suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral, (5) defend any suit, action or
proceeding brought against the Grantor with respect to any Collateral, (6)
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, give such discharges or releases as the Agent may deem
appropriate, (7) license or, to the extent permitted by an applicable license,
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any Patent or Trademark throughout the world for such
term or terms, on such conditions and in such manner as the Agent shall in its
sole discretion determine and (8) sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Agent were the absolute owner thereof for all purposes,
and to do, at the Agent's option and the Grantor's expense, at any time, or from
time to time, all acts and things which the Agent may reasonably deem necessary
to protect, preserve or realize upon the Collateral and the Agent's security
interest therein in order to effect the intent of this Security Agreement, all
as fully and effectively as the Grantor might do.
(b) The Agent agrees that, except upon the occurrence and
during the continuation of an Event of Default, it shall not exercise the power
of attorney or any rights
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granted to the Agent on behalf of Lenders pursuant to this SECTION 6. The
Grantor hereby ratifies, to the extent permitted by law, all that said attorney
shall lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this SECTION 6 is a power coupled with an interest and shall
be irrevocable until the Secured Obligations are completely and indefeasibly
paid and performed in full.
(c) The powers conferred on the Agent hereunder are solely to
protect the Agent's and the Lender's interests in the Collateral and shall not
impose any duty upon the Agent to exercise any such powers. The Agent shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees, agents or representatives shall be responsible to the Grantor for any
act or failure to act, except for its own gross negligence or willful
misconduct.
(d) The Grantor also authorizes the Agent, on behalf of
Lenders, at any time and from time to time upon the occurrence and during the
continuation of any Event of Default, to (i) communicate in its own name with
any party to any Contract with regard to the assignment of the right, title and
interest of the Grantor in and under the Contracts hereunder and other matters
relating thereto and (ii) execute, in connection with the sale of Collateral
provided for in SECTION 7, below, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(e) If the Grantor fails to perform or comply with any of its
agreements contained herein and the Agent or any Lender, as provided for by the
terms of this Security Agreement, shall perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable expenses,
including attorney costs, of the Agent or such Lender incurred in connection
with such performance or compliance, together with interest thereon at a rate of
interest equal to the rate of interest per annum applying to Base Rate Loans,
shall be payable by the Grantor to the Agent within (3) three days of written
demand and shall constitute Secured Obligations secured hereby.
SECTION 7. RIGHTS AND REMEDIES UPON DEFAULT.
(a) If any Event of Default shall occur and be continuing, the
Agent may exercise in addition to all other rights and remedies granted to it
under this Security Agreement, the Credit Agreement, the other Credit Documents
and under any other instrument or agreement securing, evidencing or relating to
the Secured Obligations, all rights and remedies of a secured party under the
UCC. Without limiting the generality of the foregoing, the Grantor expressly
agrees that in any such event the Agent, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon the Grantor or any other
Person (all and each of which demands, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the UCC and other applicable
law), may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an
option or options to purchase or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange or broker's board or at any
of the Agent's offices or elsewhere at such prices as it may deem best, for cash
or on credit or for future delivery without assumption of any credit risk.
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The Agent or any Lender shall have the right upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of said Collateral so sold, free of any right or
equity of redemption, which equity of redemption the Grantor hereby releases.
The Grantor further agrees, at the Agent's request, to assemble the Collateral
and make it available to the Agent at places which the Agent shall reasonably
select, whether at the Grantor's premises or elsewhere. The Agent and the
Lenders shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale as provided in SUBSECTION 7(d), below, the
Grantor remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by the Agent of any other amount required by any provision of law,
including Section 9504(1)(c) of the UCC, need the Agent account for the surplus,
if any, to the Grantor. To the maximum extent permitted by applicable law, the
Grantor waives all claims, damages, and demands against the Agent or any Lender
arising out of the repossession, retention or sale of the Collateral except such
as arise out of the gross negligence or willful misconduct of the Agent. The
Grantor agrees that the Agent need not give more than ten (10) days' notice
(which notification shall be deemed given in accordance with the Credit
Agreement) of the time and place of any public sale or of the time after which a
private sale may take place and that such notice is reasonable notification of
such matters. The Grantor shall remain liable for any deficiency if the net
proceeds of any sale or disposition of the Collateral are insufficient to pay
all of the Secured Obligations, the Grantor also being liable for the reasonable
attorney costs of any attorneys employed by the Agent or any Lender to collect
such deficiency.
(b) The Grantor also agrees to pay all reasonable fees, costs
and expenses of the Agent and Lenders, including, without limitation, reasonable
attorney costs, incurred in connection with the enforcement of any of its rights
and remedies hereunder.
(c) The Grantor hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by the Agent in the
following order of priorities:
FIRST, to the Agent, Agent and the Lenders in an
amount sufficient to pay in full the reasonable costs of the
Agent in connection with such sale, disposition or other
realization, including all fees, costs, expenses, liabilities
and advances incurred or made by the Agent and Lenders in
connection therewith, including, without limitation, attorney
costs;
SECOND, to the Agent and the Lenders in an amount
equal to the then unpaid principal of and accrued interest and
prepayment premiums, if any, on the Secured Obligations;
THIRD, to the Agent and the Lenders in an amount
equal to any other Secured Obligations which are then unpaid;
and
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FINALLY, upon payment in full of all of the Secured
Obligations, to the Grantor or its representatives or as a
court of competent jurisdiction may direct.
SECTION 8. GRANT OF LICENSE TO INTELLECTUAL PROPERTY. For the purpose
of enabling the Agent to exercise its rights and remedies under SECTION 7,
above, at such time as the Agent shall be lawfully entitled to exercise such
rights and remedies, the Grantor hereby grants to the Agent an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to the Grantor) to use, license or sublicense any Copyright, Patent
or Trademark, and to exercise any rights held by the Grantor under any
Intellectual Property License or sublicense, now owned or hereafter acquired by
the Grantor or in which the Grantor now holds or hereafter acquires any
interest, and wherever the same may be located, and including, without
limitation, in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof.
SECTION 9. LIMITATION ON THE AGENT'S DUTY IN RESPECT OF COLLATERAL. The
Agent shall be deemed to have acted reasonably in the custody, preservation and
disposition of any of the Collateral if it takes such action as the Grantor
requests in writing, but failure of the Agent to comply with any such request
shall not in itself be deemed a failure to act reasonably, and no failure of the
Agent to do any act not so requested shall be deemed a failure to act
reasonably.
SECTION 10. REINSTATEMENT. This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against the Grantor for liquidation or reorganization, should the Grantor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of the
Grantor's property and assets, and shall continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by any
obligee of the Secured Obligations, whether as a "voidable preference,"
"fraudulent conveyance," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
SECTION 11. CONSENT OF GOVERNMENTAL AUTHORITIES. Notwithstanding
anything to the contrary contained herein, to the extent that the exercise of
any power granted, or remedy available, to the Agent hereunder requires the
prior approval of any governmental authority, then the Agent hereby agrees that
it may not and shall not exercise any such right or avail itself of any such
remedy, until the required consent has been obtained.
SECTION 12. MISCELLANEOUS.
12.1 NOTICES. Any notice or other communication hereunder to
any party shall be addressed and delivered (and shall be deemed given) in
accordance with the Credit Agreement.
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12.2 SEVERABILITY. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
12.3 HEADINGS. The various headings in this Security Agreement
are inserted for convenience only and shall not affect the meaning or
interpretation of this agreement or any provisions hereof.
12.4 NO WAIVER; CUMULATIVE REMEDIES.
(a) The Agent shall not by any act, delay, omission
or otherwise be deemed to have waived any of its respective rights or remedies
hereunder, nor shall any single or partial exercise of any right or remedy
hereunder on any one occasion preclude the further exercise thereof or the
exercise of any other right or remedy.
(b) The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law.
(c) None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an instrument in
writing, duly executed by the Grantor and the Agent.
12.5 TIME IS OF THE ESSENCE. Time is of the essence for the
performance of each of the terms and provisions of this Security Agreement.
12.6 TERMINATION OF THIS SECURITY AGREEMENT. Subject to
SECTION 10, above, this Security Agreement shall terminate upon the full and
complete payment of the Secured Obligations and the termination of all
Commitments under the Credit Agreement. Upon any such termination, the Agent
will, at the Grantor's expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination,
including all documents necessary to evidence the grant back to the Grantor of
the license granted pursuant to Section 8 of this Security Agreement.
12.7 SUCCESSOR AND ASSIGNS. This Security Agreement and all
obligations of the Grantor hereunder shall be binding upon the successors and
assigns of the Grantor, and shall, together with the rights and remedies of the
Agent hereunder, inure to the benefit of the Agent and the Lenders, any future
holder of any Note and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein shall in any manner affect the security
interest created herein and granted to the Agent hereunder.
12.8 FURTHER INDEMNIFICATION. The Grantor agrees to pay, and
to save the Agent and each Lender harmless from, any and all liabilities with
respect to, or resulting from any delay in paying, any and all excise, sales or
other similar taxes which may be payable or
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determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Security Agreement.
12.9 GOVERNING LAW. In all respects, including all matters of
construction, validity and performance, this Security Agreement and the Secured
Obligations arising hereunder shall be governed by, and construed and enforced
in accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflict of laws.
12.10 COUNTERPARTS. This Security Agreement may be executed in
any number of counterparts, each of which when so delivered shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument. Each such agreement shall become effective upon the execution of a
counterpart hereof or thereof by each of the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized signatory
on the date first set forth above.
GRANTOR LEAP WIRELESS INTERNATIONAL, INC.
a Delaware corporation
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Accepted and acknowledged by:
ABN AMRO BANK N.V., as Agent
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
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SCHEDULE I
LOCATION OF THE GRANTOR'S CHIEF EXECUTIVE OFFICE PRINCIPAL PLACE
OF BUSINESS AND RECORDS PERTAINING TO COLLATERAL
<PAGE> 104
SCHEDULE II
LIST OF COLLATERAL DELIVERED BY
THE GRANTOR TO THE AGENT
<PAGE> 105
SCHEDULE III
PATENTS, PATENT LICENSES, TRADEMARKS, TRADEMARK LICENSES,
COPYRIGHTS AND COPYRIGHT LICENSES OF THE GRANTOR
<PAGE> 106
SCHEDULE IV.1
DEPOSIT ACCOUNTS
<PAGE> 107
SCHEDULE IV.2
SECURITIES ACCOUNTS
<PAGE> 108
SECURITIES PLEDGE AGREEMENT
THIS SECURITIES PLEDGE AGREEMENT ("Securities Pledge Agreement") dated
as of August ____, 1998, is made by LEAP WIRELESS INTERNATIONAL, INC., a
Delaware corporation (the "Pledgor"), in favor of ABN AMRO BANK N.V., as agent
on behalf and for the benefit of the Lenders party to the Credit Agreement
(defined below) (the "Agent").
RECITALS
A. The Pledgor is entering into that Credit Agreement dated as of the
date hereof (as the same may from time to time be amended, modified,
supplemented or restated, the "Credit Agreement"), among the Pledgor as
borrower, QUALCOMM and the other Persons from time to time party thereto and
named as Lenders therein (the "Lenders"), and the Agent, pursuant to which the
Lenders agree to make certain loans in favor of Pledgor (the "Loans") for the
purposes, upon the terms and subject to the conditions set forth in the Credit
Agreement.
B. The Pledgor is the record and beneficial owner of the shares of
capital stock and debt instruments shown in SCHEDULE I attached hereto, which
Schedule is incorporated herein by this reference and may be amended or
supplemented pursuant to the terms of this Securities Pledge Agreement
(collectively, the "Pledged Securities").
C. The Lenders are willing to make and maintain the Loans in favor of
the Pledgor on and after the Closing Date under the Credit Agreement, but only
upon the condition, among others, that the Pledgor shall have executed this
Securities Pledge Agreement and delivered this Securities Pledge Agreement and
the Pledged Collateral (as defined below) to the Agent, on behalf and for the
benefit of the Lenders, in order to secure the Secured Obligations (defined
below).
D. In order to induce, and in consideration of the agreement of the
Lenders to make and maintain the Loans to the Pledgor pursuant to the Credit
Agreement, the Pledgor is willing to execute this Securities Pledge Agreement
and deliver this Securities Pledge Agreement and the Pledged Collateral to the
Agent, on behalf and for the benefit of the Lenders, to secure the Secured
Obligations.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, the Pledgor hereby
represents, warrants, covenants and agrees as follows:
SECTION 1. DEFINITIONS. All capitalized terms used but not defined
herein shall have the respective meanings given to them in the Credit Agreement.
In addition, the following terms not otherwise defined in the Preamble or
Recitals of this Securities Pledge Agreement shall have the following meanings:
"Act" shall have the meaning set forth in SECTION 7.2(e), below.
1.
<PAGE> 109
"Pledged Collateral" shall have the meaning set forth in SECTION 2(a),
below.
"Secured Obligations" shall have the meaning set forth in SECTION 2(a),
below.
SECTION 2. PLEDGE.
(a) As security for the full, prompt and complete
payment and performance when due (whether by stated maturity, by acceleration or
otherwise) of all Obligations (as defined in the Credit Agreement), together
with, without limitation, the prompt payment of all expenses, including, without
limitation, reasonable Attorney Costs, incidental to the collection of the
Obligations and the enforcement or protection of the Agent's Lien in and to the
collateral pledged hereunder, the Pledgor hereby pledges to the Agent, and
grants to the Agent, on behalf and for the benefit of the Lenders, a security
interest in all of the following (collectively, the "Pledged Collateral"),
except as specifically provided in Section 6, below:
(i) the Pledged Securities owned or held by the
Pledgor and the certificates representing the Pledged Securities, and all
dividends, cash, interest payments, instruments, and other property or proceeds
from time to time received, receivable, or otherwise distributed in respect of
or in exchange for any or all of the Pledged Securities;
(ii) all voting trust certificates held by the
Pledgor evidencing its beneficial interest in any Pledged Securities subject to
any voting trust; and
(iii) all additional shares and voting trust
certificates from time to time acquired by the Pledgor in any manner (which
additional shares shall be deemed to be part of the Pledged Securities), and the
certificates representing such additional shares, and all dividends, cash,
interest payments, instruments, and other property or proceeds from time to time
received, receivable, or otherwise distributed in respect of or in exchange for
any or all of such shares.
(The Obligations and all other obligations and covenants to be
performed by the Pledgor under this Securities Pledge Agreement shall
hereinafter from time to time be collectively referred to as the "Secured
Obligations.")
(b) The Agent's security interest on behalf and for the
benefit of the Lenders in the Pledged Collateral shall be of first priority.
(c) Notwithstanding anything to the contrary contained herein,
the Pledgor shall be deemed not to have pledged to the Agent, or have granted to
the Agent, a security interest in any Pledged Collateral to the extent such
pledge, or the grant of such security interest, would violate any governmental
statute, law, rule, regulation or order relating to communications licenses.
SECTION 3. DELIVERY OF PLEDGED COLLATERAL. The Pledgor shall deliver to
the Agent on the date hereof all certificates or other instruments representing
or evidencing any Pledged Securities, accompanied by appropriate duly executed
instruments of transfer or assignment (including, without limitation, stock
powers) in blank, all in form and substance satisfactory to the Agent. Except as
specifically provided in SECTION 6, below, the Pledgor shall receive all
certificates, cash, instruments, and other property or proceeds from time to
time received,
2.
<PAGE> 110
receivable, or otherwise distributed in respect of or in exchange for any or all
of the Pledged Securities in trust for the Agent and shall immediately upon
receipt deliver to the Agent such certificates, cash, instruments, and other
property and proceeds, together with any necessary endorsement.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Pledgor hereby
represents and warrants to the Agent, on behalf and for the benefit of the
Lenders, as follows:
(a) The Pledgor is the sole holder of record and the sole
beneficial owner of the Pledged Collateral pledged to the Agent by the Pledgor
under SECTION 2 of this Securities Pledge Agreement, free and clear of any Lien
thereon or affecting title thereto, except for (i) the Lien created by this
Securities Pledge Agreement, and (ii) the Permitted Liens.
(b) None of the Pledged Securities has been transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such transfer may be subject with respect to which
such transfer could with reasonable likelihood result in a material adverse
effect on the business, properties, assets, operations or condition (financial
or otherwise) or prospects of the Pledgor or any of the Pledgor's Subsidiaries.
(c) No consent, approval, authorization or other order of any
Person and no consent or authorization of any Governmental Authority or
regulatory body is required to be made or obtained by the Pledgor either (i) for
the pledge by the Pledgor of the Pledged Collateral pursuant to this Securities
Pledge Agreement or for the execution, delivery, or performance of this
Securities Pledge Agreement by the Pledgor; or (ii) for the exercise by the
Agent of the voting or other rights provided for in this Securities Pledge
Agreement or the remedies in respect of the Pledged Collateral pursuant to this
Securities Pledge Agreement.
(d) The pledge, grant of a security interest in, and delivery
of the Pledged Collateral pursuant to this Securities Pledge Agreement, will
create a valid first priority Lien on and in the Pledged Collateral pledged by
the Pledgor, and the proceeds thereof, securing the payment of the Secured
Obligations assuming (i) continued possession of the Pledged Securities by the
Agent and (ii) that the Agent has no notice prior to or on the date of delivery
of such Pledged Securities of an adverse claim within the meaning of the UCC.
(e) This Securities Pledge Agreement has been duly executed
and delivered by the Pledgor and constitutes a legal, valid, and binding
obligation of the Pledgor, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, or other similar laws
affecting the rights of creditors generally or by the application of general
equity principles.
The representations and warranties contained in this Securities Pledge
Agreement shall be true, accurate and complete at the time of the Pledgor's
execution of this Securities Pledge Agreement, and shall continue to be true,
accurate and complete until the Secured Obligations have been paid or otherwise
satisfied in full.
SECTION 5. COVENANTS OF THE PLEDGOR. The Pledgor covenants and agrees,
in addition to its other obligations under the Credit Agreement and the other
Credit Documents, that until the Secured Obligations have been paid and
performed in full:
3.
<PAGE> 111
(a) Without the prior written consent of the Agent, the
Pledgor shall not sell, assign, transfer, pledge, or otherwise encumber any of
the Pledgor's rights in or to the Pledged Collateral pledged by the Pledgor or
any unpaid dividends or other distributions or payments with respect thereto or
grant a Lien therein except as otherwise permitted by this Securities Pledge
Agreement.
(b) The Pledgor shall, at the Pledgor's own expense, promptly
execute, acknowledge, and deliver all such instruments and take all such action
as the Agent from time to time may reasonably request in order to ensure to the
Agent the benefits of the Lien in and to the Pledged Collateral intended to be
created by this Securities Pledge Agreement.
(c) The Pledgor shall maintain, preserve and defend the title
to the Pledged Collateral and the Lien of the Agent thereon against the claim of
any other Person.
(d) The Pledgor shall, upon obtaining any additional shares of
Stock of any other Person not evidenced on SCHEDULE I attached hereto, promptly
(and in any event within five (5) Business Days) deliver to the Agent all share
certificates and voting trust certificates respecting such Stock of such other
Person, and deliver to the Agent a Pledge Amendment duly executed by the
Pledgor, substantially in the form of SCHEDULE II attached hereto, which is
incorporated herein by this reference (a "Pledge Amendment"), and executed
instruments of transfer or assignments (including, without limitation, stock
powers) executed in blank, in respect of the additional shares of stock which
are to be pledged pursuant hereto. The Pledgor hereby authorizes the Agent to
attach each Pledge Amendment hereto and agrees that all shares listed on any
Pledge Amendment delivered to the Agent shall for all purposes hereunder be
considered Pledged Collateral.
SECTION 6. THE PLEDGOR'S RIGHTS. So long as no Event of Default shall
have occurred and be continuing:
(a) The Pledgor shall have the right, from time to time, to
vote and give consents with respect to the Pledged Collateral or any part
thereof for all purposes not inconsistent with the provisions of this Securities
Pledge Agreement and the Credit Agreement; provided, however, that no vote shall
be cast, and no consent shall be given or action taken, which would have the
effect of impairing the position or interest of the Agent in respect of the
Pledged Collateral (except as and to the extent expressly permitted by the
Credit Agreement).
(b) The Pledgor shall be entitled, from time to time, to
collect and receive for the Pledgor's own use, and shall not be required to
pledge pursuant to SECTION 2, above, any cash dividends or cash interest
payments paid in respect of the Pledged Securities, except such cash dividends
or cash interest payments received after and during the continuance of an Event
of Default; provided, however, that until actually paid, all rights to any such
permitted cash dividends or cash interest payments shall remain subject to the
Lien created by this Securities Pledge Agreement. All dividends and interest
payments (other than such cash dividends and cash interest payments as are
permitted to be paid to the Pledgor in accordance with this clause (b)) and all
rights, property, proceeds and products received, receivable or otherwise
distributed in respect of any of the Pledged Securities of the Pledgor whenever
paid or made, shall be delivered to the Agent to hold as Pledged Collateral and
shall, if recovered by the Pledgor, be
4.
<PAGE> 112
received in trust for the benefit of the Agent, be segregated from the other
property or funds of the Pledgor, and be forthwith delivered to the Agent as
Pledged Collateral.
SECTION 7. DEFAULTS AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of an Event of Default
under or as defined in the Credit Agreement shall be an "Event of Default"
hereunder.
7.2 REMEDIES. Upon the occurrence of an Event of Default and
so long as the same shall be continuing, and in addition to the other remedies
available under the Credit Agreement and the other Credit Documents:
(a) All or any portion of the Secured Obligations
may, at the option of the Agent and without demand, notice, or legal process of
any kind, be declared, and immediately shall become, due and payable.
(b) The Agent (personally or through an agent) is
hereby authorized and empowered to transfer and register in its name or in the
name of its nominee the whole or any part of the Pledged Collateral, to exchange
certificates or instruments representing or evidencing Pledged Securities for
certificates or instruments of smaller or larger denominations, to exercise the
voting rights with respect thereto, to collect and receive all cash dividends
and other distributions made thereon, to sell in one or more sales after ten
(10) days' prior written notice of the time and place of any public sale or of
the time after which a private sale is to take place (which notice the Pledgor
agrees is commercially reasonable), but without any previous notice or
advertisement, the whole or any part of the Pledged Collateral and to otherwise
act with respect to the Pledged Collateral as though the Agent were the outright
owner thereof, the Pledgor hereby irrevocably constituting and appointing the
Agent the proxy and attorney-in-fact of the Pledgor, with full power of
substitution (which appointment is coupled with an interest) to take all such
actions permitted hereunder or otherwise permitted by law; provided, however,
the Agent shall not have any duty to exercise any such right or to preserve the
same and shall not be liable for any failure to do so or for any delay in doing
so. Any sale shall be made at a public or private sale at such location as the
Agent may reasonably select, and the Agent or any one or more Lenders may be the
purchaser of the whole or any part of the Pledged Collateral so sold and hold
the same thereafter in its or their own right free from any claim of the Pledgor
or any right of redemption. Each sale shall be made to the highest bidder, but
the Agent reserves the right to reject any and all bids at such sale which it,
in its sole discretion, shall deem inadequate. Except as otherwise provided
herein, the Pledgor hereby waives demand of performance, notices of sale,
advertisements, and the presence of the Pledged Collateral at any sale thereof.
Any sale hereunder may be conducted by an auctioneer or any officer or agent of
the Agent.
(c) If, at the original time or times appointed for
the sale of the whole or any part of the Pledged Collateral, the highest bid
shall be inadequate to discharge in full all the Secured Obligations if there be
but one sale, or if the Pledged Collateral be offered for sale in lots, if at
any of such sales, the highest bid for the lot offered for sale would indicate
to the Agent, in its sole discretion, the unlikelihood of the proceeds of the
sales of the whole of the Pledged Collateral being sufficient to discharge all
the Secured Obligations, the Agent may, on one or more occasions and in its sole
discretion, postpone any of said sales by public
5.
<PAGE> 113
announcement at the time of sale, and no other notice of such postponement or
postponements of sale need be given, any other notice being hereby waived;
provided, however, that if a sale is postponed for more than sixty (60) days,
the Agent shall re-notice the Pledgor of any subsequent sale of the affected
Pledged Collateral in accordance with SECTION 7.2(b), above.
(d) In the event of any sales hereunder, the Agent
shall, after deducting all costs or expenses of every kind (including, without
limitation, reasonable attorneys' fees, costs and other legal expenses) for
care, safekeeping, collection, sale, delivery, or otherwise, apply the residue
of the proceeds of the sales to the payment or reduction, either in whole or in
part, of the Secured Obligations in accordance with the agreements and
instruments governing and evidencing such Obligations, returning the surplus, if
any, to the Pledgor.
(e) If, at any time when the Agent shall determine to
exercise its right to sell the whole or any part of the Pledged Collateral
hereunder, such Pledged Collateral or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act of
1933, as amended (the "Act"), the Agent may, in its discretion (subject only to
applicable requirements of law), sell such Pledged Collateral or part thereof by
private sale in such manner and under such circumstances as the Agent may deem
necessary or advisable, but subject to the other requirements of this SECTION 7,
and shall not be required to effect such registration or cause the same to be
effected. Without limiting the generality of the foregoing, in any such event
the Agent may, in its sole discretion, (i) in accordance with applicable
securities laws, proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Collateral or
part thereof could be or shall have been filed under the Act; (ii) approach and
negotiate with a single possible purchaser to effect such sale; and (iii)
restrict such sale to a purchaser who will represent and agree that such
purchaser is purchasing for its own account, for investment, and not with a view
to the distribution or sale of such Pledged Collateral or part thereof. In
addition to a private sale as provided above in this SECTION 7, if any of the
Pledged Collateral shall not be freely distributable to the public without
registration under the Act at the time of any proposed sale hereunder, then the
Agent shall not be required to effect such registration or cause the same to be
effected but may, in its sole discretion (subject only to applicable
requirements of law), require that any sale hereunder (including a sale at
auction) be conducted subject to such restrictions as the Agent may, in its sole
discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with
the Bankruptcy Code and other laws affecting the enforcement of creditors'
rights and the Act and all applicable state securities laws.
(f) The Pledgor agrees that a breach of any covenants
contained in this SECTION 7 with the effect of denying the Agent the realization
of the practical benefits to be provided by this SECTION 7 will cause
irreparable injury to the Agent and the Lenders, that in such event the Agent
and the Lenders would have no adequate remedy at law in respect of such breach
and, as a consequence, agrees that in such event each and every covenant
contained in this SECTION 7 shall be specifically enforceable against the
Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that the Secured Obligations are not then due and payable.
SECTION 8. TERMINATION. Immediately following the full and complete
payment, in cash of all the Secured Obligations, the Agent shall deliver to the
Pledgor the Pledged Collateral
6.
<PAGE> 114
pledged by the Pledgor at the time subject to this Securities Pledge Agreement
and all instruments of assignment executed in connection therewith, free and
clear of the Lien hereof, and all of the Pledgor's obligations hereunder shall
at such time terminate.
SECTION 9. CONSENT OF GOVERNMENTAL AUTHORITIES. Notwithstanding
anything to the contrary contained herein, to the extent that the exercise of
any power granted, or remedy available, to the Agent hereunder requires the
prior approval of any Governmental Authority, then the Agent hereby agrees that
it may not and shall not exercise any such right or avail itself of any such
remedy, until the required consent has been obtained.
SECTION 10. MISCELLANEOUS.
10.1 ENTIRE AGREEMENT. This Securities Pledge Agreement
constitutes and contains the entire agreement of the parties and supersedes any
and all prior and contemporaneous agreements, negotiations, correspondence,
understandings and communications between the parties, whether written or oral,
respecting the subject matter hereof.
10.2 ASSIGNABILITY. This Securities Pledge Agreement shall be
binding upon and inure to the benefit of the Pledgor, the Agent, and the
Lenders, and their respective successors and assigns as permitted under the
Credit Agreement, except that the Pledgor shall not have the right to assign its
rights hereunder or any interest herein without the prior written consent of the
Agent.
10.3 NOTICES. Any notice or other communication hereunder to
any party shall be addressed and delivered (and shall be deemed given) in
accordance with the Credit Agreement.
10.4 NO WAIVER; AMENDMENTS. No failure on the part of the
Agent to exercise, no delay in exercising and no course of dealing with respect
to, any right hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder 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. This
Securities Pledge Agreement may not be amended or modified except by written
agreement between the Pledgor and the Agent, and no consent or waiver hereunder
shall be valid unless in writing and signed by the Agent.
10.5 SEVERABILITY. If any provision of this Securities Pledge
Agreement is held to be unenforceable for any reason, it shall be adjusted, if
possible, rather than voided in order to achieve the intent of the parties to
the extent possible. In any event, all other provisions of this Securities
Pledge Agreement shall be deemed valid and enforceable to the full extent
possible.
10.6 GOVERNING LAW. This Securities Pledge Agreement has been
delivered to the Agent and accepted by the Agent in the State of California.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE CREDIT DOCUMENTS, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
STOCK PLEDGE AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED
BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE
7.
<PAGE> 115
WITH, THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING
CONFLICT OF LAWS, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
8.
<PAGE> 116
IN WITNESS WHEREOF, the Pledgor has caused this Securities Pledge
Agreement to be duly executed as of the date first written above.
PLEDGOR LEAP WIRELESS INTERNATIONAL, INC.,
a Delaware corporation
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
SECURITIES PLEDGE AGREEMENT (Borrower)
<PAGE> 117
ACCEPTED AND ACKNOWLEDGED BY:
ABN AMRO BANK N.V.,
as the Agent
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
SECURITIES PLEDGE AGREEMENT (Borrower)
<PAGE> 118
SCHEDULE I
Attached to and forming a part of that certain Securities Pledge
Agreement ("Securities Pledge Agreement") dated as of______, 1998, executed by
LEAP WIRELESS INTERNATIONAL, INC., a Delaware corporation ("Pledgor"), in favor
of ABN AMRO BANK N.V., as agent on behalf and for the benefit of the Lenders
(the "Agent").
<TABLE>
<CAPTION>
STOCK OR NOTE ISSUER CLASS OF STOCK OR NOTES STOCK CERTIFICATE NUMBER OF SHARES OR AMOUNT
NUMBERS OR NOTE OF NOTE
IDENTIFICATION
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SECURITIES PLEDGE AGREEMENT (Borrower)
<PAGE> 119
SCHEDULE II
PLEDGE AMENDMENT
THIS PLEDGE AMENDMENT ("Pledge Amendment") dated ________, 19__, is
delivered pursuant to Section 5(d) of that certain Securities Pledge Agreement
dated as of _____, 1998 (the "Securities Pledge Agreement") executed by LEAP
WIRELESS INTERNATIONAL, INC., a Delaware corporation ("Pledgor"), in favor of
ABN AMRO BANK N.V., as agent on behalf and for the benefit of the Lenders (the
"Agent").
The undersigned hereby agrees that (a) this Pledge Amendment shall be
attached to the Securities Pledge Agreement, (b) the Pledged Securities listed
on this Pledge Amendment shall be and become a part of the Pledged Collateral
and shall secure all Secured Obligations as defined in the Securities Pledge
Agreement and (c) the undersigned is a Pledgor under the Securities Pledge
Agreement and assumes all obligations of Pledgor thereunder.
PLEDGOR LEAP WIRELESS INTERNATIONAL, INC.,
a Delaware corporation
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
<TABLE>
<CAPTION>
STOCK OR NOTE ISSUER CLASS OF STOCK OR NOTES STOCK CERTIFICATE NUMBER OF SHARES OR AMOUNT
NUMBERS OR NOTE OF NOTE
IDENTIFICATION
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
SECURITIES PLEDGE AGREEMENT (Borrower)
<PAGE> 120
EXHIBIT G
FORM OF ASSIGNMENT AND ACCEPTANCE
ASSIGNMENT AND ACCEPTANCE dated _____________, 199__/200__, between
________________________________ (the "Assignor") and
____________________________ (the "Assignee").
PRELIMINARY STATEMENT
A. This Assignment and Acceptance is being executed and delivered in
accordance with and with reference to SECTION 8.6 of the Credit Agreement dated
as of _________________, 1998 (as the same may from time to time amended,
modified, supplemented or restated, the "Credit Agreement"), by and among Leap
Wireless International, Inc., a Delaware corporation (the "Borrower"), QUALCOMM,
Incorporated ("QUALCOMM") and the other Lenders named therein (collectively, the
"Lenders"), and ABN AMRO Bank N.V. as Administrative Agent (the "Administrative
Agent"). Capitalized terms used but not otherwise defined herein shall have the
meanings given them in the Credit Agreement.
B. The Assignor is a Lender under and as defined in the Credit
Agreement and, as such, presently has outstanding Investment Capital Loans and
Working Capital Loans under its respective Investment Capital Loan Commitment
and Working Capital Loan Commitment under the Credit Agreement as set forth in
SCHEDULE I attached hereto.
C. On the terms and conditions set forth below, the Assignor desires to
sell and assign to the Assignee, and the Assignee desires to purchase and assume
from the Assignor, a __________%(1) interest (the "Assigned Percentage") in and
to all of the Assignor's rights and obligations in, to and under the Credit
Agreement and the other Credit Documents as of the Effective Date (as defined
below).
D. After giving effect to such assignment, the respective outstanding
Investment Capital Loans and Working Capital Loans of the Assignor and the
Assignee under the Credit Agreement will be as set forth in SCHEDULE II attached
hereto.
NOW THEREFORE, the Assignor and the Assignee hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee WITHOUT
RECOURSE, and the Assignee hereby purchases and assumes from the Assignor, the
Assigned Percentage of the Assignor's rights and obligations under the Credit
Agreement as of the Effective Date.
2. After the execution and delivery of this Assignment and Acceptance
by the Assignee, the Assignor will, upon request of the Assignee, promptly
provide to the Assignee copies of all Credit Documents and other documents not
previously furnished to the Assignee
- --------
(1) Specify percentage of ASSIGNOR'S INTEREST ONLY in total facility to accuracy
of nine decimal points (for example, if Assignor has a 25% interest in the total
facility and 50% of that is being assigned, then complete the blank "50%", not
"12.5%").
1.
<PAGE> 121
that were delivered to such Assignor pursuant to the conditions precedent set
forth in SECTION 3 of the Credit Agreement.
3. THE ASSIGNOR:
(a) represents and warrants that as of the date hereof the
amounts of each of its Investment Capital Loan Commitment and Working Capital
Loan Commitment (without giving effect to assignments thereof which have not yet
become effective) are as set forth in SCHEDULE III attached hereto;
(b) 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;
(c) makes no representations or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Credit Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Credit Agreement or any other Credit Document furnished pursuant
thereto; and
(d) makes no representations or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
guarantor of the Obligations or the performance or observance by the Borrower or
any guarantor of any of its Obligations under the Credit Agreement or any other
Credit Document furnished pursuant thereto.
4. THE ASSIGNEE:
(a) represents and warrants that it is an Eligible Assignee;
(b) confirms that it has received a copy of the Credit
Agreement, together with copies of such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
this Assignment and Acceptance;
(c) agrees that it will, independently and without reliance
upon the Administrative Agent, the Assignor or any other Lender 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 or any other Credit Documents;
(d) appoints and authorizes the Administrative Agent to take
such action as administrative agent on its behalf and to exercise such powers
under the Credit Agreement and the other Credit Documents as are delegated to
the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and
(e) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Credit Agreement and the other
Credit Documents are required to be performed by a Lender.
2.
<PAGE> 122
5. Following the execution of this Assignment and Acceptance by the
Assignor and the Assignee, it will be delivered to the Administrative Agent for
recording by the Administrative Agent and acceptance by the Borrower. The
proposed effective date for this Assignment and Acceptance shall be
[______________, 19___/200___].
6. At or before 12:00 noon, local time of the Assignor on the proposed
effective date, the Assignee shall have paid to the Assignor the purchase price
agreed to by the Assignor and the Assignee by wire transfer (the "Purchase
Price") and the Administrative Agent shall have recorded, and the Borrower shall
have accepted, this Assignment and Acceptance (the satisfaction of the foregoing
two conditions on such date being the "Effective Date"). As of the Effective
Date, (a) the Assignee shall be a party to the Credit Agreement and shall be
entitled to the rights and benefits of the Credit Documents and, to the extent
of the percentage assigned in this Assignment and Acceptance, have the rights
and obligations of a Lender thereunder, (b) the Assignor shall, to the extent of
the percentage assigned in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement and the other
Credit Documents; provided, however, that any assignment by the Assignor of
rights to indemnification under and pursuant to the Credit Documents, including,
without limitation, under and pursuant to SECTION 8.14 of the Credit Agreement,
shall be undivided and nonexclusive, with each of the Assignor and the Assignee
being severally deemed to be beneficiaries of such indemnity rights, and (c) the
amounts of the Investment Capital Loan Commitments and the Working Capital Loan
Commitments for each of the Assignor and Assignee (after giving effect to the
assignment pursuant to this Assignment and Acceptance) will be as set forth in
SCHEDULE IV attached hereto. The Assignor shall retain all rights and
obligations applicable to it under the Credit Agreement relating to credits
extended, acts or omissions made, or other matters arising, prior to the
Effective Date.
7. Upon and after the Effective Date, the Administrative Agent shall be
directed to make all payments under the Credit Agreement which are payable by
the Administrative Agent for the account of the appropriate Lender to the
appropriate Lenders severally in proportion to their respective percentages
determined after giving effect to this assignment, when payment is due. The
Assignor and Assignee shall make all appropriate adjustments in payments under
the Credit Agreement and the other Credit Documents for periods prior to the
Effective Date directly between themselves.
8. Each of the parties to this Assignment and Acceptance agrees that at
any time and from time to time upon the written request of any other party, it
will execute and deliver such further documents and do such further acts and
things as such other party may reasonably request in order to effect the
purposes of this Assignment and Acceptance.
9. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of California.
3.
<PAGE> 123
IN WITNESS WHEREOF, each of the parties hereto has caused this
Assignment and Acceptance to be executed and delivered by a duly authorized
person on the date first set forth above.
ASSIGNOR:
[NAME OF ASSIGNOR]
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
ASSIGNEE:
[NAME OF ASSIGNEE]
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
4.
<PAGE> 124
ADMINISTRATIVE AGENT:
RECORDED this ______ day of
_____________, 199__/200__
ABN AMRO BANK N.V., as Administrative Agent
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
BORROWER:
ACCEPTED this _______ day of
______________, 199__/200__
LEAP WIRELESS INTERNATIONAL, INC.,
a Delaware corporation
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
5.
<PAGE> 125
SCHEDULE I
ASSIGNOR'S OUTSTANDING LOANS
(PRIOR TO ASSIGNMENT)
<TABLE>
<S> <C>
Investment Capital Loans $_______________
Working Capital Loans $_______________
</TABLE>
Schedule I
<PAGE> 126
SCHEDULE II
ASSIGNOR'S AND ASSIGNEE'S OUTSTANDING LOANS
(AFTER ASSIGNMENT)
<TABLE>
<CAPTION>
ASSIGNOR: OUTSTANDING LOANS
- --------- -----------------
<S> <C>
Investment Capital Loans $_______________
Working Capital Loans $_______________
ASSIGNEE: OUTSTANDING LOANS
- --------- -----------------
Investment Capital Loans $_______________
Working Capital Loans $_______________
</TABLE>
Schedule II
<PAGE> 127
SCHEDULE III
ASSIGNOR'S COMMITMENT AMOUNTS
(PRIOR TO ASSIGNMENT)
<TABLE>
<S> <C>
Investment Capital Loan Commitment $_______________
Working Capital Loan Commitment $_______________
</TABLE>
Schedule III
<PAGE> 128
SCHEDULE IV
ASSIGNOR'S AND ASSIGNEE'S COMMITMENT AMOUNTS
(AFTER ASSIGNMENT)
<TABLE>
<CAPTION>
ASSIGNOR: REVISED COMMITMENT
- --------- ------------------
<S> <C>
Investment Capital Loan Commitment $_______________
Working Capital Loan Commitment $_______________
ASSIGNEE: REVISED COMMITMENT
- --------- ------------------
Investment Capital Loan Commitment $_______________
Working Capital Loan Commitment $_______________
</TABLE>
Schedule IV
<PAGE> 1
EXHIBIT 10.2
TAX MATTERS AGREEMENT
This TAX MATTERS AGREEMENT ("AGREEMENT") is made effective as
of September ___, 1998 (the "EFFECTIVE DATE") by and between QUALCOMM
Incorporated ("QUALCOMM"), a Delaware corporation, and Leap Wireless
International, Inc. ("LEAP") a Delaware corporation.
RECITALS
WHEREAS, QUALCOMM intends to contribute certain of its assets
to the capital of Leap in exchange for, among other things, all of the issued
and outstanding capital stock of Leap and shortly thereafter distribute one
hundred percent (100%) of its shares of Leap stock to its shareholders on
September ___, 1998, and
WHEREAS, QUALCOMM, on behalf of itself and QUALCOMM's present
and future Subsidiaries other than Leap and Leap's present and future
Subsidiaries (the "QUALCOMM GROUP"), and Leap, on behalf of itself and Leap's
present and future Subsidiaries (the "LEAP GROUP"), have determined that it is
necessary and desirable to provide for allocations between the QUALCOMM Group
and the Leap Group of the responsibilities, liabilities and benefits relating to
Taxes paid or payable by the parties, whether beginning before, on, or after the
Separation Date (as defined below), and to provide for certain other matters.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements,
provisions, and covenants contained in this Agreement (the adequacy of which is
hereby acknowledged by the parties), the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
1. 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). All other terms used in this Agreement shall have
their ordinary meanings interpreted in light of the context in which they
appear.
1.01 "After Tax Basis" means a basis such that any payment received or
deemed to have been received by a party (the "ORIGINAL PAYMENT") shall be
supplemented by a further payment to such party so that the sum of the two
payments shall equal the Original Payment, after taking into account all Taxes,
if any, that would result from the receipt or accrual of such payments, if
legally required. All payments hereunder shall be calculated on the assumptions
that the payee is subject to Tax at the highest marginal rates of Tax applicable
to such class of Taxpayer.
<PAGE> 2
TAX MATTERS AGREEMENT
Page 2
1.02 "Adjustment" means an adjustment determined on an issue-by-issue
or transaction-by-transaction basis, as appropriate, made or proposed by a
Taxing Authority with respect to any amount reflected or required to be
reflected on any Return relating to such Tax.
1.03. "Code" means the Internal Revenue Code of 1986, as amended, and
"IRS" means the United States Internal Revenue Service.
1.04 "Final Determination" means (a) a decision, judgment, decree or
other order by any court of competent jurisdiction, which has become final and
is either no longer subject to appeal or for which a determination not to appeal
has been made; (b) a closing agreement made under Section 7121 of the Code or
any comparable foreign, state, local, municipal or other Taxing statute; (c) a
final disposition by any Taxing Authority of a claim for refund; or (d) any
other written agreement relating to an Adjustment to which any Taxing Authority
is a party to the execution of which is final and prohibits such Taxing
Authority from seeking any further legal or administrative remedies with respect
to such Adjustment.
1.05. "Post-Separation Period" means any Taxable period ending after
the Separation Date.
1.06. "QUALCOMM Businesses" means the assets owned and businesses
conducted by the QUALCOMM Group immediately after the Separation Date.
1.07 "Return" means any return, report, form or similar statement or
document (including, without limitation, any related or supporting information
or schedule attached thereto and any information return, claim for, amended
return and declaration of estimated Tax) that has been or is required to be
filed with any Taxing Authority or that has been or is required to be furnished
to any Taxing Authority in connection with the determination, assessment or
collection of any Taxes or the administration of any laws, regulations or
administrative requirements relating to any Taxes.
1.08. "Separation Period" means any Taxable period ending on or before
the Separation Date.
1.09. "Leap Businesses" means the assets owned and businesses conducted
by the Leap Group immediately after the Separation Date.
1.10. "Separation Date" means the date on which QUALCOMM distributes
100% of the stock of Leap to its shareholders.
1.11 "Subsidiary" means an entity in which Qualcomm or Leap, as the
case may be, owns at least 5% of the voting power, value or beneficial interests
therein.
1.12 "Tax" (and, with correlative meanings, "Taxes" and "Taxable")
means, without limitation, and as determined on a jurisdiction-by-jurisdiction
basis, each foreign or US federal, state, local or municipal income, alternative
or add-on minimum, gross receipts, sales, use, ad
2
<PAGE> 3
TAX MATTERS AGREEMENT
Page 3
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or any other
Tax, custom, tariff, impost, levy, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, addition to Tax or additional amount related thereto, imposed by any
Taxing Authority.
1.13 "Tax Benefit" means with respect to any Taxable period or portion
of a Taxable period, and as computed separately with respect to each Tax, the
net decrease in each such Tax resulting from all Adjustments made pursuant to a
Final Determination with respect to each such Tax.
1.14 "Tax Contest" means, without limitation, any audit, examination,
claim, suit, action or other proceeding relating to Taxes in which an Adjustment
to Taxes may be proposed, collected or assessed and in respect of which an
indemnity payment, reimbursement or other payment may be sought under this
Agreement.
1.15 "Tax Detriment" means with respect to any Taxable period or
portion of a Taxable period, as computed separately with respect to each Tax,
the net increase in each such Tax resulting from all Adjustments made pursuant
to Final Determination with respect to each such Tax.
1.16 "Taxing Authority" means any governmental authority or any
subdivision, agency, commission or authority thereof, or any quasi-governmental
or private body having jurisdiction over the assessment, determination,
collection or other imposition of Taxes.
ARTICLE II
FILING OF TAX RETURNS
2.01 Pre-Separation Income Tax Returns.
(a) Federal Income Tax Returns. The income and other Tax items
of each member of the Leap Group for any Pre-Separation Period shall be included
in QUALCOMM's consolidated federal income Tax return. QUALCOMM shall prepare and
timely file all consolidated federal income Tax returns for such periods.
(b) State Income Tax Returns. QUALCOMM shall prepare and
timely file any consolidated or combined or separate state income Tax return
that includes a QUALCOMM Group member and/or a Leap Group member for any
Pre-Separation Period.
(c) Foreign Income Tax Returns. QUALCOMM shall prepare and
timely file any consolidated or combined or separate foreign income Tax return
that includes a QUALCOMM Group member for any Pre-Separation Period. Leap shall
prepare and timely file any consolidated or combined or separate foreign Tax
return that includes a Leap Group member for any Pre-Separation Period.
3
<PAGE> 4
TAX MATTERS AGREEMENT
Page 4
(d) Amendments. With respect to any return that includes any
Leap Business and for which QUALCOMM has responsibility under this Section 2.01,
QUALCOMM shall not file an amended return or change any Tax accounting method or
election without Leap's consent (which shall not be unreasonably withheld) if
such action would increase any Tax for which any Leap Group member would be
liable under this Agreement, unless such action is required by law or is
necessary (in QUALCOMM's good-faith opinion) to avoid or reduce any penalty or
addition to Tax.
202. Post-Separation Income Tax Returns. Leap shall prepare and timely
file all federal, state, local and foreign income Tax returns for each Leap
Group member for all Post-Separation Periods. QUALCOMM shall prepare and timely
file all federal, state, local and foreign income Tax returns for each QUALCOMM
Group member for all Post-Separation Periods.
2.03. Other Tax Returns. All Tax Returns not covered by Section 2.01 or
2.02 shall be prepared and filed by either QUALCOMM or Leap based upon who is
primarily obligated for such Tax under applicable law.
ARTICLE III
PAYMENT OF TAXES
3.01. Payment of Taxes in General.
(a) Except as otherwise provided in this Article III, QUALCOMM
shall pay, and shall indemnify and hold harmless each Leap Group member from and
against, (i) all Taxes attributable to QUALCOMM Businesses, whether heretofore
or hereafter arising or incurred, and (ii) all Taxes for any Pre-Separation
Period that are attributable to Leap Businesses, except with respect to Taxes
relating to Leap's non-US. Subsidiaries as discussed herein. QUALCOMM shall be
entitled to any reduction in or refund of Taxes for which it is responsible
pursuant to the preceding sentence (except any reduction in or refund of Taxes
resulting from carrybacks of any Leap Group member described in Section 3.03).
(b) Except as otherwise provided in this Article III, Leap
shall pay, and shall indemnify and hold harmless each QUALCOMM Group member from
and against all Taxes for any Post-Separation Period that are attributable to
Leap Businesses. Leap shall pay, and shall indemnify and hold harmless each
QUALCOMM Group member from and against all Taxes for any Pre-Separation period
and any Post-Separation Period relating to Leap's non-US. Subsidiaries or any
predecessor or successor thereof. Leap shall be entitled to any reduction in or
refund of Taxes for which it is responsible pursuant to this paragraph.
(c) If a member of the QUALCOMM Group or Leap Group receives a
refund of Taxes to which the other group is entitled under this Article III,
such member shall remit such refund to the other group by promptly sending such
refund to QUALCOMM or Leap, as the case may be; provided, however, that any
amount payable by any QUALCOMM Group member or Leap Group member in respect of
any such refund shall paid on an After Tax Basis.
4
<PAGE> 5
TAX MATTERS AGREEMENT
Page 5
3.02. Adjustments to Tax.
(a) QUALCOMM shall be responsible for, and shall indemnify and
hold harmless each Leap Group member from and against, all Adjustments to Taxes
(including, without limitation, additions to Tax, interest, and penalties) (i)
attributable to QUALCOMM Businesses, whether heretofore or hereafter arising or
incurred, or (ii) attributable to Leap Businesses for any Pre-Separation Period,
except with respect to Adjustments to Tax related to Leap's non-U.S.
Subsidiaries or any predecessor or successor thereto. QUALCOMM shall be entitled
to any Tax Benefit and shall bear any Tax Detriment resulting from Adjustments
to Taxes attributable to QUALCOMM Businesses (except Adjustments resulting from
carrybacks of any Leap Group member from a Post-Separation Period as provided in
Article 3.03 herein). If an Adjustment to a Tax item for which QUALCOMM is
responsible under this Section 3.02 reduces the Tax liability of a Leap Group
member, Leap shall pay promptly to QUALCOMM the amount of the Tax Benefit
realized by the Leap Group, net of any Tax Detriment, if any, experienced by the
Leap Group as a result of the Adjustment If an Adjustment to a Tax item for
which QUALCOMM is responsible under this Section 3.02 increases the Tax
liability of a Leap Group member, QUALCOMM shall pay promptly to Leap the amount
of the Tax Detriment realized by the Leap Group on an After Tax Basis upon
receiving written notification from Leap of such amount.
(b) Leap shall be responsible for, and shall indemnify and
hold harmless each QUALCOMM Group member from and against, all Adjustments to
Taxes (including, without limitation, additions to Tax, interest, and penalties)
(i) for any Pre-Separation Period with respect to Adjustments to Tax related to
Leap's non-US. Subsidiaries or any predecessor or successor thereto, and (ii)
for any Post-Separation Period with respect to Leap Businesses. Leap shall be
entitled to any Tax Benefit and shall bear any Tax Detriment resulting from such
Adjustments. If an Adjustment to a Tax item for which Leap is responsible under
this Section 3.02 reduces the Tax liability of an QUALCOMM Group member,
QUALCOMM shall pay promptly to Leap the amount of the Tax Benefit realized by
the QUALCOMM Group net of any Tax Detriment, if any, experienced by the QUALCOMM
Group as a result of the Adjustment. If an Adjustment to a Tax item for which
Leap is responsible under this Section 3.02 increases the Tax liability of an
QUALCOMM Group member, Leap shall pay promptly the amount of the Tax Detriment
incurred by the QUALCOMM Group on an After Tax Basis upon receiving written
notification from QUALCOMM of such amount.
3.03. Carrybacks from Post-Separation Periods to Pre-Separation
Periods. Any loss, credit, or other item attributable to Leap Businesses and
arising in a Post-Separation Period may be carried back to a consolidated or
combined return of the QUALCOMM Group for a Pre-Separation Period as permitted
under applicable law. QUALCOMM shall cooperate with any Leap Group member to the
extent reasonably necessary (including, without limitation, amending any return
and filing any claim for refund) for such member to realize the Tax Benefit of
carrying such loss, credit, or other item back to such Pre-Separation Period.
QUALCOMM shall remit promptly to Leap any refund when received or reduction in
Tax when reported on an
5
<PAGE> 6
TAX MATTERS AGREEMENT
Page 6
appropriate Tax Return resulting from such carryback; provided, however, that
the amount will be net of any Tax Detriment QUALCOMM experiences as a result of
the carryback.
ARTICLE IV
COOPERATION
4.01. Cooperation in General. Each of QUALCOMM and Leap agrees to make
available to the other party records in its custody and in the custody of any
member of its respective Group, to furnish other information, and otherwise to
cooperate to the extent reasonably required for the filing of Tax Returns and
documents relating to the assets or businesses of such other party.
4.02 Retention of Records by QUALCOMM. QUALCOMM shall retain all
material, including but not limited to, returns, supporting schedules,
workpapers, correspondence, and other documents relating to the consolidated
federal income Tax returns filed for a Taxable year during which Leap is a
member of the Qualcomm affiliated group within the meaning of section 1504 of
the Code and shall make such items available to Leap during regular business
hours.
4.03. Notice, Defense, and Settlement of Tax Claims. If a member of the
QUALCOMM Group or Leap Group receives written notice of a deficiency, Tax
Contest, audit, or other proceeding with respect to a proposed Tax liability for
which a member of the other group is or may be, in whole or in part, liable
under this Agreement (including liability hereunder to indemnify or reimburse a
member of the other group), then the recipient shall notify the other group of
such matter by promptly sending written notice thereof to QUALCOMM or Leap, as
the case may be. QUALCOMM and Leap shall cooperate to contest and defend against
any such proposed Tax liability. The corporation that is liable under applicable
law for such proposed Tax liability (without regard to this Agreement) shall not
settle, compromise, or otherwise agree to pay such liability without the consent
of the corporation that is liable for such Tax under this Agreement. Such
consent shall not be unreasonably withheld or delayed.
ARTICLE V
TERM AND TERMINATION
5.01 Term and Termination. This Agreement shall remain in full force
and effect from the Effective Date until the parties mutually agree in writing
to terminate this Agreement. Notwithstanding such a termination, this Agreement
shall continue in effect with respect to any payment due for any Taxable period
prior to termination.
ARTICLE VI
MISCELLANEOUS
6.01 Fixing of Liability. The provisions of this Agreement shall fix
the liability of the parties to each other as to the matters provided for herein
regardless of who is required to make
6
<PAGE> 7
TAX MATTERS AGREEMENT
Page 7
Tax payments to any Taxing Authority, and regardless of how the payments made
pursuant hereto are treated for Tax purposes.
6.02 Acknowledgment that Other Agreements may Exist. QUALCOMM and Leap
recognize that other corporations are now or may from time to time hereafter
become members of the their respective consolidated or combined groups under
circumstances which may warrant other methods of sharing Taxes. Each party
hereto authorizes the other party hereto to enter into the same, similar or
different tax matters agreements with any corporation which is now or may
hereafter become a member of the Qualcomm or Leap Group, as applicable.
6.03 Consistency. The parties shall not take inconsistent positions as
to Tax matters pertaining to both parties, including, but not limited to, the
value of Leap and its stock on the date such stock is distributed to QUALCOMM's
shareholders.
6.04 Assignment. Neither party shall assign or transfer this Agreement
nor any right hereunder without the prior written consent of the other party and
any assignment so permitted shall be subject to the written consent of the
assignee to all the terms of this Agreement.
6.05 Modification. No modification, termination, extension, renewal, or
waiver of any provisions of this Agreement by addendum or otherwise, shall be
effective or binding upon either party unless made in writing and signed by
authorized officers of the parties.
6.06 Amendments, Modifications, Etc., To The Code. Any alteration,
modification, addition, deletion, or other change in the consolidated income Tax
return provisions of the Code or the Regulations thereunder shall automatically
be applicable to this Agreement.
6.07 Controlling Law. This Agreement shall be governed by and construed
and enforced in accordance with the substantive laws of the State of California,
excluding its conflicts of laws provisions, as an agreement entered into and to
be performed entirely within the State of California between California
residents, and shall be binding upon the parties worldwide.
6.08 Attorney's Fees and Expenses. In the event of a breach or
violation of any provision of this Agreement or if any dispute arises out of or
relating to this Agreement, such dispute shall be resolved by submission to
binding arbitration in San Diego County, California before a retired judge or
justice. If we are unable to agree on a retired judge or justice, each party
will name a retired judge or justice and the two named persons will select a
neutral judge or justice who will act as the sole arbitrator.
6.09 Binding Effect; Entire Agreement. This Agreement shall be binding
upon, enforceable by and against, and inure to the benefit of, the parties
hereto and the respective successors and assigns of the parties hereto, but no
assignment hereof shall relieve any party of its obligations hereunder without
the written consent of the other party. Any member corporation which leaves the
Consolidated Group shall be bound by this agreement. This
7
<PAGE> 8
TAX MATTERS AGREEMENT
Page 8
Agreement supersedes all proposals, oral or written and all negotiations,
conversations or discussions heretofore had between the parties related to the
Agreement. All prior oral communications, negotiations and undertaking between
the parties relating to the subject matter hereof are superseded by this
Agreement.
6.10 Severability. If any provision of this Agreement is ruled
unenforceable, such provision shall be enforced to the extent permissible, the
parties shall negotiate a substitute valid provision which most nearly effects
the intent of the parties, and the remainder of this Agreement shall remain in
effect.
6.11 No Waiver. No party's rights to enforce provisions of this
Agreement shall be affected by any prior course of dealing, waiver, delay,
omission or forbearance.
6.12 Notices. Any notice, instruction, or communication required or
permitted to be given under this Agreement to either party shall be in writing
and shall be given by personal delivery, or telecopier, or sent by
internationally recognized air courier, postage or fees prepaid.
Notices to QUALCOMM Incorporated shall be addressed to:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
Notices to Leap Wireless International, Inc. shall be
addressed to:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
The parties may request by written notice that a different
address be used. Any such notice, instruction or communication shall be deemed
given when actually received or, if earlier, three (3) business days after
deposit with an internationally recognized air courier.
6.13 Costs & Expenses. Unless otherwise provided in this Agreement,
each party shall bear all fees and expenses incurred in performing its
obligations under this Agreement, and shall be solely responsible for, and shall
indemnify and hold the other party free and harmless from, any and all claims,
damages or lawsuits arising out of its acts or those of its employees.
6.14 Remedies Cumulative. The remedies of the parties under this
Agreement are cumulative and shall not exclude any other remedies to which the
party may be lawfully entitled.
8
<PAGE> 9
TAX MATTERS AGREEMENT
Page 9
6.15 Captions, Numbers. Titles or captions of articles and paragraphs
contained in this Agreement are inserted only as a matter of convenience and for
reference, and in no way define, limit, extend, or describe the scope of this
Agreement or the intent of any provision hereof. Whenever required by the
context, the singular number shall include the plural and the plural number
shall include the singular.
6.16 Counterparts. This Agreement may be executed in multiple copies,
each of which shall be deemed an original and shall for all purposes constitute
an Agreement, binding on the parties, and each party hereby covenants and agrees
to execute all duplicates or replacement counterparts of this Agreement as may
be required.
6.17. No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein,
express or implied, is intended to or will confer upon any other person or
entity any legal or equitable right, benefit or remedy of any nature whatsoever
under or by reason of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
QUALCOMM INCORPORATED LEAP WIRELESS INTERNATIONAL, INC.
By: /s/ ___________________________ By: /s/ ___________________________
Name: ___________________________ Name: ___________________________
Title: ___________________________ Title: ___________________________
9
<PAGE> 1
EXHIBIT 10.3
INTERIM SERVICES AGREEMENT
by and between
QUALCOMM INCORPORATED
and
LEAP WIRELESS INTERNATIONAL, INC.
<PAGE> 2
INTERIM SERVICES AGREEMENT
THIS INTERIM SERVICES AGREEMENT ("Agreement"), dated as of ___________,
1998 (the "Effective Date"), is by and between QUALCOMM INCORPORATED, a Delaware
corporation ("QUALCOMM"), and LEAP WIRELESS INTERNATIONAL, INC., a Delaware
corporation ("Leap").
WHEREAS, QUALCOMM and Leap have entered into a Separation and Distribution
Agreement, dated as of the date hereof (the "Separation and Distribution
Agreement"), which provides, among other things, subject to the terms and
conditions thereof, for a transfer of assets and liabilities to Leap (the
"Separation") and the distribution of the outstanding shares of Leap to QUALCOMM
stockholders (the "Distribution"), and the execution and delivery of certain
other agreements (the "Ancillary Agreements") in order to facilitate and provide
for the foregoing; and
WHEREAS, in order to facilitate an orderly transition under the Separation
and Distribution Agreement, the parties desire that QUALCOMM provide to Leap the
Services (as defined below) on the terms set forth herein.
NOW, THEREFORE, in consideration of the above premises and for other good
and valid consideration, the receipt and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE 1
SERVICES
1.1 SERVICES.
(a) TYPE OF SERVICES. Except as otherwise provided herein, for the
term determined pursuant to Section 1.2 hereof, QUALCOMM shall provide or cause
to be provided to Leap such services as may reasonably be requested by Leap and
approved by QUALCOMM (which approval may not unreasonably be withheld) from time
to time following the date hereof (the "Services").
(b) SERVICES PERFORMED BY OTHERS. At its option and with the consent
of Leap (which consent shall not unreasonably be withheld), QUALCOMM may cause
any Service it is required to provide hereunder to be provided by any other
person or entity that is providing, or may from time to time provide, the same
or similar services for QUALCOMM.
1.2 TERM. The term of this Agreement shall commence on the date of the
Distribution and shall remain in effect until one year following the
Distribution ("Expiration Date"), unless earlier terminated under Section 1.7
("Termination Date"). This Agreement may be extended by the parties in writing
either in whole or with respect to one or more of the Services; provided,
however, that such extension shall only apply to the Service for which the
Agreement was extended. The parties may agree on an earlier expiration date for
a specific Service.
1.
<PAGE> 3
1.3 CHARGES AND PAYMENT.
(a) CHARGES FOR SERVICES. Leap shall pay to QUALCOMM the hourly rate
of the employee(s) of QUALCOMM performing the Services plus associated general
and administrative expenses and overhead (which the parties agree shall be in
the aggregate an additional One hundred fifty percent (150%) of the hourly rate
of the employees). In addition, Leap shall pay to QUALCOMM all out-of-pocket
costs and expenses of QUALCOMM in performing such Services. To the extent
feasible, Leap shall enter into direct arrangements to obtain products and
services of third party vendors directly rather than having QUALCOMM provide
such Services.
(b) PAYMENT TERMS. QUALCOMM shall bill Leap monthly for all charges
pursuant to this Agreement. Such bills shall be accompanied by reasonable
documentation or other reasonable explanation supporting such charges. Leap
shall pay QUALCOMM for all Services provided hereunder within thirty (30) days
after receipt of an invoice therefor. Late payments shall bear interest at the
rate of 10% per annum, compounded monthly.
(c) PERFORMANCE UNDER ANCILLARY AGREEMENTS. Notwithstanding anything
to the contrary contained herein, Leap shall not be charged under this
Agreement for any Services that are specifically required to be performed by
QUALCOMM for Leap under the Separation and Distribution Agreement or any other
Ancillary Agreement and any such other Services shall be performed and charged
for in accordance with the terms of the Separation and Distribution Agreement or
such other Ancillary Agreement. Leap shall also not be charged for any services
performed before the date of the Distribution.
1.4 GENERAL OBLIGATIONS; STANDARD OF CARE.
(a) PERFORMANCE REQUIREMENTS: QUALCOMM. Subject to subsection
1.5(c), QUALCOMM shall maintain sufficient resources to perform its obligations
hereunder. Where no specific performance requirements for a specific Service are
agreed in writing, QUALCOMM shall use reasonable efforts to provide Services in
accordance with the policies, procedures and practices in effect before the date
hereof and shall exercise the same care and skill as it exercises in performing
similar services for itself.
(b) TRANSITIONAL NATURE OF SERVICES; CHANGES. The parties
acknowledge the transitional nature of the Services and that QUALCOMM may make
changes from time to time in the manner of performing the Services (e.g., if
QUALCOMM is making similar changes in performing similar services for itself and
its affiliates).
(c) RESPONSIBILITY FOR ERRORS; DELAYS. QUALCOMM's sole
responsibility to Leap:
(i) for errors or omissions in connection with Services shall
be to furnish correct information, payment and/or adjustment in the Services, at
no additional cost or expense to Leap; provided, Leap must promptly advise
QUALCOMM of any such error or omission of which it becomes aware after having
used reasonable efforts to detect any such errors or omissions; and
2.
<PAGE> 4
(ii) for failure to adequately deliver any Service because of
impracticability, shall be to use reasonable efforts, subject to subsection
1.5(c), to make the Services available and/or to resume performing the Services
as promptly as reasonably practicable.
(d) GOOD FAITH COOPERATION; CONSENTS. The parties will use good
faith efforts to cooperate with each other in all matters relating to the
provision and receipt of Services. Such cooperation shall include exchanging
information, providing electronic access to systems used in connection with
Services, performing true-ups and adjustments and obtaining all consents,
licenses, sublicenses or approvals necessary to permit each party to perform its
obligations hereunder. The costs of obtaining such consents, licenses,
sublicenses or approvals shall be allocated in an equitable manner between the
parties, consistent with Section 1.3. The parties will maintain reasonable
documentation related to the Services and cooperate with each other in making
such information available as needed.
(e) ALTERNATIVES. If QUALCOMM reasonably believes it is unable to
provide any Service, the parties shall cooperate to determine the best
alternative approach. Until such alternative approach is found or the problem
otherwise resolved to the satisfaction of the parties, QUALCOMM shall use
reasonable efforts, subject to Section 1.5(a) and Section 1.5(b), to continue
providing the Service. To the extent an agreed upon alternative approach
requires payment above and beyond that which is included in QUALCOMM's charge
for the Service in question, the Leap shall make any such additional payment
unless the parties otherwise agree in writing.
1.5 CERTAIN LIMITATIONS.
(a) IMPRACTICABILITY. QUALCOMM shall not be required to provide any
Service to the extent the performance of such Service becomes "impracticable" as
a result of a cause or causes outside the reasonable control of QUALCOMM, or to
the extent the performance of such Services would require QUALCOMM to violate
any applicable laws, rules or regulations, or would result in the breach of any
software license or other applicable contract.
(b) ADDITIONAL RESOURCES. In providing the Services, QUALCOMM shall
not be obligated to: (i) hire any additional employees; (ii) maintain the
employment of any specific employee; (iii) purchase, lease or license any
additional equipment or software; or (iv) pay any costs related to the transfer
or conversion of Leap's data to Leap or any alternate supplier of Services. (C)
NO SALE, TRANSFER, ASSIGNMENT. Leap may not sell, transfer or assign, in whole
or in part, its rights or obligations hereunder.
1.6 CONFIDENTIALITY.
(a) INFORMATION SUBJECT TO OTHER OBLIGATIONS. Leap agrees that all
confidential information regarding the Services, including, but not limited to,
price, costs, methods of operation, and software, shall be maintained in
confidence.
3.
<PAGE> 5
(b) INTERNAL USE; TITLE, COPIES, RETURN. Except to the extent
inconsistent with the express terms of the Separation and Distribution Agreement
and any Ancillary Agreement other than this Agreement, Leap agrees that:
(i) title to all systems used in performing the Services
provided hereunder shall remain in QUALCOMM or its third party vendors;
(ii) to the extent the provision of any Service involves
intellectual property, including without limitation software programs or
patented or copyrighted material, or material constituting trade secrets, Leap
shall not copy, modify, reverse engineer, decompile or in any way alter any of
such material, or otherwise use such material in a manner inconsistent with the
terms and provisions of this Agreement, without QUALCOMM's express written
consent; and (III) upon the termination of any of the Services, Leap shall
return to QUALCOMM, as soon as practicable, any equipment or other property of
QUALCOMM relating to the Services which is owned or leased by it and is or was
in Leap's possession or control.
1.7 TERMINATION.
(a) ELECTION TO TERMINATE. Leap may terminate this Agreement either
with respect to all, or with respect to any one or more, of the Services
provided hereunder at any time and from time to time, for any reason or no
reason, by giving written notice to QUALCOMM at least thirty (30) days prior to
the date of such termination. QUALCOMM may terminate this Agreement either with
respect to all, or with respect to any one or more, of the Services provided
hereunder at any time and from time to time, for any reason or no reason, by
giving written notice to Leap at least ninety (90) days prior to the date of
such termination. In addition, the parties may at any time agree in writing to
terminate this Agreement with respect to some or all of the Services, effective
immediately or as indicated in such writing.
(b) AUTOMATIC TERMINATION. Except to the extent the parties
otherwise agree in writing, and except where a longer term is set forth in a
Schedule for any particular Service, this Agreement will automatically terminate
on the Expiration Date.
(c) TERMINATION OF LESS THAN ALL SERVICES. In the event of any
termination with respect to one or more, but less than all, Services, this
Agreement shall continue in full force and effect with respect to any Services
not terminated hereby.
1.8 DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY AND
INDEMNIFICATION.
(a) DISCLAIMER OF WARRANTIES. QUALCOMM DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE
SERVICES. QUALCOMM MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE QUALITY,
SUITABILITY OR ADEQUACY OF THE SERVICES FOR ANY PURPOSE OR USE.
4.
<PAGE> 6
(b) LIMITATION OF LIABILITY; INDEMNIFICATION OF LEAP. QUALCOMM shall
have no liability to Leap with respect to its furnishing any of the Services
hereunder except for liabilities arising out of the willful misconduct, fraud or
gross negligence occurring after the Distribution Date of QUALCOMM. QUALCOMM
will indemnify, defend and hold harmless Leap in respect of all liabilities
related to, arising from, asserted against or associated with such willful
misconduct, fraud or gross negligence. In no event shall QUALCOMM or any of its
agents or affiliates have any liability for any incidental, indirect, special or
consequential damages, whether or not caused by or resulting from negligence or
breach of obligations hereunder and whether or not informed of the possibility
of the existence of such damages.
(c) LIMITATION OF LIABILITY; INDEMNIFICATION OF QUALCOMM. Leap shall
indemnify and hold harmless QUALCOMM in respect of all liabilities related to,
arising from, asserted against or associated with QUALCOMM's furnishing or
failing to furnish the Services provided for in this Agreement, other than
liabilities arising out of the willful misconduct, fraud or gross negligence
following the Distribution Date of QUALCOMM. In no event shall Leap have any
liability for any incidental, indirect, special or consequential damages,
whether or not caused by or resulting from negligence or breach of obligations
hereunder and whether or not informed of the possibility of the existence of
such damages.
1.9 REPRESENTATIVE. The parties shall each appoint a representative (each,
a "Representative") to facilitate communications and performance under this
Agreement. Each party may treat an act of a Representative of another party as
being authorized by such other party without inquiring behind such act or
ascertaining whether such Representative had authority to so act. Each party
shall have the right at any time and from time to time to replace its
Representative by giving notice in writing to the other party. Each
Representative is hereby authorized by the party he or she represents to approve
the establishment of new or modifications to existing Schedules.
ARTICLE 2
MISCELLANEOUS
2.1 TAXES. Leap shall bear all taxes, duties and other similar charges
(and any related interest and penalties) imposed as a result of its receipt of
Services under this Agreement, including any tax which Leap is required to
withhold or deduct from payments to QUALCOMM, except any net income tax imposed
upon QUALCOMM.
2.2 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or
construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship of independent contractor nor be deemed to vest any
rights, interest or claims in any third parties.
2.3 MODIFICATION AND AMENDMENT; ENTIRE AGREEMENT. This Agreement may not
be modified or amended except in a writing signed by the parties. This Agreement
sets forth the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all
5.
<PAGE> 7
prior agreements and understandings between the parties with respect to the
subject matter hereof.
2.4 DISPUTE RESOLUTION. The parties acknowledge and agree that this
Agreement and any dispute hereunder shall be subject to and governed by the
dispute resolution provisions set forth in Article 10 of the Separation and
Distribution Agreement.
2.5 INCONSISTENCY. In the event of any inconsistency between the terms of
this Agreement and any of the Schedules hereto, other than charges, the terms of
this Agreement shall control.
IN WITNESS WHEREOF, the parties have executed this Interim Services
Agreement as of the date first above written.
QUALCOMM INCORPORATED:
By:____________________________________
Name:__________________________________
Title:_________________________________
LEAP WIRELESS INTERNATIONAL, INC.:
By:____________________________________
Name:__________________________________
Title:_________________________________
6.
<PAGE> 1
EXHIBIT 10.4
MASTER AGREEMENT REGARDING EQUIPMENT PROCUREMENT
This Master Agreement Regarding Equipment Procurement (the "Agreement") is made
effective as of the ____ day of _______, 1998 (the "Effective Date"), between
QUALCOMM Incorporated, a Delaware corporation, having an office at 6455 Lusk
Boulevard, San Diego, California 92121 ("QUALCOMM"), and Leap Wireless
International, Inc., a Delaware corporation, having an office at 10307 Pacific
Center Court, San Diego, California 92121 ("Leap").
RECITALS
A. Pursuant to that certain Separation and Distribution Agreement, dated as of
______, 1998, between QUALCOMM and Leap (the "Spinoff Agreement"), QUALCOMM is,
among other things, contributing certain assets to Leap and, in connection
therewith, QUALCOMM is providing financing to Leap to enable Leap to operate in
accordance with Leap's approved business plan; and
B. Leap, directly or indirectly through entities in which Leap holds (directly
or indirectly) an Investment (as such term is defined below), intends (i) to
construct terrestrial-based cdmaOne( (as such term is defined below) PCS,
cellular, wireless local loop or other cdmaOne wireless terrestrial-based
telecommunications networks, (ii) to purchase and deploy corresponding wireless
infrastructure equipment, (iii) to purchase, distribute and sell corresponding
wireless subscriber equipment and (iv) to provide terrestrial-based cdmaOne PCS,
cellular, wireless local loop and other cdmaOne wireless terrestrial-based
communication services in the United States of America and outside the United
States of America; and
C. QUALCOMM is a supplier of cdmaOne infrastructure equipment and provides
related installation, engineering, support and other services related to such
equipment; and
D. QUALCOMM is a supplier of cdmaOne subscriber equipment; and
E. As a material inducement to QUALCOMM to enter into the Spinoff Agreement
and for QUALCOMM to provide to Leap the financing contemplated in connection
therewith, Leap is willing, subject to the terms and conditions of this
Agreement, to purchase from QUALCOMM, and to cause certain entities in which
Leap directly or indirectly holds an Investment to purchase from QUALCOMM,
certain cdmaOne infrastructure equipment, related services, and cdmaOne
subscriber equipment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree to the following
terms and conditions.
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 section hereof. For purposes of this
Agreement, the following definitions will apply:
"Advertising" means all advertising, sales promotion, press releases and
other publicity matters relating to performance under this Agreement.
"Affiliate" means any Person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by or is under common control with
another Person, where "control" means to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
securities or by contract or otherwise, but any such Person shall be deemed to
be an Affiliate only so long as such control exists.
"Auditor" shall have the meaning ascribed thereto in Section 2.7 of this
Agreement.
"BSCs" shall have the meaning ascribed thereto in the definition of
"Product(s)."
<PAGE> 2
"BTSs" shall have the meaning ascribed thereto in the definition of
"Product(s)."
"cdmaOne(" or "cdmaOne" shall mean those fixed or mobile wireless
telecommunications systems based on or derived from QUALCOMM's code division
multiple access technology which (i) have been adopted as an industry standard
by the Telecommunications Industry Association ("TIA") or other recognized
international standards bodies, and the adoption of such standard has been voted
in favor of by QUALCOMM ("QUALCOMM Approved Standards"), (ii) are compatible
with or employ the same physical layer as QUALCOMM Approved Standards ("QUALCOMM
Approved Systems"), or (iii) are compatible with the infrastructure and
subscriber equipment manufactured and sold by QUALCOMM. CdmaOne currently
includes, by way of example and not by limitation, the TIA's IS-95 digital
cellular standard and ANSI JSTD-008 digital PCS standard. If a terrestrial-based
wireless telecommunications system is considered a CdmaOne system in one
country, QUALCOMM and Leap agree that it would be considered a CdmaOne system in
any other country, irrespective of whether or not such system has been adopted
(or approved by QUALCOMM) as a standard in such other country.
"Competitive Factors" means those reasonably quantifiable factors and/or
reasonably objective factors associated with the sale and financing of wireless
telecommunications equipment and related services that are material to a
purchaser in considering the "all in" value and cost of the equipment and
services being purchased, including but not limited to price, payment terms,
financing amount, interest rates, repayment terms, penalties for delay, rewards
for timely performance, the issuance of warrants, features, functionality,
performance, warranty terms, service terms, spare parts allocations, costs of
ongoing hardware and software maintenance and upgrades and other such reasonably
quantifiable factors and/or reasonably objective factors.
"Confidential Information" has the meaning ascribed thereto in Section 6.5
of this Agreement.
"Distribution Date" means the date of the initial distribution of Leap
shares of common stock to the stockholders of QUALCOMM pursuant to the Spinoff
Agreement.
"Domestic Wireless System" means a Wireless System operated in the United
States of America.
"Force Majeure" means causes beyond a party's control, including but not
limited to fires, strikes, riots, embargoes, explosions, earthquakes, floods,
wars, the elements, labor disputes, civil or military authorities, acts of God
or by the public enemy, inability to secure raw materials or transportation
facilities, or acts or omissions of carriers or suppliers.
"Infrastructure Purchase Agreement" shall have the meaning ascribed thereto
in Section 2.6.1 of this Agreement.
"Investment" in any Person means any loan or advance to such Person, any
purchase or other acquisition of a material portion of the assets of such Person
or of a business unit of such Person, or any purchase or other acquisition of
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 guarantees,
directly or indirectly in any manner, any indebtedness of such Person.
"Lowest Competing Infrastructure Bid" shall mean the lowest cost proposal
for comparable infrastructure equipment and related services, taking into
account, as a whole, all Competitive Factors associated with such proposal,
received in a bona fide written proposal from another third party vendor that
Leap (or any other subject procuring Person) has designated in writing to
QUALCOMM that Leap (or such Person) is willing and prepared to accept.
"Lowest Competing Subscriber Bid" shall mean the lowest cost proposal for
comparable Subscriber Units, taking into account, as a whole, all Competitive
Factors associated with such proposal, received in a bona fide written proposal
from another third party vendor that Leap (or any other subject procuring
Person) has designated in writing to QUALCOMM that Leap (or such Person) is
willing and prepared to accept.
<PAGE> 3
"Non-Domestic Cutoff Date" means that date which is the earlier to occur of
(i) the fourth anniversary of the Distribution Date and (ii) the date on which
Leap has received an aggregate $60 million of debt or equity financing (from
parties other than QUALCOMM and excluding the proceeds from the exercise of
stock options issued under any Leap stock option plan).
"Non-U.S. Operator" means a Person operating or planning to operate a
Wireless System located outside of the United States of America in which Leap
does not already hold as of the date of the subject prospective Investment,
directly or indirectly (through one or more intermediaries), an Investment.
"PCS" means personal communications services.
"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.
"POP" means one person living in a population area which is included in the
coverage area of a telecommunications service provider as determined through any
reasonably objective means of measurement.
"Product(s)" means, in each instance when used in a Wireless System, (i)
cdmaOne base station transceiver subsystems ("BTSs"), (ii) cdmaOne base station
controllers ("BSCs"), (iii) switching equipment, (iv) radio frequency repeaters,
microcells and Product software, and (v) such other items of infrastructure
equipment as the parties shall mutually agree to include as a Product for
purposes of this Agreement.
"QUALCOMM's Infrastructure Prices" shall mean the price for Products
charged by QUALCOMM to Leap or a subject U.S. Operator, taking into account, as
a whole, all Competitive Factors associated with QUALCOMM's proposal.
"QUALCOMM's Subscriber Prices" shall mean the price for Subscriber Units
charged by QUALCOMM to Leap or a subject U.S. Operator, taking into account, as
a whole, all Competitive Factors associated with QUALCOMM's proposal.
"RFP-Infrastructure" means a request for proposals for Products issued by
Leap (or any other subject Person, as applicable).
"RFP-Subscriber" means a request for proposals for Subscriber Units issued
by Leap (or any other subject Person, as applicable).
"Services" means the performance of work by QUALCOMM in connection with the
supply of Products, including, but not limited to engineering services,
installation services, maintenance and repair services, and other services
consistent with the provision of cdmaOne infrastructure equipment.
"Spinoff Agreement" shall have the meaning ascribed thereto in Recital A.
"Subscriber Unit" means a portable or fixed (such as a wireless local loop
terminal) end user device that provides voice and/or data service on a Wireless
System.
"Subscriber Unit Purchase Agreement" shall have the meaning ascribed
thereto in Section 3.5 of this Agreement.
"U.S. Operator" means a Person operating or planning to operate a Domestic
Wireless System in which Leap does not already hold, directly or indirectly
(through one or more intermediaries), as of the date of the subject prospective
Investment, an Investment.
"Wireless System" means a terrestrial-based PCS, cellular, wireless local
loop or other wireless terrestrial-based communication system within any
geographic area that utilizes cdmaOne technology.
<PAGE> 4
Infrastructure Purchase Commitment.
2.1 Purchase Commitment.
2.1.1 Leap; Domestic Operators; Domestic Wireless Systems.
(a) Subject to the terms and conditions of this Agreement, Leap agrees to
purchase from QUALCOMM not less than fifty percent (50%) of Leap's own direct
requirements for Products during the period beginning on the Distribution Date
and ending upon the expiration of the five year period following the date of the
first purchase by Leap of Products from QUALCOMM.
(b) Subject to the terms and conditions of this Agreement, with respect to
each and every U.S. Operator in which Leap, directly or indirectly (through one
or more intermediaries), makes an Investment at any time prior to the fourth
anniversary of the Distribution Date, Leap 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 on terms substantially as set
forth in this Agreement, which equipment requirements agreement shall include,
without limitation, that such U.S. Operator be required to purchase from
QUALCOMM not less than fifty percent (50%) of the subject U.S. Operator's
requirements for Products (for use in such U.S. Operator's Domestic Wireless
System(s)) in the five year period commencing on the date of such Investment.
The obligations of Leap under this Section, as they may apply to the making of
any Investment in a U.S. Operator by Chase Telecommunications, Inc. (but only so
long as Chase Telecommunications, Inc. is not an Affiliate of Leap), shall only
be to exercise commercially reasonable efforts to cause such U.S. Operator to
enter into such an equipment requirements agreement.
(c) Subject to the terms and conditions of this Agreement, with respect to
each and every U.S. Operator in which Leap, directly or indirectly (through one
or more intermediaries), makes an Investment after the fourth anniversary of the
Distribution Date, Leap shall (i) exercise its commercially reasonable efforts
to cause the subject 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 Products, and (ii) encourage the subject U.S. Operator to
acquire Products from QUALCOMM.
(d) As set forth herein, the purchase obligations of Leap and all such
U.S. Operators shall be subject to QUALCOMM providing competitive terms and
conditions on the Competitive Factors (except to the extent of the one hundred
and ten percent pricing provision set forth in Section 2.4.1). All such
requirements obligations with respect to Product purchases shall expire, if not
sooner pursuant to their express terms, on the date nine years following the
Distribution Date. Leap and such U.S. Operators shall have the obligation set
forth in this Section 2.1.1 regardless of whether or not the U.S. Operator is an
Affiliate of Leap and whether or not the Investment in such U.S. Operator is
made by Leap or a Person in which Leap holds, directly or indirectly, an
Investment.
2.1.2 Non-Domestic.
(a) Subject to the terms and conditions of this Agreement, with respect to
each and every Non-U.S. Operator in which Leap, directly or indirectly (through
one or more intermediaries), makes an Investment at any time prior to the
Non-Domestic Cutoff Date, Leap shall cause each such Non-U.S. Operator, as a
condition of and prior to making such Investment, to enter into an equipment
requirements agreement with QUALCOMM on terms substantially as set forth in this
Agreement, which equipment requirements agreement shall include, without
limitation, that such Non-U.S. Operator be required to purchase from QUALCOMM
not less than fifty percent (50%) of the subject Non-U.S. Operator's
requirements for Products (for use in such Non-U.S. Operator's Wireless
System(s)) during a five year period commencing on the date of such Investment.
(b) Subject to the terms and conditions of this Agreement, with respect to
each and every Non-U.S. Operator in which Leap makes a direct or indirect
(through one or more intermediaries) Investment following the Non-Domestic
Cutoff Date, Leap shall (i) exercise its commercially reasonable efforts to
cause the subject Non-U.S. Operator, as a condition of making such Investment,
to provide QUALCOMM with a reasonable opportunity to bid on such Non-U.S.
Operator's requirements for Products, and (ii) encourage the subject Non-U.S.
Operator to acquire Products from QUALCOMM.
<PAGE> 5
(c) As set forth herein, the purchase obligations of all such Non-U.S.
Operators shall be subject to QUALCOMM providing competitive terms and
conditions on the Competitive Factors. All such requirements obligations with
respect to Product purchases shall expire, if not sooner pursuant to their
express terms, on the date nine years following the Distribution Date. Leap and
such Non-U.S. Operators shall have the obligation set forth in this Section
2.1.2 regardless of whether or not the Non-U.S. Operator is an Affiliate of Leap
and whether or not the Investment in such Non-U.S. Operator is made by Leap or a
Person in which Leap holds, directly or indirectly, an Investment.
2.1.3 Right of First Refusal. QUALCOMM's right to supply Products pursuant
to Section 2.1 shall constitute a right of first refusal in favor of QUALCOMM to
supply such Products, and QUALCOMM shall have no obligation to supply such
Products unless and until QUALCOMM enters into a binding Infrastructure Purchase
Agreement or other binding agreement. QUALCOMM shall have the right to elect not
to bid on or otherwise respond to any RFP-Infrastructure. In the event (a)
QUALCOMM elects not to exercise its right of first refusal in response to a
RFP-Infrastructure or Leap, a subject U.S. Operator or a subject Non-U.S.
Operator is not, in accordance with this Agreement, obligated to accept
QUALCOMM's offer in response to a RFP-Infrastructure, and (b) Leap, the subject
U.S. Operator or the subject Non-U.S. Operator subsequently issues a new
RFP-Infrastructure within the pertinent respective time periods set forth in
Sections 2.1.1 and 2.1.2 above, then QUALCOMM shall be entitled to a right of
first refusal as to such subsequent procurement.
2.2 Prime Contractor. With respect to each Wireless System in which
QUALCOMM is or intends to be a supplier of Products, QUALCOMM shall have the
option to be the "prime contractor" or to select someone else to be "prime
contractor." As used herein, the term "prime contractor" shall mean the company
that is responsible for coordinating installation, integration and maintenance
of the Wireless System in the subject geographic location. QUALCOMM's
responsibility as prime shall be dependent on a mutually acceptable agreement
being entered into between the subject parties.
2.3 Advance Notice. Leap shall keep QUALCOMM informed on a regular basis
concerning the status of procurements for Wireless Systems that may be covered
by Section 2.1 of this Agreement. In connection with any proposed procurement
subject to Section 2.1, Leap shall provide to QUALCOMM reasonable advance
written notice (which in any event shall be provided no later than when Leap
provides any such notice to any prospective competing bidder) which shall
specify, at a minimum: (a) the name(s) of the subject buyer, together with the
geographic location; (b) the total estimated number of POPs for such Wireless
System; (c) the estimated amount and type of Products and Services to be
purchased, the schedule for delivery, and the amount of financing required; and
(d) any other information provided to any other prospective competing bidder.
2.4 Prices; Competitiveness.
2.4.1 Until such time as QUALCOMM has been awarded contracts for $250
million of Products and associated Services pursuant to Section 2.1.1 with
respect to Domestic Wireless Systems, QUALCOMM's Infrastructure Prices for
Products and such associated Services to be deployed and performed, as
applicable, in such Domestic Wireless Systems shall not be higher than one
hundred ten percent (110%) of the Lowest Competing Infrastructure Bid, otherwise
there shall be no obligation to award the subject procurement to QUALCOMM.
QUALCOMM's Infrastructure Prices in all other circumstances (for example, if the
subject Wireless System is not a Domestic Wireless System) shall not be higher
than the Lowest Competing Infrastructure Bid, otherwise Leap can award
QUALCOMM's share of that subject procurement to the Person submitting the Lowest
Competing Infrastructure Bid and there shall be no obligation to award the
subject procurement to QUALCOMM.
2.4.2 Leap shall use commercially reasonable efforts to ensure that any
determination of QUALCOMM's Infrastructure Prices versus the Lowest Competing
Infrastructure Bid is based on an "apples-to-apples" comparison (taking into
consideration not only the pricing of Products and Services, but the pricing for
any vendor financing provided under Section 2.5 and the terms and conditions of
any other material consideration proposed to be given or received by any
competing bidder, including each of the Competitive Factors). Leap has performed
extensive due diligence concerning the existing and planned features,
functionality and performance of QUALCOMM's Products and shall issue, or cause
to be issued, a RFP-Infrastructure(s) that provides for a pricing comparison
with competing bids on a fair and reasonable basis. Leap (and every other
subject Person) shall issue each RFP-Infrastructure such that the specifications
contained therein are not biased against QUALCOMM or biased in favor of other
Persons that are
<PAGE> 6
competitors of QUALCOMM; provided, however, nothing in this sentence shall
otherwise restrict Leap (and every other subject Person) from issuing an
RFP-Infrastructure that contains a prescribed feature or specification (which
the Products do not have or provide) that is reasonably necessary for the
commercial viability of the subject Wireless System, so long as QUALCOMM is
given a reasonable opportunity to provide a reasonably equivalent alternative
solution or work-around for such desired feature or specification. The
"apples-to-apples" comparison shall consider the total price of QUALCOMM's
turn-key solution to the total price of the turn-key solution offered by any
competing bidder. To the maximum extent reasonably possible, Leap shall endeavor
to purchase (and cause the subject U.S. Operator or Non-U.S. Operator to
purchase) turn-key systems, including BTSs and BSCs from QUALCOMM, to meet the
purchase commitment under Section 2.1 hereof. As such, Leap shall endeavor to
issue each RFP-Infrastructure (and cause each subject U.S. Operator or Non-U.S.
Operator to issue each RFP-Infrastructure) for the purchase of Products on a
turn-key basis.
2.4.3 In determining whether QUALCOMM's Infrastructure Prices are within or
less than the requisite percent of the Lowest Competing Infrastructure Bid
and/or whether Competitive Factors are competitive, a fair and reasonable
comparison of the responses to the subject RFP-Infrastructure shall be made. If
Leap reasonably determines (i) that the QUALCOMM Infrastructure Prices are not
within or less than the requisite percent of the Lowest Competing Infrastructure
Bid and/or (ii) that the Competitive Factors, taken as a whole, of QUALCOMM's
offer are not competitive with the Competitive Factors of the offer from the
Person submitting the Lowest Competing Infrastructure Bid, then Leap shall
immediately notify QUALCOMM by letter signed by a responsible executive officer
and inform QUALCOMM (a) by how much QUALCOMM must reduce QUALCOMM's
Infrastructure Prices in order for QUALCOMM's Infrastructure Prices to be equal
to or 110% of, as applicable, the Lowest Competing Infrastructure Bid and/or (b)
to what extent QUALCOMM's Competitive Factors, taken as a whole, are not
competitive, as applicable. QUALCOMM may, in its sole discretion, within ten
(10) business days after its receipt of such notice and receipt of any requested
confirmation from the Auditor as set forth in Section 2.7, reduce QUALCOMM's
Infrastructure Prices to be equal to or 110% of, as applicable, the Lowest
Competing Infrastructure Bid and otherwise revise QUALCOMM's offer to make it
competitive with respect to the Competitive Factors. The Person issuing the
subject RFP-Infrastructure shall not be entitled to accept the Lowest Competing
Infrastructure Bid (to the extent it would cover more than fifty percent (50%)
of the subject procurement) until such time as the ten (10) business day period
referred to in the prior sentence has expired.
2.4.4 In the event QUALCOMM's offer in response to a RFP-Infrastructure is
not of such a nature as to obligate Leap to accept such offer in accordance with
the terms and conditions of this Agreement (and QUALCOMM does not modify its
offer, following written notice from Leap, to such an extent as is necessary to
obligate Leap to accept such modified offer), Leap shall be entitled to accept
the offer only from the Person submitting the Lowest Competing Infrastructure
Bid. If (i) Leap does not accept the offer from the Person submitting the Lowest
Competing Infrastructure Bid, or (ii) the terms and conditions of the proposed
definitive agreements with the Person submitting the Lowest Competing
Infrastructure Bid are less favorable to Leap or the other Person in any
material respect from the terms and conditions that QUALCOMM had the opportunity
to match, then QUALCOMM shall have a right of first refusal as to such
procurement in accordance with the provisions of this Agreement.
2.5 Financing of Infrastructure Equipment.
2.5.1 Subject to the negotiation of commercially reasonable terms and
conditions, QUALCOMM would finance one hundred percent (100%) (or a greater or a
lesser amount as may be offered by the Person submitting the Lowest Competing
Infrastructure Bid) of the purchase price of Products, third party products and
Services purchased by Leap (or the subject U.S. Operator or Non-U.S. Operator)
from QUALCOMM pursuant to Section 2.1, provided that the submitter of the Lowest
Competing Infrastructure Bid also commits to provide such financing on a
competitive basis. The terms and conditions of any such financing by QUALCOMM
shall be commercially reasonable, taking into consideration, among other things,
the interest rate payable, the term of the financing and the security pledged to
ensure repayment, and shall in any event be competitive, taken as a whole in
light of all the Competitive Factors, with those offered by the Person
submitting the Lowest Competing Infrastructure Bid (otherwise there shall be no
obligation to accept QUALCOMM's offer).
<PAGE> 7
2.6 Infrastructure Purchase Agreements.
2.6.1 Leap and/or the subject U.S. Operator or Non-U.S. Operator shall
purchase Products and/or Services from QUALCOMM by execution of one or more
written purchase agreements (each, an "Infrastructure Purchase Agreement"). All
Infrastructure Purchase Agreements entered into between Leap and/or the subject
U.S. Operator or Non-U.S. Operator and QUALCOMM shall, to the extent applicable,
be consistent with the terms and conditions of this Agreement, unless otherwise
agreed in writing, and shall be negotiated in good faith.
2.6.2 The Products delivered by QUALCOMM in accordance with each
Infrastructure Purchase Agreement will comply in all material respects with
commercially reasonable specifications prescribed by Leap and/or the subject
U.S. Operator or Non-U.S. Operator, but only to the extent that (i)
infrastructure equipment supplied or to be supplied by all other actual or
proposed suppliers of Leap and/or the subject U.S. Operator or Non-U.S. Operator
is required to comply with such specifications and (ii) such specifications are
not biased against QUALCOMM or biased in favor of other Persons that are
competitors of QUALCOMM; provided, however, nothing in this sentence shall
otherwise restrict Leap (and every other subject Person) from prescribing a
feature or specification (which the Products do not have or provide) that is
reasonably necessary for the commercial viability of the subject Wireless
System, so long as QUALCOMM is given a reasonable opportunity to provide a
reasonably equivalent alternative solution or work-around for such desired
feature or specification.
2.7 Independent Auditor. At the request of QUALCOMM, Leap shall appoint a
third party independent auditor reasonably acceptable to QUALCOMM (an "Auditor")
who shall confirm to QUALCOMM the price determinations and the competitive
determinations with respect to the Competitive Factors under Section 2. Leap
shall provide or cause to be provided to the Auditor all information reasonably
required by the Auditor to perform the Auditor's task, provided that the Auditor
agrees in writing not to disclose such information to any Person (including
without limitation, QUALCOMM). In the event the Auditor confirms the price
determinations and the competitive determinations as represented by Leap (or
other subject Person) to QUALCOMM, then the expenses of the Auditor in
conducting such analysis shall be for the account of QUALCOMM; otherwise, such
expenses shall be for the account of Leap (or other subject Person).
2.8 Non-Competitive Bid Situations; Most Favored Pricing Exception. If,
with respect to any procurement of Products otherwise subject to Section 2.1,
Leap (or any other subject Person) does not attempt, directly or indirectly, to
procure such Products on a competitive basis from any prospective vendor other
than QUALCOMM, such that QUALCOMM has the exclusive right to negotiate and enter
into an agreement to supply such Products, then QUALCOMM agrees to offer and
sell (and license, in the case of Product software) Products to Leap (or such
other subject Person) at prices that do not exceed the most favored price for
such Products and Product software sold or licensed, as applicable, by QUALCOMM
during the corresponding time period to other customers based on similar terms
and conditions (including but not limited to included warranties, rebates,
discounts, market development and special promotional funds, or any additional
costs necessarily to be incurred as a result of the location of the subject
customer, or special freight, payment, financing or delivery terms, the
provision of field replaceable unit stocks and any other applicable material
monetary consideration, quantity commitments and expected volumes, percentage
commitments, quantities ordered and lead times). Any such purchases or licenses
shall be contingent on the subject Person and QUALCOMM agreeing on mutually
acceptable financing terms for such purchases or licenses (or QUALCOMM otherwise
receiving from such Person adequate assurance that such Person shall be capable
of paying the applicable purchase price or license fees). The provisions of this
Section 2.8 shall apply to the prices for Products procured in non-competitive
bid situations (as described above in this Section 2.8), notwithstanding the
provisions of Section 2.4.1 to the contrary. Any Products and Services purchased
at prices determined pursuant to this Section 2.8 shall not be included for
purposes of determining whether QUALCOMM has been awarded contracts for $250
million of Products and associated Services with respect to Domestic Wireless
Systems, as described in Section 2.4.1. The provisions of this Section 2.8 do
not apply to any Person that, as of the Distribution Date, already has or is
already subject to (other than pursuant to the obligation imposed by Section
2.1), directly or indirectly, a binding obligation to purchase Products from
QUALCOMM (or from any Affiliate of QUALCOMM).
<PAGE> 8
3. Subscriber Unit Purchase Commitment.
3.1 Purchase Commitment.
3.1.1 Leap; Domestic Operators; Domestic Wireless Systems.
(a) Subject to the terms and conditions of this Agreement, Leap agrees to
purchase from QUALCOMM not less than fifty percent (50%) of Leap's own direct
requirements for Subscriber Units during the period beginning on the
Distribution Date and ending upon the expiration of the five year period
following the date of the first purchase by Leap of Subscriber Units from
QUALCOMM.
(b) Subject to the terms and conditions of this Agreement, with respect to
each and every U.S. Operator in which Leap, directly or indirectly (through one
or more intermediaries), makes an Investment at any time prior to the fourth
anniversary of the Distribution Date, Leap 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 on terms and conditions
substantially as set forth in this Agreement, which equipment requirements
agreement shall include, without limitation, that such U.S. Operator be required
to purchase from QUALCOMM not less than fifty percent (50%) of the subject U.S.
Operator's requirements for Subscriber Units (for use on such U.S. Operator's
Domestic Wireless System(s)) in the five year period commencing on the date of
such Investment. The obligations of Leap under this Section, as they may apply
to the making of any Investment in a U.S. Operator by Chase Telecommunications,
Inc. (but only so long as Chase Telecommunications, Inc. is not an Affiliate of
Leap), shall only be to exercise commercially reasonable efforts to cause such
U.S. Operator to enter into such an equipment requirements agreement.
(c) Subject to the terms and conditions of this Agreement, with respect to
each and every U.S. Operator in which Leap, directly or indirectly (through one
or more intermediaries), makes an Investment after the fourth anniversary of the
Distribution Date, Leap shall (i) exercise its commercially reasonable efforts
to cause the subject 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 Subscriber Units, and (ii) encourage the subject U.S. Operator
to acquire Subscriber Units from QUALCOMM.
(d) As set forth herein, the purchase obligations of Leap and all such
U.S. Operators shall be subject to QUALCOMM providing competitive terms and
conditions on the Competitive Factors (except to the extent of the one hundred
and ten percent pricing provision set forth in Section 3.3.1). All such
requirements obligations with respect to Subscriber Units purchases shall
expire, if not sooner pursuant to their express terms, on the date nine years
following the Distribution Date. Leap and such U.S. Operators shall have the
obligation set forth in this Section 3.1.1 regardless of whether or not the U.S.
Operator is an Affiliate of Leap and whether or not the Investment in such U.S.
Operator is made by Leap or a Person in which Leap holds, directly or
indirectly, an Investment.
3.1.2 Non-Domestic.
(a) Subject to the terms and conditions of this Agreement, with respect to
each and every Non-U.S. Operator in which Leap, directly or indirectly (through
one or more intermediaries), makes an Investment at any time prior to the
Non-Domestic Cutoff Date, Leap shall cause each such Non-U.S. Operator, as a
condition of and prior to making such Investment, to enter into an equipment
requirements agreement with QUALCOMM on terms substantially as set forth in this
Agreement, which equipment requirements agreement shall include, without
limitation, that such Non-U.S. Operator be required to purchase from QUALCOMM
not less than fifty percent (50%) of the subject Non-U.S. Operator's
requirements for Subscriber Units (for use on such Non-U.S. Operator's Wireless
System(s)) during a five year period commencing on the date of such Investment.
(b) Subject to the terms and conditions of this Agreement, with respect to
each and every Non-U.S. Operator in which Leap makes a direct or indirect
(through one or more intermediaries) Investment following the Non-Domestic
Cutoff Date, Leap shall (i) exercise its commercially reasonable efforts to
cause the subject Non-U.S. Operator, as a condition of making such Investment,
to provide QUALCOMM with a reasonable opportunity to bid on such Non-U.S.
Operator's requirements for Subscriber Units, and (ii) encourage the subject
Non-U.S. Operator to acquire Subscriber Units from QUALCOMM.
<PAGE> 9
(c) As set forth herein, the purchase obligations of all such Non-U.S.
Operators shall be subject to QUALCOMM providing competitive terms and
conditions on the Competitive Factors. All such requirements obligations with
respect to Subscriber Units purchases shall expire, if not sooner pursuant to
their express terms, on the date nine years following the Distribution Date.
Leap and such Non-U.S. Operators shall have the obligation set forth in this
Section 3.1.2 regardless of whether or not the Non-U.S. Operator is an Affiliate
of Leap and whether or not the Investment in such Non-U.S. Operator is made by
Leap or a Person in which Leap holds, directly or indirectly, an Investment.
3.1.3 Right of First Refusal. QUALCOMM's right to supply Subscriber Units
pursuant to Section 3.1 shall constitute a right of first refusal in favor of
QUALCOMM to supply such Subscriber Units, and QUALCOMM shall have no obligation
to supply such Subscriber Units unless and until QUALCOMM enters into a binding
Subscriber Unit Purchase Agreement or other binding agreement. QUALCOMM shall
have the right to elect not to bid on or otherwise respond to any
RFP-Subscriber. Any sales by QUALCOMM of Subscriber Units shall be subject to
financing arrangements or assurances (such as the issuance of an irrevocable
letter of credit) acceptable to QUALCOMM. In the event (a) QUALCOMM elects not
to exercise its right of first refusal in response to a RFP-Subscriber or Leap,
a subject U.S. Operator or a subject Non-U.S. Operator is not, in accordance
with this Agreement, obligated to accept QUALCOMM's offer in response to a
RFP-Subscriber, and (b) Leap, the subject U.S. Operator or the subject Non-U.S.
Operator subsequently issues a new RFP-Subscriber within the pertinent
respective time periods set forth in Section 3.1.1 and 3.1.2 above, then
QUALCOMM shall be entitled to a right of first refusal as to such subsequent
procurement.
3.2 Advance Notice. Leap shall keep QUALCOMM informed on a regular basis
concerning the status of prospective procurements that may be covered by Section
3.1. In connection with any proposed procurement subject to Section 3.1 , Leap
shall provide to QUALCOMM reasonable advance written notice (which in any event
shall be provided no later than when Leap provides any such notice to any
prospective competing bidder) which shall specify, at a minimum: (a) the name(s)
of the subject buyer, together with the geographic location; (b) the estimated
amount and type of Subscriber Units to be purchased and the schedule for
delivery; and (c) any other information provided to any other prospective
competing bidder.
3.3 Prices; Competitiveness.
3.3.1 Until such time as QUALCOMM has been awarded contracts pursuant to
Section 3.1.1 for $250 million of Subscriber Units for use on Domestic Wireless
Systems, QUALCOMM's Subscriber Prices for Subscriber Units to be used on such
Domestic Wireless Systems shall not be higher than one hundred ten percent
(110%) of the Lowest Competing Subscriber Bid, otherwise there shall be no
obligation to award the subject procurement to QUALCOMM. QUALCOMM's Subscriber
Prices in all other circumstances (for example, if the subject Wireless System
is not a Domestic Wireless System) shall not be higher than the Lowest Competing
Subscriber Bid, otherwise Leap can award QUALCOMM's share of that subject
procurement to the Person submitting the Lowest Competing Subscriber Bid and
there shall be no obligation to award the subject procurement to QUALCOMM.
3.3.2 Leap shall use commercially reasonable efforts to ensure that any
determination of QUALCOMM's Subscriber Prices versus the Lowest Competing
Subscriber Bid is based on an "apples-to-apples" comparison. Leap (and every
other subject Person) shall issue each RFP-Subscriber such that the
specifications contained therein are not biased against QUALCOMM or biased in
favor of other Persons that are competitors of QUALCOMM; provided, however,
nothing in this sentence shall otherwise restrict Leap (and every other subject
Person) from issuing an RFP-Subscriber that contains a prescribed feature or
specification (which the subject Subscriber Unit does not have or provide) that
is reasonably necessary for the commercial viability of the subject Wireless
System on which such feature or specification is to be utilized, so long as
QUALCOMM is given a reasonable opportunity to provide a reasonably equivalent
alternative solution or work-around for such desired feature or specification.
3.3.3 In determining whether QUALCOMM's Subscriber Prices are within or less
than the requisite percent of the Lowest Competing Subscriber Bid and/or whether
Competitive Factors are competitive, a fair and reasonable comparison of the
responses shall be made. If Leap reasonably determines (i) that QUALCOMM's
Subscriber Prices are not within or less than the requisite percent of the
Lowest Competing Subscriber Bid and/or (ii) that Competitive Factors, taken as a
whole, of QUALCOMM's offer are not competitive with the Competitive Factors of
the offer from the Person submitting the Lowest Competing Subscriber Bid, then
Leap shall immediately notify QUALCOMM by
<PAGE> 10
letter signed by a responsible executive officer and inform QUALCOMM (a) by how
much QUALCOMM must reduce QUALCOMM's Subscriber Prices in order for QUALCOMM's
Subscriber Prices to be equal to or 110% of, as applicable, the Lowest Competing
Subscriber Bid and/or (b) to what extent QUALCOMM's Competitive Factors, taken
as a whole, are not competitive, as applicable. QUALCOMM may, in its sole
discretion, within ten (10) business days after its receipt of such notice and
receipt of any requested confirmation from the Auditor as set forth in Section
3.6, reduce QUALCOMM's Subscriber Prices to be equal to or 110% of, as
applicable, the Lowest Competing Subscriber Bid and otherwise revise QUALCOMM's
offer to make it as competitive with respect to the Competitive Factors. The
Person issuing the subject RFP- Subscriber shall not be entitled to accept the
Lowest Competing Subscriber (to the extent it would cover more than fifty
percent (50%) of the subject procurement) until such time as the ten (10)
business day period referred to in the prior sentence has expired.
3.3.4 In the event QUALCOMM's offer in response to a RFP-Subscriber is not
of such a nature as to obligate Leap to accept such offer in accordance with the
terms and conditions of this Agreement (and QUALCOMM does not modify its offer,
following written notice from Leap, to such an extent as is necessary to
obligate Leap to accept such modified offer), Leap shall be entitled to accept
the offer only from the Person submitting the Lowest Competing Subscriber Bid.
If (i) Leap does not accept the offer from the Person submitting the Lowest
Competing Subscriber Bid, or (ii) the terms and conditions of the proposed
definitive agreements with the Person submitting the Lowest Competing Subscriber
Bid are less favorable to Leap or the other Person in any material respect from
the terms and conditions that QUALCOMM had the opportunity to match, then
QUALCOMM shall have a right of first refusal as to such procurement in
accordance with the provisions of this Agreement.
3.4 Financing of Subscriber Units. The obligation of Leap and/or any
subject U.S. Operator or Non-U.S. Operator to purchase Subscriber Units shall be
subject to QUALCOMM providing competitive financing, but only in the event the
Person submitting the Lowest Competing Subscriber Bid is also offering to
provide such financing on a competitive basis. The terms and conditions of any
such financing by QUALCOMM shall be commercially reasonable, taking into
consideration, among other things, the interest rate payable, the term of the
financing and the security pledged to ensure repayment, and shall in any event
be competitive, taken as a whole in light of all the Competitive Factors, with
those offered by the Person submitting the Lowest Competing Subscriber Bid
(otherwise there shall be no obligation to accept QUALCOMM's offer).
3.5 Subscriber Unit Purchase Agreements. Leap and/or the subject U.S.
Operator or Non-U.S. Operator shall purchase Subscriber Units from QUALCOMM by
execution of one or more written purchase agreements (each, a "Subscriber Unit
Purchase Agreement"). Each Subscriber Unit Purchase Agreement entered into
between Leap and/or the subject U.S. Operator or Non-U.S. Operator and QUALCOMM
shall, to the extent applicable, be consistent with the terms and conditions of
this Agreement, unless otherwise agreed in writing, and shall be negotiated in
good faith. The form of the Subscriber Purchase Agreement shall be in
substantially the form of agreement as is currently being negotiated by QUALCOMM
with third party customers, which form Leap is familiar with. The Subscriber
Units delivered by QUALCOMM in accordance with each Subscriber Purchase
Agreement will comply in all material respects with commercially reasonable
specifications prescribed by Leap and/or the subject U.S. Operator or Non-U.S.
Operator, but only to the extent that (i) subscriber units supplied or to be
supplied by all other actual or proposed suppliers of Leap and/or the subject
U.S. Operator or Non-U.S. Operator are required to comply with such
specifications and (ii) such specifications are not biased against QUALCOMM or
biased in favor of other Persons that are competitors of QUALCOMM; provided,
however, nothing in this sentence shall otherwise restrict Leap (and every other
subject Person) from prescribing a feature or specification (which the subject
Subscriber Unit does not have or provide) that is reasonably necessary for the
commercial viability of the subject Wireless System on which such feature or
specification is to be utilized, so long as QUALCOMM is given a reasonable
opportunity to provide a reasonably equivalent alternative solution or
work-around for such desired feature or specification.
3.6 Independent Auditor. At the request of QUALCOMM, Leap shall promptly
appoint an Auditor who shall confirm to QUALCOMM the price determinations and
the competitive determinations with respect to the Competitive Factors under
Section 3. Leap shall provide or cause to be provided to the Auditor all
information reasonably required by the Auditor to perform its task, provided
that the Auditor agrees in writing not to disclose such information to any
Person (including without limitation, QUALCOMM). In the event the Auditor
confirms the price determinations and the competitive determinations as
represented by Leap (or other subject Person) to QUALCOMM, then the expenses of
the Auditor in conducting such analysis shall be for the account of QUALCOMM;
otherwise, such expenses shall be for the account of Leap (or other subject
Person).
<PAGE> 11
3.7 Non-Competitive Bid Situations; Most Favored Pricing Exception. If,
with respect to any procurement of Subscriber Units otherwise subject to Section
3.1, Leap (or any other subject Person) does not attempt, directly or
indirectly, to procure such Subscriber Units on a competitive basis from any
prospective vendor other than QUALCOMM, such that QUALCOMM has the exclusive
right to negotiate and enter into an agreement to supply such Subscriber Units,
then QUALCOMM agrees to offer and sell Subscriber Units to Leap (or such other
subject Person) at prices that do not exceed the most favored price for such
Subscriber Units sold by QUALCOMM during the corresponding time period to other
customers located in the same sovereign jurisdiction based on similar terms and
conditions (including but not limited to included warranties, rebates,
discounts, market development and special promotional funds, or any additional
costs necessarily to be incurred as a result of the location of the subject
customer, or special freight, payment, financing or delivery terms, the
provision of field replaceable unit stocks and any other applicable material
monetary consideration, quantity commitments and expected volumes, percentage
commitments, quantities ordered and lead times). Any such purchases shall be
contingent on the subject Person and QUALCOMM agreeing on mutually acceptable
financing terms for such purchases (or QUALCOMM otherwise receiving adequate
assurance that such Person shall be capable of paying the applicable purchase
price). The provisions of this Section 3.7 shall apply to the prices for
Subscriber Units procured in non-competitive bid situations (as described above
in this Section 3.7), notwithstanding the provisions of Section 3.3.1 to the
contrary. Any Subscriber Units purchased at prices determined pursuant to this
Section 3.7 shall not be included for purposes of determining whether QUALCOMM
has been awarded contracts for $250 million of Subscriber Units for use on
Domestic Wireless Systems, as described in Section 3.3.1. The provisions of this
Section 3.7 do not apply to any Person that, as of the Distribution Date,
already has or is already subject to (other than pursuant to the obligation
imposed by Section 3.1), directly or indirectly, a binding obligation to
purchase Subscriber Units from QUALCOMM (or from any Affiliate of QUALCOMM).
4. Bundled Procurements.
4.1 Right to Respond Separately. In the event Leap (or any subject U.S.
Operator or Non-U.S. Operator) issues a RFP-Infrastructure and RFP-Subscriber on
a "bundled" basis (that is, the prospective buyer is seeking to enter into a
contract for the purchase of infrastructure equipment and subscriber equipment
from the same vendor on a concurrent basis) and QUALCOMM does not manufacture or
sell both Products and Subscriber Units in the infrastructure equipment or
subscriber equipment product categories described in such "bundled" procurement,
QUALCOMM shall be entitled to separately respond (and shall have a separate
right of first refusal, pursuant to Sections 2 and 3, respectively) to each
portion of the "bundled" request for proposal (that is, the infrastructure
equipment portion and the subscriber equipment portion, respectively). To avoid
any ambiguity, (i) the provisions of Section 2 of this Agreement and the
provisions of Section 3 of this Agreement shall independently apply to each
respective portion of any such "bundled" request for proposal if at the time of
the issuance of the subject "bundled" procurement QUALCOMM does not manufacture
or sell both Products and Subscriber Units in the infrastructure equipment or
subscriber equipment product categories described in such "bundled" procurement,
and (ii) the fact that QUALCOMM may elect to not bid on providing infrastructure
equipment (or vice versa) shall not relieve the prospective buyer of its
obligations to purchase Subscriber Units (or vice versa) from QUALCOMM pursuant
to the terms of this Agreement in the event QUALCOMM does elect to exercise its
right of first refusal and make an offer with respect to supplying Subscriber
Units (or vice versa).
4.2 Exception For Limited Subscriber Unit Sales. The provisions of Section
4.1 shall not apply to any "bundled" request for proposal that consists of a
RFP-Infrastructure and a RFP-Subscriber in which both of the following two
conditions are met: (i) the contract value (as determined in any reasonable
manner) of the subject subscriber equipment does not exceed fifteen percent of
the value of the infrastructure equipment (specifically excluding the value of
any related services) which is the subject of the "bundled" request for
proposal; and (ii) the number of "bundled" subscriber units does not exceed five
thousand (5,000). As to any such "bundled" request for proposal in which (X) the
contract value of the subject subscriber equipment is less than the percentage
specified in clause "(i)" of the immediately preceding sentence, and (Y) the
number of "bundled" subscriber units does not exceed five thousand (5,000),
QUALCOMM shall not be entitled, as provided in Section 4.1, to separately
respond to each portion of the "bundled" request for proposal. In such cases,
QUALCOMM shall be entitled to exercise its rights of first refusal for such
infrastructure equipment and subscriber equipment only on a "bundled" basis.
<PAGE> 12
4.3 Exception For Certain Wireless Local Loop Sales. The provisions of
Section 4.1 shall not apply to any "bundled" request for proposal that consists
of a RFP-Infrastructure and a RFP-Subscriber for a wireless local loop Wireless
System to the extent (i) that any such "bundled" procurement only seeks to
acquire from the subject vendor not more than fifty percent of the Subscriber
Units that are expected to be procured for use on the subject Wireless System
during the initial deployment phase of such Wireless System, and (ii) QUALCOMM
is entitled to exercise a separate right of first refusal with respect to all
(and not just fifty percent) of the remaining Subscriber Unit requirements of
the subject Person in connection with the initial deployment phase of such
Wireless System. As to any such "bundled" request for proposal, QUALCOMM shall
not be entitled, as provided in Section 4.1, to separately respond to each
portion of the "bundled" request for proposal. In such cases, as to that portion
of the subject procurement that is "bundled," QUALCOMM shall be entitled to
exercise its rights of first refusal for such infrastructure equipment and
subscriber equipment only on a "bundled" basis, and QUALCOMM shall have a
separate right of first refusal to all of the remaining subject requirements for
Subscriber Units.
5. Term.
5.1 Term of Agreement. This Agreement shall become effective as of the
Effective Date and, unless earlier terminated, shall terminate upon completion
of the parties' obligations required to be performed hereunder (the "Term").
5.2 Cancellation for Breach. In the event QUALCOMM or Leap is in material
breach or material default of this Agreement and such breach or default
continues uncured for a period of thirty (30) days after the receipt by the
defaulting or breaching party of written notice from the non-defaulting or
non-breaching party, then the non-defaulting or non-breaching party shall have
the right to pursue whatever rights and remedies the non-defaulting or
non-breaching party may have at law or in equity.
5.3 Limited Right to Cancel. In the event QUALCOMM repeatedly breaches
Infrastructure Purchase Agreements and/or Subscriber Unit Purchase Agreements
entered into pursuant to and with Persons subject to the provisions of Section
2.1 and Section 3.1, as applicable, and as a result of such breaches such
Persons are rightfully entitled to cancel, for default, the subject
Infrastructure Purchase Agreements and/or Subscriber Unit Purchase Agreements,
then as to that category of Product or Subscriber Unit, as the case may be, that
QUALCOMM has so repeatedly failed to deliver and deploy, as the case may be,
QUALCOMM shall no longer have a right of first refusal to supply such Products
or Subscriber Units to any such Person if, but only if, the Investment, direct
or indirect, of Leap in such Person was made from the proceeds of funds or other
assets provided by a Person other than QUALCOMM (or other than an Affiliate of
QUALCOMM). Any Person seeking to claim that it no longer is subject to
QUALCOMM's right of first refusal with respect to any category of Product or
Subscriber Unit shall notify QUALCOMM in writing of such claim and specify the
basis for such claim. To the extent QUALCOMM loses a right of first refusal as a
result of the operation of the immediately preceding sentence, it shall be
considered a partial cancellation of the pertinent provision of this Agreement
as to the subject Person with respect to the affected category of Product or
Subscriber Unit.
6. General.
6.1 Scope. The terms and conditions of this Agreement shall apply only to
the transactions which are contemplated by this Agreement. To the extent that
any terms and conditions in any Infrastructure Purchase Agreement or Subscriber
Unit Purchase Agreement conflict with the provisions of this Agreement, such
terms and conditions shall supersede such conflicting provisions of this
Agreement.
6.2 Compliance with Laws. Performance under this Agreement shall be
subject to all applicable laws, orders and regulations of federal, state, and
local governmental entities in the appropriate jurisdictions.
6.3 Notices. All notices under this Agreement shall be in writing (except
where otherwise stated) and shall be addressed to the addresses set forth below
or to such other address as either party may designate by notice pursuant
hereto. Such notices shall be sent by confirmed telecopy or nationally
recognized overnight courier or delivered by hand and shall be deemed to have
been given when received.
<PAGE> 13
QUALCOMM: QUALCOMM Incorporated
6455 Lusk Boulevard
San Diego, California 92121
Attn: General Counsel
Facsimile: (619) 658-2500
Leap: Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, California 92121
Attn: President
Facsimile: (619) _______________
with a copy to: General Counsel, at the same address
6.4 Right of Access. Subject to each party's security and confidentiality
requirements, each party shall provide the other reasonable access to its
facilities to the extent required in connection with the performance of their
respective obligations under this Agreement. No charge shall be made for such
access. Reasonable prior notification will be given when access is required and
the parties shall mutually agree upon a mutually acceptable time and location.
Subject to QUALCOMM's security and confidentiality requirements, during normal
business hours and upon reasonable prior notice and agreement on a mutually
acceptable time and location, Leap shall have the right (i) to visit the
facilities where the Products and Subscriber Units are being manufactured, and
(ii) to observe the manufacturing and testing process.
6.5 Use of Information.
6.5.1 Confidential Information. All information, including without
limitation all oral and written information (including, but not limited to, all
technical documentation delivered to Leap by QUALCOMM hereunder, and all other
information relating to the pricing for, financing of, design, development,
configuration, use, installation, operation and maintenance of any system),
disclosed to the other party is deemed to be confidential, restricted and
proprietary to the disclosing party (hereinafter referred to as "Confidential
Information"). Each party agrees to use the Confidential Information received
from the other party only for the purpose of this Agreement. Except as specified
in this Agreement, no other rights, and particularly licenses, to trademarks,
inventions, copyrights, patents, or any other intellectual property rights are
implied or granted under this Agreement or by the conveying of Confidential
Information between the parties. Confidential Information supplied is not to be
reproduced in any form except as required to accomplish the intent of, and in
accordance with the terms of, this Agreement. The receiving party must provide
the same care to avoid disclosure or unauthorized use of Confidential
Information as it provides to protect its own similar proprietary information
but in no event will the receiving party fail to use reasonable care under the
circumstances to avoid disclosure or unauthorized use of Confidential
Information. All Confidential Information must be retained by the receiving
party in a secure place with access limited to only such of the receiving
party's employees who need to know such information for purposes of this
Agreement and to such third parties as the disclosing party has consented to by
prior written approval. All Confidential Information, unless otherwise specified
in writing (i) remains the property of the disclosing party, (ii) must be used
by the receiving party only for the purpose for which it was intended, and (iii)
such Confidential Information, including all copies of such information, must be
returned to the disclosing party or destroyed after the receiving party's need
for it has expired or upon request of the disclosing party, and, in any event,
upon termination of this Agreement. At the request of the disclosing party, the
receiving party will furnish a certificate of an officer of the receiving party
certifying that Confidential Information not returned to the disclosing party
has been destroyed. For the purposes hereof, Confidential Information does not
include information that:
(a) is published or is otherwise in the public domain through no fault of
the receiving party at the time of any claimed disclosure or unauthorized use by
the receiving party;
(b) prior to disclosure pursuant to this Agreement is properly within the
legitimate possession of the receiving party as evidenced by reasonable
documentation to the extent applicable;
<PAGE> 14
(c) subsequent to disclosure pursuant to this Agreement is lawfully
received from a third party having rights in the information without restriction
of the third party's right to disseminate the information and without notice of
any restriction against its further disclosure;
(d) is independently developed by the receiving party or is otherwise
received through parties who have not had, either directly or indirectly, access
to or knowledge of such Confidential Information;
(e) is transmitted to the receiving party after the disclosing party has
received written notice from the receiving party, after termination or
expiration of this Agreement, that it does not desire to receive further
Confidential Information;
(f) is obligated to be produced under applicable law (including U.S.
securities laws) or order of a court of competent jurisdiction or other similar
requirement of a governmental entity, so long as the party required to disclose
the information provides the other party with prior notice of such order or
requirement and its cooperation to the extent reasonable in preserving its
confidentiality; or
(g) the disclosing party agrees in writing is free of such restrictions.
6.5.2 Relief. seq level3 \h \r0 Because damages may be difficult to
ascertain, the parties agree that, without limiting any other rights and
remedies specified herein, an injunction may be sought against the party who has
breached or threatened to breach this Section 6.5. Each party represents and
warrants that it has the right to disclose all Confidential Information which it
has disclosed to the other party pursuant to this Agreement, and each party
agrees to indemnify and hold harmless the other from all claims by a third party
related to the wrongful disclosure of such third party's proprietary
information. Otherwise, neither party makes any representation or warranty,
express or implied, with respect to any Confidential Information.
6.6 Independent Contractor. All work performed by one party under this
Agreement shall be performed as an independent contractor and not as an agent of
the other and no persons furnished by the performing party shall be considered
the employees or agents of the other. The performing party shall be responsible
for its employees' compliance with all laws, rules, and regulations while
performing work under this Agreement.
6.7 EXCEPT AS SET FORTH ELSEWHERE IN THIS AGREEMENT OR IN ANY PURCHASE
AGREEMENT OR ORDER, NEITHER QUALCOMM NOR LEAP (AND THEIR RESPECTIVE AFFILIATES,
EMPLOYEES AND AGENTS) SHALL BE LIABLE FOR INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, OR LOST PROFITS, REVENUES OR SAVINGS ARISING OUT OF THIS AGREEMENT OR
THE USE OR PERFORMANCE OF ANY PRODUCTS OR SERVICES, WHETHER IN AN ACTION FOR OR
ARISING OUT OF BREACH OF CONTRACT, TORT, INCLUDING NEGLIGENCE, OR STRICT
LIABILITY. THIS SECTION 6.7 SHALL SURVIVE FAILURE OF AN EXCLUSIVE OR LIMITED
REMEDY.
6.8 Force Majeure. Neither party shall be held responsible for any delay
or failure in performance to the extent that such delay or failure is caused by
Force Majeure. Notwithstanding the foregoing, if QUALCOMM or Leap is unable to
perform its obligations hereunder due to Force Majeure for a continuous period
of ninety days, the other party to this Agreement may terminate this Agreement
upon giving notice to the other.
6.9 Assignment. QUALCOMM may not assign this Agreement or any right or
interest under this Agreement without Leap's prior written consent, which
consent shall not be unreasonably withheld; provided, however, in the event that
QUALCOMM sells, transfers or otherwise disposes of all or substantially all of
its assets relating to the manufacture and sale of Products and/or Subscriber
Units, respectively, then QUALCOMM shall be entitled, without obtaining Leap's
prior written consent, to assign that portion of this Agreement and any related
rights or interests under this Agreement which pertain to the assets so sold,
transferred or otherwise disposed of (that is, the assets relating to Products
and/or Subscriber Units, respectively) to any such successor-in-interest(s) to
such assets, respectively. Leap shall not assign this Agreement or any right or
interest under this Agreement without QUALCOMM's prior written consent;
provided, however, (X) nothing in this sentence shall be construed as
prohibiting an assignment of this Agreement, as a whole, by operation of law as
a result of a merger by Leap into another entity (in which merger Leap is not
the surviving entity), and (Y) Leap may assign its rights under this Agreement,
as a whole, to a successor in interest of Leap that (i) acquires substantially
all of the assets of Leap, which assets shall include all of Leap's direct or
indirect
<PAGE> 15
Investments in Persons operating Domestic Wireless Systems if Leap, directly or
indirectly, holds at least ten percent of the equity interests of such Person,
and (ii) assumes in writing the obligations of Leap under this Agreement. Any
attempted assignment in contravention of this Section 6.9 shall be void and
ineffective. Nothing shall preclude QUALCOMM from employing a subcontractor in
carrying out its obligations under this Agreement. QUALCOMM's use of such
subcontractor shall not release QUALCOMM from its obligations under this
Agreement.
6.10 Publicity. Each party shall submit to the other party a proposed copy
of all Advertising wherein the name, trademark, code, specification or service
mark of the other party or its Affiliates is mentioned; and neither party shall
publish or use such Advertising without the other's prior written approval. Such
approval shall be granted as promptly as possible, and may be withheld only for
good cause.
6.11 Applicable Law. The construction and interpretation of, and the rights
and obligations of the parties pursuant to this Agreement, shall be governed by
the laws of the State of California (without giving effect to principles of
conflicts of laws).
6.12 Survival of Obligations. The parties' rights and obligations which, by
their nature, would continue beyond the termination, cancellation or expiration
of this Agreement (such as, but not limited to, the provisions of Section 6.5),
shall survive such termination, cancellation or expiration.
6.13 Severability. If any provision in this Agreement shall be held to be
invalid or unenforceable, the remaining portions shall remain in effect. In the
event such invalid or unenforceable provision is considered an essential element
of this Agreement, the parties shall promptly negotiate a replacement provision.
6.14 Non-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.
6.15 Publication of Agreement. The parties shall keep the provisions of
this Agreement confidential, except as reasonably necessary for performance
hereunder and except to the extent disclosure may be required by applicable laws
or regulations, in which latter case, the party required to make such disclosure
shall promptly inform the other prior to such disclosure in sufficient time to
enable such other party to make known any objections it may have to such
disclosure. The disclosing party shall take all reasonable steps to secure a
protective order or otherwise assure that this Agreement or such Purchase
Agreement will be withheld from the public record. Notwithstanding the
foregoing, (a) the parties may disclose this Agreement to their respective
attorneys, auditors, financial advisors and other agents, to the extent such
persons agree to keep this Agreement confidential and (b) the parties may
disclose the provisions of this Agreement to the extent, in the opinion of
counsel to such party, required (i) by the Securities and Exchange Commission or
any applicable securities laws, rules or regulations in connection with any
offering of securities of such party, or any of its respective Affiliates, or
(ii) by any other governmental authority to comply with applicable securities or
similar laws, rules or regulations.
6.16 Dispute Resolution. Except as provided in Section 6.5.2 herein, if a
dispute arises out of or relates to this Agreement, or its alleged breach, then
such dispute shall be settled pursuant to the procedures set forth in Article 9
of the Spinoff Agreement.
6.17. Entire Agreement. The terms and conditions contained in this Agreement
shall supersede all prior oral or written understandings between the parties
with respect to the subject matter hereof and constitute the entire agreement of
the parties with respect to such subject matter. Such terms and conditions shall
not be modified or amended except by a writing signed by authorized
representatives of both parties.
<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the Effective Date.
Leap Wireless International, Inc., QUALCOMM Incorporated,
a Delaware corporation a Delaware corporation
By: By:
Print Name: Print Name:
Title: Title:
<PAGE> 1
EXHIBIT 10.5
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
QUALCOMM INCORPORATED
AND
LEAP WIRELESS INTERNATIONAL, INC.
__________, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS.................................................................................1
1.1 Affiliate.......................................................................................1
1.2 Close of the Distribution Date..................................................................1
1.3 COBRA...........................................................................................1
1.4 Code............................................................................................1
1.5 Distribution Date...............................................................................1
1.6 DOL.............................................................................................1
1.7 ERISA...........................................................................................1
1.8 Executive Retirement Plans......................................................................2
1.9 FMLA............................................................................................2
1.10 Health and Welfare Plans........................................................................2
1.11 Immediately after the Distribution Date.........................................................2
1.12 Individual Agreement............................................................................2
1.13 IRS.............................................................................................2
1.14 Long Term Incentive Plan........................................................................2
1.15 Medical Plan....................................................................................2
1.16 Non-Employee Director...........................................................................2
1.17 Option..........................................................................................3
1.18 Participating Company...........................................................................3
1.19 Participation Commencement Time.................................................................3
1.20 Person..........................................................................................3
1.21 Plan............................................................................................3
1.22 QUALCOMM 401(k) Plan............................................................................3
1.23 QUALCOMM Entity.................................................................................3
1.24 QUALCOMM Stock Value............................................................................3
1.25 QUALCOMM WCP....................................................................................3
1.26 SEC.............................................................................................3
1.27 Leap 401(k) Plan................................................................................4
1.28 Leap Entity.....................................................................................4
1.29 Leap Individual.................................................................................4
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1.30 Leap Stock Value................................................................................4
1.31 Stock Purchase Plan.............................................................................4
ARTICLE 2 GENERAL PRINCIPLES..........................................................................4
2.1 Assumption of Liabilities.......................................................................4
2.2 Leap Participation in QUALCOMM Plans............................................................4
2.3 Establishment Of Leap Plans.....................................................................5
2.4 Terms Of Participation In Leap Plans............................................................5
ARTICLE 3 HEALTH AND WELFARE PLANS....................................................................6
3.1 COBRA And Direct Pay............................................................................6
3.2 FMLA............................................................................................6
3.3 QUALCOMM Workers' Compensation Program Administration Of Claims.................................6
ARTICLE 4 DEFINED CONTRIBUTION PLANS..................................................................7
4.1 Leap 401(k) Plan................................................................................7
4.2 Leap Executive Retirement Plans.................................................................8
ARTICLE 5 EMPLOYEE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS UNDER QUALCOMM LONG-TERM
INCENTIVE PLANS.............................................................................8
5.1 Leap Option Grants with respect to Certain QUALCOMM Options.....................................8
5.2 Adjustment of QUALCOMM Options held by Persons other than Employees, Consultants and
Non-Employee Directors of QUALCOMM..............................................................9
5.3 Amendment of QUALCOMM Options held by Leap Employees............................................9
5.4 Savings Clause.................................................................................10
5.5 Issuance of Leap Shares with respect to Certain QUALCOMM Option Exercises......................10
5.6 Black-out of Certain Exercises of QUALCOMM Options.............................................10
5.7 Registration Requirements......................................................................10
ARTICLE 6 GENERAL AND ADMINISTRATIVE.................................................................11
6.1 Accounting Methodologies And Assumptions.......................................................11
6.2 Sharing Of Participant Information.............................................................11
6.3 Non-Termination Of Employment; No Third-Party Beneficiaries....................................11
6.4 Beneficiary Designations.......................................................................11
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
6.5 Requests For Agency Rulings And Opinions.......................................................11
6.6 Fiduciary Matters..............................................................................12
6.7 Consent Of Third Parties.......................................................................12
ARTICLE 7 MISCELLANEOUS..............................................................................12
7.1 Effect If Distribution Does Not Occur..........................................................12
7.2 Relationship Of Parties........................................................................12
7.3 Affiliates.....................................................................................12
7.4 Third Party Beneficiaries......................................................................12
7.5 Notices........................................................................................13
7.6 Severability...................................................................................13
7.7 Modification And Amendment; Entire Agreement...................................................13
7.8 Dispute Resolution.............................................................................14
7.9 Governing Law..................................................................................14
Schedule I QUALCOMM Health and Welfare Plans
Exhibit A Distribution Stock Option Agreement
</TABLE>
iii.
<PAGE> 5
EMPLOYEE BENEFITS AGREEMENT
THIS EMPLOYEE BENEFITS AGREEMENT ("Agreement"), dated as of
_______________, 1998, is by and between QUALCOMM INCORPORATED ("QUALCOMM") and
LEAP WIRELESS INTERNATIONAL, INC. ("Leap"). Certain capitalized terms used
herein and not otherwise defined shall have the respective meanings assigned to
them in Article 1 hereof or as assigned to them in the Separation and
Distribution Agreement between the parties dated as of the date hereof (the
"Separation Agreement").
WHEREAS, QUALCOMM and Leap have entered into the Separation and
Distribution Agreement and certain other agreements that will govern certain
matters relating to the Separation, the Distribution and the relationship of
QUALCOMM and Leap and their respective Subsidiaries following the Distribution;
and
WHEREAS, pursuant to the Separation and Distribution Agreement,
QUALCOMM and Leap have agreed to enter into this agreement allocating assets,
liabilities and responsibilities with respect to certain employee compensation
and benefit plans and programs between them.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 AFFILIATE means with respect to any other Person, a Person that
controls, is controlled by, or is under common control with, such other Person.
1.2 CLOSE OF THE DISTRIBUTION DATE means 11:59:59 P.M., Pacific
Standard Time or Pacific Daylight Time (whichever shall then be in effect), on
the Distribution Date.
1.3 COBRA means the continuation coverage requirements for "group
health plans" under Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and as codified in Code Section 4980B and ERISA
Sections 601 through 608.
1.4 CODE means the Internal Revenue Code of 1986, as amended, or any
successor federal income tax law. Reference to a specific Code provision also
includes any proposed, temporary, or final regulation in force under that
provision.
1.5 DISTRIBUTION DATE has the meaning given such term in the Separation
and Distribution Agreement.
1.6 DOL means the United States Department of Labor.
1.7 ERISA means the Employee Retirement Income Security Act of 1974, as
amended. Reference to a specific provision of ERISA also includes any proposed,
temporary, or final regulation in force under that provision.
1.
<PAGE> 6
1.8 EXECUTIVE RETIREMENT PLANS, when immediately preceded by
"QUALCOMM," means the QUALCOMM Executive Retirement Plan and the QUALCOMM
Executive Retirement Matching Contribution Plan. When immediately preceded by
"Leap," Executive Retirement Plans means the Leap Executive Retirement Plan and
the Leap Executive Retirement Matching Contribution Plan.
1.9 FMLA means the Family and Medical Leave Act of 1993, as amended.
1.10 HEALTH AND WELFARE PLANS, when immediately preceded by "QUALCOMM,"
means the health and welfare plans established and maintained by QUALCOMM for
the benefit of employees of QUALCOMM and certain QUALCOMM Entities, and such
other health and welfare plans or programs as may apply to such employees as of
the Distribution Date. When immediately preceded by "Leap," Health and Welfare
Plans means the health and welfare plans to be established by Leap effective no
later than Immediately after the Distribution Date as the successors in interest
to the QUALCOMM Health and Welfare Plans.
1.11 IMMEDIATELY AFTER THE DISTRIBUTION DATE means 12:00 A.M., Pacific
Standard Time or Pacific Daylight Time (whichever shall then be in effect), on
the day after the Distribution Date.
1.12 INDIVIDUAL AGREEMENT means a contract or agreement (whether
written or unwritten) entered into between (a) QUALCOMM, a QUALCOMM Entity, Leap
or a Leap Entity and (b) a single QUALCOMM employee that establishes the right
of such individual to any unique executive compensation or benefits not provided
to other QUALCOMM employees including a supplemental pension benefit, hiring
bonus, loan, guaranteed payment, special allowance, tax equalization or
disability benefit.
1.13 IRS means the Internal Revenue Service.
1.14 LEAP 401(k) PLAN means the Leap 401(k) Savings Plan to be
established by Leap effective on or before Immediately after the Distribution
Date, as a qualified defined contribution plan under ERISA and the Code.
1.15 LEAP ENTITY means any Person that is, at the relevant time, an
Affiliate of Leap.
1.16 LEAP INDIVIDUAL means any individual who at the Participation
Commencement Time, is either actively employed by or on leave of absence from
QUALCOMM or Leap, and is to be an employee of (or on leave of absence from) Leap
as of the Distribution.
1.17 LEAP STOCK VALUE means the last sales price per share of Leap
Common Stock (traded on a "when-issued" basis) on the Distribution Date.
1.18 LONG TERM INCENTIVE PLAN, when immediately preceded by "QUALCOMM,"
means any of the QUALCOMM 1991 Stock Option Plan, as amended, and Non-Employee
Directors' Stock Option Plan, as amended. When immediately preceded by "Leap,"
Long Term Incentive Plan means either of the 1998 Stock Option Plan or 1998
Non-Employee Directors' Stock Option Plan to be adopted by Leap prior to
Immediately after the Distribution Date.
1.19 MEDICAL PLAN, when immediately preceded by "QUALCOMM," means the
QUALCOMM Medical Expense Plan for Employees. When immediately preceded by
"Leap," Medical Plan means the medical plan to be established by Leap effective
no later than Immediately after the Distribution Date as the successor in
interest to the QUALCOMM Medical Plan.
1.20 NON-EMPLOYEE DIRECTOR, when immediately preceded by "QUALCOMM,"
means a member of QUALCOMM's Board of Directors who is not an employee of
QUALCOMM or a QUALCOMM Entity. When immediately preceded by "Leap," Non-
2.
<PAGE> 7
Employee Director means a member of Leap's Board of Directors who is not an
employee of Leap or a Leap Entity.
1.21 OPTION, when immediately preceded by "QUALCOMM," means an option
to purchase QUALCOMM Common Stock. When immediately preceded by "Leap," Option
means an option to purchase Leap Common Stock, in each case pursuant to a Long
Term Incentive Plan of either QUALCOMM or Leap.
1.22 PARTICIPATING COMPANY means (a) QUALCOMM, (b) any Person that
QUALCOMM has approved for participation in, and which is participating in, a
QUALCOMM Plan, and (c) any Person (other than an individual) which, by the terms
of such Plan, participates in such Plan or any employees of such Person that, by
the terms of such Plan, participate in or are covered by such Plan.
1.23 PARTICIPATION COMMENCEMENT TIME, when applied to Leap, means the
time that the first Leap Individual becomes an employee of Leap or a Leap
Entity, and when applied to a Leap Individual, means the time that such Leap
Individual first becomes an employee of Leap or a Leap Entity.
1.24 PERSON means any individual or legal entity.
1.25 PLAN, when immediately preceded by "QUALCOMM" or "Leap," means any
plan, policy, program, payroll practice, ongoing arrangement, contract, trust,
insurance policy or other agreement or funding vehicle providing benefits to
employees or Non-Employee Directors of QUALCOMM or a QUALCOMM Entity, or Leap or
a Leap Entity, as applicable, other than Individual Agreements. The term "Plan"
includes, but is not limited to, any Executive Retirement Plans, Health and
Welfare Plans, Long Term Incentive Plans, Medical Plans, and Stock Purchase
Plans.
1.26 QUALCOMM 401(k) PLAN means the QUALCOMM 401(k) Savings Plan, as in
effect from time to time.
1.27 QUALCOMM ENTITY means any Person that is, at the relevant time, an
Affiliate of QUALCOMM, except that, for periods beginning on and after the
Participation Commencement Time, the term "QUALCOMM Entity" shall not include
Leap or a Leap Entity.
1.28 QUALCOMM STOCK VALUE means the last sales price per share of
QUALCOMM Common Stock on the Nasdaq National Market on the Distribution Date,
less one-fourth of the Leap Stock Value.
1.29 QUALCOMM WCP means the QUALCOMM Workers' Compensation Program,
comprised of the various arrangements established by QUALCOMM or a QUALCOMM
Entity to comply with the workers' compensation requirements of the states in
which QUALCOMM or a QUALCOMM Entity conducts business.
1.30 SEC means the United States Securities and Exchange Commission.
3.
<PAGE> 8
1.31 STOCK PURCHASE PLAN, when immediately preceded by "QUALCOMM,"
means the QUALCOMM 1991 Employee Stock Purchase Plan and the QUALCOMM 1996
Non-Qualified Employee Stock Purchase Plan. When immediately preceded by "Leap,"
Stock Purchase Plan means the employee stock purchase plan to be established by
Leap prior to Immediately after the Distribution Date as an "employee stock
purchase plan" meeting the requirements set forth in Section 423 of the Code.
ARTICLE 2
GENERAL PRINCIPLES
2.1 ASSUMPTION OF LIABILITIES.
Leap hereby assumes and agrees to pay, perform, fulfill and
discharge, in accordance with their respective terms, all of the following
Liabilities (regardless of when or where such Liabilities arose or arise or were
or are incurred), except to the extent otherwise set forth in this Agreement, or
the Separation and Distribution Agreement: (a) all Liabilities to or relating to
any Leap Individual, and his or her respective dependents and beneficiaries, in
each case relating to, arising out of or resulting from employment by QUALCOMM
or a QUALCOMM Entity before becoming a Leap Individual (but only to the extent
such Liabilities arise under a QUALCOMM Plan, a Leap Plan or an Individual
Agreement); (b) all other Liabilities to or relating to Leap Individuals and
other employees or former employees of Leap or a Leap Entity, and their
dependents and beneficiaries, to the extent relating to, arising out of or
resulting from future, present or former employment with Leap or a Leap Entity
(including Liabilities under QUALCOMM Plans, Leap Plans and Individual
Agreements); (c) all Liabilities relating to, arising out of or resulting from
any other actual or alleged employment relationship with Leap or a Leap Entity;
and (d) all other Liabilities relating to, arising out of or resulting from
obligations, liabilities and responsibilities expressly assumed or retained by
Leap, a Leap Entity, or a Leap Plan pursuant to this Agreement. As to bonus
arrangements under a QUALCOMM Plan or Individual Agreement for which QUALCOMM
has accrued a liability, a Leap individual's termination of employment with
QUALCOMM to become a Leap Individual shall not prevent or terminate Leap's
assumption of the liability to pay such bonus amount, even though the relevant
QUALCOMM Plan or Individual Agreement may provide that termination of
employment with QUALCOMM terminates QUALCOMM's liability for this bonus.
2.2 LEAP PARTICIPATION IN QUALCOMM PLANS.
(a) PARTICIPATION IN QUALCOMM PLANS. Effective as of the
Participation Commencement Time, and ending as of the Close of the Distribution
Date, and subject to the terms and conditions of this Agreement, to the extent
practicable and/or required by applicable laws and regulations to occur prior to
the Distribution,
4.
<PAGE> 9
Leap shall become a Participating Company in the QUALCOMM Plans in effect as of
the Participation Commencement Time.
(b) QUALCOMM'S GENERAL OBLIGATIONS AS PLAN SPONSOR. QUALCOMM
shall continue to administer, or cause to be administered, in accordance with
their terms and applicable law, the QUALCOMM Plans, and shall have the sole
discretion and authority to interpret, enforce and amend the QUALCOMM Plans as
set forth therein.
(c) LEAP'S GENERAL OBLIGATIONS AS PARTICIPATING COMPANY. Leap
shall perform with respect to its participation in the QUALCOMM Plans, and shall
cause each other Leap Entity that is a Participating Company in any QUALCOMM
Plan to perform, the duties of a Participating Company as set forth in such
Plans or any procedures adopted pursuant thereto.
(d) TERMINATION OF PARTICIPATING COMPANY STATUS. Effective as
of the Close of the Distribution Date, Leap and each Leap Entity shall cease to
be a Participating Company in the QUALCOMM Plans. Notwithstanding the foregoing,
QUALCOMM and Leap may mutually agree to a different date on which, as to a
particular QUALCOMM Plan, Leap and each Leap Entity shall cease to be a
Participating Company.
(e) LEAP DISCLOSURE RESPONSIBILITIES. Leap shall provide
QUALCOMM any and all information relating to Leap Individuals that is necessary
for QUALCOMM to administer the QUALCOMM Plans, including, but not limited to,
the Leap-employment history of Leap Individuals.
2.3 ESTABLISHMENT OF LEAP PLANS. Effective no later than Immediately
after the Distribution Date, Leap shall adopt, or cause to be adopted, the Leap
Long Term Incentive Plan(s), the Leap 401(k) Plan, an executive retirement plan
(the "Leap Executive Retirement Plan"), an executive retirement matching plan
(the "Leap Executive Retirement Matching Contribution Plan"), the Leap Medical
Plan, the Leap Stock Purchase Plan, and the Leap Health and Welfare Plans for
the benefit of current, future, and former employees of Leap and the Leap
Entities.
2.4 TERMS OF PARTICIPATION IN LEAP PLANS. The Leap Plans shall be in
all respects the successors in interest to, and shall not provide benefits that
duplicate benefits provided by, the corresponding QUALCOMM Plans with respect to
Leap Individuals and all other employees and former employees of Leap and the
Leap Entities, and beneficiaries and dependents thereof. QUALCOMM and Leap shall
agree on methods and procedures, including amending the respective Plan
documents, to prevent Leap Individuals from receiving duplicative benefits from
the QUALCOMM Plans and the Leap Plans. With respect to Leap Individuals, each
Leap Plan shall provide that all service determinations that, as of the Close of
the Distribution Date, were recognized under each corresponding QUALCOMM Plan,
if any, shall, as of Immediately after the Distribution Date and thereafter,
receive full recognition, credit, and validity and be taken into account under
such Leap Plan to the same extent as if such determinations had occurred under
such Leap Plan, except to the extent that duplication of benefits would result.
Nothing in this Section 2.4, or any other provision of this Agreement, however,
shall require Leap to adopt all of the types of Plans sponsored by QUALCOMM on
the Distribution Date or to provide that the terms of a Leap Plan shall be the
same or similar to the terms of any corresponding QUALCOMM Plan.
5.
<PAGE> 10
ARTICLE 3
HEALTH AND WELFARE PLANS
3.1 COBRA AND DIRECT PAY. Through the Close of the Distribution Date,
QUALCOMM shall be responsible for administering compliance with the health care
continuation coverage requirements of COBRA and the QUALCOMM Health and Welfare
Plans with respect to Leap Individuals and other employees and former employees
of Leap and the Leap Entities, and beneficiaries and dependents thereof; and
Leap and the Leap Entities shall be responsible for filing all necessary
employee change notices with respect to their respective employees in accordance
with applicable QUALCOMM policies and procedures. Effective Immediately after
the Distribution Date, Leap shall solely be responsible for administering
compliance with the health care continuation coverage requirements of COBRA for
the Leap Health and Welfare Plans, and shall cooperate and coordinate with
QUALCOMM, as appropriate, to allow QUALCOMM to administer compliance with the
health care continuation requirements of COBRA for the QUALCOMM Health and
Welfare Plans.
3.2 FMLA.
(a) Through the Close of the Distribution Date, QUALCOMM shall
be responsible for administering compliance with the FMLA with respect to Leap
Individuals and all other employees of Leap and the Leap Entities. Leap and the
Leap Entities shall be responsible for determining whether their respective
employees are eligible for leave under the FMLA in accordance with the FMLA.
(b) Effective Immediately after the Distribution Date: (i)
Leap shall honor, and shall cause each Leap Entity to honor, all terms and
conditions of leaves of absence which have been granted to any Leap Individual
and all other employees of Leap and the Leap Entities under the FMLA before the
Close of the Distribution Date by QUALCOMM, Leap, or a Leap Entity, including
such leaves that are to commence after the Distribution Date; (ii) Leap and each
Leap Entity shall be solely responsible for administering compliance with the
FMLA with respect to their employees; and (iii) Leap and each Leap Entity shall
recognize all periods of service of Leap Individuals and all other employees of
Leap and the Leap Entities with QUALCOMM or a QUALCOMM Entity, as applicable, to
the extent such service is recognized by QUALCOMM for the purpose of eligibility
for leave entitlement under the FMLA; provided, that no duplication of benefits
shall be required by the foregoing.
(c) As soon as administratively possible after the Close of
the Distribution Date, QUALCOMM shall provide to Leap copies of all records
pertaining to the FMLA with respect to all Leap Individuals and all other
employees of Leap and the Leap Entities to the extent such records have not been
provided previously to Leap or a Leap Entity.
3.3 QUALCOMM WORKERS' COMPENSATION PROGRAM ADMINISTRATION OF CLAIMS.
(a) Through the Close of the Distribution Date, QUALCOMM shall
continue to be responsible for the administration of all claims that are, or
have been, incurred under the QUALCOMM WCP before the Close of the Distribution
Date by Leap Individuals and other
6.
<PAGE> 11
employees and former employees of Leap and the Leap Entities through the Close
of the Distribution Date ("Leap WCP Claims").
(b) Effective Immediately after the Distribution Date, (i)
Leap shall, to the extent Legally Permissible (as defined below), be responsible
for the administration of all Leap WCP Claims, and (ii) QUALCOMM shall be
responsible for the administration of all Leap WCP Claims not administered by
Leap pursuant to clause (i). Any determination made, or settlement entered into,
by either party, or its insurance company, with respect to Leap WCP Claims for
which it is administratively responsible shall be final and binding upon the
other party.
(c) Each party shall fully cooperate with the other with
respect to the administration and reporting of Leap WCP Claims, the payment of
Leap WCP Claims determined to be payable, and the transfer of the administration
of any Leap WCP Claims to the other party as determined under Section 3.3(b).
Either party shall have the right to "outsource" (i.e., transfer the
administration of claims to a third party administrator or cause claims to be
paid through insurance) any and all Leap WCP Claims for which it is
administratively responsible.
(d) For purposes of this Section 3.3, "Legally Permissible"
shall be determined on a state-by-state basis, and shall mean that
administration of Leap WCP Claims by Leap both (i) is permissible under the
applicable state's workers' compensation laws (taking into account all relevant
facts, including that Leap may have a self-insurance certificate in that state)
and (ii) would not have a material adverse effect on QUALCOMM's workers'
compensation coverage within that state.
ARTICLE 4
DEFINED CONTRIBUTION PLANS
4.1 LEAP 401(k) PLAN.
(a) PLAN TRUST. Immediately after the Distribution Date or
prior to that time, Leap shall establish, or cause to be established, a trust
qualified under Code Section 401(a), exempt from taxation under Code Section
501(a)(1), and forming part of the Leap 401(k) Plan.
(b) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.
Immediately after the Distribution Date or prior to that time: (i) the Leap
401(k) Plan shall assume and be solely responsible for all Liabilities to or
relating to Leap Individuals under the QUALCOMM 401(k) Plan other than
Liabilities arising prior to the transfer of assets described in the following
clause (ii) relating to breach of the trust or plan or failure of QUALCOMM to
comply with applicable laws, regulations or agreements; and (ii) QUALCOMM shall
cause the accounts of the Leap Individuals under the QUALCOMM 401(k) Plan which
are held in trust as of the Close of the Distribution Date to be transferred to
the Leap 401(k) Plan, and the related trust, and Leap shall cause such
transferred accounts to be accepted by such plan and trust. Effective no later
than Immediately after the Distribution Date, both QUALCOMM and Leap shall use
their reasonable best efforts to enter into such mutually satisfactory
agreements to accomplish such assumptions and transfers, and Leap shall use its
reasonable best efforts to enter into such agreements satisfactory to Leap to
provide for the maintenance of the necessary participant records, the
7.
<PAGE> 12
appointment of an initial trustee under the Leap 401(k) Plan, the engagement of
an initial recordkeeper under such plans, and the selection of one or more
investment managers to manage the assets of the Leap 401(k) Plan.
4.2 LEAP EXECUTIVE RETIREMENT PLANS.
(a) PLAN TRUST. Immediately after the Distribution Date or
prior to that time, Leap shall establish, or cause to be established, a trust or
separate trusts for the deposit of assets forming part of the Leap Executive
Retirement Plans.
(b) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. A Leap
Individual may request not later than December 31, 1998, and QUALCOMM may then
permit, if the Leap Individual executes an agreement provided by QUALCOMM
releasing QUALCOMM from liability arising out of events after the transfer, the
account of the Leap Individual under the respective QUALCOMM Executive
Retirement Plans which are held in trust as of the Close of the Distribution
Date to be transferred to the corresponding Leap Executive Retirement Plan and
related trust (the "Transferred Accounts"), and Leap shall cause such
Transferred Accounts to be accepted by such plan and trust. As to Transferred
Accounts, the Leap Executive Retirement Plans shall assume and be solely
responsible for all Liabilities to or relating to the Leap Individual under the
respective QUALCOMM Executive Retirement Plans other than Liabilities arising
before the transfer of the accounts under these plans relating to breach of the
trust or plan or failure of QUALCOMM to comply with applicable laws, regulations
or agreements. Effective no later than Immediately after the Distribution Date,
QUALCOMM and Leap shall use their reasonable best efforts to enter into such
mutually satisfactory agreements to accomplish such assumptions and transfers,
and Leap shall use its reasonable best efforts to enter into such agreements
satisfactory to Leap to provide for the maintenance of the necessary participant
records, the initial appointment of a trustee under the Leap Executive
Retirement Plans, the initial engagement of a recordkeeper under such plans, and
the selection of one or more investment managers to manage the assets of the
Leap Executive Retirement Plans.
ARTICLE 5
EMPLOYEE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS UNDER QUALCOMM
LONG-TERM INCENTIVE PLANS; LIFE INSURANCE
5.1 LEAP OPTION GRANTS WITH RESPECT TO CERTAIN QUALCOMM OPTIONS.
(a) Subject to the terms of this Agreement, effective as of
immediately prior to the Close of the Distribution Date, Leap shall grant to
each Person who is either a current or former employee, consultant or director
of QUALCOMM (as determined by QUALCOMM) and who is a holder of a QUALCOMM Option
that is outstanding as of immediately prior to the Close of the Distribution
Date, a Leap Option, with respect to each such QUALCOMM Option, in substantially
the form attached hereto as Exhibit A (each a "Distribution Option") which shall
be delivered to each such holder as soon as practicable after the Close of the
Distribution Date.
(b) Each Distribution Option shall provide for the purchase of
a number of shares of Leap Common Stock equal to twenty-five percent (25%) of
the number of shares of
8.
<PAGE> 13
QUALCOMM Common Stock which are subject, as of immediately prior to the Close of
the Distribution Date, to the QUALCOMM Option (the "Corresponding QUALCOMM
Option") with respect to which such Distribution Option is granted (whether
vested or unvested), and then rounded down in the case of each Distribution
Option to the nearest whole share. Concurrently with the delivery of the
Distribution Options to the holders of such QUALCOMM Options pursuant to Section
5.1(a), Leap shall pay to each such holder cash in lieu of any fractional share
equal to the product of (A) the fraction represented by such fractional share,
times (B) the excess of the Leap Stock Value over the per-share exercise price
of such Leap Option.
(c) The per-share exercise price of each Distribution Option
shall be calculated by multiplying the per-share exercise price of the
applicable Corresponding QUALCOMM Option by the product of four multiplied by a
fraction, the numerator of which is one-fourth of the Leap Stock Value and the
denominator of which is the sum of the QUALCOMM Stock Value and the Leap Stock
Value. The vesting provisions, term and other provisions of each Distribution
Option shall be the same as those in effect with respect to the applicable
Corresponding QUALCOMM Option immediately prior to the Close of the Distribution
Date, except as otherwise provided for in this Section 5.1 and subject to the
provisions of Section 5.3.
(d) The per-share exercise price of each Corresponding
QUALCOMM Option shall be reduced as of immediately prior to the Close of the
Distribution Date to the price determined by multiplying the per-share exercise
price of such Corresponding QUALCOMM Option as in effect immediately prior to
such reduction by a fraction, the numerator of which is the QUALCOMM Stock Value
and the denominator of which is the sum of the QUALCOMM Stock Value and the Leap
Stock Value. The vesting provisions, term and other provisions of each such
Corresponding QUALCOMM Option shall be the same as those in effect immediately
prior to the Close of the Distribution Date, subject to the provisions of
Section 5.3.
5.2 ADJUSTMENT OF CERTAIN QUALCOMM OPTIONS. Subject to the terms of
this Agreement, effective as of immediately prior to the Close of the
Distribution Date, QUALCOMM shall cause to be made, with respect to each
QUALCOMM Option held by any Person as of immediately prior to the Close of the
Distribution Date who is not either a current or former employee, consultant or
director of QUALCOMM (as determined by QUALCOMM), an adjustment to the per share
exercise price and number of shares of QUALCOMM Common Stock subject to such
Option in such manner as QUALCOMM deems appropriate in its reasonable discretion
pursuant to the terms of the QUALCOMM Long Term Incentive Plan pursuant to which
such Option was originally granted.
5.3 AMENDMENT OF QUALCOMM OPTIONS HELD BY LEAP EMPLOYEES. Subject to
the terms of this Agreement, effective as of immediately prior to the Close of
the Distribution Date, QUALCOMM shall, with respect to each QUALCOMM Option held
by any Leap Individual who is as of Immediately after the Distribution Date an
employee of Leap, cause the vesting provisions of such Option to be amended such
that the vesting of such Option is tied to such Leap Individual's continued
employment with Leap rather than QUALCOMM, all as more fully set forth in and in
accordance with the terms of the Option Amendment Agreement and Release in the
form substantially as attached hereto as Exhibit B and, with respect to each
such
9.
<PAGE> 14
Leap Individual, subject to the execution and delivery by such Leap Individual
of such Option Amendment Agreement and Release.
5.4 SAVINGS CLAUSE. Notwithstanding any other provision of Sections 5.1
through 5.3, if and to the extent QUALCOMM shall determine in its reasonable
judgment that any action required to be taken by QUALCOMM or Leap under such
Sections may not comply with all applicable laws or the terms of any applicable
Long Term Incentive Plan or that any such action is otherwise inappropriate or
inadvisable, QUALCOMM shall be entitled to require that Leap or QUALCOMM instead
shall take such other action that QUALCOMM determines in its reasonable judgment
is necessary or appropriate in order to comply with such laws or Long Term
Incentive Plan or is otherwise appropriate or advisable. In no event shall the
total effect of the grant of any Leap Options or adjustment of any QUALCOMM
Options pursuant to such Sections cause a new measurement date for any QUALCOMM
Option to be used by QUALCOMM's accountants.
5.5 ISSUANCE OF LEAP SHARES WITH RESPECT TO CERTAIN QUALCOMM OPTION
EXERCISES.
(a) To the extent a QUALCOMM Option granted to a current or
former employee, director or consultant of QUALCOMM (as determined by QUALCOMM)
is exercised after the Record Date but prior to the Close of the Distribution
Date, then Leap shall issue and deliver, within ten (10) days (or such shorter
period of time as may be required by applicable laws or the requirements of
Nasdaq) after the Close of the Distribution Date, to the holder of such QUALCOMM
Option such number of shares of Leap Common Stock that equals one-fourth the
number of shares for which such QUALCOMM Option was so exercised; provided that
such number of shares of Leap Common Stock shall be rounded down to the nearest
whole share and concurrently with the delivery of such shares to the holders of
such QUALCOMM Options, Leap shall pay to each such holder cash in lieu of any
fractional share equal to the product of (A) the fraction represented by such
fractional share, times (B) the Leap Stock Value. Notwithstanding any other
provision in this Agreement or any Ancillary Agreement, QUALCOMM shall have no
obligation to deliver any shares of Leap Common Stock with respect to any such
exercises.
(b) For each such share of Leap Common Stock delivered
pursuant to this Section 5.5, within the time set forth in subsection 5.5(a),
QUALCOMM shall pay to Leap a pro-rated portion of the consideration received by
QUALCOMM from such exercise of the QUALCOMM Option as is determined by QUALCOMM
in its reasonable judgment to be appropriate and which is consistent with the
allocation of option exercise prices otherwise provided for in Section 5.1. The
shares reserved for issuance under the Leap Long-Term Incentive Plan under which
such shares would have been issued had the exercise of the QUALCOMM Option not
occurred prior to the Close of the Distribution Date shall be correspondingly
reduced by the number of shares so delivered.
5.6 BLACK-OUT OF CERTAIN EXERCISES OF QUALCOMM OPTIONS. QUALCOMM shall
use reasonable efforts to cause each QUALCOMM Option outstanding during the
period beginning with the Record Date and ending as of immediately prior to the
Close of the Distribution Date and held by any Person who is not a current or
former employee, director or consultant of QUALCOMM (as determined by QUALCOMM)
not to be exercised by the holder thereof during such period.
10.
<PAGE> 15
5.7 REGISTRATION REQUIREMENTS. Following the date as of which the Form
10 is declared effective by the SEC but in any case prior to the date of
issuance or grant of any Leap Option and/or shares of Leap Common Stock pursuant
to this Article 5, Leap agrees that it shall file a Form S-8 Registration
Statement with respect to and cause to be registered pursuant to the Securities
Act of 1933, as amended, each such grant and/or issuance of such Options and/or
Common Stock, as applicable and as required pursuant to such Act and any
applicable rules or regulations thereunder.
5.8 Split Dollar Life Insurance. QUALCOMM and Leap shall take all
actions necessary or appropriate to assign to Leap, (i) QUALCOMM's rights and
interests in any split dollar life insurance policy covering the life of a Leap
Individual, and (ii) QUALCOMM's obligations under any Agreements requiring
QUALCOMM to pay any premiums for any split dollar life insurance policy covering
the life of a Leap Individual effective on the Distribution Date. Such actions
shall include Leap's acceptance of any collateral assignments, policy
endorsements or such other documentation executed by or on behalf of such Leap
Individual, or any trustee of any trust to which such Leap Individual's policy
rights or incidents of ownership under the assigned split dollar policy has been
assigned, and Leap's entering into such agreements as may be necessary to
fulfill any obligations of QUALCOMM to any such trustee of any trust, or any
insurance company or insurance agent or broker under such policy or policies.
From and after the effective date of the assignment of any such split dollar
policy to Leap, Leap shall assume and be solely responsible for all Liabilities,
and shall be entitled to all benefits, of QUALCOMM under such policy and any
related agreements entered into by such Leap Individual, or any trustee of any
trust to which such Leap Individual's policy rights or incidents of ownership
under the assigned split dollar policy has been assigned. Leap shall reimburse
to QUALCOMM, no later than the thirtieth business day after the Distribution
Date, a pro-rated portion of the cost of any premium paid by QUALCOMM for policy
coverage during the month in which falls the Distribution Date. The premium
shall be pro-rated based on the number of calendar days in the month, and the
premium cost allocable to the Distribution Date and the calendar days of that
month that fall after the Distribution Date shall be reimbursed to QUALCOMM by
Leap.
ARTICLE 6
GENERAL AND ADMINISTRATIVE
6.1 ACCOUNTING METHODOLOGIES AND ASSUMPTIONS. For purposes of this
Agreement, unless specifically indicated otherwise, the value of the assets of a
Plan shall be the value established for purposes of relevant audited or
unaudited financial statements for the period ending on the date as of which the
valuation is to be made.
6.2 SHARING OF PARTICIPANT INFORMATION. QUALCOMM and Leap shall share
with each all participant information reasonably necessary to effectuate the
transfers and other transactions hereunder.
6.3 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No
provision of this Agreement or the Separation and Distribution Agreement shall
be construed to create any right, or accelerate entitlement, to any compensation
or benefit whatsoever on the part of any Leap Individual or other future,
present or former employee of QUALCOMM, a QUALCOMM Entity, Leap, or a Leap
Entity under any QUALCOMM Plan or Leap Plan or otherwise. Without limiting the
generality of the foregoing: (i) the Distribution shall not cause any employee
to be deemed to have incurred a termination of employment which entitles such
individual to the commencement of benefits under any of the QUALCOMM Plans, any
of the Leap Plans, or any of the Individual Agreements; and (ii) except as
expressly provided in this Agreement, nothing in this Agreement shall preclude
Leap, at any time after the Close of the Distribution Date, from amending,
merging, modifying, terminating, eliminating, reducing, or otherwise altering in
any respect any Leap Plan, any benefit under any Leap Plan or any trust,
insurance policy or funding vehicle related to any Leap Plan.
6.4 BENEFICIARY DESIGNATIONS. All beneficiary designations made by Leap
Individuals for QUALCOMM Plans shall be transferred to and be in full force and
effect under the corresponding Leap Plans until such beneficiary designations
are replaced or revoked by the Leap Individual who made the beneficiary
designation.
6.5 REQUESTS FOR AGENCY RULINGS AND OPINIONS.
(a) COOPERATION. Leap shall cooperate fully with QUALCOMM on
any issue relating to the transactions contemplated by this Agreement for which
QUALCOMM elects to seek a determination letter or private letter ruling from the
IRS, an advisory opinion from the DOL, or a no-action letter or other ruling
from the SEC. QUALCOMM shall cooperate fully with Leap with respect to any
request for a determination letter or private letter ruling from the
11.
<PAGE> 16
IRS, an advisory opinion from the DOL, or a no-action letter or other ruling
from the SEC, with respect to any of the Leap Plans relating to the transactions
contemplated by this Agreement.
(b) LIFE INSURANCE. To the extent the transfer or allocation
of all or a portion of any life insurance policies results in any adverse tax or
legal consequences, including without limitation (i) any finding that such
transfer results in the creation of a modified endowment contract within the
meaning of Code Section 7702A, a transfer for value within the meaning of Code
Section 101(a), or a lack of insurable interest for either QUALCOMM or Leap (or
their respective trusts, if any), or (ii) multiple claims for insurance
proceeds, QUALCOMM and Leap shall take such steps as may be necessary to contest
any such finding and, to the extent of any final determination that such adverse
tax or legal consequences will result, QUALCOMM and Leap shall make such further
adjustments so as to place both parties in the proportionate financial position
that they each would have been in relative to the other but for such adverse tax
or legal consequences.
6.6 FIDUCIARY MATTERS. QUALCOMM and Leap each acknowledge that actions
required to be taken pursuant to this Agreement may be subject to fiduciary
duties or standards of conduct under ERISA or other applicable law, and no party
shall be deemed to be in violation of this Agreement if it fails to comply with
any provisions hereof based upon its good faith determination that to do so
would violate such a fiduciary duty or standard.
6.7 CONSENT OF THIRD PARTIES. If any provision of this Agreement is
dependent on the consent of any third party (such as a vendor or a union) and
such consent is withheld, QUALCOMM and Leap shall use their reasonable best
efforts to implement the applicable provisions of this Agreement to the full
extent practicable. If any provision of this Agreement cannot be implemented due
to the failure of such third party to consent, QUALCOMM and Leap shall negotiate
in good faith to implement the provision in a mutually satisfactory manner. The
phrase "reasonable best efforts" as used herein shall not be construed to
require the incurrence of any non-routine or unreasonable expense or liability
or the waiver of any right.
ARTICLE 7
MISCELLANEOUS
7.1 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does not
occur, then all actions and events that are, under this Agreement, to be taken
or occur effective as of the Close of the Distribution Date, Immediately after
the Distribution Date, or otherwise in connection with the Distribution, shall
not be taken or occur except to the extent specifically agreed by Leap and
QUALCOMM.
7.2 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship set forth herein.
12.
<PAGE> 17
7.3 AFFILIATES. Each of QUALCOMM and Leap shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by a QUALCOMM Entity or
a Leap Entity, respectively.
7.4 THIRD PARTY BENEFICIARIES. Except for the indemnification rights
under this Agreement of any QUALCOMM Indemnitee or Leap Indemnitee in their
respective capacities as such, (a) the provisions of this Agreement and each
Ancillary Agreement are solely for the benefit of the parties and are not
intended to confer upon any Person except the parties any rights or remedies
hereunder, and (b) there are no third party beneficiaries of this Agreement or
any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement
shall provide any third person with any remedy, claim, liability, reimbursement,
claim of action or other right in excess of those existing without reference to
this Agreement or any Ancillary Agreement.
7.5 NOTICES. All notices or other communications under this Agreement
or any Ancillary Agreement shall be in writing and shall be deemed to be duly
given when (a) delivered in person or (b) deposited in the United States mail or
private express mail, postage prepaid, addressed as follows:
If to QUALCOMM, to: QUALCOMM Incorporated.
6455 Lusk Boulevard
San Diego, CA 92121
Attn: President
With a copy to General Counsel at the same
address.
If to Leap, to: Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, CA 92121
Attn: President
With a copy to General Counsel at the same
address.
Either party may, by notice to the other party, change the address to which such
notices are to be given.
7.6 SEVERABILITY. If any provision of this Agreement or any Ancillary
Agreement or the application thereof to any Person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof or thereof, or the application of such provision to
Persons or circumstances or in jurisdictions other than those as to which it has
been held invalid or unenforceable, shall remain in full force and effect and
shall in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby or thereby,
as the case may be, is not affected in any manner adverse to any party. Upon
such determination, the parties shall negotiate in good faith in an effort to
agree upon such a suitable and equitable provision to effect the original intent
of the parties.
7.7 MODIFICATION AND AMENDMENT; ENTIRE AGREEMENT. This Agreement may
not be modified or amended except in a writing signed by the parties. This
Agreement sets forth the
13.
<PAGE> 18
entire agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof.
7.8 DISPUTE RESOLUTION. The parties acknowledge and agree that this
Agreement and any dispute hereunder shall be subject to and governed by the
dispute resolution provisions set forth in Article 10 of the Separation and
Distribution Agreement.
7.9 GOVERNING LAW. To the extent not preempted by applicable federal
law, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of California, irrespective of the choice
of laws principles of the State of California, as to all matters, including
matters of validity, construction, effect, enforceability, performance and
remedies.
14.
<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Employee Benefits
Agreement to be duly executed as of the day and year first above written.
QUALCOMM INCORPORATED:
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
LEAP WIRELESS INTERNATIONAL, INC.:
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
15.
<PAGE> 1
Exhibit 10.6
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT ("Agreement"), dated as of ___, 1998,
is by and between QUALCOMM INCORPORATED ("QUALCOMM") and LEAP WIRELESS
INTERNATIONAL, INC. ("Leap"). Certain capitalized terms used herein and not
otherwise defined shall have the respective meanings assigned to them in
Article 1 hereof or as assigned to them in the Separation and Distribution
Agreement between the parties dated as of the date hereof (the "Separation
Agreement").
WHEREAS, QUALCOMM and Leap have entered into the Separation Agreement,
and the Credit Facility, the Equipment Agreement, the Employee Benefits
Agreement, the Interim Services Agreement and the Tax Agreement (including this
Agreement, the "Ancillary Agreements"), which Ancillary Agreements will govern
certain matters relating to the Separation, the Distribution and the
relationship of QUALCOMM and Leap and their respective Subsidiaries following
the Distribution;
WHEREAS, pursuant to Section 2.8 of the Separation Agreement, Leap has
agreed to issue shares of Leap Common Stock constituting the Leap Reserve Shares
as may be or become issuable as a result of the Distribution, including the
issuance of shares of Leap Common Stock to the holders of the Convertible
Preferred Securities or Debentures, as appropriate, promptly following the
conversion thereof;
WHEREAS, concurrently herewith, QUALCOMM and Leap have entered into the
Employee Benefits Agreement pursuant to which, among other things, Leap has
agreed to issue shares of Leap Common Stock and options with respect to certain
QUALCOMM options and option exercises, all as more fully set forth therein;
WHEREAS, QUALCOMM and Leap desire to enter into this Agreement to
provide for the issuance of shares of Leap Common Stock to holders of
Convertible Preferred Securities or Debentures, as appropriate pursuant to the
terms set forth herein, and under the circumstances described herein; and
WHEREAS, Leap acknowledges that QUALCOMM is transferring certain assets
to Leap in connection with the Separation, and QUALCOMM is proceeding with the
Distribution, in consideration of and reliance upon, among other things, Leap's
agreement to perform the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the parties, intending
to be legally bound, agree as follows:
<PAGE> 2
ARTICLE 1
DEFINITIONS
For purposes of this Agreement the following terms shall have the
following meanings:
1.1 ADDITIONAL PAYMENTS shall have the meaning assigned thereto in the
Indenture.
1.2 CONVERSION AGENT shall have the meaning assigned thereto in the
Indenture.
1.3 CONVERSION DATE shall have the meaning assigned thereto in the
Indenture.
1.4 CONVERTIBLE PREFERRED SECURITIES shall have the meaning assigned
thereto in the Indenture.
1.5 DEBENTURES shall have the meaning assigned thereto in the Indenture.
1.6 DISTRIBUTION DATE means the date of the Distribution.
1.7 HOLDER shall have the meaning assigned thereto in the Indenture.
1.8 INDENTURE means that certain Indenture dated as of February 25, 1997
by QUALCOMM, as Issuer, to Wilmington Trust Company, as Trustee, relating to the
Debentures.
1.9 MATURITY shall have the meaning assigned thereto in the Indenture.
1.10 NOTICE OF CONVERSION shall have the meaning assigned thereto in the
Indenture.
1.11 PERSON means any individual or legal entity.
1.12 SECURITIES ACT shall mean the Securities Act of 1933: as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.13 TRUST means the QUALCOMM Financial Trust I, a Delaware statutory
business trust.
ARTICLE 2
CONVERSION OF CONVERTIBLE PREFERRED SECURITIES
2.1 CONVERTIBLE PREFERRED SECURITIES. Leap agrees that, effective as of
the Distribution Date, subject to and upon compliance with the provisions of
Article XV of the Indenture, each Convertible Preferred Security or Debenture,
as appropriate, shall be convertible into fully paid and nonassessable shares of
both QUALCOMM Common Stock and Leap Common Stock at an initial conversion rate
of 0.6882 and 0.17205 shares respectively for each $50 in aggregate principal
amount of Debentures. Subject to the terms hereof, conversion of such securities
shall be governed by all provisions of Article XV of the Indenture, so that,
among
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other things, (i) Leap shall have the obligations of "the Company" described
therein with respect to such Leap Common Stock so long as Leap may be required
to issue any shares of Leap Common Stock in accordance with this Agreement; and
(ii) the conversion rate set forth above pursuant to which securities are
convertible into shares of Leap Common Stock shall be subject to adjustment in
the event of certain events with respect to Leap Common Stock or certain actions
of Leap, all as more fully described in Article XV of the Indenture with respect
to the Company.
2.2 RESERVATION OF SHARES. Leap agrees that as of and following the
Distribution Date, Leap will at all times have reserved and keep available,
solely for issuance and delivery upon the conversion of Convertible Preferred
Securities and/or Debentures, as appropriate, all Leap Common Stock issuable
from time to time upon conversion of such securities.
2.3 REGISTRATION OF SHARES. Promptly following the Distribution, Leap
shall effect registration, on form S-3, S-4 or any other appropriate form(s)
agreed to by QUALCOMM, of the Leap Common Stock into which the Convertible
Preferred Securities and/or Debentures, as appropriate, are convertible, and/or
registration of the issuance and/or resale thereof, necessary to permit or
facilitate the issuance and resale of all such securities in compliance with all
applicable Federal and state securities laws. In the alternative, as permitted
by QUALCOMM, Leap may furnish QUALCOMM an opinion of reputable outside counsel
reasonably satisfactory to QUALCOMM, to the effect that such shares of Leap
Common Stock into which such securities are convertible, and the issuance and
resale thereof, are exempt from registration under the Securities Act and other
applicable Federal and state securities laws.
2.4 CONVERSION OF SHARES. Promptly following written notice by QUALCOMM
to Leap that a Notice of Conversion has been delivered in accordance with
Section 15.2 of the Indenture, Leap shall issue and deliver at the office of the
Conversion Agent, unless otherwise directed by the Holder in the Notice of
Conversion, a certificate or certificates for the number of full shares of Leap
Common Stock issuable upon such conversion, together with the cash payment, if
any, in lieu of any fraction of any share to the Person or Persons entitled to
receive the same. The Conversion Agent shall thereupon be instructed to deliver
such certificate or certificates to such Person or Persons. The Person or
Persons entitled to receive the Leap Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such Leap
Common Stock as of the Conversion Date.
2.5 SATISFACTION OF QUALCOMM PRINCIPAL REPAYMENT; NO CONSIDERATION TO
LEAP. QUALCOMM's and Leap's delivery, upon conversion of any Convertible
Preferred Securities, of the number of shares of QUALCOMM Common Stock and Leap
Common Stock into which the Debentures are convertible (together with the cash
payments, if any, in lieu of fractional shares) pursuant to the Indenture and
this Agreement, shall be deemed to satisfy QUALCOMM's obligation to pay the
principal amount at Maturity of the portion of Debentures so converted [and any
unpaid interest (including Additional Payments) accrued on such Debentures at
the time of such conversion]. Leap shall receive no consideration for the
issuance of Leap Common Stock upon conversion of such securities.
2.6 AGENCY. In effecting the conversion transactions described in this
Section 2 and in Section 15.2 of the Indenture, the Conversion Agent is acting
as agent of the holders of the
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Convertible Preferred Securities (in the exchange of Convertible Preferred
Securities for Debentures) and as agent of the Holders of Debentures (in the
conversion of Debentures into Common Stock), as the case may be. Leap
acknowledges and agrees the Conversion Agent is authorized (i) to exchange
Debentures held by the Trust from time to time for Convertible Preferred
Securities in connection with the conversion of such Convertible Preferred
Securities in accordance with this Section 2 and Article XV of the Indenture and
(ii) to convert all or a portion of the Debentures into QUALCOMM Common Stock
and/or Leap Common Stock as appropriate and thereupon to deliver such shares of
QUALCOMM Common Stock and/or Leap Common Stock in accordance with this Section 2
and Article XV of the Indenture and to deliver to the Trust a new Debenture or
Debentures for any resulting unconverted principal amount.
ARTICLE 3
MISCELLANEOUS
3.1 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does not
occur, then all actions and events that are, under this Agreement, to be taken
or occur effective as of or in connection with the Distribution shall not be
taken or occur except to the extent specifically agreed by Leap and QUALCOMM.
3.2 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, it being
understood and agreed that no provision contained herein, and no act of the
parties, shall be deemed to create any relationship between the parties other
than the relationship set forth herein.
3.3 AFFILIATES. Each of QUALCOMM and Leap shall cause to be performed,
and hereby guarantees the performance of, all actions, agreements and
obligations set forth in this Agreement to be performed by a QUALCOMM Entity or
a Leap Entity, respectively.
3.4 NO THIRD PARTY BENEFICIARIES. It is understood and agreed between
the parties that this Agreement and the covenants that are made herein are made
expressly and solely for the benefit of the parties hereto, and no other Person
shall be entitled or be deemed to be entitled to any benefits or rights
hereunder nor be authorized or entitled to enforce any rights, claims or
remedies hereunder.
3.5 MODIFICATION AND AMENDMENT; ENTIRE AGREEMENT. This Agreement may be
modified, amended or terminated by the parties pursuant hereto at any time only
in a writing signed by the parties. This Agreement sets forth the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect to the subject matter hereof.
3.6 DISPUTE RESOLUTION. The parties acknowledge and agree that this
Agreement and any dispute hereunder shall be subject to and governed by the
dispute resolution provisions set forth in Article 10 of the Separation and
Distribution Agreement.
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3.7 GOVERNING LAW. This Agreement shall be governed by, construed and
interpreted in accordance with the laws of the State of California, irrespective
of the choice of laws principles of the State of California, as to all matters,
including matters of validity, construction, effect, performance and remedies.
IN WITNESS WHEREOF, the parties have caused this Conversion Agreement to
be duly executed as of the day and year first above written.
QUALCOMM INCORPORATED:
By:____________________________________
Name:__________________________________
Title:_________________________________
LEAP WIRELESS INTERNATIONAL, INC.:
By:____________________________________
Name:__________________________________
Title:_________________________________
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EXHIBIT 10.7
LEAP WIRELESS INTERNATIONAL, INC.
1998 STOCK OPTION PLAN
ADOPTED _______________, 1998
APPROVED BY STOCKHOLDERS _______________, 199___
TERMINATION DATE: _______________, 2008
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Employees, Directors and Consultants of the Company and its Affiliates.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which eligible recipients of Options may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of the following
Options: (i) Incentive Stock Options, and (ii) Non-qualified Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Options, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any person that is a "parent" or "subsidiary" of
the Company, as those terms are defined under Rule 405 of Regulation C
promulgated under the Securities Act, or in the case of a Distribution Option,
as defined in the QUALCOMM STOCK PLANS.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means LEAP WIRELESS INTERNATIONAL, INC., a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services. However, the term "Consultant" shall not include
Directors of the Company who either are not compensated by the Company for their
services as Directors or who are merely paid a fee by the Company for their
services as Directors.
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(h) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
terminated. The Optionholder's Continuous Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionholder
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Optionholder renders such
service, provided that there is no termination of the Optionholder's Continuous
Service. For example, an Optionholder's change in status from an Employee to a
Consultant or a Director with no intervening period of time during which the
Optionholder is not an Employee, Director or Consultant will not constitute a
termination of Continuous Service.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) DISTRIBUTION OPTION" means an Option granted as a supplement to a
QUALCOMM Option, pursuant to the Employee Benefits Agreement. In addition to the
Plan, the Option Agreement of a Distribution Option will also provide that it is
subject to the terms and conditions of the Employee Benefits Agreement, the
QUALCOMM Option that causes the grant of the specific Distribution Option
pursuant to the Employee Benefits Agreement, and the QUALCOMM STOCK PLANS as
those plans govern the terms of the QUALCOMM Option.
(m) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(n) "EMPLOYEE BENEFITS AGREEMENT" means the Employee Benefits Agreement
entered into between QUALCOMM Incorporated and the Company, dated ___________,
1998, as in effect from time to time.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(p) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
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of determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(q) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(r) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(s) "NON-QUALIFIED STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(t) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "OPTION" means an Incentive Stock Option or a Non-qualified Stock
Option granted pursuant to the Plan.
(v) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(w) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(x) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
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(y) "PLAN" means this LEAP WIRELESS INTERNATIONAL, INC. 1998 Stock
Option Plan.
(z) "QUALCOMM OPTION" means a stock option granted pursuant to one of
the QUALCOMM STOCK PLANS.
(aa) "QUALCOMM STOCK PLANS" means the QUALCOMM Incorporated 1991 Stock
Option Plan, and the QUALCOMM Incorporated Non-Employee Directors' Plan, as such
plans are in effect from time to time.
(bb) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any Affiliate.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; what type or combination of types of Option shall be granted; the
provisions of each Option granted (which need not be identical), including the
time or times when a person shall be permitted to receive stock pursuant to an
Option; and the number of shares with respect to which an Option shall be
granted to each such person.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE. The Board may delegate administration of
the Plan to a committee composed of not fewer than two (2) members (the
"Committee"), all of the
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members of which Committee shall be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee), subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Notwithstanding
anything in this Section 3 to the contrary, the Board or the Committee may
delegate to a committee of one or more members of the Board the authority to
grant Options to eligible persons who (1) are not then subject to Section 16 of
the Exchange Act and/or (2) are either (i) not then Covered Employees and are
not expected to be Covered Employees at the time of recognition of income
resulting from such Option, or (ii) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code.
(d) The chief executive officer of the Company, in that party's sole
discretion, may determine whether Continuous Service shall be considered
terminated in the case of any leave of absence approved by that party, including
sick leave, military leave or any other personal leave. The term of each Option
may be extended at the discretion of the chief executive officer (but not beyond
ten (10) years from the date of original grant) for the period of any such
approved leave of absence.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate Eight Million (8,000,000) shares of
Common Stock. Five Million Four Hundred Eighty-One Thousand Three Hundred
Seventy-Seven (5,481,377) shares shall be available for the grant of Options
other than Distribution Options. Two Million Five Hundred Eighteen Thousand Six
Hundred Twenty-Three (2,518,623) shares shall be available for the grant of
Distribution Options. The total number of shares of Common Stock reserved under
this Plan and the total number of shares issuable under Distribution Options
shall be reduced by the number of shares of Common Stock issued pursuant to the
exercise of QUALCOMM Options between the record date and the distribution date
as provided in the Employee Benefits Agreement.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option (other than
a Distribution Option) shall for any reason expire or otherwise terminate, in
whole or in part, without having been exercised in full, the shares not acquired
under such Option shall revert to and again become available for issuance under
the Plan. Shares of Common Stock that are subject to a Distribution Option that
has terminated (or for which such Distribution Option is no longer exercisable),
or that are repurchased by the Company for any reason under an unvested share
repurchase option provided under the Plan shall not revert to and again become
available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
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5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC OPTIONS. Incentive Stock Options may be
granted only to employees of the Company, or its parent or subsidiary
corporation within the meaning of Section 422(b) of the Code, or any successor
provision. Non-qualified Stock Options may be granted to Employees, Directors
and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and such Option is not exercisable
after the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no Employee shall be eligible to
be granted in any calendar year Options covering more than One Hundred Thousand
(100,000) shares.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Non-qualified Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions (the substance of the following provisions are
deemed modified to the extent necessary for the grant of Distribution Options
pursuant to the Employee Benefits Agreement and consistent with the terms of the
Employee Benefits Agreement, the QUALCOMM Option and the QUALCOMM STOCK PLANS):
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted (five (5) years in the case of an
Incentive Stock Option granted to a Ten Percent Stockholder).
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NON-QUALIFIED STOCK OPTION. The exercise price
of each Non-qualified Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market
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Value of the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Non-qualified Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Non-qualified Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or in any other
form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NON-QUALIFIED STOCK OPTION. A Non-qualified
Stock Option shall be transferable to the extent provided in its Option
Agreement. If such Option Agreement does not provide for transferability, then
the Non-qualified Stock Option shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing provisions of this subsection 6(f), the Optionholder may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
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(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than due to the Optionholder's death or
Disability), the Optionholder may exercise his or her Option, but only within
such period of time as is determined by the Board, and only to the extent that
the Optionholder was entitled to exercise it at the date of termination. In no
event shall an Option be exercisable after the expiration of the term of such
Option as set forth in the Option Agreement. In the case of an Incentive Stock
Option, the Board shall determine such period of time (not to exceed ninety (90)
days from the date of termination) when the Option is granted. If at the date of
termination, the Optionholder is not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of such Option shall
revert to and again become available for issuance pursuant to Options granted
under the Plan to the extent provided under Section 4. If after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, such Option shall terminate, and the shares covered by
such Option, shall revert to and again become available for issuance pursuant to
Options granted under the Plan to the extent provided under Section 4.
(i) DISABILITY. In the event an Optionholder's Continuous Service
terminates as a result of the Optionholder's Disability, the Optionholder may
exercise his or her Option (to the extent that the Optionholder was entitled to
exercise it as of the date of termination), but only within such period of time
ending on the earlier of (A) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option Agreement)
or (B) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionholder is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of such Option shall revert to and again become available for issuance
pursuant to Options granted under the Plan to the extent provided under Section
4. If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, such Option shall terminate,
and the shares covered by such Option shall revert to and again become available
for issuance pursuant to Options granted under the Plan to the extent provided
under Section 4.
(ii) DEATH. In the event an Optionholder's Continuous Service
terminates as a result of Optionholder's death or due to the Optionholder's
Disability and such termination due to Disability is followed by the
Optionholder's death, then: (A) the vesting of all unvested shares may be
accelerated as of the date of the death of the Optionholder, if so provided in
the Option Agreement, or (B) if the Option Agreement does not provide for the
acceleration of the vesting of all unvested shares, then the Option may be
exercised, at any time within twelve (12) months following the date of death (or
such shorter period specified in the Option Agreement) (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement), by the Optionholder's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent the
Optionholder was entitled to exercise the Option at the date of death. If the
Option Agreement does not provide for the acceleration of the vesting of all
unvested shares and, at the time of death, the Optionholder was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of such Option shall revert to and again become available for issuance
pursuant to Options granted under the Plan to the extent provided under Section
4. If, after death, the Optionholder's estate or a person who acquired the right
to exercise the Option by bequest or inheritance does not exercise the Option
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within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
pursuant to Options granted under the Plan to the extent provided under
Section 4
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates (or as may be provided in the Option Agreement of
a Distribution Option) to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
7. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Option stating the time at which it
may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Option granted pursuant thereto shall confer upon any
Optionholder or other holder
9
<PAGE> 10
of Options any right to continue to serve the Company or an Affiliate in the
capacity in effect at the time the Option was granted or shall affect the right
of the Company or an Affiliate to terminate (i) the employment of an Employee
with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Non-qualified Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Option Agreement, the Optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionholder as a result of the exercise or acquisition of stock
under the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
10
<PAGE> 11
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding Options. Such adjustments
shall be made by the Board, the determination of which shall be final, binding
and conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) CHANGE IN CONTROL.
(i) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise then to the extent permitted by applicable law: (A) any surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options for those outstanding under the Plan, or (B) such
Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute similar
options for those outstanding under the Plan, then, with respect to Options,
other than Distribution Options, held by Optionholders then performing services
as Employees, Directors or Consultants the time at which such Options may first
be exercised shall be accelerated and the Options terminated if not exercised
prior to such event, and with respect to Distribution Options the effect shall
be as provided in the Option Agreement. In the event of a dissolution or
liquidation of the Company, any Options outstanding under the Plan shall
terminate if not exercised prior to such event.
(ii) In addition, with respect to any person who was providing
Continuous Service immediately prior to the consummation of the Change in
Control, any Options held by such person shall immediately become fully vested
and exercisable (and any repurchase right by the Company with respect to shares
acquired by such person under an Option shall lapse) if such person is
Involuntarily Terminated Without Cause or Constructively Terminated within
twenty-four (24) months following the Change in Control. Notwithstanding the
preceding sentence, in the event all of the following occurs: (A) such
contemplated Change in Control would occur prior to the second anniversary of
the adoption of this Plan by the Board; (B) such potential acceleration of
vesting (and exercisability) would by itself result in a contemplated Change in
Control that would otherwise be eligible to be accounted for as a "pooling of
interests" accounting transaction to become ineligible for such accounting
treatment; and (C) the potential
11
<PAGE> 12
acquiror of the Company desires to account for such contemplated Change in
Control as a "pooling of interests" transaction, then such acceleration shall
not occur. Additionally, in the event that the restrictions upon acceleration
provided for in the immediately preceding sentence by itself would result in a
contemplated Change in Control to become ineligible to be accounted for as a
"pooling of interests" accounting transaction, then such restrictions shall be
deemed inoperative. Accounting issues shall be determined by the Company's
independent public accountants applying generally accepted accounting
principles.
(iii) "CONSTRUCTIVELY TERMINATED" shall mean the voluntary termination
of employment by Optionholder after any of the following are undertaken without
Optionholder's express written consent: (A) the assignment to Optionholder of
any duties or responsibilities which result in a material diminution or adverse
change of Optionholder's position, status or circumstances of employment, but
does not include a mere change in title or reporting relationship; (B) reduction
by the Company in Optionholder's base salary; (C) any failure by the Company to
continue in effect any benefit plan or arrangement, including incentive plans or
plans to receive securities of the Company, in which Optionholder is
participating (hereinafter referred to as "BENEFIT PLANS"), or the taking of any
action by the Company which would adversely affect Optionholder's participation
in or reduce Optionholder's benefits under any Benefit Plans or deprive
Optionholder of any fringe benefit then enjoyed by Optionholder, provided,
however, that Optionholder's termination is not deemed to be Constructively
Terminated if the Company offers a range of benefit plans and programs which,
taken as a whole, are comparable to the Benefit Plans; (D) a relocation of
Optionholder or the Company's principal business offices to a location more than
fifty (50) miles from the location at which Optionholder performs duties, except
for required travel by Optionholder on the Company's business to an extent
substantially consistent with Optionholder's business travel obligations; (E)
any breach by the Company of any material agreement between Optionholder and the
Company concerning Optionholder's employment; or (F) any failure by the Company
to obtain the assumption of any material agreement between Optionholder and the
Company concerning Optionholder's employment by any successor or assign of the
Company.
(iv) "INVOLUNTARILY TERMINATED WITHOUT CAUSE" shall mean dismissal or
discharge of Optionholder for any reason other than Cause, death or Disability.
(v) "CAUSE" shall mean any of the following: (A) an intentional act
which materially injures the Company; (B) an intentional refusal or failure to
follow lawful and reasonable directions of the Board or an individual to whom
Optionholder reports (as appropriate); (C) a willful and habitual neglect of
duties; or (D) a conviction of a felony involving moral turpitude which is
reasonably likely to inflict or has inflicted material injury on the Company.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless timely
approved by the stockholders of the
12
<PAGE> 13
Company to the extent stockholder approval is necessary to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(e) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Option
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Optionholder.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Option shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
13
<PAGE> 1
EXHIBIT 10.8
LEAP WIRELESS INTERNATIONAL, INC.
STOCK OPTION GRANT NOTICE
LEAP WIRELESS INTERNATIONAL, INC. (the "Company"), pursuant to its 1998 Stock
Option Plan (the "Plan") hereby grants to the Optionee named below a
non-qualified stock option to purchase the number of shares of the Company's
common stock set forth below. As designated below, this stock option either is
or is not intended to qualify for the federal income tax benefits available to
an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. This option is subject to all of the terms and
conditions as set forth herein and in Attachment I and the Plan which are
incorporated herein in their entirety.
Optionee/Emp #: firstname name #employeeid Grant No.: grantnumber
Date of Grant: grantdate Shares Subject to Option: shares
Exercise Price Per Share: $optionprice Expiration Date: expirationdateperiod1
TYPE OF OPTION: [ ] Incentive Stock Option [ ] Nonstatutory Stock Option
VESTING SCHEDULE
<TABLE>
<CAPTION>
Exercisable Shares Vesting Date Expiration Date
------------------- ------------ ---------------
<S> <C> <C>
sharesperiod1 (20%) vestdateperiod1 expirationdateperiod1
sharesperiod2 (20%) vestdateperiod2 expirationdateperiod2
sharesperiod3 (20%) vestdateperiod3 expirationdateperiod3
sharesperiod4 (20%) vestdateperiod4 expirationdateperiod4
sharesperiod5 (20%) vestdateperiod5 expirationdateperiod5
</TABLE>
ADDITIONAL TERMS/ACKNOWLEDGMENTS: The undersigned Optionee acknowledges receipt
of, and understands and agrees to the terms of the following: this Grant Notice,
the Stock Option Agreement and the Plan. Optionee further acknowledges that as
of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan
set forth the entire understanding between Optionee and the Company regarding
the acquisition of stock in the Company and supersedes all prior oral and
written agreements pertaining to this particular option.
LEAP WIRELESS INTERNATIONAL, INC. OPTIONEE:
By:____________________________________ ___________________________________
Harvey P. White Signature
President
Dated: grantdate Date:
<PAGE> 2
Attachment I: Stock Option Agreement
<PAGE> 3
LEAP WIRELESS INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice. Defined terms not explicitly defined in
this Stock Option Agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of this option are as follows:
1. VESTING. Subject to the limitations contained herein, this option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Service.
2. METHOD OF PAYMENT. Payment of the exercise price by cash (or check) is
due upon exercise of all or any part of this option which has become exercisable
by you. Notwithstanding the foregoing, this option may be exercised pursuant to
a program developed under Regulation T as promulgated by the Federal Reserve
Board which, prior to the issuance of Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company. Payment of the
exercise price may also be made by a combination of the above methods.
3. EXERCISE FOR MINIMUM NUMBER OF SHARES. The minimum number of shares with
respect to which this option may be exercised at any one time is one hundred
(100), except (a) as to an installment subject to exercise, as set forth in
paragraph 1, which amounts to fewer than one hundred (100) shares, in which
case, as to the exercise of that installment, the number of such shares in such
installment shall be the minimum number of shares, and (b) with respect to the
final exercise of this option, this minimum shall not apply. This option may
only be exercised for whole shares.
4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
5. TERM.
(a) The term of this option commences on the Date of Grant (as
specified in the Grant Notice) and expires upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
<PAGE> 4
(ii) the tenth (10th) anniversary of the Date of Grant; or
(iii) thirty (30) days after the termination of your
Continuous Service for any reason other than Disability or death, provided that
if during any part of such thirty (30) day period the option is not exercisable
solely because of the condition set forth in paragraph 4 (Securities Law
Compliance), in which event the option shall not expire until the earlier of the
Expiration Date or until it shall have been exercisable for an aggregate period
of thirty (30) days after the termination of Continuous Service.
(b) Notwithstanding the foregoing:
(i) If your Continuous Service terminates due to your
Disability, then this option will continue under its original terms and expire
upon the Expiration Date indicated in the Grant Notice.
(ii) If your Continuous Service terminates due to (x) your
death, or (y) your Disability and you subsequently die prior to the Expiration
Date, then this option shall immediately become fully vested and exercisable for
all of the option shares as of the date of your death. This option will then
expire on the earlier occurring of either the Expiration Date or twelve (12)
months after the date of your death.
(c) If this option is designated an incentive stock option, then
to obtain the federal income tax advantages associated with an "incentive stock
option," the Code requires that at all times beginning on the Date of Grant and
ending on the day three (3) months before the date of exercise, you must be an
employee of the Company or a "parent corporation" or a "subsidiary corporation"
(as those terms are defined in Section 424 of the Code), except in the event of
your death or your Disability. The Company has provided for extended
exercisability of this option under certain circumstances for your benefit, but
does not represent or guarantee that this option will necessarily be treated as
an "incentive stock option."
6. EXERCISE.
(a) You may exercise the vested portion of this option during its
term by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to subparagraph 7(b) of the Plan.
(b) By exercising this option you agree that as a condition to any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise.
<PAGE> 5
(c) If this option is an incentive stock option, then by
exercising this option you agree to notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years after
the Date of Grant or within one (1) year after such shares of Common Stock are
transferred upon exercise of this option.
7. TRANSFERABILITY. This option is not transferable, except by will or by
the laws of descent and distribution or pursuant to a domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Securities
Act of 1974, as amended (a "DRO"), or the rules thereunder, and is exercisable
during your life only by you or any transferee pursuant to a DRO.
8. OPTION NOT A SERVICE CONTRACT. This option is not an employment or
service contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the service of the Company
or an Affiliate, or of the Company or an Affiliate to continue your service with
the Company or the Affiliate. In addition, nothing in this option shall obligate
the Company or any Affiliates, their stockholders, Board of Directors, Officers
or Employees to continue any relationship as a Director or Consultant for the
Company or any Affiliate.
9. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
10. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, the provisions of which are hereby made a part of this option, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control.
<PAGE> 1
EXHIBIT 10.9
LEAP WIRELESS INTERNATIONAL, INC.
DISTRIBUTION STOCK OPTION GRANT NOTICE
LEAP WIRELESS INTERNATIONAL, INC. (the "Company"), pursuant to its 1998 Stock
Option Plan (the "Plan") hereby grants to the Optionholder named below a
non-qualified stock option to purchase the number of shares of the Company's
common stock set forth below. This option is subject to all of the terms and
conditions set forth herein and in Attachment I, the Plan, and that certain
option agreement, as amended from time to time, for the option numbered
____________, and granted under the QUALCOMM Incorporated 1991 Stock Option Plan
or the QUALCOMM Incorporated Non-Employee Directors' Stock Option Plan (the
"QUALCOMM Option") which this option supplements pursuant to that certain
Employee Benefits Agreement dated ________ between the Company and QUALCOMM
Incorporated, which Attachment I, Plan, and QUALCOMM Option are incorporated
herein in their entirety. This option is a "Distribution Option" (as defined in
the Plan).
Optionholder/Emp #:<<firstname>><<name>>#<<employeeid>>Grant No.:<<grantnumber>>
Date of Grant: <<grantdate>> Shares Subject to Option: <<shares>>
Exercise Price Per Share: $<<optionprice>>
Expiration Date: Coincident with that of the QUALCOMM Option
VESTING SCHEDULE
On the date of grant, this option is vested (i.e., exercisable) for
____________ shares, provided however, that such vesting shall not occur, if
continuation of vesting under the QUALCOMM Option is being tolled, until the
tolling of such vesting has ceased. Thereafter, on the vesting dates of the
QUALCOMM Option this option shall become vested in an additional number of
shares equal to _________ of the number of shares that vest under the QUALCOMM
Option on such dates. Notwithstanding the foregoing, this option is not
exercisable prior to its exercise price and number of shares being finally
determined by the Company.
ADDITIONAL TERMS/ACKNOWLEDGMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to the terms of the following: this Grant
Notice, the Stock Option Agreement, the Plan, and also the QUALCOMM Option to
the extent its provisions establish those of this option. Optionholder further
acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option
Agreement, the Plan, the stock option plan under which the QUALCOMM Option was
granted, the Employee Benefits Agreement, and the provisions of the QUALCOMM
Option as incorporated into this option, set forth the entire understanding
between Optionholder and the Company regarding the acquisition of stock in the
Company and supersede all prior oral and written agreements pertaining to this
particular option.
<PAGE> 2
LEAP WIRELESS INTERNATIONAL, INC. OPTIONHOLDER:
By:
----------------------------------- ------------------------------------
Harvey P. White Signature
President
Dated: <<grantdate>> Date:_______________________________
Attachment I: Stock Option Agreement
<PAGE> 3
ATTACHMENT I
LEAP WIRELESS INTERNATIONAL, INC.
DISTRIBUTION STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, the Company
has granted you an option to purchase the number of shares of the Company's
common stock ("Common Stock") indicated in the Grant Notice at the exercise
price indicated in the Grant Notice. Defined terms not explicitly defined in
this Stock Option Agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of this option are as follows:
1. VESTING. Subject to the limitations contained herein, this option will
vest as provided in the Grant Notice, provided that vesting will cease upon the
termination of vesting under the QUALCOMM Option.
2. METHOD OF PAYMENT. Payment of the exercise price by cash, check, or any
other method expressly provided for under the QUALCOMM Option, is due upon
exercise of all or any part of this option that has become exercisable by you.
Notwithstanding the foregoing, this option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
which, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company. Payment of the exercise price may
also be made by a combination of the above methods.
3. EXERCISE FOR MINIMUM NUMBER OF SHARES. The minimum number of shares with
respect to which this option may be exercised at any one time is twenty-five
(25), except (a) as to an installment subject to exercise, as set forth in
paragraph 1, which amounts to fewer than twenty-five (25) shares, in which case,
as to the exercise of that installment, the number of such shares in such
installment shall be the minimum number of shares, and (b) with respect to the
final exercise of this option, this minimum shall not apply. This option may
only be exercised for whole shares.
4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
5. TERM. The term of this option commences on the Date of Grant (as
specified in the Grant Notice) and expires upon the earliest of:
(a) the Expiration Date indicated in the Grant Notice;
<PAGE> 4
(b) the tenth (10th) anniversary of the Date of Grant; or
(c) the termination of the QUALCOMM Option, provided that if
during any post-termination exercise period of the QUALCOMM Option, this option
is not exercisable solely because of the condition set forth in paragraph 4
(Securities Law Compliance), then this option shall not expire until the earlier
of the Expiration Date or until it shall have been exercisable for an aggregate
period equal to the post-termination exercise period of the QUALCOMM Option.
6. EXERCISE.
(a) You may exercise the vested portion of this option during its
term by delivering a notice of exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require pursuant
to subsection 7(b) of the Plan.
(b) By exercising this option you agree that as a condition to any
exercise of this option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise.
7. TRANSFERABILITY. This option is not transferable, except by will or by
the laws of descent and distribution or pursuant to a domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Securities
Act of 1974, as amended (a "DRO"), or the rules thereunder, and is exercisable
during your life only by you or any transferee pursuant to a DRO.
8. OPTION NOT A SERVICE CONTRACT. This option is not an employment or
service contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the service of the Company
or any Affiliate of the Company, or of the Company or any Affiliate of the
Company to continue your service. In addition, nothing in this option shall
obligate the Company, its Affiliates, or their stockholders, Board of Directors,
Officers or Employees to continue any relationship that you might have as a
Director or Consultant for the Company or any Affiliate of the Company.
9. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
<PAGE> 5
10. GOVERNING DOCUMENTS. This option is subject to all the provisions of
the Plan, the provisions of which are hereby made a part of this option, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of this option and those of the
Plan, the provisions of the Plan shall control, to the extent not inconsistent
with the terms of the QUALCOMM Option and the Employee Benefits Agreement, which
also control the provisions of this option and modify the provisions of the
Plan.
<PAGE> 1
EXHIBIT 10.10
LEAP WIRELESS INTERNATIONAL, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED _______________, 1998
APPROVED BY STOCKHOLDERS _______________, 199___
EFFECTIVE DATE: [DISTRIBUTION DATE], 199___
TERMINATION DATE: [_______________, 2013]
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The only persons eligible to receive
Options are Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL OPTION" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 5(b) of the
Plan.
(c) "ANNUAL MEETING" means the Annual Meeting of Stockholders of the
Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c).
(g) "COMMON STOCK" means the common stock of the Company.
(h) "COMPANY" means LEAP WIRELESS INTERNATIONAL, INC., a Delaware
corporation.
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(i) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(j) "CONTINUOUS SERVICE" means that the Optionholder's service to the
Company or an Affiliate of the Company, whether in the capacity of a Director or
subsequently as an Employee or a Consultant, is not interrupted or terminated.
The Optionholder's Continuous Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionholder renders
such service to the Company or an Affiliate of the Company or a change in the
entity for which the Optionholder renders such service, provided that there is
no interruption or termination of the Optionholder's service. The Board or its
designee, in that party's sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board or its designee, including sick leave, military leave, or
any other personal leave; or (ii) transfers between locations of the Company or
between the Company, Affiliates or their successors.
(k) "DIRECTOR" means a member of the Board of Directors of the Company.
(l) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(p) "INITIAL OPTION" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 5(a) of the Plan.
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(q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who is not
otherwise at the time of grant an Employee of the Company or an Affiliate.
(r) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan that is not intended to qualify as an Incentive Stock Option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.
(s) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(t) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(u) "PLAN" means this Leap Wireless International, Inc. 1998
Non-Employee Directors' Stock Option Plan.
(v) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(w) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE. The Board may delegate administration of
the Plan to a Committee or Committees of one or more members of the Board, and
the term "Committee"
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shall apply to any person or persons to whom such authority has been delegated.
If administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, including the power to delegate to a subcommittee any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or subcommittee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate Five Hundred Thousand (500,000) shares
of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert to
and again become available for issuance under the Plan. However, if any Common
Stock acquired pursuant to the exercise of an, Option shall for any reason be
reacquired by the Company, the reacquired stock (having already been issued)
shall not revert to and again become available for reissuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. NONDISCRETIONARY OPTIONS.
Non-Employee Directors automatically shall receive the following Options
without any further action by the Board:
(a) INITIAL OPTIONS. Each person who is, on the Effective Date or any
subsequent date thereto, elected or appointed for the first time to be a
Non-Employee Director shall automatically, upon such date of initial election or
appointment, be granted an Initial Option to purchase Twenty Thousand (20,000)
shares of Common Stock of the Company on the terms and conditions set forth
herein.
(b) ANNUAL OPTIONS. Each year, commencing with the annual meeting of
stockholders of the Company (the "Annual Meeting") occurring after the Effective
Date, each person who is then serving as a Non-Employee Director, other than a
Non-Employee Director who is granted an Initial Option at such Annual Meeting,
shall automatically be granted an Annual Option to purchase Ten Thousand
(10,000) shares of Common Stock of the Company on the terms and conditions set
forth herein.
6. OPTION PROVISIONS.
Each Option shall be subject to the following terms and conditions:
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(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, (i) in cash at the time the Option is exercised, (ii) by delivery
to the Company of other Common Stock, (iii) according to a deferred payment or
other arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or (iv) in any
other form of legal consideration that may be acceptable to the Board and
provided in the Option Agreement; provided, however, that at any time that the
Company is incorporated in Delaware, payment of the Common Stock's "par value,"
as defined in the Delaware General Corporation Law, shall not be made by
deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall be transferable to the extent
provided in the Option Agreement. If the Option does not provide for
transferability, then the Option shall not be transferable except by will or by
the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(e) VESTING. The Options granted pursuant to Section 5 shall vest and
become exercisable as follows:
(i) Initial Options shall vest over a period of five (5) years
with twenty percent (20%) of the total number of such shares subject to such
Option ("Option Shares") vesting as follows: (A) if the Initial Option is
granted pursuant to the election of the Optionholder to the Board at an Annual
Meeting, then such Initial Option will vest on the anniversary of the date of
grant on each of the first, second, third, fourth and fifth years following the
date of the grant of such Initial Option; or (B) if the Initial Option is
granted pursuant to the election or appointment of the Optionholder to the Board
at some time other than at an Annual Meeting, then such Initial Option will vest
on the anniversary of the date of the grant of such Initial Option in each of
the first, second, third, fourth and fifth years following such grant; provided,
however, that if the Optionholder's Continuous Service is terminated due to
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(1) death, (2) a Voluntary Termination with Good Reason (as defined in
subsection 10(c)), or (3) an Involuntary Termination without Cause (as defined
in subsection 10(d)), then the vesting of such Initial Option and the time
during which such Initial Option may be exercised shall be accelerated upon the
occurrence of such event.
(ii) Annual Options shall vest over five (5) years, with twenty
percent (20%) of the Option Shares vesting on the anniversary of the date of
grant on each of the first, second, third, fourth and fifth years following the
date of the grant of such Annual Option; provided, however, that if the
Optionholder's Continuous Service is terminated due to (1) death, (2) a
Voluntary Termination with Good Reason, or (3) an Involuntary Termination
without Cause, then the vesting of such Annual Option and the time during which
such Annual Option may be exercised shall be accelerated upon the occurrence of
such event.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's retirement at
age seventy (70) or older after nine (9) or more years of service on the Board
or, the Optionholder's death or Disability), the Optionholder may exercise his
or her Option (to the extent that the Optionholder was entitled to exercise it
at the date of termination) but only within such period of time ending on the
earlier of (i) the date thirty (30) days after the termination of the
Optionholder's Continuous Service or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If after termination, the
Optionholder does not exercise the Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by the
Option shall revert to and again become available for issuance under the Plan.
(g) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's retirement at age seventy (70) or older after nine (9)
or more years of service on the Board or the Optionholder's death or Disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Securities Act, then the Option
shall terminate on the earlier of (i) the expiration of the term of the Option
or (ii) the expiration of a period of thirty (30) days after the termination of
the Optionholder's Continuous Service during which the exercise of the Option
would not be in violation of such registration requirements (if such provisions
would result in an extension of the time during which the Option may be
exercised beyond the period described in the first paragraph of this subsection
6(f)).
If the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's retirement
at age seventy (70) or older after nine (9) or more years of service on the
Board or the Optionholder's death or Disability) would be prohibited at any time
solely because such exercise would result in liability under Section 16(b) of
the Exchange Act, then the Option shall terminate on the earliest of (i) the
expiration of the term of the Option, (ii) the tenth (10th) day after the last
date upon which exercise would result in such liability, or (iii) six (6) months
and ten (10) days after the termination of the Optionholder's Continuous
Service.
(h) RETIREMENT OF OPTIONHOLDER. Notwithstanding anything in subsection
6(f) to the contrary, in the event of the retirement of an Optionholder at age
seventy (70) or older after nine
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(9) years of service on the Board, the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise it at the
date of termination) but only within such period of time ending no later than on
the date of expiration of the Option term under Section 6(a) of the Plan.
(i) DISABILITY OF OPTIONHOLDER. Notwithstanding anything in subsection
6(f) to the contrary, in the event an Optionholder's Continuous Service
terminates due to the Disability of the Optionholder, the Option will terminate
only upon the expiration of the Option term.
(j) DEATH OF OPTIONHOLDER. In the event that: (i) an Optionholder's
Continuous Service terminates due to the death of the Optionholder, or (ii) an
Optionholder's Continuous Service terminates due to the Disability of the
Optionholder and such termination is subsequently followed by the death of the
Optionholder prior to the expiration of the term of the Option, then the vesting
of all unvested shares owned by the Optionholder will be accelerated effective
as of the date of death of the Optionholder and the Option may be exercised by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance, or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(d), but only
within the period ending twelve (12) months after the death of the Optionholder.
If after the death of the Optionholder, the Option is not exercised within the
time specified herein, the Option shall terminate, and the shares covered by the
Option shall revert to and again become available for issuance under the Plan.
7. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority that counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
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9. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have no
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest in accordance with the
Plan.
(b) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(c) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the subsequent employment
of the Optionholder as an Employee with or without notice and with or without
cause, (ii) the subsequent service of the Optionholder as a Consultant pursuant
to the terms of such Consultant's agreement with the Company or an Affiliate or
(iii) the service of the Optionholder as a Director pursuant to the Bylaws of
the Company or an Affiliate, and any applicable provisions of the corporate law
of the state in which the Company or the Affiliate is incorporated, as the case
may be.
(d) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Option Agreement, the Optionholder may satisfy federal, state or local tax
withholding obligations (if any) relating to the exercise or acquisition of
stock under an Option by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Optionholder by
the Company) or by a combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares from the shares of the Common
Stock
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otherwise issuable to the Optionholder as a result of the exercise or
acquisition of stock under the Option; or (iii) delivering to the Company owned
and unencumbered shares of the Common Stock.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and subject to certain defined Options pursuant to
Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL. In the event of: (1) a dissolution or liquidation
of the Company, (2) the sale of all or substantially all of the Company's
assets, (3) a merger, consolidation or reorganization of the Company with or
into another corporation or other legal person, other than a merger,
consolidation or reorganization in which more than fifty percent (50%) of the
combined voting power of the then-outstanding securities of the surviving entity
(or if more than one entity survives the transaction, the controlling entity)
immediately after such a transaction are held in the aggregate by holders of
voting securities of the Company immediately prior to such transaction, (4) the
acquisition by any person (within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of securities representing fifty percent (50%) or more of the combined
voting power of the then-outstanding securities of the Company, or (5) during
any period of two (2) consecutive years, individuals who at the beginning of any
such period constitute the Directors of the Company (the "Incumbent Directors")
cease for any reason to constitute at least a majority thereof unless the
election or the nomination for election by the Company's stockholders of a
Director of the Company first elected during such period was approved by the
vote of at least two-thirds of the Incumbent Directors, whereupon such Director
shall also be classified as an Incumbent Director (collectively, a "Change in
Control"), then: (i) any surviving or acquiring corporation shall assume Options
outstanding under the Plan or shall substitute similar options (including an
option to acquire the same consideration paid to stockholders in the transaction
described in this subsection 10(b)) for those outstanding under the Plan and in
the event any surviving or acquiring corporation does assume such Options or
substitute similar options for those outstanding under the Plan, then upon the
Optionholder's Voluntary Termination with Good Reason (as described in
subsection 10(c)) or the Optionholder's Involuntary Termination without Cause
(as described in subsection 10(d)) the vesting of such Options and the time
during which such Options may be exercised shall be accelerated upon the
occurrence of such event or (ii) in
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the event any surviving or acquiring corporation refuses to assume such Options
or to substitute similar options for those outstanding under the Plan, then (A)
with respect to Options held by persons then performing services as Directors,
Employees or Consultants, the vesting of such Options and the time during which
such Options may be exercised shall be accelerated prior to such event and the
Options terminated if not exercised after such acceleration and at or prior to
such event, and (B) with respect to any other Options outstanding under the
Plan, such Options shall be terminated if not exercised prior to such event.
(c) The term "VOLUNTARY TERMINATION WITH GOOD REASON" means the
Optionholder's resignation, with Good Reason (as defined below), as a Director,
within one (1) month prior to the Change in Control or within thirteen (13)
months following a Change in Control. "GOOD REASON" means any of the following
to the extent applicable to the Optionholder's position as a Director, Employee
or Consultant at that time:
(i) reduction of the Optionholder's rate of compensation
(including Director fees) as in effect immediately prior to the Change in
Control;
(ii) failure to provide a package of benefits which, taken as a
whole, provide substantially similar benefits to those in which the Optionholder
was entitled to participate immediately prior to the Change in Control;
(iii) a change in the Optionholder's responsibilities, authority,
title or office resulting in diminution of position, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in bad faith which
is remedied by the Company promptly after notice thereof is given by the
Optionholder;
(iv) a request that the Optionholder render services at a site
more than thirty-five (35) miles from the prior site at which Optionholder
rendered services, unless the Optionholder accepts such relocation request;
(v) failure or refusal of a successor to the Company to assume
any Option granted under this Plan; or
(vi) any material breach by the Company or any successor to the
Company of any of the material provisions of the Optionholder's Option.
(d) The term "INVOLUNTARY TERMINATION WITHOUT CAUSE" means the
involuntary termination without Cause (as defined below) of the Optionholder's
Continuous Service by the Company within one (1) month prior to a Change in
Control or within thirteen (13) months following a Change in Control. "CAUSE"
means any of the following:
(i) the Optionholder's theft, dishonesty, or falsification of
documents or records;
(ii) the Optionholder's improper use or disclosure of the
Company's confidential or proprietary information;
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(iii) any action by the Optionholder which has a material
detrimental effect on the Company's reputation or business;
(iv) the Optionholder's failure or inability to perform any
reasonable assigned duties after written notice from the Board of, and a
reasonable opportunity to cure, such failure or inability;
(v) any material breach by the Optionholder of any service
agreement between the Optionholder and the Company which breach is not cured
pursuant to the terms of such agreement; or
the Optionholder's conviction (including any plea of guilty or nolo
contendere) of any criminal act which materially impairs the Optionholder's
ability to perform his or her duties with the Company.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the
fifteenth (15th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
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13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
14. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Delaware, without
regard to such state's conflict of laws rules.
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EXHIBIT 10.11
ANNUAL OPTION GRANT
LEAP WIRELESS INTERNATIONAL, INC.
Stock Option Grant Notice
(1998 Non-Employee Directors' Stock Option Plan)
Leap Wireless International, Inc., (the "Company"), pursuant to its 1998
Non-Employee Directors' Stock Option Plan (the "Plan"), hereby grants to
Optionholder an option to purchase the number of shares of the Company's Common
Stock set forth below. This option is subject to all of the terms and conditions
as set forth herein and in the Stock Option Agreement, the Plan and the Notice
of Exercise, all of which are attached hereto and incorporated herein in their
entirety.
Optionholder:
-----------------------------------
Date of Grant:
-----------------------------------
Number of Shares Subject to Option: 10,000
-----------------------------------
Exercise Price Per Share:
-----------------------------------
Expiration Date:
-----------------------------------
EXERCISE SCHEDULE: Same as Vesting Schedule
VESTING SCHEDULE: This option shall vest over a period of five (5) years
with twenty percent (20%) of the total number of such
shares vesting on the anniversary of the Date of Grant on
each of the first, second, third, fourth and fifth years
following the Date of the Grant of Option; provided,
however, that vesting may occur earlier as provided in
the Plan.
PAYMENT: By one or a combination of the following items (described
in the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares
are publicly traded
By delivery of already-owned shares if the
Shares are publicly traded
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS:
-----------------------------------
-----------------------------------
LEAP WIRELESS INTERNATIONAL, INC. OPTIONHOLDER:
By:
----------------------------------- -----------------------------------
Signature Signature
Title: Date:
-------------------------------- ------------------------------
Date:
--------------------------------
ATTACHMENTS: Stock Option Agreement, 1998 Non-Employee Directors' Stock Option
Plan, and Notice of Exercise
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ATTACHMENT I
STOCK OPTION AGREEMENT
<PAGE> 3
ATTACHMENT II
1998 Non-Employee Directors' Stock Option Plan
<PAGE> 4
ATTACHMENT III
NOTICE OF EXERCISE
<PAGE> 5
INITIAL OPTION GRANT
LEAP WIRELESS INTERNATIONAL, INC.
Stock Option Grant Notice
(1998 Non-Employee Directors' Stock Option Plan)
Leap Wireless International, Inc, (the "Company"), pursuant to its 1998
Non-Employee Directors' Stock Option Plan (the "Plan"), hereby grants to
Optionholder an option to purchase the number of shares of the Company's Common
Stock set forth below. This option is subject to all of the terms and conditions
as set forth herein and in the Stock Option Agreement, the Plan and the Notice
of Exercise, all of which are attached hereto and incorporated herein in their
entirety.
Optionholder:
-----------------------------------
Date of Grant:
-----------------------------------
Number of Shares Subject to Option: 20,000
-----------------------------------
Exercise Price Per Share:
-----------------------------------
Expiration Date:
-----------------------------------
EXERCISE SCHEDULE: Same as Vesting Schedule
VESTING SCHEDULE: This option shall vest over a period of five (5) years
with twenty percent (20%) of the total number of such
shares vesting on the anniversary of the Date of Grant on
each of the first, second, third, fourth and fifth years
following the Date of the Grant of Option; provided,
however, that vesting may occur earlier as provided in
the Plan.
PAYMENT: By one or a combination of the following items (described
in the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares
are publicly traded
By delivery of already-owned shares if the
Shares are publicly traded
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS:
-----------------------------------
-----------------------------------
LEAP WIRELESS INTERNATIONAL, INC. OPTIONHOLDER:
By:
----------------------------------- -----------------------------------
Signature Signature
Title: Date:
-------------------------------- -----------------------------
Date:
---------------------------------
ATTACHMENTS: Stock Option Agreement, 1998 Non-Employee Directors' Stock Option
Plan, and Notice of Exercise
<PAGE> 6
ATTACHMENT I
STOCK OPTION AGREEMENT
<PAGE> 7
ATTACHMENT II
1998 Non-Employee Directors' Stock Option Plan
ATTACHMENT III
NOTICE OF EXERCISE
<PAGE> 8
LEAP WIRELESS INTERNATIONAL, INC.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Pursuant to the Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Leap Wireless International, Inc. (the "Company") has
granted you an option under its 1998 Non-Employee Directors' Stock Option Plan
(the "Plan") to purchase the number of shares of the Company's Common Stock
indicated in the Grant Notice at the exercise price indicated in the Grant
Notice. Defined terms not explicitly defined in this Stock Option Agreement but
defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
I. VESTING. Subject to the limitations contained herein, your option will
vest as provided in the Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
II. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares subject to
your option and your exercise price per share referenced in the Grant
Notice may be adjusted from time to time for Capitalization Adjustments,
as provided in the Plan.
III. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make
payment of the exercise price in cash or by check or in any other manner
PERMITTED BY THE GRANT NOTICE, which may include one or more of the
following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board which,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock, held for the period required to avoid a
charge to the Company's reported earnings (generally six months) or were not
acquired, directly or indirectly from the Company, owned free and clear of any
liens, claims, encumbrances or security interests, and valued at its Fair Market
Value on the date of exercise. "Delivery" for these purposes, in the sole
discretion of the Company at the time your option is exercised, shall include
delivery to the Company of your attestation of ownership of such shares of
Common Stock in a form approved by the Company. Notwithstanding the foregoing,
your option may not be exercised by tender to the Company of Common Stock to the
extent such tender would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
<PAGE> 9
IV. WHOLE SHARES. Your option may only be exercised for whole shares.
V. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares
issuable upon exercise of your option are then registered under the
Securities Act or, if such shares are not then so registered, the
Company has determined that such exercise and issuance would be exempt
from the registration requirements of the Securities Act. The exercise
of your option must also comply with other applicable laws and
regulations governing the option, and the option may not be exercised if
the Company determines that the exercise would not be in material
compliance with such laws and regulations.
VI. TERM. The term of your option commences on the Date of Grant and expires
only upon the EARLIEST of the following:
(c) thirty (30) days after the termination of your Continuous
Service for any reason other than upon: (i) your retirement at age seventy (70)
or older after nine (9) or more years of service on the Board, (ii) your death
or (iii) Disability, provided that if the exercise of the option following the
termination of such Continuous Service (other than for the preceding reasons)
would be prohibited at any time solely because such exercise would result in
liability under Section 16(b) of the Exchange Act, then the option shall
terminate under this subparagraph 6(a) on the earliest of (x) the Expiration
Date indicated in the Grant Notice, (y) the tenth (10th) day after the last date
upon which exercise would result in such liability, or (z) six (6) months and
ten (10) days after the termination of your Continuous Service.
(d) twelve (12) months after the termination of your Continuous
Service due to your death;
(e) the Expiration Date indicated in the Grant Notice.
VII. EXERCISE.
(f) You may exercise the vested portion of your option during its
term by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(g) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of your option,
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise, or (3) the disposition of shares acquired upon
such exercise.
(h) By exercising your option you agree that the Company (or a
representative of the underwriters) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or
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<PAGE> 10
other securities of the Company held by you, for a period of time specified by
the underwriter(s) (not to exceed one hundred eighty (180) days) following the
effective date of the registration statement of the Company filed under the
Securities Act. You further agree to execute and deliver such other agreements
as may be reasonably requested by the Company and/or the underwriter(s) which
are consistent with the foregoing or which are necessary to give further effect
thereto. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to your Common Stock until the end of
such period.
VIII. TRANSFERABILITY. Your option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your
life only by you. Notwithstanding the foregoing, by delivering written
notice to the Company, in a form satisfactory to the Company, you may
designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.
IX. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create
in any way whatsoever any obligation on your part to continue in the
employ of the Company or an Affiliate, or of the Company or an Affiliate
to continue your employment. In addition, nothing in your option shall
obligate the Company or an Affiliate, their respective shareholders,
Boards of Directors, Officers or Employees to continue any relationship
that you might have as a Director or Consultant for the Company or an
Affiliate.
X. WITHHOLDING OBLIGATIONS.
(i) At the time your option is exercised, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(j) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares having a Fair Market Value, determined by the Company as of the
date of exercise, not in excess of the minimum amount of tax required to be
withheld by law. If the date of determination of any tax withholding obligation
is deferred to a date later than the date of exercise of your option, share
withholding pursuant to the preceding sentence shall not be permitted unless you
make a proper and timely election under Section 83(b) of the Code, covering the
aggregate number of shares of Common Stock acquired upon such exercise with
respect to which such determination is otherwise deferred, to accelerate the
determination of such tax withholding obligation to the date of exercise of your
option. Notwithstanding the filing of such election, shares shall be withheld
solely from fully vested shares of Common Stock determined as of the date of
exercise of your option that are otherwise issuable to you upon such exercise.
Any adverse consequences to you arising in connection with such share
withholding procedure shall be your sole responsibility.
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(k) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares or release such shares from any escrow provided for herein.
XI. NOTICES. Any notices provided for in your option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or,
in the case of notices delivered by the Company to you, five (5) days
after deposit in the United States mail, postage prepaid, addressed to
you at the last address you provided to the Company.
XII. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of
the Plan, the provisions of which are hereby made a part of your option,
and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted
pursuant to the Plan. In the event of any conflict between the
provisions of your option and those of the Plan, the provisions of the
Plan shall control.
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NOTICE OF EXERCISE
(1998 Non-Employee Directors' Stock Option Plan)
Leap Wireless International, Inc
10307 Pacific Center Court
San Diego, CA 92121
Date of Exercise: __________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option: Nonstatutory
Stock option dated:
------------------
Number of shares to
which option is exercised:
------------------
Certificates to be
issued in name of:
------------------
Total exercise price: $
-----------------
Cash payment delivered: $
-----------------
Value of_____ shares of
common stock delivered(1): $
-----------------
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the Company's Non-Employee Directors'
Stock Option Plan and (ii) to provide for the payment by me to you (in the
manner designated by you) of your withholding obligation, if any, relating to
the exercise of the Option.
Very truly yours,
-----------------------------------
- --------
(1) Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
<PAGE> 1
EXHIBIT 10.12
LEAP WIRELESS INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
Adopted by the Board of Directors ____________
As amended by the Board of Directors on ________________
1. PURPOSE.
(a) The purpose of the Leap Wireless International, Inc. Employee Stock
Purchase Plan (the "Plan") is to provide a means by which employees of Leap
Wireless International, Inc., a Delaware corporation (the "Company"), and its
Affiliates, as defined in subparagraph l(b), which are designated as provided in
subparagraph 2(b), may be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, whether now or hereafter
existing, as those terms are defined in Sections 424(e) and (f), respectively,
of the Internal Revenue Code of 1986, as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
1.
<PAGE> 2
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promotes the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate Two Hundred Thousand (200,000)
shares of the Company's $0.0001 par value common stock (the "Common Stock"). If
any right granted under the Plan shall for any reason terminate without having
been exercised, the Common Stock not purchased under such right shall again
become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS: OFFERING.
The Board or the Committee may from time to time grant or provide for the
grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall begin on the
Offering Date (or such later date as the Board or the Committee determines for a
particular Offering) and end on the date stated in the Offering, which date
shall be no more than twenty-seven (27) months after the Offering Date (the
"Purchase Period"). Each Offering shall be in such form and shall contain such
terms and conditions as the Board or the Committee shall deem appropriate. If an
employee has more than one right outstanding under the Plan, unless he or she
otherwise indicates in agreements or notices delivered hereunder: (1) each
agreement or notice delivered by that employee will be deemed to apply to all of
his or her rights under the Plan, and (2) a right with a lower exercise price
(or an earlier-granted right, if two rights have identical exercise prices),
will be exercised to the fullest possible extent before a right with a higher
exercise price (or a later-granted right, if two rights have identical exercise
prices) will be exercised. The provisions of separate Offerings need not be
identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the Offering or otherwise) the substance
of the provisions contained in paragraphs 5
2.
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through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5Co), an employee of the Company or any Affiliate shall not be eligible to be
granted - rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the Purchase Period (as defined below for such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Purchase Period (as defined below) for such Offering, he or she will
not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which
3.
<PAGE> 4
exceeds twenty-five thousand dollars ($25,000) of fair market value of such
stock (determined at the time such rights are granted) for each calendar year in
which such rights are outstanding at any time.
(e) Officers of the Company shall be eligible to participate in
Offerings under the Plan, provided, however, that the Board may provide in an
Offering that certain employees who are highly compensated employees within the
meaning of Section 423(b)(4)(D) of the Code shall not be eligible to
participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee of such employee's Earnings (as defined
in Section 7(a)) during the period determined by the Board or Committee. In
connection with each Offering made under this Plan, the Board or the Committee
shall specify a maximum number of shares which may be purchased by any employee
as well as a maximum aggregate number of shares which may be purchased by all
eligible employees pursuant to such Offering. In addition, in connection with
each Offering which contains more than one Exercise Date (as defined in the
Offering), the Board or the Committee may specify a maximum aggregate number of
shares which may be purchased by all eligible employees on any given Exercise
Date under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum aggregate
number, the Board or the Committee shall make a pro rata allocation of the
shares available in as nearly a uniform manner as shall be practicable and as it
shall deem to be equitable.
(b) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Exercise Date.
(c) For purposes of this Plan, "fair market value" means, as of any
date, the value of the common stock of the Company determined as follows:
(i) if the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the fair market value of a share of common stock
shall be the average of the highest and lowest price at which the common stock
was sold on such exchange or national market system on the date as of which the
determination is to be made (or, if such date is not a trading day on such
exchange system, on the date that is the next market trading day following the
date as of which the determination is to be made);
4.
<PAGE> 5
(ii) if the common stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the fair market value of
a share of common stock shall be the mean between the high bid and high asked
prices for the common stock on the date as of which the determination is to be
made (or, if such date is not a trading day on such exchange system, on the date
that is the next market trading day following the date as of which the
determination is to be made), as reported in the Wall Street Journal or such
other sources as the Board deems reliable;
(iii) in the absence of an established market for the common
stock, the fair market value shall be determined in good faith by the Board.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in an Offering by
delivering a participation agreement to the Company within the time specified in
the Offering, in such form as the Company provides. Each such agreement shall
authorize payroll deductions of up to the maximum percentage specified by the
Board or the Committee of such employee's Earnings during the Purchase Period.
"Earnings" is defined as the total compensation paid to an employee, including
all salary, wages (including amounts elected to be deferred by the employee,
that would otherwise have been paid, under any cash or deferred arrangement
established by the Company), overtime pay, and other remuneration paid directly
to the employee, but excluding commissions, bonuses, profit sharing, the cost of
employee benefits paid for by the Company, education or tuition reimbursements,
imputed income arising under any Company group insurance or benefit program,
traveling expenses, business and moving expense reimbursements, income received
in connection with stock options, contributions made by the Company under any
employee benefit plan, and similar items of compensation. The payroll deductions
made for each participant shall be credited to an account for such participant
under the Plan and shall be deposited with the general funds of the Company. A
participant may reduce (including to zero), increase or begin such payroll
deductions after the beginning of any Purchase Period only as provided for in
the Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Purchase Period.
(b) At any time during a Purchase Period a participant may terminate his
or her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Purchase Period except as provided by the Board or the Committee in the
Offering. Upon such withdrawal from the Offering by a participant, the Company
shall distribute to such participant all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the participant) under the Offering, without interest, and
such participant's interest in that Offering shall be automatically terminated.
A participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
5.
<PAGE> 6
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company or an Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable, and shall
be exercisable only by the person to whom such rights are granted.
8. EXERCISE.
(a) On each exercise date, as defined in the relevant Offering (an
"Exercise Date"), each participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Exercise Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the Plan,
as provided in paragraph 5, in which case such amount shall be distributed to
the participant after said final Exercise Date, without interest. The amount, if
any, of accumulated payroll deductions remaining in any participant's account
after the purchase of shares which is equal to the amount required to purchase
whole shares of stock on the final Exercise Date of an Offering shall be
distributed in full to the participant after such Exercise Date, without
interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). If on an Exercise Date of any Offering hereunder the Plan is
not so registered, no rights granted under the Plan or any Offering shall be
exercised on said Exercise Date and the Exercise Date shall be delayed until the
Plan is subject to such an effective registration statement, except that the
Exercise Date shall not be delayed more than two (2) months and the Exercise
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Exercise Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered, no rights granted under
the Plan or any Offering shall be exercised and all payroll deductions
accumulated during the purchase period (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company shall
keep available at all times the number of shares of stock required to satisfy
such rights.
6.
<PAGE> 7
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the Plan shall
constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to rights granted under
the Plan unless and until certificates representing such shares shall have been
issued.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
rights will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding rights.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion (i) any surviving corporation may assume outstanding rights or
substitute similar rights for those under the Plan, (ii) such rights may
continue in full force and effect, or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless, approved by the stockholders
of the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
7.
<PAGE> 8
(i) Increase the number of shares reserved for rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended ("Rule 16b-3")); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3. It is expressly contemplated that the Board may
amend the Plan in any respect the Board deems necessary or advisable to provide
eligible employees with the maximum benefits provided or to be provided under
the provisions of the Code and the regulations promulgated thereunder relating
to employee stock purchase plans and/or to bring the Plan and/or rights granted
under it into compliance therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted or except as
necessary to comply with any laws or governmental regulation.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom such rights were granted or
except as necessary to comply with any laws or governmental regulation.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company.
8.
<PAGE> 1
EXHIBIT 10.13
ASSIGNMENT AND ASSUMPTION OF LEASE
This Assignment and Assumption of Lease ("Assignment") is entered into as
of August 11, 1998 by and between Qualcomm Incorporated, a Delaware corporation
("Assignee") and VAXA International, Inc. ("Assignor"), with respect to the
following:
A. Assignor is the lessee under that certain Standard Industrial/Commercial
Single-Tenant Lease -- Gross dated April 15, 1994, as amended by the Amendment
and Supplement to Lease dated January 23, 1996 (together, the `Lease") with Mira
Mesa Business Centre, a California limited partnership (the "Lessor") for the
premises located at 10307 Pacific Center Court, San Diego, California. The
Premises described in the Lease consist of a free-standing office/warehouse
building containing approximately 49,665 square feet of space.
B. Assignee desires to acquire Assignor's interest in the Lease, and
Assignor desires to assign same to Assignee, on the terms and conditions
contained in this Assignment and in the Agreement for Assignment and Assumption
of Lease dated June 19, 1998 and entered in to between Assignor and Assignee
(the "Agreement for Assignment"). As used herein, all initially capitalized
words shall have the same meaning as defined in the Lease, unless otherwise
defined herein.
Now therefore, for good and valuable consideration, receipt of which is
hereby acknowledged, Assignor and Assignee hereby agree as follows:
1. Effective as of the date hereof, Assignor hereby sells, transfers,
conveys assigns and delegates to Assignee all of its rights, title, interest
arising as Lessee under the Lease, including, without limitation, any right to
the return of the security deposit delivered under the Lease, and any right of
Assignor to any leasehold improvements located in the Premises.
2. Assignee hereby accepts the foregoing assignment and, effective as of
the "Delivery Date" described in the Agreement for Assignment, expressly assumes
and agrees to perform all of the duties and obligations of Assignor as Lessee
under the Lease arising from and after such Delivery Date.
1.
<PAGE> 2
In Witness Whereof, Assignor and Assignee have executed this instrument as
of the date first set forth above.
"ASSIGNEE"
QUALCOMM INCORPORATED, a
Delaware corporation
By:
------------------------------------
Title:
---------------------------------
"ASSIGNEE"
VAXA INTERNATIONAL, INC.
By:
------------------------------------
Title:
---------------------------------
2.
<PAGE> 3
Lessor's Consent to Assignment of Lease
The undersigned, Mira Mesa Business Centre, a California limited
partnership (the ("Lessor") is the lessor under that certain Standard/Commercial
Single-Tenant Lease--Gross dated April 15, 1994, as amended by the Amendment and
Supplement to Lease dated January 23, 1996 (together, the "Lease") for the
premises located at 10307 Pacific Center Court, San Diego, California.
Vaxa International, Inc. ("Vaxa"), the current lessee under the Lease, is a
debtor in possession under In Re Vaxa International, Inc., U.S. Bankruptcy Court
Case No. 97-14880-A11.
Lessor has been informed that Vaxa desires to assign its interest in the
Lease to Qualcomm Incorporated, a Delaware corporation ("Qualcomm"). In
connection with such assignment, Vaxa and Qualcomm have requested lessor to
execute this form of Consent and to confirm the matters contained herein.
NOW, THEREFORE, for the benefit of Qualcomm, and recognizing that Qualcomm
will be relying thereon, Lessor agrees, confirms and certifies as follows:
1. Lessor consents to the assignment by Vaxa of all of its right, title and
interest in the Lease to Qualcomm. Lessor further consents to (i) a future
assignment of the lessee's interest in the Lease by Qualcomm to the "Approved
Company," or, if Qualcomm so elects, (ii) a sublease of all or a portion of the
Premises described in the Lease to the Approved Company. If Qualcomm assigns the
Lease to the Approved Company and the Approved Company thereafter assumes all
future obligations to be performed under the Lease, then Qualcomm shall be
automatically released from all obligations under the Lease arising after the
effective date of the assignment to the Approved Company. The "Approved Company"
shall mean a wholly owned subsidiary of Qualcomm to be formed within six months
of the date hereof, the ownership of which will, in turn, be transferred to the
shareholders of Qualcomm. As of the effective date of any assignment or sublease
to the Approved Company, the Ac shall have a net worth of not less than ten
million dollars ($10,000,000.00). Because Qualcomm is, and the Approved Company
will be a company with publicly traded shares, Lessor agrees that a transfer of
voting control in either company will not constitute an assignment for purposes
of the Lease.
2. The Lease has not been amended, modified or supplemented, except as
expressly described above. The copy of the Lease attached hereto as Schedule 1
is a true, correct and complete copy of the Lease, including all amendments,
supplements and modifications thereof, and the Lease is in full force and
effect. Capitalized terms not defined herein shall have the same meaning as set
forth in the Lease.
3. A security deposit in the amount of $43,208.55 has been paid to Lessor
under the Lease and Lessor continues to hold the full amount thereof, with
deduction or offset. Lessor acknowledges that all rights to the return of the
full amount of the security deposit have been, or will be assigned to Qualcomm,
an Lessor agrees to recognize and honor such assignment, subject
1.
<PAGE> 4
to Lessor's rights to apply such security deposit to cure any amounts not paid
under the Lease following the delivery of the Premises to Qualcomm, all pursuant
to the terms of the Lease.
4. As of the date hereof, Vaxa has performed of its obligations under the
Lease required to be performed as of the date hereof and no default on the part
of Vaxa or on the part of Lessor exists under the Lease. In the event of any
default by either Vaxa or Lessor under the Lease, Lessor agrees to provide
written notice thereof to Qualcomm within three (3) days of the date Lessor
first learns of such default.
5. Base Rent has been paid by Vaxa through July 31, 1998. Additionally,
Vaxa shall be obligated to pay to Lessor attorneys' fees and costs in the amount
of $10,000.00 on or before the effective date of the assignment to Qualcomm.
6. To the best of Lessor's knowledge, Vaxa has not previously assigned,
sublet, encumbered or transferred its interest in the Lease or the Premises.
7. To the best of Lessor's knowledge, no Hazardous Substances have been
used, handled, stored or disposed of in, on, under or about the Premises.
8. Lessor consents to the replacement of Vaxa signage with signage on the
Building for Qualcomm and/or the Approved Company, at Qualcomm's expense and
subject to applicable local laws and regulations. Qualcomm will require to
submit plans for any new signage to Lessor for Lessor's reasonable approval.
9. Effective as of the date Vaxa delivers possession of the Premises to
Qualcomm and Qualcomm assumes the Lessee's obligations arising thereafter under
the Lease, Lessor shall release Vaxa as Lessee, and any and all guarantors of
the Lease, from all of the Lessee's and such guarantors' obligations under the
Lease. Lessor further agrees that as of such date, Qualcomm shall be deemed to
be the Lessee under the Lease.
THE UNDERSIGNED has executed this instrument as of July 14, 1998.
LESSOR:
MIRA MESA BUSINESS CENTRE, a
California limited partnership
By:
------------------------------------
Title:
---------------------------------
By:
------------------------------------
Title:
---------------------------------
2.
<PAGE> 5
SCHEDULE 1
[ATTACH COPY OF LEASE AND AMENDMENT]
3.
<PAGE> 6
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - GROSS
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, April
15, 1994, is made by and between Mira Mesa Business Centre, a California Limited
Partnership ("Lessor") and Vaxa International, Inc., a Delaware corporation
("Lessee") (collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 10307 Pacific Center Court, located in the County
of San Diego, State of California, and generally described as (describe briefly
the nature of the property): 49,665 sq. ft. free standing building ("Premises").
(See Paragraph 2 for further provisions.)
1.3 Term: Ten (10) years and 0 months ("Original Term") commencing [See
Par. 1.4 of Addendum] ("Commencement Date") and ending 10 years after
commencement ("Expiration Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: See Par. 1.4 Addendum ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: See Addendum 1.5 per month ("Base Rent"), payable on the
First date of each month commencing as specified in Addendum 1.4. (See Paragraph
4 for further provisions.)
1.6 Base Rent Paid Upon Execution: $43,208.55 as Base Rent for the period
first month's rent. See Addendum 1.6.
1.7 Security Deposit: $43,208.55. See Addendum 1.7 ("Security Deposit").
(See Paragraph 5 for further provisions).
1.8 Permitted Use: Office/warehouse. (See Paragraph 6 for further
provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party." $____________ is the
"Base Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): __________________________
represents [ ] Lessor exclusively ("Lessor's Broker"); [ ] both Lessor and
Lessee, and Grubb and Ellis Brokerage Company represents [X] Lessee exclusively
("Lessee's Broker"); [ ] both Lessor and Lessee. (See Paragraph 15 for further
provisions.)
1.
<PAGE> 7
1.11 [crossed out]
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs ___ through ____ and Exhibits _______________ all of which constitute
a part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
[illegible] whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating and loading
doors, if any, in the Premises, other than those constructed by Lessee, shall be
in good operating condition on the Commencement date. If a non-compliance with
said warranty exists as of the Commencement Date, Lessor shall, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and [illegible] of such
non-compliance, rectify same at Lessor' expense. If Lessee does not give Lessor
written notice of a non-compliance with this warrant within thirty (30) days
after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the Improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installments (as defined in Paragraph 7.3(a)) made
[illegible] made by Lessee. If the Premises do not comply with said warranty,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify the same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within six (6) months following the Commencement Date, correction of that
compliance shall be the obligation of Lessee's sole cost and expense.
3. Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law
(defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such Investigation
it deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises for the term
of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made
any oral or written representations or warranties with respect to the said
matters other than a set forth in this Lease.
2.
<PAGE> 8
3.1 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date
contained in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3.2 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.3 Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be for the
period of such early possession. All other terms of this Lease, however,
(including but not limited to the obligations to pay Real Property and insurance
premiums and to maintain the Premises) shall be in effect during such period.
Any such early possession shall not affect nor [illegible] the Expiration Date
of the Original Term. See Addendum 1.4.
3.4 [crossed out] See Addendum 3.3.
4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at the address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use or to be
prepayment for any moneys to be paid by Lessee under this Lease.
3.
<PAGE> 9
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparable thereto and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damages to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises so long as such use
is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consent to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also
4.
<PAGE> 10
immediately give Lessor a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action or proceeding given
to, or received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in, on,
or about the Premises, including but not limited to all such documents as may be
involved in any Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lesso r, ts agents, employees, lenders and ground Lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law. See Addendum 6.3.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, with prior notice, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease and all Applicable Laws (as defined in
Paragraph 6.3) and to employ experts and/or consultants in connection therewith
and/or to advise Lessor with respect to Lessee's activities, including but not
limited to
5.
<PAGE> 11
the installation, operation, use, monitoring, maintenance, or removal
of any Hazardous Substance or storage tank on or from the Premises. The costs
and expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as a result of any such existing or imminent violation or
contamination. In any such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction) and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior), ceilings, floors, windows, doors, but
excluding foundations, the exterior roof and the structural aspects of the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered ore required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including alarm and/or smoke detection.
6.
<PAGE> 12
7.2 Lessor's Obligations. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair. Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass of the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement or the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
7.
<PAGE> 13
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law if Lessee
shall, in good faith, contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense, defend and protect itself, Lessor and
the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien, claim or demand, indemnifying Lessor
against liability for the same, as required by law, for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
Installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the Improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8.
<PAGE> 14
8. Insurance; Indemnity
8.1 [crossed out]
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a)
above, in addition to, and not in lieu of the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance-Building Improvements and Rental Value
(a) [crossed out]
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
9.
<PAGE> 15
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirement of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraphs 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor, Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground Lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case
10.
<PAGE> 16
of claims made against Lessor) litigated and/or reduced to judgment and whether
well founded or not. In case any action or proceeding be brought against Lessor
by reason of any of the foregoing matters, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessor need not have
first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Except to the extent caused by
Lessor's negligence or willful misconduct, Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not,
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
11.
<PAGE> 17
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in paragraph 6.2(a) in, on or under the Premises.
9.2 Partial Damage-Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
Improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request thereof. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party. See Addendum 9.2.
9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is not
an insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's said commitment. In such event this Lease
shall continue in full force and effect and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above,
12.
<PAGE> 18
this Lease shall terminate as of the date specified in Lessor's notice of
termination. See Addendum 9.3.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6. See Addendum 9.4.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an insured Loss, either party may
terminate this Lease effective sixty (60) days following the date of occurrence
of such damage by giving written notice to the other party of the election to do
so within thirty (30) days after the date of occurrence to such damage.
Provided, however, if Lessee at that time has an exercisable option to extend
this Lease or to purchase the Premises, then Lessee may preserve this Lease by,
within twenty (20) days following the occurrence of the damage, or before the
expiration of the time provided in such option for its exercise, whichever is
earlier ("Exercise Period"), (i) exercising such option and (ii) providing
Lessor with any shortage in insurance proceeds (or for adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds for adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Leases hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue,
13.
<PAGE> 19
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice of Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Lessee gives such notice
to Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall terminate
as of the date specified in said notice. If Lessor or a Lender commences the
repair or restoration of the Premises within thirty (30) days after receipt of
such notice, this Lease shall continue in full force and effect. "Commence" as
used in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessors intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the [illegible]
of an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, Lessee shall provide Lessee with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 Termination-Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning Advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
14.
<PAGE> 20
10. Real Property Taxes.
10.1 (a) [crossed out]
(b) [crossed out]
(c) [crossed out]
10.2 [crossed out]
10.3 [crossed out]
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all personal property to be
assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth in the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and all other utilities and services supplied to the
Premises, together with any taxes thereon.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for
15.
<PAGE> 21
purposes of this Lease shall be the net worth of Lessee (excluding any
guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment and (ii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment. See Addendum 12.1(e).
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or SubLessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
not the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee to any
subsequent or successive assignment or subletting by the SubLessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their
16.
<PAGE> 22
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including the subLessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or subLessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 of the current monthly Base Rent, whichever is greater, as
reasonable consideration for Lessor's considering and processing the request for
consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or subLessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) [crossed out]
(h) [crossed out]
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a subLessee, be deemed liable to the subLessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such subLessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
subLessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
SubLessee shall rely upon any such
17.
<PAGE> 23
statement and request from Lessor and shall pay such rents and other charges to
Lessor without any obligation or right to inquire as to whether such Breach
exists and notwithstanding any notice from or claim from Lessee to the contrary,
Lessee shall have no right or claim against said subLessee or until the Breach
has been cured against Lessor, for any such rents and other charges so paid by
said subLessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any subLessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the subLessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such subLessee to such subLessor or for any other prior Defaults
or Breaches of such subLessor under such sublease.
(c) Any matter or thing requiring the consent of the subLessor under
a sublease shall also require the consent of Lessor herein.
(d) No subLessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of default or Brach by
Lessee to the subLessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The subLessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults caused by the subLessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
18.
<PAGE> 24
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii)any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c) above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days; (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days, or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (a) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor; (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty; (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing; (iv) a guarantor's refusal to honor the guaranty; or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
19.
<PAGE> 25
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award could
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided, and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding the unpaid rent and damages as are recoverable
therein or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statue shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
20.
<PAGE> 26
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance of
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the estate wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same by be extended. Upon the occurrence of
a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not bee deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee with five (5) days after such
amount shall be due, then without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base rent, then
21.
<PAGE> 27
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5 a reasonable time
shall in no event be less than thirty (30) days after receipt by Lessor, and by
the holders of any ground lease, mortgage or deed of trust covering the Premises
whose name and address shall have been furnished Lessee in writing for such
purpose, of written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days after such notice are reasonably required
for its performance, then Lessor shall not be in breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken ____________
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
base Rent shall occur if the only portion of the Premises taken is land on which
where is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property damages; provided, however,
that Lessee shall be entitled to any compensation, separately awarded to Lessee
for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures in the
event that this Lease is not terminated by reason of such condemnation. Lessor
shall to the extent of its net severance damages received, over and above the
legal and other expenses incurred by Lessor in the condemnation matter, repair
any damage to the Premises caused by such condemnation, except to the extent
that Lessee has been reimbursed therefor by the condemning authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no
22.
<PAGE> 28
separate written agreement between Lessor and said Brokers, the sum of
$___________) for brokerage services rendered by said Brokers to Lessor in this
transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such named broker, finder or other similar party by reason of any
dealings or actions of the Indemnifying Party, including any costs, expenses,
attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent and approve all agency relationships,
including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance
23.
<PAGE> 29
hereunder shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferree or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit as aforesaid, the prior Lessor shall be relived
of all liability with respect to the obligations and/or covenants under this
Lease thereafter to be performed by the Lessor. Subject to the foregoing, the
obligations and/or covenants in this Lease to be performed by the Lessor shall
be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty(30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The address noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to
24.
<PAGE> 30
the other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of deliver shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail, the notice shall be deemed given forty-eight (48) hours after the same is
address as required herein and mailed with postage prepaid. Notices delivered by
United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivery via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
25.
<PAGE> 31
29. Binding Effect; Choice of Law.. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option ranted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will given any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall given written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not (i) be liable
for any act or omission of any prior Lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior Lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereinafter defined) or Broker in any such proceeding, action or appeal thereon,
shall be entitled to reasonable attorney's fees.
26.
<PAGE> 32
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment. The
term, "Prevailing Party" shall include, without limitation, a Party or Broker
who substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment or the abandonment by the other
Party or Broker of its claim or defense. The attorney's fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such default
or resulting Breach.
32. Lessors' Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times with reasonable notice, for the
purpose of showing the same to prospective purchasers, lenders, or Lessees, and
making such alterations, repairs, improvements or additions to the Premises or
to the building of which they are a part, as Lessor may reasonably deem
necessary Lessor may at any time place on or about the Premises or building any
ordinary "For Sale" signs and Lessor may at any time during the last one hundred
twenty (120) days of the term hereof place on or about the Premises any ordinary
"For Lease" signs. All such activities of Lessor shall be without abatement of
rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
Installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the Installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
27.
<PAGE> 33
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (included but not
limited to architects', attorneys', engineers', or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part
28.
<PAGE> 34
to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee
29.
<PAGE> 35
three or more notices of Default under Paragraph 13.1 during any twelve month
period, whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjusted
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As
30.
<PAGE> 36
long as they do not materially change Lessee's obligations hereunder, Lessee
agrees to make such reasonable non-monetary modifications to this Lease as may
be reasonably required by an institutional, insurance company, or pension plan
Lender in connection with the obtaining of normal financing or refinancing of
the property of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALLY RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Executed at
-------------------------- ----------------------------
On On
----------------------------------- -------------------------------------
By LESSOR: By LESSEE:
MIRA MESA BUSINESS CENTRE VAXA INTERNATIONAL, INC.
By: By:
---------------------------------- ------------------------------------
Name Printed: Name Printed:
------------------------ --------------------------
Title: Title:
------------------------------- ---------------------------------
31.
<PAGE> 37
ADDENDUM TO LEASE DATED APRIL 15, 1994 BETWEEN MIRA MESA BUSINESS CENTRE, AS
LESSOR AND VAXA INTERNATIONAL, INC. AS LESSEE FOR 49,665 SQ. FT. IN BUILDING "A"
ON LOT 24 IN THE PACIFIC CORPORATE CENTER (10307 PACIFIC CENTER COURT, SAN
DIEGO, CA 92112)
- --------------------------------------------------------------------------------
1.4 EARLY OCCUPANCY: Lessor shall notify Lessee in writing thirty (30) days
prior to such time that the tenant improvements will be substantially
completed (as defined by a Certificate of Occupancy). Thirty (30) days
thereafter, Tenant shall be allowed to take possession of the facility.
No rent or operating expenses shall be payable for a thirty (30) day period
(Early Occupancy). The lease commencement date to be one (1) month
thereafter, and pro-rated, if necessary, to reflect a rental period
commencing on the first day of each month.
1.5 BASE RENT:
<TABLE>
<S> <C>
Month 1 $0.870 GROSS per sq. ft. per month
Month 2-7 $0.435 GROSS per sq. ft. per month
Month 8-12 $0.870 GROSS per sq. ft. per month
Year 2 $0.896 GROSS per sq. ft. per month
Year 3 $0.923 GROSS per sq. ft. per month
Year 4 $0.950 GROSS per sq. ft. per month
Year 5 $0.979 GROSS per sq. ft. per month
Year 6 $1.008 GROSS per sq. ft. per month
Year 7 $1.038 GROSS per sq. ft. per month
Year 8 $1.070 GROSS per sq. ft. per month
Year 9 $1.102 GROSS per sq. ft. per month
Year 10 $1.135 GROSS per sq. ft. per month
</TABLE>
1.6-1.7 FIRST MONTH'S RENT AND SECURITY DEPOSIT: Upon execution of lease
agreement, Lessee shall pay to Lessor first month's rent plus a security
deposit equal to first month's rent.
3.3 DELAY IN POSSESSION: Notwithstanding Section 3.2 of the Lease to which this
Addendum is attached, Lessor undertakes and agrees to deliver possession of
the premises to Lessee on or before four (4) months from the date that
tenant improvement plans have been approved by the City of San Diego and
other appropriate governmental agencies, plus any period of delay caused by
"force majeure." The term "force majeure" for the purpose of this Agreement
shall be deemed to be labor dispute causing work stoppage not within the
control of the Lessor or Lessor's contractor, Bailey Building Corporation,
adverse weather
1.
<PAGE> 38
conditions not reasonably anticipated and unavoidable casualties or other
causes beyond the control of the Lessor or the Bailey Building Corporation.
6.3 Lessor represents and warrants that Lessee's initial intended use of the
premises complied with applicable zoning and other governmental
regulations.
9.2, 9.3
and 9.4 Notwithstanding anything herein provided to the contrary, in
the event such repair is reasonably expected to require more than one
hundred eighty (180) days Lessee shall have the right to terminate this
Lease as of the date of such damage by giving written notice to Lessor
within thirty (30) days after such partial damage occurs.
47. TENANT IMPROVEMENTS:
47.2 Tenant Improvement Allowance: For the "Tenant Improvements," as herein
defined, Lessor shall provide, at its sold expense, the necessary
funds for planning, permitting and construction of Tenant Improvements
in substantial compliance with the preliminary space plan, provided by
the project architect, Ware & Malcomb. The estimated Tenant
Improvements costs are estimated to be $17.00 per square foot, which
has been used to compute the "Base Rent." Tenant Improvements shall be
on a "turnkey" basis and will be built-out in accordance with the
workletter to be mutually agreed upon by Lessor, Lessee and Lessor's
Tenant Improvement Contractor, the Bailey Building Corporation. Once
the "workletter" has been approved by all parties, any additional
Tenant Improvement expenses, as requested by the Lessee, shall be paid
by Lessee to Lessor. To the extent that Tenant Improvement costs are
less than the Tenant Improvement estimate, as stated in the
"workletter," that amount shall be credited to the Lessee in the form
of rent credit.
The term "Tenant Improvement" is hereby defined as all costs incident
to the construction of all improvements other than the shell
construction.
The costs related to the construction of any sheltered g.u. additional
parking area shall not be included in the Tenant Improvement costs.
48. SIGNAGE: Lessee shall have the exclusive signage rights on the subject
facility. Lessee shall submit a plan of signage design to Lessor, for
Lessor's approval, which shall not be unreasonably withheld, prior to
installation of signage. All signage installation costs and necessary
governmental permits for said signage to be at the sole expense and
responsibility of the Lessee.
49. EXPANSION PROVISION: If, after 30 months from the date of lease
commencement, VAXA INTERNATIONAL, INC. requirement for space grows to
70,000 sq. ft. and there is not available space in the building contiguous
to the subject building (10309 Pacific Center Court) of a minimum of 20,335
sq. ft., Lessor agrees to make a good faith effort to provide, in the
Pacific Corporate Center, either an existing facility or a build-to-suit
facility, not less than 70,000 sq. Fax transmittal.
2.
<PAGE> 39
This shall be subject to both parties agreeing to terms and conditions of a
new lease agreement and signing a new lease. At such time that VAXA takes
occupancy of the new facility, it shall be released from its obligations,
as outlined in this lease document.
3.
<PAGE> 40
AMENDMENT AND SUPPLEMENT TO LEASE
This Amendment to Lease, dated as of January 13, 1996, is entered into by
and between Mira Mesa Business Centre, a California Limited Partnership (herein
"Lessor"), and Vaxa International, Inc., a Delaware Corporation (herein
"Lessee") amends that certain Lease, dated April 15, 1994 between Lessor and
Lessee with respect to those certain premises commonly known as 10307 Pacific
Center Court, San Diego, California, hereinafter referred to as "said Lease".
A. 1.3 TERM: 1.3 of said Lease is hereby amended as follows:
The term of this Lease shall be ten (10) years and five (5) months commencing
June 1, 1995 and ending October 31, 2005.
B. 1.5 BASE RENT: The base rent as provided in the Addendum to Lease is
hereby amended to read as follows:
<TABLE>
<CAPTION>
BASE RENT:
<S> <C>
Month 1 $0.870 GROSS per sq. ft. per month
Month 2-12 $0.435 GROSS per sq. ft. per month
Month 13-17 $0.448 GROSS per sq. ft. per month
Month 18-24 $0.896 GROSS per sq. ft. per month
Year 3 $0.923 GROSS per sq. ft. per month
Year 4 $0.950 GROSS per sq. ft. per month
Year 5 $0.979 GROSS per sq. ft. per month
Year 6 $1.008 GROSS per sq. ft. per month
Year 7 $1.038 GROSS per sq. ft. per month
Year 8 $1.070 GROSS per sq. ft. per month
Year 9 $1.102 GROSS per sq. ft. per month
Year 10 and
Months 121-126 $1.135 GROSS per sq. ft. per month
</TABLE>
C. Except as herein amended and supplemented said Lease and all the
provisions thereof are in full force and effect and binding upon the parties
hereto.
IN WITNESS WHEREOF Lessor and Lessee have executed this Amendment and
Supplement to Lease as of the day and year first above written.
VAXA INTERNATIONAL, INC. MIRA MESA BUSINESS CENTRE
By: By:
--------------------------------- ------------------------------------
Lessee Lessor
4.
<PAGE> 1
EXHIBIT 10.14
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of ____________, 1998
by and between LEAP WIRELESS INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and ___________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Company in his capacity
as ___________ of the Company;
WHEREAS, the stockholders of the Company have adopted Amended and Restated
Bylaws (the "Bylaws") providing for the indemnification of the directors,
officers, employees and other agents of the Company, including persons serving
at the request of the Company in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Company and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as _________ of the
Company, the Company has determined and agreed to enter into this Agreement with
Agent;
NOW, THEREFORE, in consideration of Agent's continued service as __________
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE COMPANY. Agent will serve, at the will of the Company
or under separate contract, if any such contract exists, as __________ of the
Company or as a director, officer or other fiduciary of an affiliate of the
Company (including any employee benefit plan of the Company) faithfully and to
the best of his ability so long as he is duly elected and qualified in
accordance with the provisions of the Bylaws or other applicable charter
documents of the Company or such affiliate; provided, however, that Agent may at
any time and for any reason resign from such position (subject to any
contractual obligation that Agent may have assumed apart from this Agreement)
and that the Company or any affiliate shall have no obligation under this
Agreement to continue Agent in any such position.
1
<PAGE> 2
2. INDEMNITY OF AGENT. The Company hereby agrees to hold harmless and
indemnify Agent to the fullest extent authorized or permitted by the provisions
of the Bylaws and the Code, as the same may be amended from time to time (but,
only to the extent that such amendment permits the Company to provide broader
indemnification rights than the Bylaws or the Code permitted prior to adoption
of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Company hereby further agrees to
hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Company) to which Agent is, was or at any time becomes a party, or is threatened
to be made a party, by reason of the fact that Agent is, was or at any time
becomes a director, officer, employee or other agent of Company, or is or was
serving or at any time serves at the request of the Company as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Company under the non-exclusivity provisions of the Code and Section 43 of
the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Company:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Company or resulted in any personal profit or
advantage to which Agent was not legally entitled;
2
<PAGE> 3
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Company and Agent have been advised that the Securities and Exchange Commission
believes that indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore, unenforceable and
that claims for indemnification should be submitted to appropriate courts for
adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Company or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Company, (iii) such indemnification is provided by the
Company, in its sole discretion, pursuant to the powers vested in the Company
under the Code, or (iv) the proceeding is initiated pursuant to Section 9
hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the Company
contained herein shall continue during the period Agent is a director, officer,
employee or other agent of the Company (or is or was serving at the request of
the Company as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Agent shall be subject to
any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal, arbitrational, administrative or
investigative, by reason of the fact that Agent was serving in the capacity
referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement to
indemnification by the Company for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Company shall indemnify Agent for the portion thereof to which Agent is
entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after
receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Company under this Agreement, notify the Company of the commencement thereof;
but the omission so to notify the Company will not relieve it from any liability
which it may have to Agent
3
<PAGE> 4
otherwise than under this Agreement. With respect to any such action, suit or
proceeding as to which Agent notifies the Company of the commencement thereof:
(a) the Company will be entitled to participate therein at its own
expense;
(b) except as otherwise provided below, the Company may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Company to Agent of its
election to assume the defense thereof, the Company will not be liable to Agent
under this Agreement for any legal or other expenses subsequently incurred by
Agent in connection with the defense thereof except for reasonable costs of
investigation or otherwise as provided below. Agent shall have the right to
employ separate counsel in such action, suit or proceeding but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Company, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Company and Agent in the conduct of the defense of such action or
(iii) the Company shall not in fact have employed counsel to assume the defense
of such action, in each of which cases the fees and expenses of Agent's separate
counsel shall be at the expense of the Company. The Company shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Company or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Company shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Company shall be permitted to settle any action except that it shall not settle
any action or claim in any manner which would impose any penalty or limitation
on Agent without Agent's written consent, which may be given or withheld in
Agent's sole discretion.
8. EXPENSES. The Company shall advance, prior to the final disposition of
any proceeding, promptly following request therefor, all expenses incurred by
Agent in connection with such proceeding upon receipt of an undertaking by or on
behalf of Agent to repay said amounts if it shall be determined ultimately that
Agent is not entitled to be indemnified under the provisions of this Agreement,
the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request
4
<PAGE> 5
therefor. Agent, in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. It shall
be a defense to any action for which a claim for indemnification is made under
Section 3 hereof (other than an action brought to enforce a claim for expenses
pursuant to Section 8 hereof, provided that the required undertaking has been
tendered to the Company) that Agent is not entitled to indemnification because
of the limitations set forth in Section 4 hereof. Neither the failure of the
Company (including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Agent is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Agent, who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Company's Amended and
Restated Certificate of Incorporation or Bylaws, agreement, vote of stockholders
or directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Company or to serve at the request of the Company as a director, officer,
employee or other agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise and shall inure to the benefit
of Agent's heirs, executors and administrators.
(b) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be
5
<PAGE> 6
held to be invalid for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of the other provisions hereof.
Furthermore, if this Agreement shall be invalidated in its entirety on any
ground, then the Company shall nevertheless indemnify Agent to the fullest
extent provided by the Amended and Restated Bylaws, the Code or any other
applicable law.
14. ENTIRE AGREEMENT. This Agreement and the agreements referenced herein
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof, and any and all other written or oral agreements existing
between the parties hereto pertaining to the subject matters hereof are
superseded and expressly canceled.
15. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
16. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
17. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
18. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
19. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Company, to
Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, CA 92121
or to such other address as may have been furnished to Agent by the Company.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Indemnity Agreement on
and as of the day and year first above written.
LEAP WIRELESS INTERNATIONAL, INC.
By:
-------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AGENT
----------------------------------------
Signature
Address:
----------------------------------------
----------------------------------------
7
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF LEAP WIRELESS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------- ---------------------------------- -----------------------------
DATE OF
ACQUISITION OR
NAME ORGANIZATION COUNTRY
- ----------------------------------------------------------- ---------------------------------- -----------------------------
<S> <C> <C>
QUALCOMM Telecommunications Limited Distribution Date Cayman Islands
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Metrosvyaz Limited Distribution Date Cypress
- ----------------------------------------------------------- ---------------------------------- -----------------------------
QUALCOMM Telecommunications Limited Distribution Date Isle of Mann
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Orrengrove Investments Limited Distribution Date Cypress
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Transworld Communications (Bermuda), Ltd. Distribution Date Bermuda
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Transworld Telecommunications, Inc. Distribution Date Delaware
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Transworld Communications Services Inc. Distribution Date Delaware
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Inversiones QUALCOMM Chile S.A. Distribution Date Chile
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Chilesat Telefonia Personal S.A. Distribution Date Chile
- ----------------------------------------------------------- ---------------------------------- -----------------------------
QUALCOMM PCS Mexico, Inc. Distribution Date California
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Pegaso Telecomuniciones, S.A. de C.V. Distribution Date Mexico
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Pegaso Comunicaciones y Sistemas, S.A. de C.V. Distribution Date Mexico
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Pegaso PCS S.A. de C.V. Distribution Date Mexico
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Pegaso Humanos Recursos S.A. de C.V. Distribution Date Mexico
- ----------------------------------------------------------- ---------------------------------- -----------------------------
OzPhone Pty Ltd. Distribution Date New South Wales, Australia
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Telesystems of Ukraine Distribution Date Ukraine
- ----------------------------------------------------------- ---------------------------------- -----------------------------
Chase Telecommunications Distribution Date Delaware
- ----------------------------------------------------------- ---------------------------------- -----------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,884
<CURRENT-LIABILITIES> 282
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,602
<TOTAL-LIABILITY-AND-EQUITY> 54,884
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,211)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,211)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,211)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 111
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (111)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (396)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (396)
<INCOME-TAX> 0
<INCOME-CONTINUING> (396)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (396)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (994)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (994)
<INCOME-TAX> 0
<INCOME-CONTINUING> (994)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (994)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,493
<CURRENT-LIABILITIES> 2,949
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 62,544
<TOTAL-LIABILITY-AND-EQUITY> 65,493
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (18,227)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,939)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
QUALCOMM LETTERHEAD
, 1998
Dear Stockholder:
I am pleased to inform you that the Board of Directors of QUALCOMM
Incorporated ("QUALCOMM") has approved a distribution (the "Distribution") to
our stockholders of all of the outstanding shares of Common Stock of Leap
Wireless International, Inc. ("Leap"). The Distribution will be made on or about
September 24, 1998 (the "Distribution Date") to holders of record of Common
Stock of QUALCOMM (the "QUALCOMM Common Stock") on September 11, 1998 (the
"Record Date"). You will receive one (1) share of Common Stock of Leap (the
"Leap Common Stock"), including certain preferred stock purchase rights, for
every four (4) shares of QUALCOMM Common Stock you hold on such date.
As part of QUALCOMM's strategy of supporting the commercialization and sale
of its CDMA products and technology, QUALCOMM has from time to time entered into
strategic alliances and joint ventures with domestic and international emerging
terrestrial-based wireless telecommunications operating companies. Several of
these alliances have involved the investment by QUALCOMM of substantial equity
in the operating company, as well as a commitment by the operating company to
purchase certain CDMA equipment from QUALCOMM. In most of these operating
companies, QUALCOMM has also assumed a significant role in the operations and
management of the entity.
Upon completion of the Distribution, Leap will own certain of QUALCOMM's
joint venture and equity interests in a number of these operating companies and
will assume QUALCOMM's management role with respect to these entities. In
particular, QUALCOMM will transfer to Leap all of its joint venture and equity
interests in Pegaso Telecomunicaciones, S.A. de C.V. (Mexico), Metrosvyaz
Limited (Russia), Orrengrove Investments Limited (Russia), Telesystems of
Ukraine (Ukraine), ChileSat Telefonia Personal, S.A. (Chile), Chase
Telecommunications, Inc. (U.S.), OzPhone Pty. Ltd. (Australia) and certain other
development-stage businesses. QUALCOMM will also transfer to Leap $10 million
cash; and certain indebtedness of the operating companies owed to QUALCOMM in
the amount of approximately $58.4 million, approximately $28 million of which is
indebtedness under convertible notes given by ChileSat Telefonia Personal, S.A.
QUALCOMM will also make a substantial funding commitment to Leap in the form of
a $265.0 million secured credit facility.
Leap intends to take an active management role in these operating
companies, consistent with applicable laws, contractual arrangements and other
requirements. Although QUALCOMM is expected to continue to provide equipment
vendor financing, Leap has agreed to assume certain of QUALCOMM's other
obligations to manage operations of and finance costs relating to ongoing
build-outs of the wireless telecommunications systems being deployed by such
operating companies. In addition, Leap intends to pursue opportunities to
provide, manage, support, operate and invest in additional terrestrial-based
wireless telecommunications systems in other targeted United States and
international markets offering high growth potential. QUALCOMM will continue to
be a supplier of CDMA equipment to these operating companies, and has retained
substantially all of its rights under its equipment supply agreements with such
entities. In addition, QUALCOMM will retain a warrant (the "Warrant") to
purchase 5,500,000 shares of Leap Common Stock, at a purchase price equal to the
average of the last sales price per share of the Leap Common Stock on the Nasdaq
National Market for each of the five (5) consecutive trading days beginning with
and including the Distribution Date. The Warrant is exercisable at any time
during the ten (10) years following the Distribution. Based on the number of
shares of Leap Common Stock expected to be outstanding and reserved for issuance
pursuant to outstanding options and convertible securities as of the
Distribution, upon exercise in full of the Warrant QUALCOMM would hold
approximately 18% of the outstanding shares of Leap Common Stock, assuming
exercise of all such outstanding options and convertible securities.
The Board of Directors has determined that it is in the best interests of
QUALCOMM and its stockholders to spin off its interests in the operating
companies described above. QUALCOMM believes that,
<PAGE> 2
although its strategy of investing in emerging wireless telecommunications
operating companies has benefited QUALCOMM and the advancement of its CDMA
technology and products worldwide, spinning off these assets will eliminate
potential conflicts with QUALCOMM's CDMA equipment customers who compete against
these companies. In addition, QUALCOMM believes that (i) the value of the joint
venture and equity interests being spun off are not fully recognized in the
current market price of QUALCOMM's stock, (ii) the Distribution will enable
QUALCOMM's and Leap's respective management teams to better focus on enhancing
each company's competitive position in its respective businesses, thereby
producing greater stockholder value over the long-term, and (iii) the
Distribution will better enable Leap to attract, retain and motivate the
employees necessary to achieve its business objectives by allowing it to
implement its own equity-based incentive plans. Finally, without the spin off,
according to applicable accounting rules, QUALCOMM would be required to continue
recognizing a share of these companies' start-up operating losses, which are
likely to be substantial, and would be required to eliminate intercompany
profits from equipment sales to some of these companies.
The Distribution is expected to be taxable to the holders of QUALCOMM
Common Stock. See "Certain Federal Income Tax Considerations." Harris Trust
Company of California is acting as distribution agent and will be responsible
for mailing stock certificates to Leap stockholders following the Distribution.
The enclosed Information Statement explains the Distribution in greater
detail and provides financial and other important information regarding Leap. We
urge you to read it carefully. Holders of QUALCOMM Common Stock as of the Record
Date are not required to take any action to participate in the Distribution. A
stockholder vote is not required in connection with this matter and,
accordingly, your proxy is not being sought.
We are enthusiastic about the Distribution and look forward to the future
success of QUALCOMM and Leap as separate publicly traded companies.
Sincerely,
Irwin M. Jacobs
Chairman of the Board and Chief
Executive Officer
<PAGE> 3
LEAP WIRELESS INTERNATIONAL, INC. LETTERHEAD
, 1998
Dear Stockholder:
I am very pleased that you will soon be a stockholder of Leap Wireless
International, Inc. ("Leap"). I want to take this opportunity to briefly touch
on some of our current business activities and on some of our plans for the
future. Leap today has interests in a number of existing and newly formed
digital wireless businesses around the world using CDMA -- the powerful, rapidly
expanding technology pioneered by QUALCOMM Incorporated ("QUALCOMM"). These
wireless telephone businesses are generally joint ventures with several
partners, with no single majority partner; however, Leap is generally one of the
largest partners. Leap intends to provide a significant portion of the
management and operational leadership of these entities. We see Leap becoming a
major provider of leadership, management and services to wireless telephone
companies worldwide.
Leap's businesses are largely overseas at this time with an emphasis on
Latin America and Eastern Europe. These are two areas that we believe hold good
promise for the future of wireless telephone and data systems. Generally, they
are ones where teledensity (i.e., the number of phones per one hundred people)
is still low, but growing, and where the underlying economies have the potential
to expand and prosper over the next few years. We are also planning to pursue
opportunities in the Asia-Pacific region as is indicated by our recent purchase
of spectrum in Australia. We are also carefully studying the possibilities to
expand our activities domestically.
The early phases of new telephone system deployment are always capital
intensive, and this will clearly be the case for Leap. A significant part of our
effort and the effort of our joint ventures will be in obtaining the capital to
meet the current build-out plans and support the growth of each venture and of
Leap itself. We will also be concentrating a great deal of our initial energy on
bringing our current ventures into positive cash flow and earnings. However, we
will be keeping tabs on opportunities elsewhere as they arise.
Together with our partners, we believe that the combination of the
potential of our current joint ventures, QUALCOMM's vendor commitments to our
ventures and our focus on CDMA (which is rapidly becoming a dominant technology
of choice throughout the world) gives us a strong base to commence operations.
We intend to build from this base and to explore other promising opportunities
as an operator of quality wireless systems.
I believe as an independent stand-alone company we can more effectively
focus on our objectives, support the capital needs of our company and thus bring
value to our stockholders and expand our business.
We look forward to your support, and we will be providing more information
on the current systems as they commence commercial service and on new ventures
as we undertake them.
Leap has applied for listing of its shares on the Nasdaq National Market
under the symbol "LWIN."
Leap's Board, management and employees are excited about our future as an
independent company and look forward to your participation in our success.
Sincerely,
Harvey P. White
Chairman, Chief Executive Officer and
President
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENTS.
SUBJECT TO COMPLETION, DATED AUGUST 21, 1998
INFORMATION STATEMENT
LEAP WIRELESS INTERNATIONAL, INC.
COMMON STOCK
PAR VALUE $0.0001 PER SHARE
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by QUALCOMM Incorporated ("QUALCOMM") to
holders of record of QUALCOMM Common Stock, par value $0.0001 per share (the
"QUALCOMM Common Stock"), at the close of business on September 11, 1998 (the
"Record Date") of one (1) share of Common Stock, par value $0.0001 per share
(the "Leap Common Stock"), including certain attached preferred stock purchase
rights (the "Rights"), of Leap Wireless International, Inc. ("Leap" or the
"Company") for every four (4) shares of QUALCOMM Common Stock owned on the
Record Date. The Distribution will result in all of the outstanding shares of
Leap Common Stock being distributed to holders of QUALCOMM Common Stock on a pro
rata basis. The Distribution will be effective on September 24, 1998 (the
"Distribution Date"). In addition, QUALCOMM will retain a warrant (the
"Warrant") to purchase 5,500,000 shares of Leap Common Stock, at a price equal
to the average of the last sales price per share of Leap Common Stock on the
Nasdaq National Market for each of the five (5) consecutive trading days
beginning with and including the Distribution Date. The Warrant will be
exercisable at any time during the ten (10) years following the Distribution.
Based on the number of shares of Leap Common Stock expected to be outstanding
and reserved for issuance pursuant to outstanding options and convertible
securities as of the Distribution, upon exercise in full of the Warrant,
QUALCOMM would hold approximately 18% of the outstanding shares of Leap Common
Stock, assuming exercise of all such outstanding options and convertible
securities.
The Company is a newly formed company which, as a result of transactions
being entered into in connection with the Distribution, will own what were
formerly certain of QUALCOMM's joint venture and equity interests in
terrestrial-based wireless telecommunications operating companies in emerging
international markets and the United States. These joint venture and equity
interests will be held directly by Leap, or indirectly by companies controlled
by Leap. The Company intends to take an active management role in these
operating companies consistent with applicable laws, contractual arrangements
and other requirements.
No consideration will be paid by QUALCOMM's stockholders for the shares of
Leap Common Stock issued in connection with the Distribution. There is no
current public trading market for the shares of Leap Common Stock, although it
is expected that a trading market will develop on or about the Record Date. The
Company has applied for listing of the shares of Leap Common Stock and the
attached Rights on the Nasdaq National Market under the symbol "LWIN."
The Distribution is expected to be taxable to the holders of QUALCOMM
Common Stock. See "Certain Federal Income Tax Considerations." Harris Trust
Company of California (the "Distribution Agent") is acting as distribution agent
and will be responsible for mailing stock certificates to Leap stockholders
following the Distribution.
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER
THE MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS."
Stockholders of QUALCOMM with inquiries regarding the Distribution should
contact QUALCOMM Incorporated, Investor Relations, Attention: Julie Cunningham,
6455 Lusk Boulevard, San Diego, California 92121; telephone (619) 658-4224.
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE ARE
NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Information Statement is , 1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION STATEMENT SUMMARY............................... 1
RISK FACTORS................................................ 15
INTRODUCTION................................................ 26
THE DISTRIBUTION............................................ 26
OPINION OF FINANCIAL ADVISOR................................ 29
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS.................. 31
RELATIONSHIP BETWEEN QUALCOMM AND THE COMPANY AFTER THE
DISTRIBUTION.............................................. 33
CAPITALIZATION.............................................. 38
PRO FORMA FINANCIAL STATEMENTS.............................. 39
SELECTED HISTORICAL COMBINED FINANCIAL DATA................. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 45
BUSINESS.................................................... 53
MANAGEMENT.................................................. 73
EQUITY INCENTIVE PLANS...................................... 78
TREATMENT OF QUALCOMM EMPLOYEE STOCK OPTIONS IN THE
DISTRIBUTION.............................................. 88
TREATMENT OF QUALCOMM TRUST CONVERTIBLE PREFERRED SECURITIES
IN THE DISTRIBUTION....................................... 89
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 90
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............. 90
DESCRIPTION OF COMPANY CAPITAL STOCK........................ 91
DESCRIPTION OF RIGHTS AGREEMENT............................. 94
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..... 96
LEGAL MATTERS............................................... 97
ADDITIONAL INFORMATION...................................... 97
INDEX TO FINANCIAL STATEMENTS............................... F-1
ANNEX 1 -- OPINION OF FINANCIAL ADVISOR..................... A-1
</TABLE>
TRADEMARKS
This Information Statement includes trademarks and service marks of
QUALCOMM, Leap and other parties, all of which are the property of their
respective holders.
ii
<PAGE> 6
INFORMATION STATEMENT SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement. Reference is made to, and this summary is qualified
by, the more detailed information set forth in this Information Statement, which
should be read in its entirety. Unless the context otherwise requires, (i)
references in this Information Statement to QUALCOMM or the Company shall
include QUALCOMM's or the Company's respective subsidiaries, and (ii) references
in this Information Statement to the Company prior to the Distribution Date
shall refer to the Leap Business (defined below) as operated by QUALCOMM.
Except for the historical information contained herein, the discussion in
this Information Statement contains forward-looking statements that involve
risks and uncertainties. Leap's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled "Risk
Factors" and elsewhere in this Information Statement.
THE COMPANY
Leap Wireless International, Inc. ("Leap" or the "Company"), manages,
supports, operates and otherwise participates in CDMA-based wireless
telecommunications businesses and ventures located in emerging international
markets and the United States. Outside of the United States, the Company is
currently operating, managing, supporting or participating in the development of
CDMA-based wireless telecommunications systems in Mexico, Russia, Ukraine, Chile
and Australia. Most of these systems are in an early stage of development, and
the Company expects commercial launch of these systems at various times during
1998 and 1999. The Company is also pursuing opportunities to provide, manage,
support, operate and invest in additional wireless telecommunications systems in
other targeted United States and international markets offering high growth
potential.
Leap was formed in June 1998 by QUALCOMM Incorporated ("QUALCOMM"), a
leading provider of digital wireless communications equipment, technologies and
services. QUALCOMM continues to serve as a major supplier of CDMA subscriber and
infrastructure equipment for the Company's wireless telecommunications
businesses, and the Company expects that QUALCOMM will be a major CDMA
subscriber and infrastructure equipment supplier for future wireless
telecommunications businesses which the Company manages, operates and supports
or in which the Company otherwise participates.
Following the Distribution, QUALCOMM will continue to be a supplier of CDMA
equipment and is expected to provide significant vendor financing to Leap's
wireless telecommunications businesses and ventures. These ongoing relationships
could place QUALCOMM in a position in conflict with Leap with respect to Leap's
businesses and ventures. In addition, QUALCOMM and Leap will be parties to a
number of agreements, including but not limited to a Separation and Distribution
Agreement, a Credit Agreement and a Master Agreement Regarding Equipment
Procurement. Such agreements contain restrictions on Leap's ability to invest in
other joint ventures.
The Company's wireless telecommunications systems are based on Code
Division Multiple Access ("CDMA") technology, a proprietary integrated software
and hardware system invented by QUALCOMM and used for digitally transmitting
telecommunications signals in a wireless network. CDMA offers a number of
advantages over analog and other digital technologies, including increased call
capacity, higher quality voice and data transmission, fewer dropped calls,
enhanced privacy, lower power requirements and lower system costs. For purposes
of this Information Statement, "cdmaOne" shall mean those fixed or mobile
wireless telecommunications systems based on or derived from QUALCOMM's CDMA
technology which (i) have been adopted as an industry standard by the
Telecommunications Industry Association ("TIA") or other recognized
international standards bodies, and the adoption of such standard has been voted
in favor of by QUALCOMM ("QUALCOMM Approved Standards"), (ii) are compatible
with or employ the same physical layer as QUALCOMM Approved Standards ("QUALCOMM
Approved Systems"), or (iii) are compatible with the infrastructure and
subscriber equipment manufactured and sold by QUALCOMM. CdmaOne currently
includes, by way of example and not of limitation, the TIA's IS-95 digital
cellular standard and ANSI JSTD-008 digital PCS standard. If a terrestrial-based
wireless telecommunications
1
<PAGE> 7
system is considered a cdmaOne system in one country, QUALCOMM and Leap agree
that it would be considered a cdmaOne system in any other country, irrespective
of whether or not such system has been adopted (or approved by QUALCOMM) as a
standard in such other country. CdmaOne systems have been widely adopted
throughout the world, having been commercially deployed or under development in
approximately 30 countries with over ten million commercial subscribers
worldwide, as of March 31, 1998.
The Company's senior management has many years experience in the wireless
telecommunications industry. A number of the Company's senior management members
have been members of QUALCOMM's senior management and joined the Company from
QUALCOMM in connection with the formation of the Company, including Harvey P.
White, currently Vice Chairman of the Board of QUALCOMM and the Company's
President, Chief Executive Officer and Chairman of the Board; Thomas J. Bernard,
who has served as Senior Vice President of QUALCOMM, who is the Company's
Executive Vice President; and James E. Hoffmann, currently Vice President, Legal
Counsel of QUALCOMM, who is the Company's Senior Vice President and General
Counsel. Leap believes its continuing relationship with QUALCOMM and the other
participants in its operating companies, the experience and expertise of its
management team, and the quality of CDMA and other products and services to be
offered by Leap's operating entities, among other factors, will position Leap to
become a significant provider of wireless telecommunications services worldwide.
The Company operates, manages, supports and participates in its wireless
telecommunications businesses primarily through joint ventures and strategic
alliances with third parties. The Company intends to provide substantial
management and operational support to its wireless telecommunications
businesses, consistent with applicable laws, contractual arrangements and other
requirements, in the areas of system design and planning, design and development
of marketing plans, distribution systems, billing systems and customer support
plans, system launch and roll-out execution and virtually all other operational
functions. The Company intends to provide these services using its own employees
as well as through consultants with substantial experience in the
telecommunications industry. The Company intends to continue to focus on
providing such management and operational support in its future wireless
telecommunications business opportunities.
The Company does not have any operating history as an independent company
and it and each of its wireless telecommunications businesses and ventures are
at an early stage of development. To date, the Company has generated no revenue
from such businesses and ventures, which are expected to incur substantial
losses for the foreseeable future and are subject to substantial risks. The Leap
Business has generated net losses since inception, and Leap will be required to
recognize a share of the start-up operating losses of such businesses and
ventures as a result of the Company's ownership interests therein. The Company's
ability to generate revenues will be dependent on a number of factors, including
the future operations and profitability of the Company's wireless
telecommunications businesses and ventures.
The Company expects to have significant future capital requirements
relating to funding commitments to its wireless telecommunications businesses
and ventures and other general working capital needs. The Company expects to
obtain much of its required near-term financing through borrowings under the
Credit Agreement provided by QUALCOMM. As a result of its capital requirements,
including borrowings under the Credit Agreement, the Company expects that it
will be highly leveraged relatively soon after the Distribution.
Leap's executive offices are located at 10307 Pacific Center Court, San
Diego, CA 92121. Its telephone number is (877) 977-5327.
2
<PAGE> 8
RISK FACTORS
Ownership of the Leap Common Stock involves a high degree of investment
risk. The risk factors set forth below, more fully described in "Risk Factors,"
should be considered carefully with the other risks described in "Risk Factors"
and elsewhere in this Information Statement in evaluating the ownership of the
Leap Common Stock. See "Risk Factors."
- Leap is a newly formed company and does not have any operating history as
an independent company.
- The Company's ability to generate revenues will be dependent on a number
of factors, including the future operations and profitability of the
Company's wireless telecommunications businesses and ventures.
- The Company expects to have significant future capital requirements, and
there can be no assurance that such required funding will be available on
favorable terms or at all.
- The Company expects that it will be highly leveraged relatively soon
after the Distribution.
- The Company's joint ventures have generated net losses since inception
and will be required to recognize a share of the start-up operating
losses of its wireless telecommunications businesses and ventures, which
are likely to be substantial.
- QUALCOMM's ongoing relationships with the Company's wireless
telecommunications businesses and ventures could place QUALCOMM in a
position in conflict with Leap. In addition, QUALCOMM and Leap will be
parties to a number of ongoing agreements which contain restrictions on
Leap's ability to invest in other joint ventures.
- There can be no assurance that the Company and its wireless
telecommunications businesses and ventures will be able to acquire and
maintain required telecommunications operating licenses.
- The Company and its wireless telecommunications businesses and ventures
will face significant construction and system performance risks.
- The Company will be a participant in a number of joint ventures and may
have limited ability to withdraw funds from or exercise management
control over such ventures.
- There can be no assurance that the Company's business activities will not
ultimately subject the Company to the registration requirements of the
Investment Company Act of 1940.
- The Company will be subject to a number of international risks as a
result of its international business operations.
- The Company faces intense competition in the wireless telecommunications
industry.
- The Company will be dependent upon industry acceptance and adoption of
cdmaOne.
- The Company and its wireless telecommunications businesses and ventures
are subject to substantial governmental regulation both domestically and
abroad.
- The Company's success will be significantly dependent upon the
contributions of a number of its key personnel, including Harvey P.
White, Chairman of the Board, President and Chief Executive Officer,
Thomas J. Bernard, Executive Vice President, and James E. Hoffmann,
Senior Vice President and General Counsel.
3
<PAGE> 9
THE DISTRIBUTION
DISTRIBUTING CORPORATION...... QUALCOMM.
DISTRIBUTED CORPORATION....... Leap is a newly formed company which, as of the
Distribution Date, will have transferred to it
certain of QUALCOMM's joint venture and equity
interests in terrestrial-based wireless
telecommunications operating companies located
in emerging international markets and the
United States, together with certain other
assets and related liabilities, including
significant funding obligations (the "Leap
Business"). In particular, upon completion of
the Distribution, Leap will own all of
QUALCOMM's joint venture and equity interests
(held directly by Leap or indirectly by
companies controlled by Leap) in Pegaso
Telecomunicaciones S.A. de C.V. (Mexico),
Metrosvyaz Limited (Russia), Orrengrove
Investments Limited (Russia), Telesystems of
Ukraine (Ukraine), ChileSat Telefonia Personal,
S.A. (Chile), Chase Telecommunications, Inc.
(U.S.) and OzPhone Pty. Ltd. (Australia)
(collectively, the "Leap Operating Companies").
In addition, Leap intends to pursue
opportunities to provide, manage, support or
invest in additional terrestrial-based wireless
telecommunications systems in other targeted
United States and international markets
offering high growth potential. QUALCOMM will
also transfer to Leap $10 million cash; certain
indebtedness of certain of the Leap Operating
Companies in the amount of approximately $58.4
million owed to QUALCOMM, approximately $28
million of which is indebtedness owed under
certain ChileSat Telefonia Personal, S.A.
convertible notes. Also, QUALCOMM will make a
substantial funding commitment to Leap in the
form of a $265.0 million secured credit
facility. QUALCOMM's performance as an
equipment vendor is not a condition to payment
to Leap under the notes and other indebtedness
to be transferred. Leap intends to take an
active management role in the Leap Operating
Companies, consistent with applicable laws,
contractual arrangements and other
requirements. Leap will also assume QUALCOMM's
obligations to manage operations of and finance
certain costs relating to ongoing build-outs of
the wireless telecommunications systems being
deployed by such operating companies, including
approximately $77 million of anticipated
funding obligations to certain of the Leap
Operating Companies, other than equipment
financing obligations and including an
additional $7 million which will be
indebtedness to Chilesat Telefonia Personal
convertible into equity on certain terms and
conditions. Leap also intends to pursue
opportunities to provide, manage, support,
operate and invest in additional
terrestrial-based wireless telecommunications
systems in other targeted United States and
international markets offering high growth
potential.
BUSINESSES TO BE RETAINED BY
QUALCOMM.................... QUALCOMM will retain its other businesses,
consisting of all of its current business
activities other than the Leap Business (the
"Core Businesses"). Without limiting the
foregoing, QUALCOMM will continue to be a
supplier of CDMA equipment
4
<PAGE> 10
to the Leap Operating Companies, and has
retained substantially all of its rights under
its equipment supply and vendor finance
agreements with the Leap Operating Companies.
PRIMARY PURPOSES OF THE
DISTRIBUTION.................. The primary purposes of the Distribution are to
(i) eliminate potential conflicts between
QUALCOMM and certain of its CDMA equipment
customers which may compete against the Leap
Operating Companies, (ii) enable the Leap
Business and the Core Businesses to each be
recognized and appropriately valued by the
financial community as a separate and distinct
business, (iii) enable QUALCOMM's and Leap's
respective management teams to better focus on
enhancing each company's competitive position
in its respective businesses, which may produce
greater stockholder value over the long-term,
(iv) better enable Leap to attract, retain and
motivate the employees necessary to achieve its
business objectives by allowing it to implement
its own equity-based incentive plans, (v)
eliminate the continuing recognition by
QUALCOMM of a share of the Leap Operating
Companies' start-up operating losses, and (vi)
remove the requirement that QUALCOMM eliminate
intercompany profits on its equipment sales to
certain of the Leap Operating Companies.
OPINION OF FINANCIAL
ADVISOR....................... Lehman Brothers Inc. ("Lehman Brothers") has
acted as financial advisor to QUALCOMM in
connection with the Distribution and was
engaged to render its opinion with respect to
(i) the fairness, from a financial point of
view of the Distribution, to the holders of
QUALCOMM Common Stock and (ii) whether the
Distribution will materially impair the ability
of QUALCOMM after the Distribution and Leap to
fund in the future, from external sources or
through internally generated funds, their
respective currently anticipated operating and
capital requirements. The full text of the
opinion of Lehman Brothers, which sets forth
the assumptions made, matters considered and
limitations on the review undertaken by Lehman
Brothers, is attached as Annex 1 to this
Information Statement. See "Opinion of
Financial Advisor."
SHARES TO BE DISTRIBUTED;
LEAP SHARE RESERVE.......... Approximately 17,643,830 shares of Leap Common
Stock (the "Leap Shares"), based on the number
of shares of QUALCOMM's Common Stock
outstanding on August 20, 1998, shall be
distributed in the Distribution. The shares to
be distributed will constitute all of the
outstanding shares of Leap Common Stock on the
Distribution Date. In addition, Leap has
reserved 3,218,623 shares for issuance to its
employees, officers, directors and consultants
pursuant to Leap's equity incentive plans;
5,481,377 shares for issuance upon exercise of
options to purchase Leap Common Stock which
will be held as of the Distribution Date by
QUALCOMM employees, officers, directors and
consultants as a result of option grants to
such persons in connection with the
Distribution; 5,500,000 shares for issuance
upon exercise of the QUALCOMM warrant described
below; and 2,271,060 shares for issuance upon
conversion of certain Trust Convertible
Preferred Securities convertible into QUALCOMM
Common Stock pursuant to certain adjustment
provisions contained in such securities.
5
<PAGE> 11
QUALCOMM WARRANT.............. QUALCOMM will retain a warrant (the "Warrant")
to purchase 5,500,000 shares of Leap Common
Stock, at a price equal to the average price of
the last sales price per share of the Leap
Common Stock on the Nasdaq National Market for
each of the five (5) consecutive trading days
beginning with and including the Distribution
Date. The Warrant will be exercisable at any
time during the ten (10) years following the
Distribution. Based on the number of shares of
Leap Common Stock expected to be outstanding
and reserved for issuance pursuant to
outstanding options and convertible securities
as of the Distribution, upon exercise in full
of the Warrant, QUALCOMM would hold
approximately 18% of the outstanding shares of
Leap, assuming exercise of all such outstanding
options and convertible securities. See
"Security Ownership of Certain Beneficial
Owners."
DISTRIBUTION RATIO............ Each QUALCOMM stockholder (each, a "Holder")
will receive one (1) share of Leap Common
Stock, including the attached preferred stock
purchase right (individually, a "Right" and
collectively, the "Rights"), for every four (4)
shares of QUALCOMM Common Stock held on the
Record Date.
NO FRACTIONAL SHARES.......... No fractional shares of Leap Common Stock will
be distributed. Fractional Leap Shares will be
aggregated and sold as whole Leap Shares by
Leap's transfer agent and distribution agent
for the Distribution, Harris Trust Company of
California (the "Distribution Agent"), to
provide cash to Holders in lieu of such
fractional Leap Shares.
LISTING AND TRADING MARKET.... The Company has applied for listing of the
shares of Leap Common Stock and the attached
Rights on the Nasdaq National Market (the
"Nasdaq NMS") under the symbol "LWIN."
RECORD DATE................... Close of business on September 11, 1998.
DISTRIBUTION DATE............. September 24, 1998.
MANNER OF EFFECTING THE
DISTRIBUTION................ On the Distribution Date, all of the
outstanding shares of Leap Common Stock will be
delivered to the Distribution Agent. It is
expected that on or about the Distribution
Date, the Distribution Agent will begin to mail
stock certificates representing shares of Leap
Common Stock to holders of record of QUALCOMM
Common Stock as of the Record Date. See "THE
DISTRIBUTION -- Manner of Effecting the
Distribution."
MATERIAL FEDERAL INCOME TAX
CONSIDERATIONS.............. It is expected that the Distribution will be a
taxable distribution to each Holder in an
amount equal to the fair market value on the
date of the distribution of the Leap Shares
plus the cash intended to represent the fair
market value of fractional Leap Shares
distributed to such Holder. Each Holder's
portion of the Distribution will be taxable as
ordinary income to the extent of such Holder's
pro rata share of the current and accumulated
earnings and profits ("E&P") of QUALCOMM,
measured as of the end of the fiscal year in
which the Distribution occurs (which is
expected to be the fiscal year ending September
27, 1998). If the Holder's
6
<PAGE> 12
share of the Distribution exceeds such Holder's
pro rata share of E&P, the excess will be
treated first as a basis-reducing, tax-free
return of capital to the extent of the Holder's
adjusted tax basis in each QUALCOMM share, and
then as a capital gain (treated as short-term
or long-term depending on the duration the
Holder has held each of its QUALCOMM shares).
No later than January 31, 1999, QUALCOMM will
issue to each Holder an IRS Form 1099-DIV
reflecting the fair market value of the Leap
Shares distributed to such Holder and the
portion of such Distribution that is taxable as
ordinary income. The Holder's adjusted tax
basis for income tax purposes in the
distributed Leap Shares will be the fair market
value of shares on the date of the
Distribution. The Distribution and any
subsequent sale of Leap Shares may have other
federal income tax consequences to Holders. See
"Material Federal Income Tax Considerations."
BECAUSE EACH STOCKHOLDER'S SITUATION IS UNIQUE,
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE TAX CONSEQUENCES OF THE
DISTRIBUTION TO THEM.
DIVIDEND POLICY............... The payment and amount of cash dividends and/or
share repurchases, if any, on or with respect
to, the Leap Common Stock after the
Distribution will be subject to the discretion
of Leap's Board of Directors. However, so long
as the Credit Facility to be provided to the
Company by QUALCOMM in connection with the
Distribution is in effect, Leap will be
contractually prohibited from declaring or
paying any dividends on or with respect to, or
repurchasing, Leap Common Stock. The Company
has never paid or declared any cash dividends.
It is the present policy of the Company to
retain earnings to finance the growth and
development of the businesses and, therefore,
the Company does not anticipate paying cash
dividends on Leap Common Stock in the
foreseeable future. Leap's policy will be
determined and reviewed by its Board of
Directors at such future times as may be
appropriate, and payment of dividends, if any,
on Leap Common Stock will depend upon Leap's
ongoing financial position, capital
requirements, profitability, contractual
obligations, cash flow and such other factors
as Leap's Board of Directors deems relevant.
RELATIONSHIP WITH QUALCOMM
AFTER THE DISTRIBUTION........ Following the Distribution, QUALCOMM and Leap
will be operated as independent publicly traded
companies, with no common officers or
directors. QUALCOMM and Leap will, however,
continue to have a relationship as a result of
the following agreements to be entered into
between QUALCOMM and Leap prior to the
Distribution Date:
Separation and Distribution Agreement. Pursuant
to the Separation and Distribution Agreement,
QUALCOMM will agree to transfer the Leap
Business to Leap. QUALCOMM will also agree to
contribute to Leap the following: (i) $10
million in cash; and (ii) certain indebtedness
of certain of the operating companies in the
amount of approximately $58.4 million owed to
QUALCOMM, approximately $28 million of which is
indebted-
7
<PAGE> 13
ness under certain Chilesat Telefonia Personal
S.A. convertible notes; (iii) QUALCOMM's rights
under agreements to the extent relating solely
to the Leap Business (such as registration
rights and other similar rights as a holder of
equity interests in the Leap Operating
Companies); and (iv) miscellaneous assets. No
intellectual property will be transferred to
Leap in connection with the separation of the
companies (the "Separation"), and QUALCOMM will
retain all rights not expressly transferred
with respect to any and all agreements with the
Leap Operating Companies.
In connection with such transfer of assets and
rights by QUALCOMM, Leap will issue the Leap
Shares and the Warrant to QUALCOMM. In
addition, Leap will agree to assume certain
liabilities of QUALCOMM, including without
limitation (i) significant funding obligations
with respect to the Leap Operating Companies
expected to total at the time of the
Distribution approximately $77 million,
including an additional $7 million which will
be indebtedness to Chilesat Telefonia Personal
convertible into equity on certain terms and
conditions; (ii) QUALCOMM's obligations to
manage operations of and finance certain costs
relating to ongoing systems and build-outs by
the Leap Operating Companies other than
equipment financing obligations; and (iii)
certain obligations with respect to Leap's
employees in the amount of approximately
$662,500.
The Separation and Distribution Agreement will
also provide that, subject to the terms and
conditions thereof, QUALCOMM and the Company
will take all reasonable steps necessary to
effect the Distribution.
Leap will also agree in the Separation and
Distribution Agreement that, until January 1,
2004, it will deploy, subject to certain
specified limited exceptions, only wireless
terrestrial systems using cdmaOne. For purposes
of this Information Statement, "cdmaOne" shall
mean those fixed or mobile wireless
telecommunications systems based on or derived
from QUALCOMM's CDMA technology which (i) have
been adopted as an industry standard by the
Telecommunications Industry Association ("TIA")
or other recognized international standards
bodies, and the adoption of such standard has
been voted in favor of by QUALCOMM ("QUALCOMM
Approved Standards"), (ii) are compatible with
or employ the same physical layer as QUALCOMM
Approved Standards ("QUALCOMM Approved
Systems"), or (iii) are compatible with the
infrastructure and subscriber equipment
manufactured and sold by QUALCOMM. CdmaOne
currently includes, by way of example and not
of limitation, the TIA's IS-95 digital cellular
standard and ANSI JSTD-008 digital PCS
standard. If a terrestrial-based wireless
telecommunications system is considered a
cdmaOne system in one country, QUALCOMM and
Leap agree that it would be considered a
cdmaOne system in any other country,
irrespective of whether or not such system has
been adopted (or approved by QUALCOMM) as a
standard in such other country.
8
<PAGE> 14
In addition, the Company will agree that, until
January 1, 2004, it will, subject to certain
specified limited exceptions, invest only in
companies using cdmaOne systems, in connection
with terrestrial wireless activities. Pursuant
to the Separation and Distribution Agreement
and subject to certain exceptions, QUALCOMM
will have a non-exclusive, royalty-free license
to any patent rights developed by Leap or any
of Leap's affiliates. In addition, pursuant to
the Separation and Distribution Agreement, the
Company will grant to QUALCOMM a right of first
refusal for a period of three (3) years with
respect to proposed transfers by Leap of
interests in joint ventures and equity
interests included in the Leap Business at the
time of the Distribution, subject to
pre-existing rights of other investors. Leap
will further agree to take an active role in
the management of companies with which it has
joint venture or equity interests, consistent
with its own business needs and applicable
laws, contractual arrangements and other
requirements. Finally, the agreement will
provide, with certain limited exceptions, that
for a period of three (3) years following the
Distribution neither party will solicit or hire
employees of the other.
Credit Facility. Prior to the Distribution, the
Company will enter into a secured credit
facility with QUALCOMM (the "Credit Facility").
The Credit Facility will consist of two
sub-facilities. The first sub-facility (the
"Working Capital Facility") will enable Leap to
borrow up to $35.2 million from QUALCOMM,
subject to the terms thereof. The proceeds from
the Working Capital Facility may be used by
Leap solely to meet the normal working capital
and operating expenses of Leap, including
salaries and overhead, but excluding, among
other things, strategic capital investments in
wireless operators, substantial acquisitions of
capital equipment, and/or the acquisition of
telecommunications licenses. The other
sub-facility (the "Investment Capital
Facility") will enable Leap to borrow up to
$229.8 million from QUALCOMM, subject to the
terms thereof. The proceeds from the Investment
Capital Facility may be used by Leap solely to
make certain identified portfolio investments.
Amounts borrowed under the Credit Facility will
be due and payable approximately eight years
following the Distribution Date. QUALCOMM will
have a first priority security interest in,
subject to some exceptions, substantially all
of the assets of Leap 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
shall be payable quarterly beginning September
30, 2001; and prior to such time, accrued
interest shall be added to the principal amount
outstanding.
Master Agreement Regarding Equipment
Procurement. The Master Agreement Regarding
Equipment Procurement (the "Equipment
Agreement") will set forth certain obligations
of Leap and QUALCOMM with respect to the
purchase and sale of certain terrestrial-based
cdma One infrastructure and subscriber
equipment. Pursuant to the Equipment Agreement,
Leap will agree that:
9
<PAGE> 15
(i) Leap will purchase from QUALCOMM not less
than 50% of Leap'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 Leap which is made at
any time prior to the fourth anniversary of the
Distribution Date in a wireless
telecommunication operating entity operating in
the United States in which Leap has not
previously invested (a "U.S. Operator"), Leap
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 which
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 Leap in a U.S. Operator which is made after
the fourth anniversary of the Distribution
Date, Leap shall exercise its commercially
reasonable efforts 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. Such obligations shall
be imposed upon Leap for such infrastructure
and subscriber equipment so long as QUALCOMM's
bid for such (i) infrastructure equipment and
related services, or (ii) subscriber equipment,
as applicable is not greater than 110% of the
lowest competing bid that Leap designates that
Leap 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 $250 million of infrastructure
equipment and related services, or subscriber
equipment, as applicable (calculated
separately), the 110% criterion shall be
lowered to 100% for subsequent purchases of
such equipment as the volume for such category
of purchases exceeds the $250 million
threshold.
Further, until the earlier to occur of (i) the
fourth anniversary of the Distribution Date and
(ii) the date on which Leap has received an
aggregate $60 million of debt or equity
financing (by parties other than QUALCOMM and
excluding the proceeds from the exercise of
Leap stock options), Leap shall cause each
wireless telecommunication operating entity
operating outside the United States in which
Leap has not previously invested (a "Non-U.S.
Operator"), as a condition of and prior to
making such new direct or indirect investment,
to enter into an equipment requirements
agreement with QUALCOMM which shall provide
that the Non-U.S. Operator shall purchase from
QUALCOMM not less than 50% of such Non-U.S.
Operator's requirements for infrastructure and
subscriber equipment during the five year
period commencing on the date of such
investment. With respect to any Non-U.S.
Operators in which Leap makes a direct or
indirect investment following the
above-described applicable period, Leap shall
use
10
<PAGE> 16
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 Non-U.S.
Operator's infrastructure and subscriber
equipment, and encourage such Non-U.S. Operator
to acquire such equipment from QUALCOMM. The
obligations of all such Non-U.S. Operators
shall be subject to QUALCOMM providing
competitive prices, taking into account all
reasonably quantifiable and/or objective
factors associated with the sale and financing
of wireless telecommunications equipment and
related services. Certain additional terms
limit the respective obligations of the parties
to perform under specified circumstances. All
such obligations with respect to equipment
purchases shall expire on the date nine years
following the Distribution.
QUALCOMM's right to supply infrastructure and
subscriber equipment constitutes a right of
first refusal in favor of QUALCOMM. To the
extent Leap (or any subject U.S. Operator or
Non-U.S. Operator) attempts to procure
infrastructure equipment and subscriber
equipment on a "bundled" basis (that is, the
prospective buyer is seeking to enter into a
contract for the purchase of infrastructure
equipment and subscriber equipment from the
same vendor on a concurrent basis), then under
certain prescribed circumstances QUALCOMM shall
be entitled to respond separately to each
portion of the proposed "bundled" procurement.
To the extent Leap 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 Leap on a "most favored
pricing" basis.
Interim Services Agreement. The Interim
Services Agreement (the "Interim Services
Agreement"), will govern the provision by
QUALCOMM to the Company, on an interim basis,
of certain services (which may include voice
telecommunications and data transmission,
accounting, financial management, tax, payroll,
stockholder and public relations, legal, human
resources administration, procurement, real
estate management and other administrative
functions), each as mutually agreed to and on
the terms set forth therein. The Company will
agree to pay QUALCOMM the hourly rate of the
QUALCOMM employees performing such services,
plus associated general and administrative
overhead (which shall be deemed to equal an
additional 150% of the hourly rate of the
employees) and all out-of-pocket costs and
expenses. These interim services are not
expected to extend beyond one year following
the Distribution Date.
Employee Benefits Agreement. Pursuant to the
Employee Benefits Agreement, the Company will
assume and agree to pay, perform, fulfill and
discharge, in accordance with their respective
terms, all liabilities to, or relating to,
former employees of QUALCOMM or its affiliates
who will be employed by the Company. In
addition, Leap will be obligated to grant
(prior to the Distribution) options
11
<PAGE> 17
to purchase shares of Leap Common Stock to
certain holders of options to purchase shares
of QUALCOMM Common Stock. See "Treatment of
QUALCOMM Employee Stock Options in the
Distribution."
Tax Agreement. The Tax Agreement generally will
require QUALCOMM to pay, and indemnify Leap
against, all United States federal, state,
local and foreign taxes relating to the
businesses conducted by QUALCOMM or its
subsidiaries for any taxable period, other than
the following taxes which will be paid by Leap
and against which Leap will indemnify QUALCOMM:
(i) all United States federal, state, local and
foreign taxes relating to Leap and its U.S.
subsidiaries for periods after the
Distribution; (ii) all United States federal,
state, local and foreign taxes relating to
Leap's non-U.S. subsidiaries or any predecessor
or successor thereof for all periods before and
after the Distribution (other than with respect
to certain restructuring transactions incident
to the Distribution); and (iii) all United
States federal, state, local and foreign taxes
arising out of certain actions taken by, or in
respect of, Leap or any of its subsidiaries
that cause adverse tax consequences to
QUALCOMM, Leap or their respective subsidiaries
with respect to the Distribution or the
transactions related thereto; provided,
however, that under certain limited
circumstances Leap's indemnification obligation
described in this subparagraph (iii) may be
reduced.
Conversion Agreement. Pursuant to the
Conversion Agreement, the Company will agree to
issue shares of Leap Common Stock to holders of
QUALCOMM's Trust Convertible Preferred
Securities upon the conversion of such
securities and to, at all times, have reserved
and keep available, solely for issuance and
delivery upon such conversion, all Leap Common
Stock issuable from time to time upon such
conversion.
QUALCOMM's relationships as equipment vendor to
Leap and the Leap Operating Companies and as
lender under the Credit Facility will give
QUALCOMM significant influence over Leap and
will create certain conflicts with Leap. In
addition, QUALCOMM is not restricted from
competing with the Company or the Leap
Operating Companies or pursuing directly
wireless telecommunications businesses or
interests which would also be attractive to
Leap. See "Risk Factors -- Potential Conflicts
with QUALCOMM," and "Relationship Between
QUALCOMM and the Company After the
Distribution."
REASONS FOR FURNISHING THIS
INFORMATION STATEMENT....... This Information Statement is being furnished
solely to provide information for Holders, each
of whom will receive Leap Shares in the
Distribution. It is not to be construed as an
inducement or encouragement to buy or sell any
securities of Leap or QUALCOMM. The information
contained herein is provided as of the date of
this Information Statement unless otherwise
indicated. Leap will not update the information
contained in this Information Statement except
in the normal course of its public disclosure
practices.
12
<PAGE> 18
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth summary historical combined statement of
operations data and combined balance sheet data and corresponding pro forma data
for the Company, a development stage company. The historical combined financial
data for the nine months ended May 31, 1998 and 1997 and years ended August 31,
1997 and 1996 and for the period from September 1, 1995 (inception) to May 31,
1998 are derived from the unaudited Condensed Combined Financial Statements and
the audited Combined Financial Statements of the Company, respectively, which
are included elsewhere in this Information Statement. The historical combined
financial data relate to the Leap Business as it was operated as part of
QUALCOMM, and such data do not reflect significant business activities since the
date of the periods indicated.
The pro forma financial data were derived from the "Pro Forma Financial
Statements" that give pro forma effect to the Distribution. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable. The pro forma statement of operations data
for the nine months ended May 31, 1998 and the year ended August 31, 1997 give
effect to the Distribution as if it had occurred as of September 1, 1996. The
pro forma balance sheet data give effect to the Distribution as if it had
occurred as of May 31, 1998. The pro forma financial data do not purport to
represent what the financial position or results of operations of the Company
would actually have been had the Distribution in fact occurred on the assumed
dates or to project the financial position or results of operations of the
Company for any future period or date. These tables should be read in
conjunction with "Pro Forma Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the unaudited
"Condensed Combined Financial Statements and the Combined Financial Statements"
included elsewhere herein.
SUMMARY COMBINED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FOR THE PERIOD FROM NINE MONTHS PRO FORMA
SEPTEMBER 1, 1995 NINE MONTHS ENDED YEARS ENDED ENDED YEAR ENDED
(INCEPTION) TO MAY 31, AUGUST 31, MAY 31, AUGUST 31,
MAY 31, ------------------- --------------- ----------------- ----------
1998 1998 1997 1997 1996 1998 1997
------------------- -------- -------- ------- ----- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Equity in net (losses) earnings of
wireless operating companies(1)... $ (1,608) $ (1,775) $ (20) $ 167 $ -- $ (1,775) $ 167
General and administrative
expenses.......................... (18,226) (16,452) (994) (1,378) (396) (22,188)(2) (6,647)(2)
-------- -------- -------- ------- ----- -------- -------
Loss from operations ............... (19,834) (18,227) (1,014) (1,211) (396) (23,963) (6,480)
Interest income..................... -- -- -- -- -- 5,459(4) 7,278(4)
Interest expense.................... -- -- -- -- -- (1,579)(4) (2,105)(4)
-------- -------- -------- ------- ----- -------- -------
Loss before income taxes............ (19,834) (18,227) (1,014) (1,211) (396) (20,083) (1,307)
Income tax expense.................. -- -- -- -- -- -- --
-------- -------- -------- ------- ----- -------- -------
Net loss.................... $(19,834) $(18,227) $ (1,014) $(1,211) $(396) $(20,083) $(1,307)
======== ======== ======== ======= ===== ======== =======
Unaudited pro forma basic and
diluted net loss per common
share(3).......................... $ (1.03) $ (0.07) $ (1.14) $ (0.07)
======== ======= ======== =======
Shares used in computing unaudited
pro forma basic and diluted net
loss per common share............. 17,644 17,644 17,644 17,644
BALANCE SHEET DATA(1)(5):
Cash (at end of period)............. $ -- $ -- $ -- $ 10,000
Working capital..................... (2,949) (282) (111) 7,087
Total assets........................ 65,493 54,884 -- 236,153
Stockholder's equity................ 62,544 54,602 (111) 216,190
</TABLE>
- ---------------
(1) As of and for the periods ended May 31, 1998 and 1997 and August 31, 1997
and 1996, and for the period from September 1, 1995 (inception) to May 31,
1998, the Company's combined historical financial data reflect the
13
<PAGE> 19
Company's equity activity from its investments in Chilesat Telefonia
Personal, S.A., Telesystems of Ukraine, and Chase Telecommunications, Inc.
The pro forma statement of operations data for the periods ended May 31,
1998 and August 31, 1997 reflect the Company's equity activity from its
investments in Chilesat Telefonia Personal, S.A., Telesystems of Ukraine,
and Chase Telecommunications, Inc. The pro forma balance sheet data at May
31, 1998 reflects investments in ChileSat Telefonia Personal, S.A.,
Telesystems of Ukraine and Chase Telecommunications, Inc. and additional
investments, to be contributed by QUALCOMM, in Pegaso Telecomunicaciones,
S.A. de C.V., QUALCOMM Telecommunications Limited (Cayman Islands), and
OzPhone Pty. Ltd.
(2) The pro forma adjustment to general and administrative expenses includes
additional expenses which would have been incurred by the Company, if it
were a separate stand alone entity, including incremental executive
compensation and fringe benefits, public relations, insurance, accounting
fees, public company, recruiting and other administrative expenses. The
adjustment reflects assumed staffing levels that are consistent with the
investment activity for the period.
(3) The Company had no common shares outstanding during the first nine months of
fiscal 1998 or during fiscal 1997. The pro forma net loss was calculated by
dividing the net loss for each period by the 17,643,830 expected shares of
common stock of the Company to be issued upon the Distribution based on
QUALCOMM common shares outstanding as of August 20, 1998. Such shares
reflect the expected issuance upon the Distribution of one of the Company's
shares of common stock for every four shares of QUALCOMM common stock
outstanding. See Note 1 of Combined Financial Statements.
(4) Pro forma balance sheet data gives effect to (a) the net assets to be
contributed to the Company by QUALCOMM and (b) the distribution of Leap
common stock to QUALCOMM stockholders.
14
<PAGE> 20
RISK FACTORS
This Information Statement contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those projected in such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this section, as well as those discussed elsewhere in this
Information Statement.
OPERATING HISTORY
The Company was formed as a stand-alone corporation in June 1998 for the
purpose of effecting the Distribution. The Company does not have any operating
history as an independent company and it and each of the Leap Operating
Companies are at an early stage of development. As such, the Company is subject
to the risks inherent in the establishment of a new business enterprise and its
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets and companies experiencing rapid
growth.
UNCERTAINTY OF FUTURE PROFITABILITY
To date, the Company has generated no revenue from its ownership interests
in or management roles with the Leap Operating Companies. The Company's ability
to generate revenues will be dependent on a number of factors, including the
future operations and profitability of the Leap Operating Companies. The Leap
Operating Companies are expected to incur substantial losses for the foreseeable
future and are subject to substantial risks. The Company will be required to
recognize a share of these companies' start-up operating losses as a result of
the Company's ownership interests in the Leap Operating Companies. The industry
in which the Leap Operating Companies operate is highly competitive and is
subject to a number of significant project, market, political, credit and
exchange risks, among others. The Company, QUALCOMM and others will be required
to provide substantial funding to these entities to finance completion of their
wireless operating systems. The build-out of the Leap Operating Companies'
wireless systems may take a number of years to complete. There can be no
assurance that any of the Leap Operating Companies or any other companies in
which the Company may acquire a joint venture or equity interest will be able to
obtain sufficient financing to build-out their systems, meet their payment
obligations to the Company or others, including the Federal Communications
Commission ("FCC") and other regulatory agencies, or become profitable. The
failure of these companies to build-out their systems, meet their payment
obligations or become profitable would adversely affect the value of the
Company's assets and its future profitability. Further, the above factors could
also adversely affect the value of the Leap Common Stock in the public market.
The time required for the Company to reach or sustain profitability is highly
uncertain, and there can be no assurance that the Company will be able to
achieve or maintain profitability. Moreover, if profitability is achieved, the
level of such profitability cannot be predicted and may vary significantly from
quarter to quarter.
ADDITIONAL CAPITAL NEEDS
The Company expects to have significant future capital requirements
relating (i) to funding commitments to the Leap Operating Companies and other
operating companies in which the Company may acquire joint venture or equity
interests and (ii) to general working capital needs and other cash requirements.
The magnitude of these capital requirements will depend on a number of factors,
including the specific capital needs of the Leap Operating Companies, additional
capital needed to acquire or maintain other joint venture or equity interests or
to pursue other telecommunications opportunities, competing technological and
market developments and changes in existing and future relationships. Failure to
satisfy such capital requirements would have a material adverse effect on the
Company's business, results of operations, liquidity and financial position and
could also adversely affect the value of the Leap Common Stock in the public
market. Prior to the Distribution, the Company has funded its cash requirements
through contributions from QUALCOMM.
15
<PAGE> 21
SUBSTANTIAL LEVERAGE
The Company expects to obtain much of its required near term financing
through borrowings under the Credit Facility provided by QUALCOMM. The Company
expects, however, that it will use substantially all of its available cash as of
the Distribution Date and will need to draw down the entire $35.2 million
borrowing limit under the Working Capital Facility and the entire $229.8 million
borrowing limit under the Investment Capital Facility by the end of fiscal 1999.
The Company will have no other available sources of working capital or financing
as of the Distribution Date for the period subsequent to fiscal 1999. There can
be no assurance that the Company will be able to obtain such additional required
financing on favorable terms or at all. The terms of the Credit Facility,
including the security interest in favor of QUALCOMM and other restrictive
covenants, may significantly limit or prevent the Company's ability to obtain
additional debt financing. If additional funds are raised through equity
financings, dilution to the Company's existing stockholders would result. To the
extent that such additional financing is raised by the sale or other transfer of
any of the Company's equity interests in the Leap Operating Companies, the
Companies' percentage ownership in the Leap Operating Companies will be diluted
or the Company may relinquish certain operating control over the Leap Operating
Companies. If adequate additional financing is not available, the Company may be
forced to default on its funding obligations to the Leap Operating Companies,
significantly modify its business plan and, in the case of failure to obtain
working capital financing, cease some or all of its operations. Accordingly, the
failure to obtain adequate additional financing would have a material adverse
effect on the Company's business, results of operations, liquidity and financial
position.
As a result of its capital requirements, including expected borrowings
under the Credit Facility, the Company expects that it will be highly leveraged
relatively soon after the Distribution. The degree to which the Company is
leveraged could have important consequences, including: (i) the Company's
ability to obtain additional financing in the future may be impaired; (ii) a
substantial portion of the Company's future cash flows from operations may be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available for operations; (iii) the Company may be hindered
in its ability to adjust rapidly to changing market conditions; (iv) the
Company's substantial degree of leverage may make it more vulnerable in the
event of a downturn in general economic conditions or in its business; and (v)
the Company's substantial degree of leverage could impair stockholders'
investment in the Company since the Company's debt holders would have priority
with respect to the Company's assets in the event of a liquidation. There can be
no assurance that the Company's future cash flows will be sufficient to meet the
Company's debt service requirements or that the Company will be able to
refinance any of its indebtedness at maturity.
The Leap Operating Companies have used or intend to use various sources of
financing for their respective funding. Although each of them has received
equity infusions, many are or will be highly leveraged. The ability of the Leap
Operating Companies to meet debt covenants will be dependent upon their future
performance, which will be subject to prevailing economic conditions and to
financial, business and other factors beyond their control. The ability of the
Leap Operating Companies to obtain future financings on acceptable terms will be
limited by their leverage and cash flows. In addition, the Leap Operating
Companies will be substantially funded through equipment financing arrangements
from vendors. See "-- Potential Conflicts with QUALCOMM." Such equipment
financings will be contingent upon meeting planned levels of performance, and
should any Leap Operating Company fail to meet such performance requirements,
the related equipment financing could be materially restricted or terminated.
PROJECTED LOSSES
The Company experienced net losses for the nine months ended May 31, 1998
and for the years ended August 31, 1997 and 1996 of approximately $18.2 million,
$1.2 million and $400,000, respectively. Following the Distribution, the Company
will be responsible for the additional costs associated with being an
independent public company, including costs related to corporate governance,
listed and registered securities and investor relations issues. Also, following
the Distribution, according to applicable accounting rules, the Company will be
required to recognize a share of the Leap Operating Companies' operating losses,
which are likely to be substantial. Further, the principal Leap Operating
Companies are in the early stages of developing
16
<PAGE> 22
and deploying their respective telecommunications systems, which require
significant expenditures, a substantial portion of which are incurred before
corresponding revenues are generated, and many of which will in turn be borne by
the Company. In addition, the degree to which the Company and its operating
companies are expected to be leveraged will lead to significant interest expense
and principal repayment obligations with respect to outstanding indebtedness.
The Company therefore expects to incur significant expenses in advance of
generating revenues, and as a result to incur substantial additional losses in
the foreseeable future. There can be no assurance that the Company or any of the
Leap Operating Companies will achieve or sustain profitability in the near term
or at all. Failure to achieve profitability could have an adverse effect on the
market value of the Leap Common Stock.
POTENTIAL CONFLICTS WITH QUALCOMM
Upon completion of the Distribution, Leap will own QUALCOMM's former joint
venture and equity interests in the Leap Operating Companies. QUALCOMM, however,
will continue to be a supplier of CDMA equipment and is expected to provide
significant vendor financing to those companies. QUALCOMM will retain
substantially all of its rights under its equipment supply and vendor finance
agreements with such entities, and such entities will continue to rely on
QUALCOMM and its equipment and technology. QUALCOMM's relationship with and
economic interest in the Leap Operating Companies could place QUALCOMM in a
position in conflict with the Company's with respect to the Leap Operating
Companies.
Following the Distribution, the Company and QUALCOMM will also be subject
to several agreements between them. For instance, the Company will initially be
dependent upon the Credit Facility with QUALCOMM to meet its needs for capital.
The Credit Facility contains a financial covenant and operating covenants,
including restrictions on the ability of the Company to incur indebtedness, to
merge, consolidate or transfer all or substantially all of its assets, to make
certain sales of assets, to create, incur or permit the existence of certain
liens and to pay dividends. In addition, the Credit Facility permits uses of
funds only for specified purposes, restricts the nature and breadth of the
Company's joint venture and equity interests and imposes other restrictions on
the Company's business. The Company and QUALCOMM have also entered into the
Equipment Agreement, pursuant to which the Company has made certain commitments
with respect to its own and its operating companies' purchase of certain CDMA
products from QUALCOMM. The relationships with QUALCOMM, including the Equipment
Agreement and the Credit Facility, may restrict the Company's ability to invest
in other joint ventures. These agreements will allow QUALCOMM to continue to
exert significant influence over the Company following the Distribution, and
there can be no assurance that the Company and QUALCOMM will not experience
disputes or other difficulties with respect to their performance under these
agreements. The deterioration of the Company's relationship with QUALCOMM could
have an adverse effect on the value of the Leap Common Stock through the public
market. See "Relationship Between Qualcomm and the Company After the
Distribution."
AVAILABILITY AND MAINTENANCE OF LICENSES
The ability of the Company and the Leap Operating Companies to retain and
exploit their existing telecommunications licenses, to renew licenses when they
expire, and to obtain new licenses in the future, is essential to the Company's
operations. The Company believes that the opportunity to acquire new
telecommunications licenses may exist only for a limited time and be subject to
intense competition. There can be no assurance that in the future existing
licenses will not be limited, revoked or otherwise adversely modified, or that
renewal of licenses will be granted on terms favorable to the Company or at all,
or that the Company or the Leap Operating Companies will be able to secure
additional desired licenses.
CONSTRUCTION AND SYSTEM PERFORMANCE RISKS
The Company and the Leap Operating Companies will typically require
substantial construction of new telecommunications networks and additions to
existing networks. Construction projects are subject to cost overruns and delays
not within the control of the operating company or its subcontractors, such as
those
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caused by acts of governmental entities, financing delays and catastrophic
occurrences. Accordingly, there can be no assurance that the Company and the
Leap Operating Companies will be able to complete current or future construction
projects for the amount budgeted or on a timely basis, which could jeopardize
subscriber contracts, franchises or licenses and could have a material adverse
effect on the Company and the Leap Operating Companies.
LONG TERM CONTRACTS
In addition, the Leap Operating Companies and Leap have several significant
contracts, including certain network infrastructure contracts with QUALCOMM,
that extend over a multi-year period. There can be no assurance that any or all
of these contracts can be completed on a timely basis, in accordance with the
customer's technical specifications or without significant cost overruns.
Certain of these multi-year contracts also contain demanding installation and
maintenance requirements, in addition to other performance criteria which, if
not satisfied, could subject the operating companies to substantial penalties,
lost profits, damages and operating and start-up losses. The Company expects
that multi-year contracts its operating companies may enter into in the future
may give rise to similar uncertainties.
JOINT VENTURES
The Company will be a participant in joint venture companies that hold
wireless telephone licenses or are seeking such licenses. Many of the Partners
of the joint venture companies have relatively little experience in managing
wireless operating companies. The Company's ability to withdraw funds, including
dividends, from its participation in, and to exercise significant management
influence over, such joint ventures, is dependent in many cases on receiving the
consent of the other participants, over which the Company has no control.
Additionally, many of the Purchases in the joint ventures have invested
relatively small amounts of their own funds in such joint ventures. Any material
disagreement with respect to the operational strategy and system implementation
plans of these joint ventures between the Company and its joint venture partners
could have a material adverse effect on the Company. Additionally, the inability
of any of the Company's joint venture partners to meet its funding or other
obligations with respect to a Leap Operating Company could also have a material
adverse effect on the Company, and could force the Company to make additional
investments in such Leap Operating Companies.
INVESTMENT COMPANY ACT
Following the Distribution, a significant portion of the Company's assets
will consist of equity and other interests in its operating companies.
Significant investments in entities that are not majority owned by the Company
could subject the Company to the registration requirements of the Investment
Company Act of 1940 (the "Investment Company Act"). The Investment Company Act
requires registration of, and imposes substantial restrictions on, certain
companies that engage, or propose to engage, primarily in the business of
investing, reinvesting, owning, holding, or trading in securities, or that fail
certain statistical tests concerning a company's asset composition and sources
of income. Primarily because the Company's operating companies will be engaged
in telecommunication business operations and because the Company intends to
actively participate in the management of its operating companies, consistent
with applicable laws, contractual arrangements and other requirements, the
Company believes that it is primarily engaged in a business other than
investing, reinvesting, owning, holding, or trading in securities. The Company
intends to monitor and adjust the nature of its interests in and involvement
with operating companies in order to avoid subjecting the Company to the
registration requirements of the Investment Company Act. In addition, in order
to clarify the Company's status under the Investment Company Act, the Company
intends to apply on or about the Distribution Date for an exemptive order from
the Securities and Exchange Commission finding and declaring the Company to be
primarily engaged in a business other than investing, reinvesting, owning,
holding or trading in securities, either directly, through majority-owned
subsidiaries or through controlled companies conducting similar types of
businesses. There can be no assurance that the Company's business activities
will not ultimately subject the Company to the Investment Company Act, or that
the exemptive order will be
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issued. If the Company were required to register as an investment company under
the Investment Company Act, it would become subject to regulations that would
have a material adverse impact on its business.
INTERNATIONAL RISKS
The Company is subject to numerous risks as a result of its international
activities. The Leap Operating Companies are dependent, in large part, on the
economies of the markets in which they have operations. Those markets are in
countries with economies in various stages of development or structure reform,
some of which are subject to rapid fluctuations in consumer prices, employment
levels and gross domestic product. The Company and the Leap Operating Companies
are exposed to market risk from changes in foreign currency exchange rates and
interest rates, and are subject to other currency and economic risks, which
could impact their results of operations and financial condition. Moreover,
applicable agreements relating to the Company's interests in the Leap Operating
Companies are frequently governed by foreign law and are subject to dispute
resolution in the courts of, or through arbitration proceedings in, the country
or region in which each such Leap Operating Company is located or another
jurisdiction agreed upon by the parties. Further, public awareness of the risks
associated with international operations may increase the volatility of the
market price of Leap Common Stock. This potential volatility has been evidenced
recently by stock market fluctuations attributed to recent developments in Asia.
The value of the Company's interest in a Leap Operating Company is
partially a function of the currency exchange rate between the U.S. dollars and
the applicable local currency. Exchange rates for currencies of the countries in
which the Company's operating companies do business may fluctuate in relation to
the U.S. dollar, and such fluctuations may have a material adverse effect on the
Company's earnings or assets when translating foreign currency into U.S.
dollars.
A significant part of the Company's strategy involves its planned
activities in a number of developing nations. Various challenges and risks are
attendant to doing business in certain of these countries, including, among
other things, high real estate prices and a shortage of skilled
middle-management employees in addition to risks associated with international
business generally. The Company's activities in developing nations are
significant to the Company's business and the failure of the Company to
effectively implement its strategy in these and other developing nations could
have a material adverse effect on the Company's business, results of operations,
liquidity and financial position.
In addition to the general risks associated with the international
operations of the Leap Operating Companies, the Company will also be subject to
risks specific to the individual countries in which the Leap Operating Companies
are located, including political, regulatory and competitive risks. The
following is a summary of such country-specific risks:
Doing Business in Australia
The Leap Operating Company in Australia is dependent, in large part, on the
economy of that country. The recent economic crisis in Asia has had a negative
impact on the growth of the Australian economy which could, in turn, negatively
impact the Company's prospects in Australia. There can be no assurances that
Australia's economy will not continue to be negatively impacted by the Asian
economic crisis or that the Company's operations in Australia will not similarly
be affected. In addition, three of the Company's existing competitors in
Australia have nationwide operations and have substantially greater financial,
technical, marketing, sales and distribution resources than those of the
Company. The Company's Australian Operating Company has only regional coverage
and the Australian telecommunications market has the potential for new entrants.
There can also be no assurance that the Company will be able to obtain
additional required financing on favorable terms or at all from significant
investors to support its operations in Australia.
Doing Business in Chile
The Leap Operating Company in Chile is dependent, in large part, on the
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economy of that country which historically has been closely tied to fluctuations
in the price of copper. The recent economic crisis in Asia has had a negative
impact on certain commodity prices which could, in turn, negatively impact the
Company's prospects in Chile. Although Chilean prices and its currency generally
have been stable, such stability has required continued intervention by the
Chilean government. In addition, although the Company's Chilean operating
company is the only vendor in Chile of CDMA technology, a number of the
Company's existing competitors in Chile currently have cellular network systems
based on alternative technology in place or have entered into teaming
arrangements in certain areas of the country. There can be no assurance that the
Company's Chilean operating company will be able to compete successfully or that
new technologies and products that are more commercially effective than the
Company's or its operating company's products and services will not be
developed.
Doing Business in Mexico
The rate of inflation in Mexico during 1998 is expected to be 13% and the
country's currency and financial markets continue to be volatile. The impact on
the Mexican economy of the recent economic crisis in Asia and the economic
slowdown in the U.S. is as yet unclear and there can be no assurances that
Mexico's economy will not be negatively impacted by such economic factors or
that the Company's operations in Mexico will not similarly be affected. The
economy of Mexico historically has also been closely tied to fluctuations in the
price of oil and petroleum products and fluctuations in the prices of such
products could also negatively impact the Company's prospects as could
continuing political tensions in Mexico. Additionally, a number of large
American and European companies and large international telecommunications
companies, including Motorola, Ericsson, Alcatel, Nortel and Lucent, are
actively engaged in manufacturing of telecommunications products and/or programs
to develop and commercialize telecommunications services in Mexico. Many of
these competitors have substantially greater financial, technical, marketing,
sales and distribution resources than those of the Company. There can be no
assurance that the Company or its Mexican operating company will be able to
compete effectively.
Doing Business in Russia
The Russian economy recently has experienced severe volatility in both
financial and currency markets despite the monetary support and financing
provided by the IMF. The Russian Ruble has been allowed to devalue significantly
and generally lacks convertibility into other currencies. Political reforms in
Russia continue to be instituted by its current President, but the pace of
reform is slowing and the recent dismissal of a significant number of government
leaders by the Russian President has contributed to continuing political
instability. The regulatory framework and authorities in Russia are relatively
recent and, therefore, the enforcement and interpretation of regulations, the
assessment of compliance, and the degree of flexibility of regulatory
authorities are uncertain. Further, CDMA has not yet been approved in Russia for
mobility applications. Any or all of these factors could negatively impact the
Company's prospects in that country. In addition, the Company's Russian
operating companies are currently subject to increasing competition from other
vendors of telecommunications providers, some of whom are operated or controlled
by Russian regulatory authorities. There can be no assurance that the Company's
Russian operating companies will be able to compete successfully or that new
technologies and products that are more commercially effective than the
Company's or its operating companies' products and services will not be
developed.
Doing Business in Ukraine
The Ukrainian economy recently experienced a deep recession and is
expecting only relatively low growth of 1-2% of GDP during 1998 and 1999.
Ukraine also has a very high debt service requirement and had per capita GDP of
only $2,853. Politically, Ukraine has been subject to a number of risks and the
upcoming parliamentary and presidential elections in 1999 could negatively
impact the
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Company's prospects in that country. In addition, although the Company's
Ukrainian operating company is currently the only known vendor in Ukraine of
CDMA technology, a number of the Company's existing competitors in Ukraine have
planned cellular network systems to compete with the Company's Ukrainian
operating company. The Ukrainian operating company also competes against the
landline carriers, including government-owned telephone companies. There can be
no assurance that the Company's Ukrainian operating company will be able to
compete successfully or that new technologies and products that are more
commercially effective than the Company's or its operating company's products
and services will not be developed.
COMPETITION
There is increasing competition in the wireless telecommunications industry
in the United States and throughout the world. There can be no assurance that
the Company or its operating companies will be able to compete successfully or
that new technologies and products that are more commercially effective than the
Company's or its operating companies' products and services will not be
developed. In addition, many of the Company's prospective competitors have
substantially greater financial, technical, marketing, sales and distribution
resources than those of the Company.
Although the implementation of advanced telecommunications services is in
its early stages in many developing countries, the Company believes competition
is intensifying as businesses and foreign governments realize the market
potential of telecommunications services. Many of the Company's operating
companies currently face competition from existing telecommunication providers.
A number of large American and European companies and large international
telecommunications companies are actively engaged in programs to develop and
commercialize telecommunications services in both developing and developed
countries. In many cases, the Company also competes against the landline
carriers, including government-owned telephone companies. In some cases, the
competition is from government-controlled or -supported entities that are, or
may in the future be, privatized or otherwise become more efficient and
competitive. In addition, the Leap Operating Companies throughout the world may
face competition with new technologies and services introduced in the future.
Although the Leap Operating Companies intend to employ relatively new
technologies, there will be a continuing competitive threat from even newer
technologies that may render the technologies employed by such companies
obsolete. The Company also expects that the price that the Leap Operating
Companies charge for their products and services in certain regions will decline
over the next few years as competition intensifies in their markets.
The U.S. wireless industry is characterized by intense competition between
personal communications service ("PCS"), cellular and other wireless service
providers. A limited number of the Company's prospective competitors are
operating, or planning to operate, through joint ventures and affiliation
arrangements, wireless telecommunications networks that cover most of the United
States. In the United States, the Company will compete directly with other
wireless providers in each of its markets, a number of whom entered the PCS
market earlier than the Company. There can be no assurance that such
time-to-market advantage will not have a material adverse effect on the
Company's ability to successfully implement its strategy. Some competitors are
also expected to market other services, such as cable television access,
landline telephone service and Internet access with their wireless
telecommunications service offerings. Furthermore, certain competing licensees
may partition and disaggregate their competing licenses into smaller service
areas, which could provide new entrants with further opportunities to enter the
Company's market. The Company also believes that the two incumbent cellular
providers in each of the Company's planned United States markets, all of which
have infrastructure in place, a customer base and a brand name, and have been
operational for five to ten years or more, have upgraded or will upgrade their
networks to provide services in competition with the Company. The Company
further expects to compete with other telecommunications technologies such as
paging, enhanced specialized mobile radio and global satellite networks.
In addition, following the Distribution, QUALCOMM may choose to pursue new
CDMA-based wireless telecommunications businesses and ventures that would also
be attractive projects for the Company. QUALCOMM will have no obligation to
refer any such project to the Company and may in fact compete with the Company
for such projects. Also, QUALCOMM will not be restricted from pursuing wireless
telecommu-
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nications opportunities that may compete directly with the Company or the Leap
Operating Companies. Any such competition or potential competition could result
in conflict between the Company and QUALCOMM and adversely affect other
relationships between the companies. Moreover, there can be no assurance that
the Company would be able to compete effectively with QUALCOMM with respect to
these opportunities. Competitive pressures could also suppress the market price
of Leap Common Stock, which would adversely affect the Company's stockholders.
In addition, the Company believes that companies holding equity interests
in multiple operating companies throughout the world will be increasingly
predominant in the wireless communications industry and expects to experience
increasing competition from entities with structures resembling that of Leap.
FOCUS ON CDMAONE
CDMA is a proprietary integrated software and hardware system invented by
QUALCOMM and used for digitally transmitting telecommunications signals in a
wireless network. The Company believes CDMA offers a number of advantages over
analog and other digital technologies, and plans to operate only cdmaOne
networks through the Leap Operating Companies and any future operating companies
in which the Company invests. CdmaOne is the original standard for fixed
wireless telecommunications systems based on or derived from QUALCOMM's CDMA
technology and successor standards that QUALCOMM has adopted.
The telecommunications industry is subject to rapid and significant changes
in technology that could lead to new products and services that compete with
those offered by the Leap Operating Companies or lower the cost of competing
products and services to the point where the Leap Operating Companies' products
and services could become non-competitive, thereby requiring them to reduce
their prices or amend their business plans. The effect of technological changes
on the Company's businesses cannot be predicted. In particular, there can be no
assurance that CDMA will continue to gain acceptance in the wireless
telecommunications industry, or that cdmaOne will continue to gain significant
market share as opposed to other CDMA-based systems. Also, there can be no
assurance that the Leap Operating Companies will not experience technical
difficulties in their commercial deployment. A failure by cdmaOne to gain market
acceptance, or the emergence of another competing technology superior to
cdmaOne, could have a material adverse effect on the Company's business, results
of operations, liquidity and financial position.
GOVERNMENT REGULATION
The construction, operation, sale and interconnection arrangements of
wireless telecommunications systems and the grant, maintenance and renewal of
applicable licenses in each of the countries outside the United States in which
Leap has operations are regulated by governmental authorities in each such
country. In some cases, the regulatory authorities also operate or control the
operations of the competitors of the operating companies. Changes in the current
regulatory environment of these markets or future judicial intervention, or
regulations affecting the pricing of the operating companies' services, could
have a material adverse effect on the Company. In addition, the regulatory
framework and authorities in certain of the countries where the Company operates
are relatively recent and, therefore, the enforcement and interpretation of
regulations, the assessment of compliance, and the degree of flexibility of
regulatory authorities are uncertain. Further, changes in the regulatory
framework may limit the ability to add subscribers to developing systems. An
operating company's failure to comply with applicable governmental regulations
or operating requirements could result in the loss of licenses, penalties and/or
fines or otherwise could have a material adverse effect on the Company. For a
more detailed description of the regulatory environment in the United States and
each of the other countries in which Leap operates, see the "Regulatory
Environment" discussion for each of the Leap Operating Companies under
"Business."
The construction, operation, sale and interconnection arrangements of
wireless telecommunications systems and the grant, maintenance and renewal of
applicable licenses in the United States are regulated to varying degrees by
state regulatory agencies, the FCC, the United States Congress and the courts.
The Leap Operating Companies doing business in the United States, and Leap, will
be required to maintain compliance with all of the requirements for operating
wireless operations in the United States and the requirements for
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<PAGE> 28
entering into reseller agreements with United States operators. Such regulation
is continually evolving and there are a number of issues on which regulation has
been or in the future may be suggested. The Telecommunications Act of 1996
mandates significant changes in existing regulations of the telecommunications
industry to promote competitive development of new service offerings to expand
the availability of telecommunications services and to streamline the regulation
of the industry. There can be no assurance that the FCC, Congress, the courts or
state agencies having jurisdiction over the business of any of the Company's
United States operating companies will not adopt or change regulations or take
other actions that would adversely affect the Company's financial condition or
results of operations. Many of the FCC's rules relating to the businesses of the
Company's United States operating companies have not been tested by the courts
and are subject to being changed by Congressional action. In addition, FCC
licenses are subject to renewal and revocation. There can be no assurance that
the licenses of the Company's United States operating companies will be renewed
or not be revoked.
DEPENDENCE ON KEY PERSONNEL
The Company believes its success will be significantly dependent on the
contributions of a number of its key personnel, including Harvey P. White,
Chairman of the Board, President and Chief Executive Officer, Thomas J. Bernard,
Executive Vice President, and James E. Hoffmann, Senior Vice President and
General Counsel. The loss of the services of Messrs. White, Bernard or Hoffmann,
or other of the Company's key personnel, could have a material adverse effect on
the Company. None of the Company's employees is bound by an employment or
non-competition agreement, and the Company does not maintain "key person" life
insurance on any employee.
SUBSTANTIAL FUTURE DILUTION FROM LEAP SHARE RESERVES
Based on the number of shares of QUALCOMM Common Stock outstanding on
August 20, 1998, an aggregate of 17,643,830 shares of Leap Common Stock will be
issued in the Distribution. Such shares will constitute all of the outstanding
shares of Leap Common Stock as of the Distribution Date. However, the holders of
such shares will be subject to potential substantial dilution due to the
significant number of shares of Leap Common Stock that will be reserved for
issuance following the Distribution. Collectively, there will be 16,471,060
shares of Leap Common Stock reserved for issuance following the Distribution
consisting of the following: 5,500,000 shares for issuance upon exercise of the
Warrants to be issued to QUALCOMM; 3,218,623 shares for issuance to its
employees, officers, directors and consultants pursuant to Leap's equity
incentive plans; 5,481,377 shares for issuance upon exercise of options to
purchase Leap Common Stock which will be held as of the Distribution Date by
QUALCOMM employees, officers, directors and consultants as a result of option
grants to such persons in connection with the Distribution; and 2,271,060 shares
for issuance upon conversion of certain Trust Convertible Preferred Securities
convertible into QUALCOMM Common Stock pursuant to certain adjustment provisions
contained in such securities. Upon conversion of such Trust Convertible
Preferred Securities, QUALCOMM will receive benefit in the form of forgiveness
of debt, but Leap will receive no such benefit or other consideration. Though
the Company does not expect all such shares to be issued, if all such shares
were issued, the holders of shares distributed in the Distribution would be
substantially diluted and would hold 51.6% of the outstanding Leap Common Stock.
See "Description of Company Capital Stock."
NO PRIOR MARKET FOR LEAP COMMON STOCK; VOLATILITY
There has been no public market for the Leap Common Stock prior to the
Distribution. There can be no assurance that an active trading market will
develop or be sustained after the Distribution. The price at which shares are
initially transferred following the Distribution may not be indicative of the
market price for the Leap Common Stock thereafter. The market price for shares
of the Leap Common Stock may be volatile depending on a number of factors,
including business performance, industry dynamics, news announcements,
international factors, or changes in general market conditions, among others.
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ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws"), including provisions classifying the Board of Directors,
prohibiting stockholder action by written consent and requiring advance notice
for nomination of directors and stockholder proposals, may inhibit changes of
control of the Company that are not approved by the Company's Board of
Directors. Such Certificate of Incorporation and Bylaw provisions could diminish
the opportunities for a stockholder to participate in certain tender offers,
including tender offers at prices above the then-current fair market value of
the Leap Common Stock, and may also inhibit fluctuations in the market price of
the Leap Common Stock that could result from takeover attempts. In addition, the
Company's Board of Directors, without further stockholder approval, may issue
preferred stock that could have the effect of delaying, deferring or preventing
a change in control of the Company. The issuance of preferred stock could also
adversely affect the voting power of the holders of Leap Common Stock, including
the loss of voting control to others. The Company has no present plans to issue
any preferred stock. The provisions of the Certificate of Incorporation and
Bylaws may have the effect of discouraging or preventing an acquisition of the
Company or a disposition of certain of the Company's businesses.
The preferred stock purchase rights (the "Rights") attached to each
outstanding share of Leap Common Stock may have some anti-takeover affects. The
Rights are designed to assure that all of the Company's stockholders receive
fair and equal treatment in the event of any proposed takeover of the Company
and to guard against partial tender offers, open market accumulations and other
abusive tactics to gain control of the Company without paying all stockholders a
control premium. The Rights will cause substantial dilution to a person or group
(other than QUALCOMM with respect to the acquisition of shares of the Company's
stock upon exercise of the Warrant) that acquires 15% or more of the Company's
stock on terms not approved by the Company's Board of Directors (an "Acquiring
Person"). The Rights should not interfere with any merger or other business
combination approved by the Board of Directors at any time prior to the first
date that a person or group has become an Acquiring Person.
PRODUCT LIABILITY
Testing, manufacturing, marketing and use of the Company's and the Leap
Operating Companies' products entail the risk of product liability. An inability
to maintain insurance at an acceptable cost or to otherwise protect against
potential product liability could prevent or inhibit the commercialization of
the Company's or any Leap Operating Company's products. In addition, a product
liability claim or recall could have a material adverse effect on the business,
results of operations, liquidity and financial position of the Company.
News reports have asserted that power levels associated with hand-held
wireless telephones may pose certain health risks. The Company is not aware of
any study that has concluded that there are any significant health risks from
using hand-held wireless telephones. If it were determined that electromagnetic
waves carried through the antennas of wireless telephones create a significant
health risk, there could be a material adverse effect on the Company's or the
Leap Operating Companies' ability to market and sell wireless telephone
products. In addition, there may also be certain safety risks associated with
the use of hand-held wireless phones while driving which also could have a
material adverse effect on the Company's or the Leap Operating Companies'
ability to market and sell wireless telephones.
SUBSTANTIAL STOCK SALES
The Distribution will involve the distribution of an aggregate of
approximately 17,643,830 shares of Leap Common Stock to the stockholders of
QUALCOMM. A substantial portion of such shares will be eligible for immediate
resale in the public market. The Company is unable to predict whether
substantial amounts of Leap Common Stock will be sold in the open market soon
after the Distribution. A higher volume of such sales may also occur if
stockholders of QUALCOMM Common Stock choose to sell shares of Leap Common Stock
in order to pay the additional tax liability created as a result of the
Distribution. Any sales of substantial
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amounts of Leap Common Stock in the public market, or the perception that such
sales might occur, could have a material adverse effect on the market price of
the Leap Common Stock.
YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that most computer software
programs have been written using two digits rather than four to represent a
specific year. Any computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
As the Company and the Leap Operating Companies have recently begun their
respective businesses, there exists uncertainty as to the impact the Year 2000
issue could have on the Company. The Company does not believe that the Year 2000
issue will significantly impact its administrative and accounting software,
which have been acquired recently or will be acquired. The Company generally
subjects its vendors to Year 2000 compliance requirements in connection with the
Company's acquisitions of software. Also, the Company believes that the Year
2000 issue will not significantly impair the ability of the Leap Operating
Companies' wireless communications networks to perform as intended. The Leap
Operating Companies are expected to have direct or indirect computerized
interfaces to third parties relating to the transmission of telecommunications
traffic over local, national and international telecommunications networks. The
Leap Operating Companies are vulnerable to the failure of such third parties to
adequately address their Year 2000 issues. Such failures, should they occur,
could cause significant disruption to the operations of the Leap Operating
Companies, including the ability to provide certain services and correctly bill
customers, resulting in the potential for revenue loss and increased costs. The
Company is not currently aware of any significant third party problems
concerning the computerized interfaces, but as the Leap Operating Companies have
only recently begun network build-out and commercial activities, they have not
yet completed their assessment of the risk associated with third party
interfaces and the Year 2000 issue. This overall assessment is expected to
continue through December 1998. At that time, the concurrently developed
remediation plan will begin, with an expected completion date of July 1, 1999.
The Company is in the process of developing a risk profile to evaluate all third
parties in regard to their capability to become compliant with Year 2000.
As of the date hereof, the Company has not incurred any material costs in
support of the Year 2000 issue. The Company estimates that it will spend
$500,000 in fiscal year 1999 to review and correct any non-information
technology systems as well as support material third party relationships. The
Company has not developed a contingency plan to handle a worst case scenario.
There can be no assurance that the Company will be able to identify all
Year 2000 problems in its systems, the systems of the Leap Operating Companies
or third party systems with which the Company or the Leap Operating Companies
will have computerized interfaces in advance of their occurrence or that the
Company will be able to successfully remedy any problems. The expenses
associated with the Company's efforts to remedy any Year 2000 problems, the
expenses or liabilities to which the Company may become subject as a result of
such problems or the impact of Year 2000 problems on the ability of Leap
Operating Companies to do business with the Company could have a material
adverse effect on the Company's business, prospects, operating results and
financial condition.
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INTRODUCTION
On , 1998, the Board of Directors of QUALCOMM declared a
dividend payable to holders of record of QUALCOMM Common Stock, at the close of
business on the Record Date of one (1) share of Leap Common Stock for every four
(4) shares of QUALCOMM Common Stock held on the Record Date. The Distribution
will be effective on September 24, 1998. A stock certificate will be mailed to
each QUALCOMM stockholder on or about the Distribution Date representing the
number of shares of Leap Common Stock received by such stockholder in the
Distribution. As a result of the Distribution, all of the outstanding shares of
Leap Common Stock will be distributed to QUALCOMM stockholders. See "Description
of Company Capital Stock."
The Company was formed for the purpose of effecting the Distribution. On or
prior to the Distribution Date, QUALCOMM will have transferred to the Company
the Leap Business.
If you have any questions relating to the Distribution, please contact the
Distribution Agent at 311 West Monroe Street, Chicago, IL 60606; (800) 554-3406.
For other information relating to QUALCOMM, please contact: QUALCOMM Investor
Relations Department, QUALCOMM Incorporated, 6455 Lusk Boulevard, San Diego,
California 92121, (619) 658-4224. For questions related specifically to Leap,
please contact: Leap Investor Relations Department, Attention: Daniel O. Pegg,
10307 Pacific Center Court, San Diego, California 92121, (877) 977-5327.
THE DISTRIBUTION
PRIMARY REASONS FOR THE DISTRIBUTION
The Board of Directors of QUALCOMM has determined that it is in the best
interest of QUALCOMM and its stockholders to undertake the Distribution, thereby
separating the Leap Business from QUALCOMM, for the reasons described herein.
QUALCOMM believes that its joint venture and equity interests in emerging
wireless telecommunications operating companies create potential conflicts with
QUALCOMM's CDMA equipment customers which compete against these companies. In
addition, the separation of the Leap Business from the Core Businesses is
intended to allow the two entities to be recognized and appropriately valued by
the financial community as distinct businesses with different investment risk
and return profiles. In this regard, investors may be better able to evaluate
the merits and future prospects of the businesses of QUALCOMM and the Company,
enhancing the likelihood that each will achieve appropriate market recognition
and valuation for its performance and potential. Current stockholders and
potential investors will be better able to direct their investments to their
specific areas of interest. The Distribution will also enable the Company, as
and when appropriate, to explore the possibility of engaging in strategic
acquisitions, joint ventures and other collaborative arrangements.
The Distribution will also permit management of each of the Company and
QUALCOMM to focus its attention on its respective businesses. In addition, the
Distribution will allow each of the Company and QUALCOMM to allocate its
financial resources to address its particular business needs and capitalize on
its business opportunities. With respect to the Company, the Distribution is
designed to establish Leap as a stand alone independent company that can adopt
strategies and pursue objectives appropriate to its specific businesses. As an
independent company, the Company's management should be better able to structure
and operate the Company in a manner more directly and appropriately tailored to
meet the business opportunities and challenges presented by the competitive core
environment in which the Company operates.
The Distribution is also designed to allow the Company and QUALCOMM to each
establish and tailor its own equity-based compensation plans so that there will
be a more direct alignment between the performance of each business and the
compensation of its management. Among other things, the implementation of a
separate Leap equity-based compensation plan is intended to strengthen and
enhance the Company's ability to achieve cost savings and enhance efficiencies.
Following the Distribution, the Company's management will receive equity-based
incentives which will be more closely aligned with the financial results of the
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Company, thereby linking each employee's financial success more directly to the
financial success of the Company. See "Management."
Moreover, without the spin-off, according to applicable accounting rules,
QUALCOMM would be required to continue recognizing a share of these companies'
start-up operating losses, which are likely to be substantial, and would be
required to eliminate intercompany profits from equipment sales to some of these
companies.
The Distribution may also impose a number of significant detriments,
disadvantages and risks on the Company and its stockholders. Although the
Distribution is intended to allow Leap and QUALCOMM to be recognized and
appropriately valued by the financial community as distinct businesses with
different investment risk and return profiles, Leap's stockholders will hold
investments in a less diversified business with less financial resources than
prior to the Distribution, which will cause Leap and its stockholders to be more
susceptible to operational and industry fluctuations and competitive pressures.
Leap will be required to recognize a share of the start-up operating losses of
the Leap Operating Companies, which are likely to be substantial. Although
following the Distribution management of each company will be better able to
focus attention on its respective business, Leap will not enjoy the same
management and operational synergies and economies of scale as it did as a part
of QUALCOMM. In addition, the Distribution could result in potential management
disruption as a result of key management and other personnel moving from
QUALCOMM to Leap in connection with the Distribution. Finally, the ongoing
agreements between QUALCOMM and Leap contain restrictions on Leap's ability to
invest in other joint ventures. See "Risk Factors."
The QUALCOMM Board of Directors has determined that the Distribution is in
the best interest of QUALCOMM and its stockholders, for the reasons stated
above. In reaching such conclusions, the Board considered a number of factors,
including the opinion received from QUALCOMM's financial advisor and other
factors.
In May 1998, management held various conversations with individual members
of QUALCOMM's Board of Directors to discuss the possibility of a spin-off of
certain of QUALCOMM's interests in terrestrial-based wireless telecommunications
operating companies. During such conversations, management indicated that the
proposed spin-off might result in substantial benefits to QUALCOMM and its
stockholders, including those noted above. Although no formal Board action was
taken, the members of the Board with whom such discussions had been held were
supportive of management continuing to explore the possibility of the proposed
spin-off. On May 21, 1998, management and members of the Board participated in a
telephonic conference during which management reviewed, and the participants
discussed, various aspects of a possible spinoff, including risks and potential
benefits. On May 27, 1998, QUALCOMM issued a press release announcing that it
was considering a proposed spin-off of the Company, subject to review and
approval by QUALCOMM's Board of Directors.
On June 29, 1998, QUALCOMM held a telephonic meeting of its Board of
Directors to discuss the proposed spin-off. The Board heard presentations from
various members of QUALCOMM's management regarding the possible structure and
timing of the proposed transaction, as well as management's analysis of the
potential impact of the transaction on QUALCOMM and its future earnings and
customer relations. At the meeting, management noted that for a number of
reasons, including to minimize taxes payable by QUALCOMM's stockholders as well
as losses to be recognized by QUALCOMM as a result of an allocation of the
start-up company operating losses of the Leap Operating Companies, it would be
important to complete the transaction, if approved by the Board of Directors, by
the end of the current fiscal year. Although the Board did not formally approve
the transaction at that time, in order to preserve the ability to complete the
transaction within the desired time frame, the Board authorized management to
continue exploring the possible spin-off and to move forward with the proposed
transaction, again subject to further review and approval by the QUALCOMM Board.
On July 1, 1998, Leap filed with the Securities and Exchange Commission a
Registration Statement on Form 10 relating to the proposed Distribution, and
QUALCOMM issued a press release announcing the filing of the Registration
Statement on Form 10 and the proposed Distribution, subject to Board approval.
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On July 20, 1998, QUALCOMM held a regularly scheduled meeting of its Board
of Directors at which the Board again discussed the proposed spin-off.
Management gave presentations to the Board on the status of the transaction and
the proposed structure as well as its further analysis regarding the impact of
the potential transaction on QUALCOMM and its future earnings, financial
position and customer relations. Among other things, management noted that
QUALCOMM's earnings for the quarter ended June 30, 1998 included $6 million of
equity losses of investees that were proposed to be spun-off as part of the
proposed Distribution. Although the Board again did not formally approve the
transaction, the Board authorized management to continue moving forward with the
proposed transaction, subject to further review and approval by the QUALCOMM
Board.
The QUALCOMM Board of Directors is expected to have a meeting on September
4, 1998, at which the Board will consider and vote upon the Distribution as
proposed. At that meeting, Lehman Brothers, Inc. ("Lehman Brothers") is expected
to render an opinion to the QUALCOMM Board regarding the Distribution. See
"OPINION OF FINANCIAL ADVISOR."
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in a Separation and Distribution Agreement (the "Distribution Agreement") to be
entered into prior to the Distribution Date between QUALCOMM and the Company.
The Distribution will be made on the basis of one (1) share of Leap Common
Stock, including the attached Right, for every four (4) shares of QUALCOMM
Common Stock held on the Record Date. The actual total number of shares of Leap
Common Stock to be distributed will depend on the number of shares of QUALCOMM
Common Stock outstanding on the Record Date. Based upon the shares of QUALCOMM
Common Stock outstanding on August 20, 1998, approximately 17,643,830 shares of
Leap Common Stock will be distributed to QUALCOMM stockholders. The shares of
Leap Common Stock will be fully paid and nonassessable and the holders thereof
will not be entitled to preemptive rights. See "Description of Company Capital
Stock, "Treatment of QUALCOMM Employee Stock Options in the Distribution" and
"Treatment of QUALCOMM Trust Convertible Preferred Securities in the
Distribution."
On the Distribution Date, all of the outstanding shares of Leap Common
Stock will be delivered to the Distribution Agent. It is expected that on or
about the Distribution Date, the Distribution Agent will begin to mail stock
certificates representing shares of Leap Common Stock to holders of record of
QUALCOMM Common Stock as of the Record Date.
No fractional Leap shares will be distributed. The Distribution Agent will,
promptly after the Distribution Date, aggregate all such fractional share
interests in Leap Common Stock with those of other similarly situated
stockholders and sell such fractional share interests in Leap Common Stock at
then-prevailing prices. The Distribution Agent will distribute the cash proceeds
to stockholders entitled to such proceeds pro rata based upon their fractional
interests in Leap Common Stock. No interest will be paid on any cash distributed
in lieu of fractional shares.
No holder of QUALCOMM Common Stock will be required to pay any cash or
other consideration for the shares of Leap Common Stock received in the
Distribution or to surrender or exchange shares of QUALCOMM Common Stock in
order to receive shares of Leap Common Stock.
LISTING AND TRADING OF LEAP COMMON STOCK
There is currently no public market for Leap Common Stock. The Company has
applied for listing of the shares of Leap Common Stock, including the attached
Rights, on the Nasdaq NMS under the symbol "LWIN" and expects a "when-issued"
trading market to develop prior to the Distribution as described below. The
Company is expected to have initially approximately 2,350 holders of record,
based on the number of stockholders of record of QUALCOMM on August 20, 1998.
The Company has never paid or declared any cash dividends. It is the present
policy of the Company to retain earnings to finance the growth and development
of the businesses and, therefore, the Company does not anticipate paying cash
dividends on Leap Common Stock in the foreseeable future. Moreover, so long as
Leap's Credit Facility (as defined below) with
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QUALCOMM is effective, Leap's Board of Directors will be contractually
prohibited from declaring or paying any dividends on or with respect to, or
repurchasing, Leap Common Stock.
A "when-issued" trading market is expected to develop shortly before the
Distribution. The term "when-issued" means that shares can be traded prior to
the time certificates are actually available or issued. Prices at which the
shares of Leap Common Stock may trade on a "when-issued" basis or after the
Distribution cannot be predicted. See "Risk Factors -- No Prior Market for Leap
Common Stock."
The shares of Leap Common Stock distributed to QUALCOMM stockholders will
be freely transferable, except for shares received by persons who may be deemed
to be "affiliates" of the Company within the meaning of the Securities Act of
1933, as amended (the "Securities Act"). See "Risk Factors -- Substantial Stock
Sales." Persons who may be deemed to be affiliates of the Company after the
Distribution generally include individuals or entities that control, are
controlled by, or are under common control with the Company and may include the
directors and principal executive officers of the Company as well as any
principal stockholder of the Company. Persons who are affiliates of the Company
will be permitted to sell their shares of Leap Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as Rule 144
thereunder.
OPINION OF FINANCIAL ADVISOR
Lehman Brothers has acted as financial advisor to QUALCOMM in connection
with the Distribution and was engaged to render its opinion with respect to (i)
the fairness, from a financial point of view, to the holders of common stock of
QUALCOMM, of the Distribution, and (ii) whether the Distribution will materially
impair the ability of QUALCOMM after the Distribution ("New QUALCOMM") and Leap
to fund in the future, from external sources or through internally generated
funds, their respective currently anticipated operating and capital requirements
(as currently projected in the financial forecasts prepared by the management of
QUALCOMM). Lehman Brothers was not requested to opine as to, and its opinion
does not in any manner address, (i) QUALCOMM underlying business decision to
proceed with or effect the Distribution or (ii) the ability of New QUALCOMM or
Leap to access the capital markets at any time following the Distribution.
THE FULL TEXT OF THE WRITTEN OPINION OF LEHMAN BROTHERS DATED [
, 1998] IS ATTACHED AS ANNEX 1 TO THIS INFORMATION STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS MAY READ SUCH OPINION FOR A
DISCUSSION OF ASSUMPTIONS MADE, FACTORS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINION. THE SUMMARY OF LEHMAN
BROTHERS' OPINION SET FORTH IN THIS INFORMATION STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
No limitations were imposed by QUALCOMM on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion except as described below. In arriving at its opinion, Lehman
Brothers did not ascribe a specific range of value to QUALCOMM, New QUALCOMM and
Leap, but rather made its determination as to the fairness, from a financial
point of view, of the Distribution on the basis of a variety of financial and
comparative analyses. Lehman Brothers' opinion is for the use and benefit of the
Board of Directors of QUALCOMM and was rendered to the Board in connection with
its consideration of the Distribution. Lehman Brothers' opinion is not intended
to be and does not constitute a recommendation to any current or prospective
stockholder of QUALCOMM, New QUALCOMM or Leap as to any action or investment
decision which may be taken by such stockholders with respect to shares owned or
to be received by them. Lehman Brothers was not requested to opine as to, and
its opinion does not in any manner address, (i) QUALCOMM's underlying business
decision to proceed with or effect the Distribution or (ii) the ability of New
QUALCOMM or Leap to access the capital markets at any time following the
Distribution.
On , 1998, in connection with the evaluation of the
Distribution by the QUALCOMM Board of Directors, Lehman Brothers rendered its
written opinion that, as of the date of such opinion, and subject to certain
assumptions, factors and limitations set forth in such written opinion as
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described below, the Distribution (i) is fair, from a financial point of view,
to the holders of common stock of QUALCOMM and (ii) will not materially impair
the ability of New QUALCOMM and Leap to fund in the future, from external
sources or through internally generated funds, their respective currently
anticipated operating and capital requirements (as currently projected in the
financial forecasts prepared by the management of QUALCOMM).
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (i) the
Agreements, (ii) the Form 10, the Information Statement and such other publicly
available information concerning QUALCOMM, New QUALCOMM and Leap which Lehman
Brothers believed to be relevant to its inquiry, (iii) financial and operating
information with respect to the business, operations and prospects of QUALCOMM,
New QUALCOMM and Leap furnished to Lehman Brothers by QUALCOMM, (iv) a
comparison of the historical financial results and present financial conditions
of QUALCOMM and, on a pro forma basis, New QUALCOMM and Leap, with those of
other publicly held companies that Lehman Brothers deemed relevant, (v) the
trading history of QUALCOMM common stock and a comparison of such trading
history with those of other publicly held companies that Lehman Brothers deemed
relevant, (vi) publicly available research reports regarding QUALCOMM, (vii) the
terms of selected recent spin-off transactions that Lehman Brothers deemed
relevant and the market performance of securities involved in such transactions
both before and after the consummation of such transactions, (viii) the terms of
certain recent public stock offerings and merger transactions that Lehman
Brothers deemed relevant, and (ix) the proposed terms of the credit facility to
be provided to Leap by New QUALCOMM. In addition, Lehman Brothers had
discussions with the management of QUALCOMM and the proposed management of Leap
concerning the business, operations, assets, financial condition and prospects
of QUALCOMM and, on a pro forma basis, New QUALCOMM and Leap, and undertook such
other studies, analyses and investigations as Lehman Brothers deemed
appropriate.
The opinion states that Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion without independent verification and further relied upon
the assurances of the management of QUALCOMM that they are not aware of any
facts that would make such information inaccurate or misleading. With respect to
the financial forecasts of New QUALCOMM and Leap, upon advice of QUALCOMM we
have assumed that such forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of QUALCOMM as to the future financial performance of New QUALCOMM
and Leap and that New QUALCOMM and Leap will perform in accordance with such
forecasts. In arriving at its opinion, Lehman Brothers has not conducted a
physical inspection of the properties or facilities of QUALCOMM or Leap and has
not made or obtained any evaluations or appraisals of the assets or liabilities
of QUALCOMM or Leap. [In addition, QUALCOMM's Board of Directors did not
authorize Lehman Brothers to solicit, and Lehman Brothers did not solicit, any
indications of interest from any third party with respect to a purchase of the
businesses or assets of Leap]. Lehman Brothers' opinion is necessarily based
upon market, economic and other considerations as they exist on, and can be
evaluated as of, the date of its opinion letter.
In its opinion, Lehman Brothers expressed no opinion as to the prices at
which shares of common stock of New QUALCOMM or Leap will actually trade
following the consummation of the Distribution. In addition, Lehman Brothers
noted that the opinion should not be viewed as providing any assurance that the
combined market value of the shares of common stock of New QUALCOMM and the
shares of common stock of Leap to be received by a stockholder in the
Distribution will be in excess of the current market value of the common stock
of QUALCOMM owned by such stockholder at any time prior to announcement or
consummation of the Distribution.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, spin-offs, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements, and
valuations for corporate and other purposes. QUALCOMM selected Lehman Brothers
to act as its financial advisor in connection with the Distribution based upon
its expertise in the foregoing areas and its familiarity with the Company's
industry.
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QUALCOMM will pay Lehman Brothers a fee of $1 million for its services in
connection with the Distribution. The receipt of a portion of this fee is
contingent upon the consummation of the Distribution. Lehman Brothers also will
be reimbursed for its reasonable expenses incurred in rendering its services.
QUALCOMM has agreed to indemnify Lehman Brothers for certain liabilities that
may arise out of the rendering its opinion. Lehman Brothers also has performed
various investment banking services for QUALCOMM in the past and has received
customary fees for such services. In the ordinary course of its business, Lehman
Brothers actively trades in the securities of QUALCOMM for its own account and
for the accounts of its customers and, accordingly, may at any time hold long
and/or short positions in such securities or in the securities of New QUALCOMM
or Leap following the Distribution.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion sets forth the opinion of Cooley Godward LLP with
respect to material federal income tax considerations under the Internal Revenue
Code of 1986, as amended (the "Code"), with respect to the Leap Shares and any
cash in lieu of fractional Leap Shares, distributed to Holders in the
Distribution. This discussion does not address the tax consequences of the
acquisition of Leap Shares by purchase, exercise of stock options or means other
than the distribution. Holders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular Holders in light of their particular circumstances, such as Holders
who are foreign persons, dealers in securities, banks, insurance companies,
Holders that hold their shares as a hedge or as part of a hedging, straddle,
conversion or other risk reduction transaction, Holders that acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions, Holders that are exempt from federal income tax and
Holders subject to the alternative minimum tax provisions of the Code. This
discussion is based upon the Code, Treasury Regulations (including temporary and
proposed Treasury Regulations) promulgated thereunder, rulings, official
pronouncements and judicial decisions all as in effect on the date hereof and
all of which are subject to change or different interpretations by the Internal
Revenue Service ("IRS") or the courts, any of which changes or interpretations
may have retroactive effect. Cooley Godward LLP has disclaimed any undertaking
to advise QUALCOMM or the Holders as to any change in the law that may affect
this discussion, including changes that may be made under currently pending
legislative proposals. In addition, no opinion has been expressed as to the tax
laws of any jurisdictions other than the United States of America. An opinion of
counsel does not bind the IRS, which could take a contrary position, but
represents only counsel's judgment as to the likely outcome if the issues
involved were properly presented to a court of competent jurisdiction. This
discussion assumes that the Leap Shares will at all relevant times constitute
capital assets of each of the Holders. This discussion does not address state,
local, or foreign tax considerations. BECAUSE EACH HOLDER'S TAX SITUATION IS
UNIQUE, THE DISTRIBUTION MAY AFFECT EACH HOLDER DIFFERENTLY. FOR THIS REASON,
EACH HOLDER IS URGED TO CONSULT WITH HIS OWN TAX ADVISOR TO DETERMINE THE TAX
CONSEQUENCES OF THE DISTRIBUTION TO HIM. Cooley Godward LLP acted as United
States federal income tax counsel to QUALCOMM, assisted in preparing this
Information Statement and consents to the use of its opinion in this Information
Statement.
Taxability of The Distribution To Holders of QUALCOMM Common Stock. The
fair market value of the Leap Shares, plus the cash intended to represent the
fair market value of a fractional Leap Share (together, the "Distribution
Amount"), distributed to a Holder of QUALCOMM Common Stock will constitute a
dividend taxable as ordinary income to the extent that QUALCOMM has current or
accumulated "earnings and profits" as of the end of the taxable year (expected
to be September 27, 1998) in which the Distribution occurs that are allocable to
the Distribution for federal income tax purposes ("E&P"). Assuming that there
will be a public market for the Leap Shares at the time of the Distribution, the
fair market value of a Leap Share to a Holder for this purpose is expected to be
the average of the high and low trading price on the date of the Distribution
or, if such date is not a trading day, on the first trading day following the
Distribution. However, if the Distribution Amount exceeds the Holder's allocable
share of QUALCOMM's E&P, the excess will generally be treated first as a
basis-reducing, tax-free return of capital to the extent of the Holder's
adjusted tax basis in the Holder's QUALCOMM Common Stock, and after this
adjusted tax basis is reduced to zero, as either short-term or long-term capital
gain income to the extent of the remaining
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Distribution Amount to be accounted for. QUALCOMM's management has estimated
that, based on the information currently available, QUALCOMM's E&P may be less
than the Distribution Amount. In such an event, the basis-reducing, tax-free
return of capital and capital gain distribution rules described above would
apply. Accordingly, each Holder would need to determine its adjusted per share
tax basis in each of its QUALCOMM Common Stock shares to determine how the
Distribution would be taxed. This determination of E&P will be made by
QUALCOMM's management as soon as practicable after the close of QUALCOMM's
taxable year in which the Distribution occurs.
No later than January 31, 1999, QUALCOMM will issue to each Holder of
QUALCOMM Common Stock receiving Leap Shares in the Distribution an IRS Form
1099-DIV reflecting such Holder's portion of the Distribution Amount. The IRS
Form 1099-DIV will also indicate what portion of the Distribution is an ordinary
dividend, taxable as ordinary income, and a nondividend distribution, taxable as
a tax-free return of capital or capital gain income depending on each Holder's
own situation.
To the extent that the Distribution Amount constitutes ordinary dividend
income (the "Dividend Amount"), it will generally be subject to back-up
withholding with respect to Holders who, before the Distribution, have not
provided their correct taxpayer identification number to QUALCOMM on an IRS Form
W-9 or a substitute therefor. Although this discussion does not generally
address tax consequences of the Distribution to foreign Holders of QUALCOMM
Common Stock, such Holders should note that distribution of the Dividend Amount
will generally be subject to U.S. withholding tax at the rate of 30%. This
withholding tax rate may be reduced by income tax treaties to which the United
States is a party. Non-resident alien individuals, foreign corporations and
other foreign Holders are urged to consult their own tax advisors regarding the
availability of such reductions and the procedures for claiming them, including,
but not limited to, executing an IRS Form W-8 to identify themselves as foreign
Holders to which an exception to the general withholding tax rules would apply.
For United States resident corporate Holders of QUALCOMM Common Stock, the
Dividend Amount will be eligible for a "dividends-received" deduction, subject
to limitations and exclusions provided by the Code. However, for corporate
Holders of QUALCOMM Common Stock, the Dividend Amount will be subject to the
Code's extraordinary dividend rules, which could reduce a corporate Holder's
basis in its QUALCOMM Common Stock by the amount of the deduction, if the
Dividend Amount equals at least 10% of the Holder's adjusted basis in its
QUALCOMM Common Stock. Moreover, to the extent that the untaxed Dividend Amount
exceeds the corporate Holder's adjusted basis in its QUALCOMM Common Stock, gain
will be recognized by such corporate Holder.
Sale Of Leap Shares. Upon the sale of Leap Shares, the Holders will have a
capital gain or loss equal to the difference between the sale price and the
Holder's adjusted tax basis in the Leap Shares sold. This gain or loss will be
short-term if the Leap Shares have a holding period of one year or less on the
sale date. For noncorporate Holders, short-term capital gain is currently
subject to federal income tax at a maximum rate of 39.6%. For noncorporate
Holders, capital gain income from assets like Leap Shares, that have a holding
period of more than a year on the sale date, is subject to a maximum federal
income tax rate of 20%. Note that the phase-out or elimination of certain
deductions and exemptions at higher income levels can have the effect of raising
the marginal tax rate at those levels for other income of the taxpayer. There is
presently no difference in federal income tax rates between ordinary income and
capital gains of corporations. Limitations may apply to prevent or defer a
Holder's deduction of capital loss realized on any subsequent sale of Leap
Shares.
A Holder's initial adjusted tax basis in Leap Shares received in the
Distribution will be the fair market value of those Leap Shares at the time of
the Distribution. The holding period for Leap Shares received in the
Distribution will begin with the date of the Distribution.
ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, AND FOREIGN AND APPLICABLE MINIMUM OR ALTERNATIVE
MINIMUM TAX LAWS.
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RELATIONSHIP BETWEEN QUALCOMM
AND THE COMPANY AFTER THE DISTRIBUTION
For purposes of facilitating an orderly transfer on the Distribution Date
of the Leap Business to the Company and an orderly transition to the status of
two separate independent companies, QUALCOMM and the Company, and certain of
their executive officers, will enter into various agreements and relationships,
including those described in this section. The agreements summarized in this
section are included as exhibits to the Registration Statement of which this
Information Statement forms a part. For purposes of agreements described below,
the term "QUALCOMM" refers to QUALCOMM and its subsidiaries, to the extent
applicable.
QUALCOMM's relationships as equipment vendor to Leap and the Leap Operating
Companies and as lender under the Credit Facility will give QUALCOMM significant
influence over Leap and will create certain conflicts with Leap. In addition,
QUALCOMM is not restricted from competing with the Company or any of the Leap
Operating Companies or pursuing directly wireless telecommunications businesses
which would also be attractive to Leap.
SEPARATION AND DISTRIBUTION AGREEMENT
Prior to the Distribution Date, QUALCOMM and the Company will enter into
the Separation and Distribution Agreement which will set forth the agreements
between the Company and QUALCOMM with respect to the principal transactions
required to effect the separation of the companies (the "Separation") and the
Distribution, and certain other agreements governing the relationship between
the parties thereafter.
To effect the Separation, QUALCOMM will agree to transfer the Leap Business
to Leap. QUALCOMM will also agree to contribute to Leap the following: (i) $10
million in cash; (ii) certain other indebtedness of the operating companies in
the amount of approximately $58.4 million owed to QUALCOMM, approximately $28
million of which is indebtedness under certain Chilesat Telefonia Personal S.A.
convertible notes; (iii) QUALCOMM's rights under certain agreements to the
extent relating solely to the Leap Business (such as registration rights and
other similar rights as a holder of equity interest in the Leap Operating
Companies); and (iv) miscellaneous assets. QUALCOMM's performance as an
equipment vendor is not a condition to payment to Leap under the notes and other
indebtedness to be transferred. No intellectual property will be transferred to
Leap in connection with the Separation, and QUALCOMM will retain all rights not
expressly transferred with respect to any and all agreements with the Leap
Operating Companies.
In connection with such transfer of assets and rights by QUALCOMM, Leap
will issue to QUALCOMM the Leap Shares and the Warrant. In addition, Leap will
agree to assume certain liabilities of QUALCOMM, including without limitation
(i) significant funding obligations with respect to the Leap Operating Companies
expected to total at the time of the Distribution approximately $77 million,
including an additional $7 million which will be indebtedness to Chilesat
Telefonia Personal convertible into equity on certain terms and conditions; (ii)
QUALCOMM's obligations to manage operations of and finance certain costs
relating to ongoing systems and build-outs by the Leap Operating Companies other
than equipment financing obligations; and (iii) certain obligations with respect
to Leap's employees in the amount of approximately $662,500.
The Separation and Distribution Agreement will provide that, subject to the
terms and conditions thereof, QUALCOMM and the Company will take all reasonable
steps necessary and appropriate to cause all conditions to the Distribution to
be satisfied, and to effect the Distribution on the Distribution Date. The
Separation and Distribution Agreement will also (i) include releases of claims
of each party to the other, except as expressly set forth in the Separation and
Distribution Agreement, (ii) provide for the allocation of certain contingent
liabilities and (iii) provide the parties with certain indemnification rights
against each other.
Leap will also agree in the Separation and Distribution Agreement that,
until January 1, 2004, it will, subject to certain specified limited exceptions,
deploy only systems using cdmaOne. CdmaOne is the original standard for fixed or
mobile wireless telecommunications systems based on or derived from QUALCOMM's
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CDMA technology and successor standards that QUALCOMM has adopted. CdmaOne has
been adopted as an industry standard by the TIA and other recognized
international standards bodies. For purposes of the Separation and Distribution
Agreement, cdmaOne also includes other CDMA systems that are compatible with or
employ the same physical layer as the original cdmaOne and adopted by QUALCOMM,
or that are compatible with the infrastructure and subscriber equipment
manufactured and sold by QUALCOMM (e.g., the TIA/EIA/IS-95 digital cellular
standard and ANSI JSTD-008 digital PCS standard to be published).
The Company will also agree that, until January 1, 2004, it will, subject
to certain specified limited exceptions, invest only in companies using cdmaOne
systems, in connection with terrestrial wireless activities. Pursuant to the
Separation and Distribution Agreement, and subject to certain exceptions
QUALCOMM will have a non-exclusive, royalty-free license to any patent rights
developed by Leap or any of Leap's affiliates. In addition, pursuant to the
Separation and Distribution Agreement, the Company will grant to QUALCOMM a
right of first refusal for a period of three (3) years with respect to proposed
transfers by Leap of interests in joint venture and equity interests included in
the Leap Business at the time of the Distribution, subject to preexisting rights
of other investors. Leap will further agree to take an active role in the
management of companies with which it has joint venture or equity interests,
consistent with its own business needs and applicable laws, contractual
arrangements and other requirements. The parties will also agree, with certain
limited exceptions, that for a period of three (3) years following the
Distribution neither party will solicit or hire employees of the other.
CREDIT FACILITY
Prior to the Distribution, the Company will enter into a secured Credit
Facility with QUALCOMM. The Credit Facility will consist of two sub-facilities.
The Working Capital Facility will enable Leap to borrow up to $35.2 million from
QUALCOMM, subject to the terms thereof. The proceeds from the Working Capital
Facility may be used by Leap solely to meet the normal working capital and
operating expenses of Leap, including salaries and overhead, but excluding,
among other things, strategic capital investments in wireless operators,
substantial acquisitions of capital equipment and/or the acquisition of
telecommunications licenses. The Investment Capital Facility will enable Leap to
borrow up to $229.8 million from QUALCOMM, subject to the terms thereof. The
proceeds from the Investment Capital Facility may be used by Leap solely to make
certain identified portfolio investments.
Amounts borrowed under the Credit Facility will be due and payable
approximately eight years following the Distribution Date. QUALCOMM will have a
first priority security interest in, subject to certain exceptions,
substantially all of the assets of Leap 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 shall be payable quarterly beginning September 30, 2001; and
prior to such time, accrued interest shall be added to the principal amount
outstanding. After QUALCOMM assigns more than 10% of the aggregate funding
commitments to other lenders, a commitment fee is payable in favor of the
lenders on unused balances under the Credit Facility.
The Credit Facility will require the Company to, among other things,
achieve and maintain a total debt to total capitalization financial ratio. The
Credit Facility will also contain operating covenants, including restrictions on
the ability of the Company 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 or pay dividends. Pursuant to the
Credit Agreement, Leap will agree that it will not at any time permit the
quotient obtained by dividing total debt by total capitalization of Leap to
exceed the following level during the indicated period:
<TABLE>
<CAPTION>
PERIOD LEVEL
------ -----
<S> <C>
Distribution Date through fourth anniversary thereof........ 70%
After fourth anniversary of Distribution Date............... 50%
</TABLE>
The Company fully expects to be in compliance with the financial covenant at the
Distribution. In addition, the Credit Facility will permit uses of funds only
for specified purposes, restricts the nature and breadth of the
34
<PAGE> 40
Company's joint venture and equity interests, and will impose other restrictions
on the operation of the Company's business. Upon certain sales of assets,
certain agreed percentages of the proceeds are required to prepay the Credit
Facility.
MASTER AGREEMENT REGARDING EQUIPMENT PROCUREMENT
The Master Agreement Regarding Equipment Procurement (the "Equipment
Agreement") will set forth certain obligations of Leap and QUALCOMM with respect
to the purchase and sale of certain terrestrial-based cdmaOne infrastructure and
subscriber equipment. Pursuant to the Equipment Agreement, Leap will agree that:
(i) Leap will purchase from QUALCOMM not less than 50% of Leap'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 Leap which is made at any time prior to the fourth
anniversary of the Distribution Date in a wireless telecommunication operating
entity operating in the United States in which Leap has not previously invested
(a "U.S. Operator"), Leap 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 which 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 Leap in a U.S.
Operator which is made after the fourth anniversary of the Distribution Date,
Leap shall exercise its commercially reasonable efforts 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. Such obligations shall be imposed upon
Leap for such infrastructure and subscriber equipment so long as QUALCOMM's bid
for such (i) infrastructure equipment and related services or (ii) subscriber
equipment, as applicable, is not greater than 110% of the lowest competing bid
that Leap designates that Leap 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 $250 million of infrastructure equipment and related services on the
one hand, or subscriber equipment, as applicable (calculated separately), the
110% criterion shall be lowered to 100% for subsequent purchases of such
equipment as the volume for such category of purchases exceeds the $250 million
threshold.
Further, until the earlier to occur of (i) the fourth anniversary of the
Distribution Date and (ii) the date on which Leap has received an aggregate $60
million of debt or equity financing (by parties other than QUALCOMM and
excluding the proceeds from the exercise of Leap stock options), Leap shall
cause each wireless telecommunication operating entity operating outside the
United States in which Leap has not previously invested (a "Non-U.S. Operator")
in which Leap has made a direct or indirect investment, as a condition of and
prior to making such investment, to enter into an equipment requirements
agreement with QUALCOMM which shall provide that such Non-U.S. Operator shall
purchase from QUALCOMM not less than 50% of such Non-U.S. Operators'
requirements for infrastructure and subscriber equipment during the five year
period commencing on the date of such investment. With respect to any Non-U.S.
Operators in which Leap makes a direct or indirect investment following the
above-described applicable period, Leap 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. The obligations of all such
Non-U.S. Operators shall be subject to QUALCOMM providing competitive prices,
taking into account all reasonably quantifiable and/or objective factors
associated with the sale and financing of wireless telecommunications equipment
and related services. Certain additional terms limit the respective obligations
of the parties to perform under specified circumstances. All such obligations
with respect to equipment purchases shall expire on the date nine years
following the Distribution.
QUALCOMM's right to supply infrastructure and subscriber equipment
constitutes a right of first refusal of QUALCOMM. To the extent Leap (or any
subject U.S. Operator or Non-U.S. Operator) attempts to procure infrastructure
equipment and subscriber equipment on a "bundled" basis (that is, the
prospective
35
<PAGE> 41
buyer is seeking to enter into a contract for the purchase of infrastructure
equipment and subscriber equipment from the same vendor on a concurrent basis),
then under certain prescribed circumstances QUALCOMM shall be entitled to
respond separately to each portion of the proposed "bundled" procurement. To the
extent Leap 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 Leap on a "most favored pricing"
basis.
INTERIM SERVICES AGREEMENT
The Company and QUALCOMM will enter into an Interim Services Agreement
prior to the Distribution Date (the "Interim Services Agreement"), governing the
provision by QUALCOMM to the Company, on an interim basis, of certain data
processing and telecommunications services (which may include voice
telecommunications and data transmission, accounting, financial management, tax,
payroll, stockholder, governmental and public relations, legal, human resources
administration, procurement, real estate management and other administrative
functions), each as mutually agreed to and on the terms set forth therein. The
Company will agree to pay QUALCOMM the hourly rate of the QUALCOMM employees
providing such services, plus associated general and administrative overhead
(which shall be deemed to equal an additional 150% of the hourly rate of the
employee) and all out-of-pocket costs and expenses. These interim services are
not expected to extend beyond one year following the Distribution Date.
EMPLOYEE BENEFITS AGREEMENT
The Employee Benefits Agreement (the "Employee Benefits Agreement") will
govern 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 the Employee Benefits Agreement, the
Company will assume and agree to pay, perform, fulfill and discharge, in
accordance with their respective terms, all liabilities to, or relating to,
former employees of QUALCOMM or its affiliates who will be employed by the
Company. With respect to stock plans, Leap will have in place its 1998 Stock
Option Plan, Employee Stock Purchase Plan and 1998 Non-Employee Directors' Stock
Option Plan, each of which are described in this Information Statement. Leap
will also adopt a 401(k) plan that will be substantially similar to QUALCOMM's,
to which certain assets will be transferred from QUALCOMM's. Otherwise,
effective immediately after the Distribution, the Company will have in effect
its own employee benefit plans, which generally will be the same as QUALCOMM's
plans as in effect at that time. In addition, Leap will be obligated to grant
(prior to the Distribution) options to purchase shares of Leap Common Stock to
certain holders of options to purchase shares of QUALCOMM Common Stock. See
"Treatment of QUALCOMM Employee Stock Options in the Distribution."
TAX AGREEMENT
The Tax Agreement generally will require QUALCOMM to pay, and indemnify
Leap against, all United States federal, state, local and foreign taxes relating
to the businesses conducted by QUALCOMM or its subsidiaries for any taxable
period, other than the following taxes which will be paid by Leap and against
which Leap will indemnify QUALCOMM: (i) all United States federal, state, local
and foreign taxes relating to Leap and its U.S. subsidiaries for periods after
the Distribution; (ii) all United States federal, state, local and foreign taxes
relating to Leap's non-U.S. subsidiaries or any predecessor or successor thereof
for all periods before and after the Distribution (other than with respect to
certain restructuring transactions incident to the Distribution); and (iii) all
United States federal, state, local and foreign taxes arising out of certain
actions taken by, or in respect of, Leap or any of its subsidiaries that cause
adverse tax consequences to QUALCOMM, Leap or their respective subsidiaries with
respect to the Distribution or the transactions related thereto; provided,
however, that under certain limited circumstances Leap's indemnification
obligation described in this subparagraph (iii) may be reduced.
The Tax Agreement will further provide for cooperation with respect to
certain tax matters, the exchange of information and retention of records that
may affect the tax liability of either party.
36
<PAGE> 42
CONVERSION AGREEMENT
Pursuant to the Conversion Agreement, the Company will agree to issue
shares of Leap Common Stock to holders of QUALCOMM's Trust Convertible Preferred
Securities upon the conversion of such securities and to, at all times, have
reserved and keep available, solely for issuance and delivery upon such
conversion, all Leap Common Stock issuable form time to time upon such
conversion.
37
<PAGE> 43
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth, as of May 31, 1998, the Company's
historical capitalization and pro forma capitalization as if the Distribution
occurred as of that date. This data should be read in conjunction with the pro
forma balance sheet and the introduction to the pro forma financial statements
appearing elsewhere in this Information Statement. The pro forma information may
not reflect the capitalization of the Company in the future or as it would have
been had the Company been a separate, independent company on May 31, 1998.
Assumptions regarding the number of shares of Leap Common Stock may not reflect
the actual number of shares at the Distribution Date. See "Pro Forma Financial
Statements."
<TABLE>
<CAPTION>
AS OF MAY 31, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Credit facility(1).......................................... $ -- $ --
-------- --------
Stockholder's equity:
Parent's investment....................................... 84,303 --
Deficit accumulated during the development stage.......... (19,834) (19,834)
Common stock(2)........................................... -- 2
Additional paid-in-capital(3)............................. -- 237,947
Cumulative translation adjustment......................... (1,925) (1,925)
-------- --------
Total stockholder's equity................................ 62,544 216,190
-------- --------
Total capitalization...................................... $ 62,544 $236,153
======== ========
</TABLE>
(1) QUALCOMM will provide the Company with the Credit Facility. A $35.2 million
Working Capital Facility and a $229.8 million Investment Capital Facility
are available under the Credit Facility for working capital and investment
capital purposes, respectively. The facility will be payable eight years
following the Distribution Date. The loan will bear interest at a variable
rate equal to LIBOR plus 5.25% per annum. Interest will accrue quarterly
with cash interest payments beginning September 2001. Not more than
approximately $5 million is anticipated to be outstanding as of the
Distribution Date.
(2) Based on each holder of QUALCOMM Common Stock receiving a dividend of one
share of Leap Common Stock for every four shares of QUALCOMM Common Stock,
the numbers of shares of Leap Common Stock outstanding as of the
Distribution Date is anticipated to be 17,643,830 based on QUALCOMM common
stock outstanding as of August 20, 1998. Such shares reflect the expected
issuance upon the distribution of one of the Company's shares of common
stock for every four shares of QUALCOMM common stock outstanding. See Note 1
of Combined Financial Statements.
(3) Reflects the contribution of net assets by QUALCOMM to the Company,
including $164.4 million in investments in wireless operating companies.
38
<PAGE> 44
PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company was formed by QUALCOMM for the purpose of effecting the
Distribution and has no operating history as a separate, independent company.
The historical combined financial statements of the Company reflect periods
during which the Company did not operate as a separate, independent company, and
certain assumptions were made in preparing such financial statements. Therefore,
such historical combined financial statements may not reflect the results of
operations or financial position that would have been achieved had the Company
been a separate, independent company.
The following unaudited pro forma financial statements (the "Pro Forma
Financial Statements") are based on the historical combined financial statements
of the Company as of May 31, 1998 and for the nine months then ended and as of
August 31, 1997 and for the year then ended included elsewhere in this
Information Statement, adjusted to give effect to the Distribution. The Pro
Forma Statements of Operations for the nine months ended May 31, 1998 and the
year ended August 31, 1997 gives effect to the Distribution as if it had
occurred as of September 1, 1996 and the Pro Forma Balance Sheet gives effect to
the Distribution as if it had occurred as of May 31, 1998. The Distribution and
the related adjustments are described in the accompanying notes. The Pro Forma
Financial Statements are based upon available information and certain
assumptions that management believes are reasonable. The Pro Forma Financial
Statements do not purport to represent what the Company's results of operations
or financial condition would actually have been had the Distribution in fact
occurred on such dates or to project the Company's results of operations or
financial condition for any future period or date. The Pro Forma Financial
Statements should be read in conjunction with the historical combined financial
statements of the Company included elsewhere in this Information Statement and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Pro Forma Financial Statements assume the completion of the
transactions contemplated by the Distribution Agreement and the agreements to be
entered into pursuant to the Distribution Agreement including the completion of
all the asset transfers and contract assignments contemplated thereby.
Assumptions regarding the number of shares of Leap Common Stock may not reflect
the actual numbers at the Distribution Date.
39
<PAGE> 45
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1998
--------------------------------------
PRO FORMA
ADJUSTMENTS
-----------
RELATED
LEAP TO
HISTORICAL LEAP PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Equity in net losses of wireless operating companies...... $ (1,775) $ -- $ (1,775)
General and administrative expenses....................... (16,452) (5,736)(1) (22,188)
-------- ------- --------
Loss from operations...................................... (18,227) (5,736) (23,963)
Interest income........................................... -- 5,459(3) 5,459
Interest expense.......................................... -- (1,579)(3) (1,579)
-------- ------- --------
Loss before income taxes.................................. (18,227) (1,856) (20,083)
Income tax expense........................................ -- -- --
-------- ------- --------
Net loss.................................................. $(18,227) $(1,856) $(20,083)
======== ======= ========
Unaudited pro forma basic and diluted net loss per common
share(2)................................................ $ (1.03) $ (1.14)
======== ========
Shares used in computing unaudited pro forma basic and
diluted net loss per common share(2).................... 17,644 17,644
======== ========
</TABLE>
- ---------------
(1) The pro forma adjustment to general and administrative expenses includes
additional expenses which would have been incurred by the Company, if it
were a separate stand alone entity, including incremental executive
compensation and fringe benefits, public relations, insurance, accounting
fees, public company, recruiting and other administrative expenses. The
adjustment also reflects assumed staffing levels that are consistent with
the investment activity for the period.
(2) The Company had no common shares outstanding during the first nine months of
fiscal 1998. The pro forma net loss per common share was calculated by
dividing the net loss for the first nine months of fiscal 1998 by the
17,643,830 expected shares of common stock of the Company to be issued upon
the Distribution based on QUALCOMM common shares outstanding as of August
20, 1998. Such shares reflect the expected issuance upon the Distribution of
one of the Company's shares of common stock for every four shares of
QUALCOMM common stock outstanding. See Note 1 of Combined Financial
Statements.
Potential common shares are excluded from the loss per share calculations
because the effect would be antidilutive. Potential common shares upon the
Distribution are expected to include: (a) options to purchase 5,481,377
shares of Leap Common Stock to be issued to QUALCOMM optionholders; (b)
warrants to purchase 5,500,000 shares of Leap Common Stock to be retained
by QUALCOMM; and (c) 2,271,060 shares of Leap Common Stock reserved for
issuance by Leap in the event of conversion of the QUALCOMM Financial Trust
Convertible Preferred Securities.
(3) Reflects interest income and expense related to loans issued to investees
and loans payable to banks to be incurred in connection with the partial
funding of certain of the loans receivable, as if they were outstanding for
the entire nine-month period.
40
<PAGE> 46
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1997
-------------------------------------
PRO FORMA
ADJUSTMENTS
-----------
LEAP RELATED TO
HISTORICAL LEAP PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Equity in net earnings of wireless operating companies...... $ 167 $ -- $ 167
General and administrative expenses......................... (1,378) (5,269)(1) (6,647)
------- ------- -------
Loss from operations........................................ (1,211) (5,269) (6,480)
Interest income............................................. -- 7,278(3) 7,278
Interest expense............................................ -- (2,105)(3) (2,105)
------- ------- -------
Loss before income taxes.................................... (1,211) (96) (1,307)
Income tax expense.......................................... -- -- --
------- ------- -------
Net loss.................................................... $(1,211) $ (96) $(1,307)
======= ======= =======
Unaudited pro forma basic and diluted net loss per common
share(2).................................................. $ (0.07) $ (0.07)
======= =======
Shares used in computing unaudited pro forma basic and
diluted net loss per common share(2)...................... 17,644 17,644
======= =======
</TABLE>
- ---------------
(1) The pro forma adjustment to general and administrative expenses includes
additional expenses which would have been incurred by the Company, if it
were a separate stand alone entity, including incremental executive
compensation and fringe benefits, public relations, insurance, accounting
fees, public company, recruiting and other administrative expenses. The
adjustment reflects assumed staffing levels that are consistent with the
investment activity for the period.
(2) The Company had no common shares outstanding during fiscal 1997. The pro
forma net loss per common share was calculated by dividing the 1997 loss by
the 17,643,830 expected shares of common stock of the Company to be issued
upon the Distribution based on QUALCOMM common shares outstanding as of
August 20, 1998. Such shares reflect the expected issuance upon the
Distribution of one of the Company's shares of common stock for every four
shares of QUALCOMM common stock outstanding. See Note 1 of Combined
Financial Statements.
Potential common shares are excluded from the loss per share calculation
because the effect would be antidilutive. Potential common shares upon the
Distribution are expected to include: (a) options to purchase 5,481,377
shares of Leap Common Stock to be issued to QUALCOMM optionholders; (b)
warrants to purchase 5,500,000 shares of Leap Common Stock to be retained
by QUALCOMM; and (c) 2,271,060 shares of Leap Common Stock reserved for
issuance by Leap in the event of conversion of the QUALCOMM Financial Trust
Convertible Preferred Securities.
(3) Reflects interest income and expense related to loans issued to investees
and loans payable to banks to be incurred in connection with the partial
funding of certain of the loans receivable, as if they were outstanding for
the entire year.
41
<PAGE> 47
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MAY 31, 1998
---------------------------------------
PRO FORMA
ADJUSTMENTS
LEAP RELATED TO PRO
HISTORICAL LEAP (1) FORMA
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ -- $ 10,000(2) $ 10,000
Other current assets................................... -- 50(3) 50
-------- -------- --------
Total current assets..................................... -- 10,050 10,050
Investments in wireless operating companies.............. 50,493 113,907(4) 164,400
Loans receivable......................................... -- 58,400(5) 58,400
Other assets............................................. 15,000 (11,697)(6) 3,303
======== ======== ========
Total assets................................... $ 65,493 $170,660 $236,153
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............... $ 2,949 $ (2,949)(7) $ --
Other current liabilities.............................. -- 2,963(8) 2,963
-------- -------- --------
Total current liabilities................................ 2,949 14 2,963
Loans payable to banks................................... -- 17,000(5) 17,000
Long-term debt........................................... -- --(9) --
-------- -------- --------
Total liabilities.............................. 2,949 17,014 19,963
======== ======== ========
COMMITMENTS(5)
STOCKHOLDERS' EQUITY:
Parent's investment...................................... 84,303 (84,303)(10) --
Common stock............................................. -- 2(11) 2
Additional paid-in-capital............................... -- 237,947(10) --
-- 21,400(12) --
-- (21,400)(12) 237,947
Deficit accumulated during the development stage......... (19,834) -- (19,834)
Cumulative translation adjustment........................ (1,925) -- (1,925)
-------- -------- --------
Total stockholders' equity..................... 62,544 153,646 216,190
======== ======== ========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $ 65,493 $170,660 $236,153
======== ======== ========
</TABLE>
- ---------------
(1) Pro forma adjustments give effect to (a) the net assets to be contributed
to the Company by QUALCOMM and (b) the distribution of Leap common stock to
QUALCOMM stockholders.
(2) Reflects the transfer of $10 million in cash from QUALCOMM to Leap prior to
the Distribution Date.
(3) Reflects estimated prepaid insurance transferred by QUALCOMM prior to the
Distribution Date.
(4) Reflects additional investments expected to be made subsequent to May 31,
1998 and prior to the Distribution Date in the following companies: Chase
Telecommunications, Inc., Telesystems of Ukraine, Pegaso
Telecomunicaciones, S.A. de C.V., Chilesat Telefonia Personal, S.A.,
QUALCOMM Telecommunications Limited (Cayman Islands)/Metrosvyaz Limited and
OzPhone. Such investments will be transferred by QUALCOMM to Leap prior to
the Distribution Date.
(5) Reflects loans to be issued to investees and loans payable to banks to be
incurred in connection with the partial funding of certain of the loans
receivable.
Chilesat PCS Convertible Loans
42
<PAGE> 48
A maximum principal amount of $35 million can be borrowed with accrued interest
and principal due and payable on or before January 31, 1999. If Chilesat PCS
fails to pay, at the Company's sole option, the loans and accrued interest are
convertible into shares of Chilesat PCS common stock. The number of shares into
which the loans are convertible is determined by dividing the outstanding
principal balance of the loans plus accrued interest by the issue price of $5.00
per share of common stock. As of the Distribution Date, $28 million in principal
is expected to be outstanding.
Chase and Metrosvyaz Working Capital Loans
QUALCOMM has provided working capital loans to Chase
Telecommunications, Inc. and Metrosvyaz Limited. The Chase facility is a
$25 million working capital loan with an 8-year term at an interest rate of
prime plus 4 1/2%. The Metrosvyaz facility is $75 million with an 8-year
term at an interest rate of 13%. Amounts expected to be outstanding as of
the Distribution Date for Chase and Metrosvyaz are $13 million and $17.4
million, respectively.
Leap has total non-cancelable debt commitments of $135 million; $58.4
million was funded by Leap as of May 31, 1998, leaving $76.6 million in
non-cancelable debt commitments are payable within 18 months of the
Distribution. Leap plans to fund its non-cancelable debt commitments with
funds under the Credit Facility.
Loans Payable to Banks
The maximum principal amount of the loan is $17 million with an
interest rate of 8.56%. The entire principal balance and accrued interest
is due and payable on February 15, 1999.
(6) Reflects the conversion of a $15 million note receivable into an investment
in wireless operating companies and the contribution of executive
retirement plan assets, leasehold improvements, office furniture, computer
equipment and security deposit by QUALCOMM to Leap prior to the
Distribution Date.
(7) Reflects the elimination of accounts payable and accrued liability balances
pursuant to QUALCOMM's contribution of capital upon the Distribution Date.
(8) Reflects the transfer of executive retirement plan liabilities, vacation
and sick accruals and accrued bonuses from QUALCOMM to Leap prior to the
Distribution Date.
(9) QUALCOMM will provide the Company with a senior secured multiple drawdown
credit facility. A $35.2 million Working Capital Facility and a $229.8
million Investment Capital Facility are available under the Credit Facility
for working capital and investment capital purposes, respectively. The
facility will be payable eight years following the Distribution Date. The
loan will bear interest at a variable rate of LIBOR plus 5.25%. Interest
will accrue quarterly with cash interest payments beginning September 2001.
Approximately $5 million is anticipated to be outstanding as of the
Distribution Date.
(10) Reflects the distribution of all outstanding shares of Leap common stock to
QUALCOMM stockholders.
(11) Reflects the distribution of 17,643,830 Leap shares to QUALCOMM
stockholders at $0.0001 per share par value based on QUALCOMM Shares
outstanding as of August 20, 1998. Such shares reflect the expected
issuance upon the Distribution of one of the Company's shares of Common
Stock for every four shares of QUALCOMM Common Stock outstanding. See Note
1 of Combined Financial Statements.
(12) Reflects the estimated fair value of $21.4 million of Leap's obligation to
issue shares of Leap Common Stock to holders of QUALCOMM's Trust
Convertible Preferred Securities upon conversion of such securities into
shares of QUALCOMM Common Stock.
43
<PAGE> 49
SELECTED HISTORICAL COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical combined financial data of the Company
should be read in conjunction with the historical combined financial statements
and notes thereto included elsewhere in this Information Statement. The selected
combined historical financial data relates to the Leap Business as it was
operated by QUALCOMM. The following selected historical combined financial data
are derived from the historical combined financial statements of the Company.
The annual historical combined financial information has been adjusted for those
parts of the infrastructure business unit which are to remain under QUALCOMM
ownership and management after the Distribution. The selected historical
combined financial data that relate to the two year period ended August 31, 1997
have been derived from audited historical combined financial statements included
in this Information Statement. The selected historical combined financial data
that relate to the nine months ended May 31, 1998 and 1997 and for the period
from September 1, 1995 (inception) to May 31, 1998 have been derived from
unaudited historical combined financial statements included in this Information
Statement.
The historical combined financial data of the Company may not reflect the
results of operations or financial position that would have been achieved had
the Company been a separate, independent company for the years presented.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM SEPTEMBER 1,
1995 (INCEPTION) NINE MONTHS ENDED MAY 31, YEARS ENDED AUGUST 31,
TO MAY 31, --------------------------- ----------------------
1998 1998 1997 1997 1996
------------------- ------------ ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Equity in net (losses) earnings of
wireless operating companies....... $ (1,608) $ (1,775) $ (20) $ 167 $ --
General and administrative
expenses........................... (18,226) (16,452) (994) (1,378) (396)
-------- ----------- ------- ----------- -----
Loss before income taxes............. (19,834) (18,227) (1,014) (1,211) (396)
Income tax expense................... -- -- -- -- --
-------- ----------- ------- ----------- -----
Net loss............................. $(19,834) $ (18,227) $(1,014) $ (1,211) $(396)
======== =========== ======= =========== =====
Unaudited pro forma basic and diluted
net loss per common share.......... $ (1.03) $ (0.07)
=========== ===========
Shares used in computing unaudited
pro forma basic and diluted net
loss per common share.............. 17,644 17,644
=========== ===========
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ $ (2,949) $ (282) $(111)
Total assets......................... 65,493 54,884 --
Stockholder's equity................. 62,544 54,602 (111)
</TABLE>
44
<PAGE> 50
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's future results could differ materially from those
discussed here. Factors that could cause or contribute to such differences,
including factors of each joint venture and other entities in which it has
interests, include, but are not specifically limited to: the ability to
successfully deploy their wireless networks, the ability to control costs
relating to constructing, expanding, and operating the networks, the ability to
attract new subscribers and the rate of growth of the subscriber base, the usage
and revenue generated from subscribers, the level of airtime and equipment
prices, the rate of churn of subscribers, the range of types of services
offered, the ability to effectively manage growth and the intense competition in
the wireless communications industry, as well as conditions governing the use of
network licenses set by various government and regulatory authorities,
developments in current or future litigation; as well as the other risks
detailed in this section and in the sections entitled Risk Factors and Results
of Operations and Liquidity and Capital Resources.
OVERVIEW
Leap's strategy is to build an operating entity that provides management
and project expertise and selectively participates in and manages joint ventures
and other collaborative efforts to provide cdmaOne wireless telecommunications
services in telecommunications markets with significant growth potential. The
Company believes its experience, technical and commercial expertise, and access
to equipment and technology will benefit the Company and the entities in which
it has interests.
Domestic and international telecommunications markets are expanding rapidly
as countries seek to increase teledensity (number of telephone lines as a
percentage of the population) and competition among carriers. Often the fastest,
most economical and easiest way to meet these demands is through the
implementation and operation of wireless networks and systems. In many such
countries, telecommunications systems have been closely regulated by local
governments, and licenses to provide services have been largely unavailable.
Decreased government regulation, and active solicitation of new and better
services through auctions of licenses, have created opportunities for local and
foreign providers to capture market share. These changes create the need to
provide both the capital to build out these new (largely wireless) systems and
the expertise to oversee and manage their entry into these competitive markets.
Such opportunities have been recognized in many countries, including those where
Leap has operations.
The Company and its operating companies are in the early stages of
development and are subject to the risks inherent in the establishment of a new
business enterprise. The Company's results of operations must be considered in
light of the risks, expenses and difficulties encountered by companies at this
stage of development, particularly companies in new and rapidly evolving markets
and companies experiencing rapid growth. It is expected that the launch,
development and expansion of the Company's wireless services over the next
several years, as well as the pursuit of additional telecommunications
opportunities, will require significant capital. The Company's future growth and
results of operations will therefore depend upon its ability to raise sufficient
funds to meet its capital requirements.
The entities in which the Company has joint venture and equity interests
have not generated any revenues from operations, and the Company has no other
current sources of income. Costs associated with the construction and testing of
the wireless networks are being capitalized. Accordingly, the Company's
proportionate share of the net losses of such entities accounted for under the
equity method of accounting to date has been limited.
Upon commercial launch of operations, revenues of the operating companies
will be derived primarily from fees and usage charges. Other sources of revenue
may include equipment sales and activation fees. Wireless telecommunications
projects usually experience significant losses and negative cash flows in their
initial years of operation. Such projects require substantial capital
expenditures for the construction of their networks, license fees and license
acquisition costs, some of which are payable upon issuance of the license, and
significant marketing and other expenses needed to start the business. As such,
the Company expects its
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<PAGE> 51
proportionate share of the net loss of its investees to increase significantly
as they begin commercial operations.
The Company has experienced, and expects to continue to experience,
increased general and administrative expenses as a result of the Company's
overall expansion. Such costs will include the hiring of additional staff,
professional and consulting fees, costs related to project development and
corporate overhead costs. The Company expects to continue to add to its
managerial resources as it expands its involvement in wireless projects in
various parts of the world.
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 1998 COMPARED TO NINE MONTHS ENDED MAY 31, 1997
Equity in net losses of wireless operating companies for the first nine
months of fiscal 1998 was $1.8 million, which represents the Company's share of
the net losses of the wireless operating companies in which it holds an
ownership interest accounted for under the equity method of accounting. These
losses consist of costs incurred prior to service launch during the network
build-out and testing phases such as salary and related benefits, overhead
expenses and professional and consulting fees. Through May 31, 1998, there was
no depreciation of network equipment and no amortization of licenses as service
had not been launched commercially. For the nine months ended May 31, 1997,
equity in net losses of wireless operating companies amounted to $20,000,
reflecting the fact that the wireless operating companies in which the Company
invested had only recently begun network planning and build-out activities.
General and administrative expenses were $16.5 million for the first nine
months of fiscal 1998, compared to $1.0 million for the first nine months of
fiscal 1997. General and administrative expenses for the first nine months of
fiscal 1998 consist primarily of the following: corporate allocations of $5.2
million, consulting and marketing expenses of $4.2 million, project development
expenses of $3.8 million, bad debt expense of $1.7 million and compensation and
fringe benefits of $1.6 million. General and administrative expenses for the
first nine months of fiscal 1997 consist primarily of the following: corporate
allocations of $400,000, compensation and fringe benefits of $300,000 and
project development expenses of $300,000. The dollar increase was due
principally to increases in business development activity relating to projects
to create wireless operating companies in Mexico and Russia and the $1.7 million
provision for bad debts against a receivable from a potential business acquiree.
Such development activity resulted in significantly higher professional and
consulting expenses and an increase in QUALCOMM corporate overhead allocated to
the Company. During November 1997, QUALCOMMTel entered into a letter of intent
to purchase a controlling interest in a Russian telephone company for
approximately $10 million, subject to adjustment and pending due diligence
procedures. In connection with the potential acquisition, during November and
December of 1997 QUALCOMMTel provided $1.7 million in interest-bearing loans
under an exclusivity clause to meet the interim working capital needs of the
potential acquiree. Such loans were to become part of the purchase price
consideration in the event the acquisition was completed. Otherwise, such loans
and accrued interest were repayable no later than 180 days after the date of
issuance. Subsequent negotiations failed to result in an acquisition agreement
and, due to substantial doubt on the ability of the potential acquiree to repay
such loans, the Company provided a $1.7 million bad debt allowance against the
receivable. The Company expects that general and administrative expenses will
continue to increase as a result of on-going development efforts on current and
new projects. Also, general and administrative expenses are expected to continue
to increase resulting from the hiring of Company personnel as a result of the
Company becoming a stand-alone entity.
No provision for income taxes was recognized for the nine months ended May
31, 1998 and 1997, as a result of the net losses incurred.
FISCAL YEAR ENDED AUGUST 31, 1997 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1996
Equity in net earnings of wireless operating companies for fiscal 1997 was
$200,000, which represents the Company's share of the net income of wireless
operating companies in which it holds an ownership interest accounted for under
the equity method of accounting. The net earnings represent the excess of
interest income from the entities' temporary investment of their capital funds
prior to being expended for network build-out,
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<PAGE> 52
offset by costs incurred prior to service launch during the network build-out
and testing phases. Such costs include salary and related benefits, overhead
expenses and professional and consulting fees. Through August 31, 1997, there
was no depreciation of network equipment and no amortization of licenses as
service had not been launched commercially. Through August 31, 1996, the Company
did not have any operating company interests, and, accordingly, there was no
equity in earnings of investees during the year then ended.
General and administrative expenses were $1.4 million for fiscal 1997,
compared to $0.4 million for fiscal 1996. General and administrative expenses
for the year ended August 31, 1997 consist primarily of the following: corporate
allocations of $600,000, compensation and fringe benefits of $400,000 and
project development expenses of $400,000. General and administrative expenses
for the year ended August 31, 1996 consist primarily of the following: corporate
allocations of $300,000 and compensation and fringe benefits of $100,000. This
increase was due principally to increases in business development activity
relating to projects to create wireless operating companies in Chile and
Ukraine. Such development activity resulted in higher professional and
consulting fees. Additionally, the Company incurred higher incremental labor and
travel expenses to develop the wireless operating companies.
No provision for income taxes was recognized for the years ended August 31,
1997 and 1996, as a result of the net losses incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to have significant future capital requirements over
the next several years in relation to existing operations, development projects
and additional new projects. Prior to the Distribution, the Company's cash
requirements have been funded by QUALCOMM. The proceeds were primarily used to
fund the Company's joint venture and equity interests in wireless operating
companies, including the expenses incurred in seeking and evaluating new
business opportunities and to fund corporate overhead expenses as allocated to
the Company by QUALCOMM.
As of May 31, 1998, the Company had no outstanding long-term indebtedness
and had no cash balances. To provide short-term liquidity over the twelve-month
period following the Distribution, the Company expects to receive $10 million in
cash from QUALCOMM in connection with the Separation and to enter into a credit
agreement with QUALCOMM for a secured Credit Facility in an aggregate amount of
$265.0 million. The Company expects to meet its short-term cash requirements for
existing operations and current development projects through fiscal 1999 from
available cash balances and borrowings under the Credit Facility. To the extent
that such cash resources are insufficient to fund the Company's activities on a
short-term basis, the Company may be required to raise additional funds which
may be derived through additional debt, equity financing or other sources. If
additional capital is raised through the sale of additional equity or
convertible debt securities, dilution to the Company's stockholders could occur.
The Company continues to evaluate financing alternatives, including unsecured
bank facilities and other sources of short-term debt or equity financing. There
can be no assurances such additional short-term financing will be available or,
if available, that it will be on acceptable terms.
As a result, the Company expects that it will be highly leveraged
relatively soon after the Distribution. The degree to which the Company is
leveraged could have important consequences, including: (i) the Company's
ability to obtain additional financing in the future may be impaired, (ii) a
substantial portion of the Company's future cash flows from operations may be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing the funds available for operations, (iii) the Company may be hindered
in its ability to adjust rapidly to changing market conditions and (iv) the
Company's substantial degree of leverage may make it more vulnerable in the
event of a downturn in general economic conditions or in its business. There can
be no assurance that the Company's future cash flows will be sufficient to meet
the Company's debt service requirements or that the Company will be able to
refinance any of its indebtedness at maturity.
Operating Activities
In the first nine months of fiscal 1998, $12.1 million in cash was used in
operating activities, compared to $0.9 million used in operating activities in
the first nine months of fiscal 1997. The increase resulted from
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<PAGE> 53
higher expenses, predominantly higher professional and consulting fees
associated with project development expenses of new wireless companies in
Mexico, including expenses associated with participating in the Mexican auction
for PCS licenses, and in Russia. It is expected that cash used in operating
activities will continue to increase as the Company expands its project
development efforts on existing and new project opportunities. Also, the Company
has budgeted $81.3 million to pursue its strategy of providing a fixed fee
limited cdmaOne telephone service targeted at the United States mass market.
In fiscal 1997, $1.2 million in cash was used in operating activities,
compared to $0.3 million used in operating activities in fiscal 1996. The
increase in cash used in operating activities in 1997 resulted from an increase
in general and administrative expenses.
Investing Activities
Cash used in investing activities was $21.8 million for the first nine
months of fiscal 1998 and $54.7 million for the corresponding period in fiscal
1997. The 1998 activity results from continuing investment of $5.1 million into
the Company's Ukraine project, Telesystems of Ukraine ("TOU"), a Ukrainian
limited liability company. Also, the Company funded a $1.7 million loan
receivable to a potential business combination acquiree. Investment activity in
the corresponding period for fiscal 1997 represented the Company's $42 million
investment in preferred voting stock of Chilesat PCS, $8.7 million invested in
the Company's Ukraine joint venture and the $4.0 million purchase of Series B
Common Stock in Chase Telecommunications, Inc. The Company is expected to have
$77 million in outstanding non-cancelable debt commitments to its investments in
wireless operating companies as of the date of the Distribution. The Company
expects that investments in wireless operating companies will increase
significantly in the near future.
Investments in wireless operating companies totaled $54.7 million in fiscal
1997. There were no investments in fiscal 1996. Significant components in fiscal
1997 consisted of the purchase of $42 million of voting preferred shares
representing a 50% ownership interest in a corporate joint venture, Chilesat
PCS, the investment of $8.7 million for a 49% ownership interest in and funding
of a joint investment activity with TOU, and the investment of $4 million in
Chase Telecommunications Inc. in which the Company holds less than a 6%
ownership interest.
Financing Activities
Cash provided by financing activities during the first nine months of
fiscal 1998 and 1997 amounted to $33.9 million and $55.6 million, respectively,
consisting of QUALCOMM's funding of the operating and investing cash used by the
Company.
The Company's financing activities, which consisted solely of QUALCOMM's
investment, provided net cash of $56 million in fiscal 1997 compared to $0.3
million in fiscal 1996. The investment represents QUALCOMM's funding of the
operating and investing cash used by the Company.
QUALCOMM Credit Facility
In connection with the Distribution, the Company is expected enter into a
$265.0 million secured Credit Facility pursuant to which it will have access to
funds from QUALCOMM. The Credit Facility will consist of two sub-facilities. The
first sub-facility (the "Working Capital Facility") will enable Leap to borrow
up to $35.2 million from QUALCOMM, subject to the terms thereof. The proceeds
from the Working Capital Facility may be used by Leap solely to meet the normal
working capital and operating expenses of Leap, including salaries and overhead,
but excluding, among other things, strategic capital investments in wireless
operators, substantial acquisitions of capital equipment, and/or the acquisition
of telecommunications licenses. The other sub-facility (the "Investment Capital
Facility") will enable Leap to borrow up to $229.8 million from QUALCOMM,
subject to the terms thereof. The proceeds from the Investment Capital Facility
may be used by Leap solely to make certain specified portfolio investments. The
Credit Facility will contain a financial covenant and operating covenants,
including restrictions on the ability of the Company to
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<PAGE> 54
incur indebtedness, merge, consolidate or transfer all or substantially all of
its assets, to make certain sales of assets, to create, incur or permit the
existence of certain liens and to pay dividends.
Pursuant to the Credit Agreement, Leap will agree that it will not at any
time permit the quotient obtained by dividing total debt by total capitalization
of Leap to exceed the following level during the indicated period:
<TABLE>
<CAPTION>
PERIOD LEVEL
------ -----
<S> <C>
Distribution Date through fourth anniversary thereof........ 70%
After fourth anniversary of Distribution Date............... 50%
</TABLE>
The Company fully expects to be in compliance with the financial covenant at the
Distribution. In addition, the Credit Facility will permit uses of funds only
for specified purposes consistent with approved business plans, restrict the
nature and breadth of the Company's investments and impose other restrictions
peculiar to the Company's business. The restrictions imposed by QUALCOMM related
to the Credit Facility could have a material adverse effect on the Company.
The Company expects to have significant long-term future capital
requirements beyond fiscal 1999 relating (i) to funding commitments to the Leap
Operating Companies and other operating companies in which the Company may
acquire joint venture or equity interests and (ii) to general working capital
needs and other cash requirements. The magnitude of these long-term capital
requirements will depend on a number of factors, including the specific capital
needs of the Leap Operating Companies, additional capital needed to acquire or
maintain other joint venture or equity interests or to pursue other
telecommunications opportunities, competing technological and market
developments and changes in existing and future relationships. The Company
intends to address its long-term liquidity needs through access to private
and/or public equity and/or high yield debt markets capital markets; however,
there can be no assurance that the Company will be successful in its efforts to
raise the capital required to fund operations of a long-term basis. Failure to
satisfy such capital requirements would have a material adverse effect on the
Company's business, results of operations, liquidity and financial position.
Substantial Leverage of Operating Companies
Initially, the operating companies are typically financed by contributions
of the Company and its partners in the form of equity and shareholder loans.
After the initial stages of development, the Company seeks, where possible, to
secure stand-alone third party financing at the operating company level,
preferably on a non-recourse basis to the Company. Cash requirements of the
Company's operating companies which are not financed by third party financing
are financed by capital contributions and loans of the Company and the other
shareholders of such operating companies. There is no assurance that the
Company's partners will make their required equity contributions in the
operating companies or otherwise meet their financial obligations when due.
The Company's 50% joint venture partner in Chilesat PCS, Telex-Chile, has
been unable to make principal repayments on its outstanding loans and is under
standstill agreements with many of its significant lenders. Thus, the Company
may not be able to rely on Telex-Chile to provide additional capital to Chilesat
PCS when and if needed. The Company expects that Chilesat PCS will have
sufficient cash available to meet its cash needs for operations and network
expansion for the remainder of calendar 1998 via a $35 million short-term cash
facility provided by the Company and vendor financing. The Company believes that
Chilesat PCS intends to meet its cash needs through calendar 1999 via additional
loans and/or equity contributions by its partners and/or conversion of the
short-term debt owed to the Company into equity, additional vendor financing,
the sale of high yield debt to third parties and/or the sale of equity to third
party investors. Long-term cash needs are expected to be met by cash from
operations, vendor financing, borrowings from banks and sales of equity to
third-party investors. As such, it is not currently expected that the financial
difficulties of Telex-Chile should significantly adversely impact the ability of
Chilesat PCS to conduct ongoing operations and network expansion. However, there
can be no assurance that such financing will be obtained or that there will not
be a material adverse effect on ongoing operations and network expansion.
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The operating companies have used or intend to use various sources for
their respective funding. Although each of them has relied on equity infusions,
many are or will be highly leveraged. The ability of the operating companies to
meet debt covenants will be dependent upon their future performance, which will
be subject to prevailing economic conditions and to financial, business and
other factors beyond their control. The ability of the operating companies to
obtain future financings on acceptable terms will be limited by their leverage
and cash flows. In addition, some of the operating companies will be
substantially funded through equipment financing arrangements from vendors. Such
equipment financings will be contingent upon meeting planned levels of
performance and should the operating companies fail to meet such performance
requirements, the related equipment financings could be materially restricted or
terminated.
Currency Fluctuation Risks
The Company reports its financial statements in U.S. dollars. The Company's
principal operating companies functions in different currency jurisdictions and
all report in local currencies. Consequently, the Company's results of
operations as well as the value of its ownership interests in its operating
companies or start-up projects will be affected by fluctuations in currency
exchange rates between the dollar and the applicable local currency.
The Company's operating companies are exposed to risk from fluctuations in
foreign currency and interest rates, which could impact each company's
respective results of operations and financial condition. Because many of the
operating companies' contracts with equipment suppliers, including QUALCOMM,
will be denominated in dollars, a significant change in the value of the dollar
against the national currency of any operating company could result in the
increase of the relative cost of such contracts and could restrict such company
from fulfilling certain of its contractual obligations. As a result, 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, for example Ukraine, significant devaluations
relative to the United States dollars have occurred in the past and may occur
again in the future. In such circumstances, the Company may experience economic
loss with respect to its ownership interests and fluctuations in its results of
operations solely as a result of exchange rate fluctuations.
The Company seeks to reduce its foreign exchange exposure arising from
transactions by matching, where possible, assets and liabilities. There can be
no assurance that the Company will be able to match its assets and liabilities
or otherwise reduce its foreign exchange exposure. In some cases, the operating
companies may borrow in U.S. dollars rather than in local currencies because
such U.S. dollar borrowings are the only funding source available to them at the
time. In such circumstances, the Company has decided, in conjunction with its
partners, to accept the inherent currency risk principally because of the
relatively high cost of buying or the inability to buy forward cover in
currencies of the countries in which the operating companies conduct business.
In general, the Company may elect to enter into hedging arrangements from
time to time in the future, although it is not currently party to any such
transaction and does not have a policy to systematically hedge against foreign
currency exchange rate risks.
Inflation and Deflation
Inflation has had and may continue to have adverse effects on the economies
and securities markets of certain emerging market countries and could have
adverse effects on the operating companies and start-up projects in those
countries, including their ability to obtain financing. Chile, Mexico and
Ukraine have, for example, in the past, periodically experienced relatively high
rates of inflation. The operating companies, where permitted, and subject to
competitive pressures, intend to increase their tariffs to account for the
effects of inflation. However, in those jurisdictions where tariff rates are
regulated or specified in the license, the operating companies may not be able
to mitigate the impact of the inflation on their operations. The Company
believes risks associated with deflation have recently increased, particularly
given recent deflation in certain parts of Asia. Significant deflation could
have a material adverse effect on the Company's revenues, profit and overall
performance.
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<PAGE> 56
While system equipment costs may increase over time as a result of
inflation, the Company expects that the cost of subscriber equipment will
decrease over time as volume increases, although there can be no assurance that
this will be the case. General operating expenses such as salaries, employee
benefits and lease costs are, however, subject to normal inflationary or
deflationary pressures.
YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that most computer software
programs have been written using two digits rather than four to represent a
specific year. Any computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
As the Company and the Leap Operating Companies have recently begun their
respective businesses, there exists uncertainty as to the impact the Year 2000
issue could have on the Company. The Company does not believe that the Year 2000
issue will significantly impact its administrative and accounting software,
which have been acquired recently or will be acquired. The Company generally
subjects its vendors to Year 2000 compliance requirements in connection with the
Company's acquisitions of software. Also, the Company believes that the Year
2000 issue will not significantly impair the ability of the Leap Operating
Companies' wireless communications networks to perform as intended. The Leap
Operating Companies are expected to have direct or indirect computerized
interfaces to third parties relating to the transmission of telecommunications
traffic over local, national and international telecommunications networks. The
Leap Operating Companies are vulnerable to the failure of such third parties to
adequately address their Year 2000 issues. Such failures, should they occur,
could cause significant disruption to the operations of the Leap Operating
Companies, including the ability to provide certain services and correctly bill
customers, resulting in the potential for revenue loss and increased costs. The
Company is not currently aware of any significant third party problems
concerning the computerized interfaces, but as the Leap Operating Companies have
only recently begun network build-out and commercial activities, they have not
yet completed their assessment of the risk associated with third party
interfaces and the Year 2000 issue. This overall assessment is expected to
continue through December 1998. At that time, the concurrently developed
remediation plan will begin, with an expected completion date of July 1, 1999.
The Company is in the process of developing a risk profile to evaluate all third
parties in regard to their capability to become compliant with Year 2000.
As of the date hereof, the Company has not incurred any material costs in
support of the Year 2000 issue. The Company estimates that it will spend
$500,000 in fiscal year 1999 to review and correct any non-information
technology systems as well as support material third party relationships. The
Company has not developed a contingency plan to handle a worst case scenario.
There can be no assurance that the Company will be able to identify all
Year 2000 problems in its systems, the systems of the Leap Operating Companies
or third party systems with which the Company or the Leap Operating Companies
will have computerized interfaces in advance of their occurrence or that the
Company will be able to successfully remedy any problems. The expenses
associated with the Company's efforts to remedy any Year 2000 problems, the
expenses or liabilities to which the Company may become subject as a result of
such problems or the impact of Year 2000 problems on the ability of Leap
Operating Companies to do business with the Company could have a material
adverse effect on the Company's business, prospects, operating results and
financial condition.
FUTURE ACCOUNTING REQUIREMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130"), "Reporting
Comprehensive Income," which the Company will be required to adopt for fiscal
year 1999. This statement will require the Company to report in the financial
statements, in addition to net income, comprehensive income and its components
including, as applicable, foreign currency items, minimum pension liability
adjustments and unrealized gains and losses on certain
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<PAGE> 57
investments in debt and equity securities. Upon adoption, the Company will also
be required to reclassify financial statements for earlier periods provided for
comparative purposes. The Company currently expects that the effect of adoption
of FAS 130 may be primarily from foreign currency translation adjustments and
has not yet determined the manner in which comprehensive income will be
displayed.
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 determined the impact of the adoption of this
new accounting standard on its 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.
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BUSINESS
INTRODUCTION
Leap Wireless International, Inc. ("Leap" or the "Company") manages,
supports, operates and otherwise participates in CDMA-based wireless
telecommunications businesses and ventures in emerging international markets and
the United States. Outside of the United States, the Company is currently
operating, managing, supporting or participating in the development of cdmaOne
wireless telecommunications systems in Mexico, Russia, Ukraine, Chile and
Australia. Most of these systems are at an early stage of development, and the
Company expects commercial launch of these systems at various times during 1998
and 1999. The Company is also pursuing opportunities to provide, manage,
support, operate and invest in additional wireless telecommunications systems in
other targeted United States and international markets offering high growth
potential.
Leap was formed in June 1998 by QUALCOMM Incorporated ("QUALCOMM"), a
leading provider of digital wireless communications equipment, technologies and
services. QUALCOMM continues to serve as a major supplier of CDMA subscriber and
infrastructure equipment for the Company's wireless telecommunications
businesses, and the Company expects that QUALCOMM will be a major CDMA
subscriber and infrastructure equipment supplier for future wireless
telecommunications businesses which the Company manages, operates and supports
or in which the Company otherwise participates.
Following the Distribution, QUALCOMM will continue to be a supplier of CDMA
equipment and is expected to provide significant vendor financing to Leap's
wireless telecommunications businesses and ventures. These ongoing relationships
could place QUALCOMM in a position in conflict with Leap with respect to Leap's
businesses and ventures. In addition, QUALCOMM and Leap will be parties to a
number of agreements, including but not limited to a Separation and Distribution
Agreement, a Credit Agreement and a Master Agreement Regarding Equipment
Procurement. Such Agreements contain restrictions on Leap's ability to invest in
other joint ventures.
The Company's wireless telecommunications systems are based on Code
Division Multiple Access ("CDMA") technology, a proprietary integrated software
and hardware system invented by QUALCOMM and used for digitally transmitting
telecommunications signals in a wireless network. CDMA offers a number of
advantages over analog and other digital technologies, including increased call
capacity, higher quality voice and data transmission, fewer dropped calls,
enhanced privacy, lower power requirements and lower system costs. CDMA has been
widely adopted throughout the world, having been commercially deployed or under
development in approximately 30 countries with over ten million commercial
subscribers worldwide, as of March 31, 1998. For purposes of this Information
Statement, "cdmaOne" shall mean those fixed or mobile wireless
telecommunications systems based on or derived from QUALCOMM's CDMA technology
which (i) have been adopted as an industry standard by the Telecommunications
Industry Association ("TIA") or other recognized international standards bodies,
and the adoption of such standard has been voted in favor of by QUALCOMM
("QUALCOMM Approved Standards"), (ii) are compatible with or employ the same
physical layer as QUALCOMM Approved Standards ("QUALCOMM Approved Systems"), or
(iii) are compatible with the infrastructure and subscriber equipment
manufactured and sold by QUALCOMM. CdmaOne currently includes, by way of example
and not by limitation, the TIA's IS-95 digital cellular standard and ANSI
JSTD-008 digital PCS standard. If a terrestrial-based wireless
telecommunications system is considered a CdmaOne system in one country,
QUALCOMM and Leap agree that it would be considered a CdmaOne system in any
other country, irrespective of whether or not such system has been adopted (or
approved by QUALCOMM) as a standard in such other country.
The Company's senior management has many years experience in the wireless
telecommunications industry. A number of the Company's senior management members
have been members of QUALCOMM's senior management and joined the Company from
QUALCOMM in connection with the formation of the Company, including Harvey P.
White, currently Vice Chairman of the Board of QUALCOMM and the Company's
President, Chief Executive Officer and Chairman of the Board; Thomas J. Bernard,
currently Senior Vice President of QUALCOMM, who is the Company's Executive Vice
President; and James E.
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Hoffmann, currently Vice President, Legal Counsel of QUALCOMM, who is the
Company's Senior Vice President and General Counsel. Leap believes its
continuing relationship with QUALCOMM and the other participants in its
operating companies, the experience and expertise of its management team, and
the quality of CDMA and other products and services to be offered by Leap's
operating entities, among other factors, will position Leap to become a
significant provider of wireless telecommunications services worldwide.
The Company operates, manages, supports, operates and participates in its
wireless telecommunications businesses primarily through joint ventures and
strategic alliances with third parties. The Company intends to provide
substantial management and operational support to its wireless
telecommunications businesses, consistent with applicable laws, contractual
arrangements and other requirements, in the areas of system design and planning,
design and development of marketing plans, distribution systems, billing systems
and customer support plans, system launch and roll-out execution and virtually
all other operational functions. The Company intends to provide these services
using its own employees as well as through consultants with substantial
experience in the telecommunications industry. The Company intends to continue
to focus on providing such management and operational support in its future
wireless telecommunications business opportunities.
The Company does not have any operating history as an independent company
and it and each of its wireless telecommunications businesses and ventures are
at an early stage of development. To date, the Company has generated no revenue
from such businesses and ventures, which are expected to incur substantial
losses for the foreseeable future and are subject to substantial risks. Leap has
generated net losses since inception, and will be required to recognize a share
of the start-up operating losses of such businesses and ventures as a result of
the Company's ownership interests therein. The Company's ability to generate
revenues will be dependent on a number of factors, including the future
operations and profitability of the Company's wireless telecommunications
businesses and ventures.
The Company expects to have significant future capital requirements
relating to funding commitments to its wireless telecommunications businesses
and ventures and other general working capital needs. The Company expects to
obtain much of its required near-term financing through borrowings under the
Credit Facility Agreement provided by QUALCOMM. As a result of its capital
requirements, including borrowings under the Credit Facility Agreement, the
Company expects that it will be highly leveraged relatively soon after the
Distribution.
The Company believes that recent changes in the telecommunication industry
have resulted in a growing opportunity to manage, operate and invest in wireless
systems around the world. While older wireless systems had spurred the growth of
cellular networks, the invention of terrestrial wireless CDMA not only improved
cellular systems but also effectively supported fixed wireless with growth in
capacity, coupled with wireline voice quality and lower cost of equipment and
maintenance. So while wireless telecommunications has historically been viewed
primarily as a second phone for the affluent, the Company believes it will
increasingly be viewed as the logical and preferred system for use as a first
and only phone.
As new carriers and/or spectrum opportunities arose for the deployment of
CDMA systems, QUALCOMM was approached from time to time by wireless operators
and others to join new carriers in operating joint ventures in the United States
and abroad. As these ventures have been transferred to Leap, Leap believes that
it has a significant advantage in being already established in the business of
managing, supporting and/or investing in CDMA wireless networks that are being
built out or are in the planning stages of such build out. Leap anticipates that
there will be an increasingly large number of opportunities where new licensees
or expansions of existing licensees will seek help from Leap for operational
support, management and capital. Historically the participation in these
opportunities has been through joint ventures, usually including a local license
holder as well as equipment suppliers, deployment and/or management
organization(s), carriers and financial investors.
Leap intends to continue its strategy of entering into joint ventures to
access new markets and opportunities. Leap expects that it will selectively
focus on a limited number of high-growth opportunities, taking into account its
management and capital resources. Leap plans to focus its operations on areas
where the potential to provide value added services and thereby launch
successful wireless ventures is higher. Leap
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will strive to continue to expand its expertise through the experience gained on
its current and future ventures to become a sought after and more valuable
participant in future joint ventures.
Leap believes that it will not have the opportunity for majority ownership
in many of these operating joint ventures, due to a variety of reasons ranging
from government policy, to investment limitations prescribed by license holders
and/or the desire to bring many parties with diverse experience into a joint
venture. Leap does not believe that the actual ownership percentage of a
participant in such a joint venture is the sole determinant, or necessarily
indicative, of the level of services supplied or the degree of operational or
project management provided. Leap will, generally, plan to have a significant
initial ownership and to be active in the management of all the systems in which
has an equity interest, consistent with applicable laws, contractual
arrangements and other requirements, even those where the ownership percentage
is relatively small. In addition, Leap's percentage ownership interest will be
reduced as part of the dilution necessary to expand or build out the systems.
From time to time, it may also sell ownership interests as part of a strategy of
returning value to Leap stockholders from the increase in value of the systems
in which it has participated. Such sales are expected to provide funds for
future participation in new projects thereby providing for growth in Leap. It is
anticipated that sales of partial interests in any operation should not affect
Leap's management or operational role with that entity.
Leap's wireless telecommunications operating companies hold licenses to
provide wireless telecommunications services to an aggregate of approximately
198 million potential subscribers as of June 29, 1998. In addition, Leap's
Russian wireless telecommunications operating entity is in the process of
attempting to secure joint ventures with holders of licenses throughout Russia
to provide wireless telecommunications services to up to an additional 128
million potential subscribers. Leap also intends to identify and develop new
opportunities in the United States through the acquisition of frequency
spectrum, or the entering into of reseller agreements for minutes of use,
principally in the PCS bands, and the establishment of new businesses to provide
competitive wireless services in the United States.
Leap expects its operations in Mexico, which recently obtained licenses to
provide nationwide services throughout Mexico, will provide high-quality,
cost-effective cdmaOne wireless telecommunications services to selected markets
within that country beginning in December 1998. In Russia, Leap's subsidiary
QUALCOMMTel is in a joint venture with Tiller International Limited, which joint
venture ("Metrosyvaz") is in the process of entering into other joint ventures
with local telecommunications operators to finance, build and operate wireless
systems in Russia. Leap's operations in Chile are through Chilesat Telefonia
Personal S.A. ("Chilesat PCS"), which holds one of three Chilean PCS licenses
and has a license enabling it to operate a wireless PCS network with a
nationwide footprint. As of August , 1998, Chilesat PCS had approximately
subscribers after only months of operation. In Australia, Leap's wholly
owned subsidiary owns a license to operate wireless telecommunications in eight
regions covering approximately 5.4 million potential customers ("POPs"). Leap's
Ukrainian venture, Telesystems of Ukraine, is scheduled to commence commercial
operation in Kiev in August 1998 and is anticipated to follow with national
coverage.
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The following table summarizes Leap's current joint ventures and other
interests and provides certain information relating thereto:
<TABLE>
<CAPTION>
ACTUAL/
REAL EXPECTED
EQUITY GDP PER LICENSED EQUITY TOTAL EQUITY COMMERCIAL
INVESTMENT LOCATION INTEREST CAPITA POPS POPS SUBSCRIBERS SUBSCRIBERS LAUNCH
---------- ---------- -------- ------- -------- ------ ----------- ----------- ----------
(US$) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMERICAS
Pegaso Telecomunicaciones,
S.A. de C.V.(1)............ Mexico 49%(2) $2,947 99.0 48.5(2) N/A N/A Dec 98
Chase Telecommunications,
Inc........................ Tennessee,
U.S.A. 5.8% 27,175(3) 6.3 0.3 N/A N/A Sep 98
Chilesat Telefonia Personal,
S.A.(4).................... Chile 50% 3,229 14.9 7.5 1,600 800 Aug 98
EASTERN EUROPE
Telesystems of Ukraine....... Ukraine 49% 2,853 51.8 25.4 N/A N/A Oct 98
QUALCOMMTel/Metrosvyaz/
Orrengrove................... Russia 70%(5) 2,128(3) 20.9(6) 3.7(6) N/A N/A Dec 97 (7)
OTHER MARKETS
Oz Phone..................... Australia 100% 20,062(3) 5.4 5.4 N/A N/A Mar 99
</TABLE>
- ---------------
(1) Leap's holdings are through a wholly owned subsidiary Qualcomm PCS Mexico,
Inc. which in turn owns forty-nine percent (49%) of Pegaso
Telecomunicaciones, S.A. de C.V. Pegaso Telecomunicaciones, S.A. de C.V.
owns three companies, one of which owns the license, one of which owns the
operating assets and operates the business and one of which employs the
personnel.
(2) Leap's interest in Pegaso is expected to be diluted to no less than a 25%
equity interest through new capital raising committed prior to the date of
this Information Statement, and this will reduce the equity POPs to 24.8
million.
(3) Real GDP (Gross Domestic Product adjusted for inflation) is stated for the
country as a whole, although existing licenses cover only a portion of the
country.
(4) Leap's holdings are through a wholly owned subsidiary Inversiones QUALCOMM
Chile S.A. which in turn owns fifty percent (50%) of Chilesat.
(5) Leap's holdings in Russia are through two distinct subsidiaries. Leap holds
a seventy percent (70%) owned subsidiary QUALCOMM Telecommunications Ltd.,
a Cyprus company, which in turn owns fifty percent (50%) of Metrosvyaz
Limited, which in turn will own fifty percent (50%)of the operating joint
ventures. In addition, Leap holds a 70% interest in QUALCOMM
Telecommunications Ltd., an Isle of Mann company, which in turn owns a 50%
interest in Orrengrove Investments Limited, which in turn owns a 60%
interest in each of the Transworld companies.
(6) Licensed POPs (licenses covering a number of potential customers) and
Equity POPs (licensed POPs multiplied by equity percentage ownership) are
based on those regions for which a letter of intent has been signed as of
June 29, 1998.
(7) The first system in Rostov on Don became operational in December 1997
outside the joint venture. As a result of the formation of the joint
venture, the system is expected to be contributed to the joint venture.
INDUSTRY BACKGROUND
Telecommunications markets are expanding rapidly as countries seek to
increase teledensity and competition among carriers. Often the fastest, most
economical and easiest way to meet these demands is through the implementation
and operation of wireless networks and systems. The number of wireless licenses
and the amount of spectrum allocated to wireless networks are growing rapidly.
Awarding of multiple licenses for fixed and mobile wireless telecommunications
operations to multiple carriers to spur the growth of teledensity and
competition is occurring in many markets. Historically, many countries had just
one government-owned or government-supported wireless carrier, but many of these
nations now have multiple
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regional carriers. These changes create the need to provide both the capital to
build out these new (largely wireless) systems and the expertise to oversee and
manage their entry into these competitive markets.
There exists significant demand for high-quality wireless
telecommunications systems in more developed international markets as well. In
many such countries, telecommunications systems have been closely regulated by
local governments, and licenses to provide services have been largely
unavailable. Decreased government regulation, and active solicitation of new and
better services through auctions of licenses, have created opportunities for
local and foreign providers to capture market share. Such opportunities have
been recognized in many countries, including those where Leap has operations.
CDMA. Wireless telecommunications service is currently available using
either analog or digital technology. Although more widely deployed than digital
technology, analog technology has certain significant limitations. Digital
wireless telecommunications systems overcome the capacity constraints of analog
systems by converting voice or data signals into a stream of digits that is
compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This increased capacity, along with
enhancements in digital protocols, allows digital-based transfer systems to
offer new and advanced services including greater call privacy, fraud
protection, higher voice quality, single number service, integrated voice and
paging and enhanced wireless data transmission services such as e-mail,
facsimile and wireless connections to computer networks.
The primary digital technologies available for wireless fixed and mobile
applications are CDMA and Time Division Multiple Access ("TDMA"). TDMA has been
deployed in three variations including Global System for Mobile Communications
("GSM"). A form of TDMA has been adopted as a standard for cellular and PCS in
the U.S. and GSM has been adopted as a standard for PCS in the U.S. and for
cellular and PCS in Europe, Asia and certain other markets. CdmaOne is the
original standard for mobile wireless telecommunications systems based on or
derived from QUALCOMM's CDMA technology and successor standards that QUALCOMM
has adopted. CdmaOne has been adopted as an industry standard by the TIA and
other recognized international standards bodies. In July 1993, the TIA adopted a
North American standard (TIA/EIA/IS-95) for cellular telecommunications based on
QUALCOMM's CDMA technology. In April 1995, QUALCOMM's CDMA technology was
approved as a standard for PCS, which is expected to be published as ANSI
standard J-STD-008. Wireless networks based on QUALCOMM's CDMA technology are
commercially deployed or are under development in over 30 countries around the
world.
From an economic standpoint, CDMA technology provides cost savings in
initial capital investment and over the life of the network because of its
capacity and coverage advantages. CDMA networks cost less to design and engineer
than other types of wireless systems, making them easier to reconfigure and
expand. CDMA provides 10 to 20 times the capacity of analog wireless
technologies, and more than three times the capacity of other digital
technologies, enabling service providers to support more subscribers and greater
volumes of wireless traffic within a given amount of radio frequency spectrum.
CDMA networks require fewer cell sites than other wireless technologies to cover
a given area. With fewer cell sites, service providers can reduce their initial
capital expenditures as well as their ongoing operational and maintenance costs.
In addition, CDMA is the only wireless technology that effectively supports both
fixed and mobile services from the same platform, supporting two sources of
revenue and providing a rapid, cost-effective means to respond to dynamic market
requirements. From a performance standpoint, consumers benefit from improved
voice and call quality, longer phone battery life, better coverage and fewer
dropped calls, and the security afforded by digital coding techniques.
CDMA is an open standard with many manufacturers who produce CDMA network
equipment, providing a wide choice in suppliers, competitive equipment pricing
and continued product developments. The developer and licenser of CDMA,
QUALCOMM, continues to maximize the performance of the technology across its
broad CDMA product lines, and is a leader in the advancement of the CDMA
standard and CDMA equipment. Ongoing enhancements have decreased costs and
increased performance of CDMA systems.
CdmaOne is evolving to support new features and services such as higher
speed data and exponentially more capacity. The community of CDMA manufacturers
has demonstrated widespread commitment to evolve this technology to the next
generation of systems. The Company believes that by deploying cdmaOne
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networks, service providers are well positioned to migrate their networks from
the current to the next generation of networks. As a result, Leap is committed
to managing networks utilizing CDMA technology and has established a
relationship with QUALCOMM that provides a framework for obtaining and financing
infrastructure and subscriber equipment.
Leap's Markets. The following information relates to certain of Leap's
existing international markets and reflects recent growth and the current
wireless penetration in the regions:
Latin America. Latin America has a population of nearly 450 million
people. Current wireless penetration in all Latin American markets is
approximately 2%, and industry reports estimate penetration will grow to 5%
by 2001. The total Latin America subscriber base is currently estimated to
be 6 million people, and is expected to grow to approximately 20 million by
2001. Mexico is one of the most important markets for wireless services in
Latin America with 96 million POPs and a significant urban population.
Chile has a population of 15 million people and current wireless
penetration of approximately 4%.
Asia-Pacific. It is estimated that there were approximately 41 million
wireless subscribers in the Asia-Pacific region, including Australia, at
the end of 1996, an increase of 97.4% over 1995. Future subscriber growth
is forecast to average 25% per year, bringing the total subscriber base to
approximately 127 million by 2001. Australia has a population of
approximately 18.7 million people. Australia has 51% teledensity and 23%
wireless penetration as of 1997. Subscriber growth for cellular phones in
Australia was approximately 90% during 1996 and it is expected to increase
an average of 12% per year through 1999.
Russia and Ukraine. Teledensity in Russia in 1997 was approximately
18%, with wireless penetration of just 0.5%. The teledensity growth rate is
expected to be approximately 2.5% annually over the next four years. In
Ukraine, the Ukrainian government has established a telecommunications
program with a goal of increasing teledensity from 14.97% in 1993 to 30% by
2000. Wireless penetration was only 0.13% in Ukraine at the end of 1997.
United States. Recent increased demand for wireless telecommunications
in the United States has been driven by technological advancements and
increased competition. Wireless communication products and services have
evolved from basic tone-only paging services to mass-market cellular
services and since late 1996, digital PCS services. Each new generation of
wireless communication products and services has generally been
characterized by improved product quality, broader service offering and
enhanced features. As of December 31, 1997, wireless penetration in the
United States was estimated by industry sources to be 22% and is expected
to grow to 54.1% by 2006 for a compounded annual growth rate of 10%. As
reported by industry sources, the compound annual growth rate of wireless
subscribers exceeded 41% from 1990 through 1997. At the end of 1997, there
were 57.2 million wireless subscribers in the U.S., up from 5.0 million in
1990. Industry sources are projecting 163.1 million wireless subscribers in
2007, of which 55.8 million would be PCS subscribers, up from only 2.9
million subscribers at the end of 1997, for a compounded annual growth rate
of 34.4%. As subscriber numbers have grown, average revenues per subscriber
have fallen but the wireless industry has still experienced a corresponding
growth in total service revenues.
CORPORATE STRATEGY
Leap's strategy is to build an operating entity that provides management
and project expertise and selectively invests in and manages joint ventures and
other collaborative efforts to provide cdmaOne wireless telecommunications
services in telecommunications markets with significant growth potential. The
Company believes its experience, technical and commercial expertise, and access
to equipment and technology will benefit the Company and the entities in which
it invests. Elements of the Company's strategy include:
Focus on Growth Markets. The Company will continue to invest in entities
that serve or intend to serve the United States and international markets in
which Leap's contributions could most likely result in added value and
contributions to an enterprise that captures significant market share. Leap's
joint ventures and equity interests in Russia and Ukraine are examples of the
Company's plan to invest in developing countries
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and provide wireless service to markets without significant wireline
penetration. Joint ventures and equity interests in Australia, Chile and Mexico
are consistent with the Company's strategy of obtaining licenses in markets
where such licenses were previously unavailable or more limited in number and
scope. Leap's United States equity interest is in a company with an opportunity
to provide wireless services to help meet continued increases in demand and
facilitate a continuing transition from wireline to wireless networks.
Actively Participate in Operating Company Management. The Company intends
to exercise significant management influence and oversight over its joint
ventures and equity interests. Leap believes its experience, business
relationships and other factors enable it to add value to its joint ventures and
equity interests and increase its operating companies' performance and
likelihood of success. Wherever possible, Leap secures the right to appoint or
nominate management personnel. Leap also generally seeks representation on the
Boards of Directors of its operating companies. Moreover, Leap has entered into
contractual arrangements with its operating companies to provide financing
and/or services, and has played a significant role in the development of its
operating companies' business plans and objectives.
Leverage Management Experience and Expertise. The Company's management team
consists of individuals with substantial experience collectively in the wireless
communications industry, including experience with large, international
deployments of networks and services. Moreover, Harvey P. White, Thomas J.
Bernard and James E. Hoffmann have played a significant role in the rapid growth
of QUALCOMM, the development and standardization of QUALCOMM's CDMA technology
and the formation of the Leap joint ventures. Leap believes the experience and
expertise of its management team enables it to add significant value in its
relationships with operating companies.
Leverage Strategic Alliances. Leap has developed strong relationships with
telecommunications and other companies including those with which it has jointly
invested. In securing an investment partner, Leap seeks an entity that can
provide familiarity with local markets, or an ability to facilitate development
in a particular market, or other necessary features of a successful
network-building enterprise. The Company intends to cultivate its existing
relationship with its co-investors in various markets in order that each
investor can contribute to the success of a particular operating company, in the
areas of operations, management, technology and others. The Company also intends
to continue to search for strategic partners with whom it can invest in new
enterprises supported by a wide range of expertise and available resources. The
Company seeks to ensure that its strategic alliances enable it to better prepare
and equip its operating companies for successful development.
Leverage QUALCOMM Relationship. The Company's operating companies are
comprised principally of joint ventures in which QUALCOMM became a partner
during the past two years. Following the Distribution, the Company will have a
close relationship with QUALCOMM that it believes helps position the Company as
an attractive partner that can help an operating company succeed. Leap believes
that its relationship with QUALCOMM will provide it with competitive advantages
in identifying, qualifying for and participating in international
telecommunications joint ventures on terms and conditions that are mutually
beneficial to both companies. Leap also expects to have certain access to
technical expertise and experience of QUALCOMM and its employees and affiliated
entities, through its relationship under the Equipment Agreement and QUALCOMM's
ongoing relationship with the Leap Operating Companies under equipment and other
agreements. QUALCOMM will commit approximately $265 million to the Company by
way of the Credit Facility. Leap and QUALCOMM will also enter into the Equipment
Agreement pursuant to which QUALCOMM will have the right to provide its CDMA
equipment to certain of Leap's existing and future operating companies. QUALCOMM
also has existing contracts to supply and finance equipment, and other
contractual relationships, with Leap's initial operating companies. The Company
intends to leverage its relationship with QUALCOMM to take advantage of the
success of QUALCOMM and its CDMA technology, by continuing its business
activities with QUALCOMM and facilitating relationships between QUALCOMM and its
operating companies.
Build Industry-Leading Networks. The Company's wireless networks are and
will be designed utilizing QUALCOMM's CDMA technology. The Company intends its
operating companies to build high-quality, industry-leading networks that
provide state of the art services and sophistication. The Company believes
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QUALCOMM's CDMA technology allows the operating companies to offer
cost-effective, high quality telecommunications services, integrate advanced
feature functionality and provide advanced services that make such companies'
offerings attractive to end-users. The Company believes this gives it an
advantage over competitors utilizing competing technologies in terms of cost to
deploy and operate networks, spectral efficiencies, improved service offerings
to customers and enhanced voice quality, privacy, fraud protection and fewer
dropped calls.
LEAP OPERATING COMPANIES
Leap's operating companies consist of joint ventures and other entities
around the world. The joint ventures are described below in order of their size
and the perceived opportunity for Leap to carry out its strategies.
PEGASO TELECOMUNICACIONES, S.A. DE C.V. AND PEGASO COMUNICACIONES Y
SISTEMAS, S.A. DE C.V., MEXICO
General. The Company holds an interest in Pegaso Telecomunicaciones, S.A.
de C.V. ("PEGASO"), a joint venture formed for the purpose of obtaining
telecommunications licenses and constructing a wireless telecommunications
network in the United Mexican States ("Mexico"). In May of 1998, Pegaso
Comunicaciones y Sistemas, S.A. de C.V., a wholly-owned subsidiary of PEGASO,
acquired nationwide PCS licenses in the 1.9GHz frequency bands in Mexico at a
price of US$2.88 (based on an exchange rate of 9.2 Mexican pesos to one U.S.
dollar, the exchange rate in effect on August 19, 1998) per POP. There is a
legal challenge in Mexico to the constitutionality of the government's transfer
of the frequency licenses. Neither the Company nor any Leap Operating Company is
a party to the litigation, and the Company believes that the challenge will not
have a material adverse effect on Leap and the Leap Operating Companies taken as
a whole. The Company has an agreement to provide operating services to PEGASO.
The current plan is to commence construction in Mexico City, Monterrey,
Guadalajara and Tijuana as the first phase. It is expected that PEGASO's network
in these cities will be in initial commercial service by mid-1999 and will be
followed shortly thereafter by construction in up to 61 additional cities. There
can be no assurance that PEGASO will be able to complete such construction
projects for the amount budgeted or on a timely basis. The opportunity to assist
in the license acquisition, financing, design, construction and operation of a
new wireless cdmaOne system in an area previously underserved makes Leap's
Mexico operation a blueprint for future Leap joint venture opportunities. In
bidding for its licenses, PEGASO agreed to provide coverage, within a period of
three years, beginning from the granting of the license, to most counties or
political delegations in which at least 20% of the total population of the
subject licensed region resides. PEGASO further committed that most counties or
political delegations with at least 50% of the total population of the
applicable licensed region would be covered within five years.
Market Opportunity. The Mexican government recently auctioned four
additional licenses in each region of Mexico to allow additional competition in
the mobile wireless market. Leap and its partners recognized the opportunity to
become involved with a CDMA nationwide network given the expansion of the
Mexican economy and the currently low penetration levels of telecommunications
services in the country. Mexico's population of approximately 99 million people
is approximately 70% urban with approximately 50% living in the three largest
cities. Mexico's real GDP per capita in 1997 was $2,947 with a teledensity of
approximately 9.4%. The cellular penetration was only 1.6% at the end in 1997.
Strategic Partners. In addition to the Company's interest, Pegaso
Comunicaciones y Servicios, S.A. de C.V. ("Pegaso S.A. de C.V.") and Corporativo
del Valle de Mexico, S.A. de C.V., an affiliate of Grupo Televisa S.A.
("Televisa") (collectively the "Consortium") have an interest in PEGASO.
Televisa is the largest media company in the Spanish-speaking world and is a
major participant in the international entertainment business. Leap management
believes the Consortium's strong financing resources, as well as its political
access in Mexico, provide PEGASO critical skills and relationships for assisting
the network build-out and in marketing and distributing PEGASO's wireless
services.
Leap Rights and Interests. Leap, through a wholly-owned subsidiary,
currently owns a 49% interest in PEGASO and has committed to invest $100 million
of the $400 million of capital committed by all members of the joint venture and
ultimately will have a 25% equity interest in such joint venture. Once all
committed capital has been contributed to this venture, Leap, Pegaso S.A. de
C.V. and Televisa will hold approximately
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27%, 29% and 20% of the voting shares, respectively. Under the joint venture
agreement with PEGASO, Leap has a contractual right to elect two of nine
directors for so long as Leap owns 15% or more of the equity. Such agreement
also establishes significant supermajority rights that are expected to give Leap
significant control over the actions of PEGASO. Leap is under contract with
PEGASO to provide operator services to PEGASO and expects to subcontract many of
those services to GTE. GTE is one of the world's largest publicly traded
international telecommunications operators with investments and operations in
the United States and many other parts of the world.
Capital Requirements and Projected Investments. The license acquisition and
build out of the national operating system and the initial working capital will
require a financing of approximately $1 billion to $1.4 billion. To date, the
members of the joint venture, including Leap, have obtained commitments for
equity capital of approximately $400 million, including Leap's $100 million
equity investment. In addition, the members of the joint venture are working
with investment bankers to complete an approximately $200 million high yield
debt financing and a $200 million bank financing, although there can be no
assurance this financing will be obtained. There are preliminary commitments
from vendors, including QUALCOMM, to provide between $250 million and $500
million in vendor financing. In addition, PEGASO is negotiating a long-term
contract with GTE with respect to the initial startup and operations of PEGASO
and to make a material equity investment.
Regulatory Environment. After the passage of the Ley Federal de
Telecomunicaciones (Federal Telecom Law), which came into effect on June 8, 1995
(the "1995 Law"), Mexican PCS/WLL auctions started on November 17, 1997. The
Comision Federal de Telecomunicaciones ("COFETEL") offered four licenses in the
1.9GHz band (PCS) and four licenses in the 3.4GHz band (WLL). PEGASO
successfully purchased nationwide PCS licenses in the auctions, each with a term
of 20 years. The Secretaria de Comunicaciones y Transportes ("SCT") is the
government ministry responsible for regulating the telecommunications sector and
licensing new competitors, while COFETEL is the independent authority
specifically charged with promoting and supervising the deregulation of Mexico's
telecom sector. Modeled after the U.S. Federal Communications Commission,
COFETEL was created by the 1995 Law. The 1995 Law provides the underlying basis
for telecom competition in Mexico. The 1995 Law is designed to provide a
pro-competitive regulatory environment in the Mexican wireless services market.
It is also intended to outlaw cross subsidization of concessionary and
competitive services and provides that concession and permit holders for public
wireless service may not receive subsidies or preferential treatment from other
telecommunications concessions.
Mexico's existing cellular market has a regulated duopoly. Telmex, the
government telecommunications operator, is required by the 1995 Law to
interconnect competing cellular operators to the landline public switch
telephone network. Interconnect agreements are supervised and approved by the
SCT. While cellular tariffs are no longer regulated by the SCT, rates must still
be registered with the SCT. Mexico currently restricts foreign voting ownership
of telecommunications networks and services to 49%.
Competition. Mexico's current cellular market is divided into nine regions
with a regulated duopoly in each of the regions. There are currently seven
cellular telephone operators in Mexico: Telcel, Iusacell, Norcel, Portatel, Baja
Cellular Mexican, Movitel and Cedetel. As a result of the recent auctions, the
following wireless operators, in addition to the Company, have entered the
Mexican PCS market: SPC; Midicell; Grupo Hermes; Dipsa; and Iusacell.
Furthermore, the local access market has been liberalized and new providers of
local service are in the process of being licensed.
Currently, the largest cellular operator, Telcel, a subsidiary of Telmex,
is the Band A national cellular operator and covers all nine regions with a
subscriber base of approximately 1.1 million subscribers. In the auctions,
Telemex, through its subsidiary Dipsa, has acquired an additional nationwide
10MHz PCS license. Iusacell is the second largest cellular operator in Mexico,
covering four regions, including Mexico City and Guadalajara. However, even
after acquiring two 10MHz PCS licenses at the auctions, Iusacell does not have
licenses in regions II, III and V (VIII for cellular license) such that it would
have a nationwide footprint. SPC purchased a nationwide 30MHz PCS license.
Midicell and Grupo Hermes have both purchased PCS licenses, but do not hold such
licenses in all nine regions. The other existing cellular operators, primarily
those bordering the U.S., are run by operators significantly owned by Motorola.
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QUALCOMM TELECOMMUNICATIONS LTD., RUSSIA
The Company holds a 70% interest in two companies which both have the name
QUALCOMM Telecommunications Ltd. The first of such companies is a company
organized under the laws of Cayman Islands ("QUALCOMMTel Cayman") and is a joint
venture partner in Metrosvyaz Ltd. ("Metrosvyaz"). Metrosvyaz was formed to
develop joint ventures with local Russian telecommunications operators (the
"Joint Ventures") for the formation, development, financing and operation of a
wireless local loop (fixed) telephone services in the Russian Federation. Many
local operators are currently licensed to operate wireless systems in Russia.
Partnerships are being used to facilitate the implementation of such operations.
Metrosvyaz expects to partner with local operators to offer the regional
telephone companies and other licensed telecommunications operators a local
solution, including financing, for the delivery of wireless telecommunications
systems in their regions. Metrosvyaz hopes to obtain approximately ten million
new wireless local loop lines through the Metrosvyaz Joint Ventures during the
five years following the Distribution. There can be no assurance that Metrosvyaz
will successfully obtain such wireless local loop lines. Nine such Joint
Ventures have been formed or are in the process of being formed as of August 20,
1998. Metrosvyaz expects to own 50% of each such Joint Venture. Two of
QUALCOMM's original customers that had begun CDMA wireless local loop services
with equipment provided by QUALCOMM prior to the organization of the Joint
Venture are expected to transfer their current operations to a Joint Venture.
The Joint Ventures are expected to provide local telephony services to
subscribers on the basis of a commercial agency agreement with the relevant
local licensed company. Long distance and international traffic are expected to
be carried by Tass Loutch Telecom, a company organized under the laws of the
Russian Federation and the holder of one of two licenses for international and
long distance telephone services in Russia. Tass Loutch Telecom currently has
agreements in place to transmit long distance traffic. Tass Telecom has agreed
to represent Metrosvyaz as its agent in connection with establishing the Joint
Ventures and is being paid a commission based upon subscriber lines sold to the
Joint Venture.
In addition, Leap will hold an interest in QUALCOMM Telecommunications
Ltd., an Isle of Man company ("QUALCOMMTEL Isle of Man"), which in turn owns an
interest in Orrengrove Investments Ltd. ("Orrengrove"). Orrengrove currently
holds a 60% interest in three related companies (the "Transworld Companies") one
of which is the 50% owner of Tass Loutch Telecom. The Transworld Companies
intend to develop additional earth stations and to offer long distance and
international services in Russia.
The Company contemplates that the Transworld Companies and the Joint
Ventures will enter into cooperative arrangements following the Distribution,
pursuant to which Tass Loutch Telecom will carry long distance and international
traffic generated by the Joint Venture's wireless local loop operations.
Market Opportunity. The Company believes that the Russian Federation market
represents a significant CDMA service market opportunity. Russia currently has a
population of approximately 149 million people with a teledensity of only 18%.
Recently, the Russian telecommunications authorities announced that they intend
to add 30 million additional subscriber lines of fixed service over the next
ten-year period. To that end, more than 50 CDMA licenses have been granted to
existing Russian PTT's and some private carriers. Russia's current population is
approximately 73% urban. Russia's rural GDP per capita in 1997 was $2,128. The
cellular penetration was only 0.5% at the end of 1997 with very little wireless
local route service.
Strategic Partners. The 50% of Metrosvyaz and the 50% of Orrengrove not
owned by the respective QUALCOMMTel organizations are owned by Tass Telecom, an
affiliate of Itar Tass, the official news agency of the Russian Federation. The
30% of each of the QUALCOMMTel entities not owned by the Company are held by
Tiller International Ltd. ("Tiller"), a private investment company, with
telecommunications interests in Russia and significant contacts with Russian
telecommunications regulators and regional operators.
Company Rights and Interests. The Company holds a 70% interest in each of
the QUALCOMMTEL entities. QUALCOMMTel Cayman owns a 50% interest in Metrosvyaz,
organized in 1997, a joint venture with Tass Telecom. The Company holds a 70%
interest in QUALCOMMTel Isle of Man, which in turn owns a 50% interest in
Orrengrove. Orrengrove was organized in 1998 and also is a joint venture with
Tass Telecom. In each of Metrosvyaz and Orrengrove, the parent company has a
right to elect four of nine Directors with Tass Telecom also having a right to
elect four Directors. The ninth director will be jointly elected by the
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respective QUALCOMMTel entity and Tass Telecom. In addition, each of the
QUALCOMMTel entities has agreed to cause one of the Directors to be elected by
it to be a representative of Tiller. Leap has a right to elect four of seven
Directors of each of the QUALCOMMTel entities and Tiller has the right to elect
the remaining three Directors.
The Company intends to play a significant role in the operation of
Metrosvyaz as the implementation and rollout of the Joint Venture companies are
initiated. The Company intends to provide oversight and direct support for the
services in areas including marketing, distribution, customer care, billing and
service initiation. The expertise of Leap's management will be applied (through
Metrosvyaz) to assist the Joint Venture operators in managing successful system
launches. Leap also intends to actively manage the implementation and rollout of
the operations of the Transworld Companies, including construction, marketing,
distribution, customer care, billing and service implementation.
Capital Requirements and Project Investments. The Company and Tiller (by
way of a loan from the Company) are expected to invest an aggregate of $3
million in QUALCOMMTel Cayman, which in turn is expected to invest $3 million in
Metrosvyaz. QUALCOMMTel Cayman, the Company and QUALCOMM have agreed to be
responsible for providing or procuring financing for Metrosvyaz, on and subject
to terms to be agreed and without the need for any direct guarantee from Tass
Telecom or Tiller, up to an aggregate amount of $500 million to be invested in
stages, the first of which is a loan agreement for the provision of $175 million
from QUALCOMM. Metrosvyaz has agreed to purchase from QUALCOMM all of its CDMA
equipment necessary to implement the Joint Ventures. Leap expects to loan
Metrosvyaz approximately $55 million prior to December 1999. Metrosvyaz will
require approximately $8 billion of capital over a ten-year period in order to
provide the ten million lines targeted by Metrosvyaz management.
Leap has invested $51.8 million in Orrengrove in the form of a promissory
note. $46.8 million of this sum is expected to provide the initial funding
required for the buildout of two additional earth stations. The Transworld
Companies will require additional loans or equity to complete the buildout of
the nationwide long distance service and there is no assurance that the
Transworld Companies will be able to obtain the additional financing required.
Regulatory Environment. The Russian Ministry of Communications is
responsible for regulation and oversight of the telecommunications sector.
Improving and maintaining the installed infrastructure are principal objectives
of the Ministry of Communications in Russia. Deregulation and privatization of
the telecommunications industry is occurring throughout the country. One
company, Svyazinvest, a partially state-owned company with foreign investors,
controls the majority of the voting interest in Russia's 89 regional PTT's. CDMA
is currently only being used for wireless local loop in Russia. The Company
believes that CDMA will, in the future, be made certified for mobility in the
Russian Federation.
Competition. Most of the targeted operators with whom Metrosvyaz expects to
enter into joint ventures agreements are established, government-owned,
telecommunications companies in the various regions of Russia. The competition
with the Joint Venture in most of the regions will be primarily with wireline
services operated by the local partner of the Joint Venture. In some larger
cities, however, including Moscow and St. Petersburg, there is meaningful
competition from private cellular operators. In the long distance area, the
principal competition will be from Rostelecom, the established long distance and
international carrier.
TELESYSTEMS OF UKRAINE, UKRAINE
General. Leap holds a 49% participation interest in Telesystems of Ukraine,
a Ukrainian limited company ("TOU"). In April of 1997, TOU obtained a license to
construct, own, operate and maintain a CDMA wireless local loop
telecommunication systems throughout most of Ukraine. In March of 1998, TOU
obtained a national and international long distance license for the nine major
regions of Ukraine covering most of the 51 million POPs in that country.
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TOU currently is in the process of deploying a wireless local loop
telecommunication systems in the Ukrainian capital city of Kiev. It is currently
estimated that TOU will commercially launch the system in Kiev in late 1998.
After successful commercial launch of the system in Kiev, TOU plans to deploy
systems in the balance of the country based on a schedule and funding plan to be
completed based on the success of the Kiev system. TOU intends to offer
subscribers wireless local loop services as well as mobile services within each
region of Ukraine. TOU is the first communications operator to provide CDMA in
Ukraine. In addition to providing wireless local loop and mobility service, TOU
is permitted under the terms of its national and international access license to
provide national and international long distance services.
Market Opportunity. Ukraine is the second largest of the former Soviet
countries and represents an attractive market for wireless telecommunication
services. The Ukrainian telecommunications market remains significantly
under-served by existing wireline and wireless operators. To improve the
telephone services in Ukraine, the Ukrainian government has established a
telecommunications program with a goal of increasing teledensity from 14.97% in
1993 to 30% by 2000. Ukraine's population of approximately 51 million people is
approximately 68% urban. The real GDP per capita in 1997 was $2,853 and is
declining. The wireless penetration was only 0.13% at the end in 1997.
Strategic Partners. The Company's partners include Rhuta-Farm, a Ukrainian
limited company ("Rhuta-Farm"), which holds a 41.1% participation interest in
TOU. Rhuta-Farm is engaged in the manufacture, import and distribution of
pharmaceuticals throughout Ukraine. The majority owner of Rhuta-Farm is Victor
Zholinski, who has extensive knowledge of the Ukrainian telecommunications
market and Ukrainian political environment. In addition to Rhuta-Farm,
Ukrtelecom, the national wireline provider in Ukraine, holds a 9.9%
participation interest in TOU. Since this venture was formed, the number of
additional competitors has increased in Kiev (TOU will be the 5th). Furthermore,
the overall relationship with Rhuta-Farm has become strained. The Company and
Rhuta-Farm have material disagreements on speed and method of system deployment,
the terms of acceptable project financing and the day-to-day control of the
operation of TOU. These disagreements have delayed funding of the system and
have resulted in delays in commercial operation of the system. See "Risk
Factors -- General Risks -- Joint Ventures."
Leap Rights and Interests. Leap has 49% of the voting rights of TOU, though
by contract Leap also has the right to elect the majority of TOU's board of
directors. Leap will also have the right to appoint many of the operating
officers of the company. Leap plays a significant role in the operation of TOU,
offering oversight and direct support for services in areas including system
design, planning, installation, marketing, distribution, customer care, billing
and service initiation. Leap expects to apply its expertise to assure that TOU
manages a successful system launch resulting in forecasted subscriber growth and
revenue.
Capital Requirements and Projected Investments. TOU will require
approximately $51 million to complete license acquisition and the build-out and
initial operation of the system in Kiev of which approximately $35 million is
expected to be provided by Leap. The partners in TOU contributed approximately
$150,000 in equity to the venture. In addition, as of June 29, 1998, Leap has
invested approximately $16 million pursuant to an Agreement on Joint Investment
Activity which, under Ukrainian law, is equity with features similar to a
redeemable preferred stock, which equity interest provides Leap a favorable
preferred return on the invested capital and a return of capital before any of
the partners receive a return on their investments. QUALCOMM expects to provide
equipment to TOU and to provide $70 million of equipment financing and is
expected to provide additional working capital on terms to be negotiated.
Funding for build out beyond Kiev is not yet committed.
Regulatory Environment. The Ukrainian Parliament adopted CDMA as a
nationwide wireless standard on June 28, 1996. In April 1997, the Ukrainian
Ministry of Communications ("MOC") issued TOU a nationwide license to operate a
CDMA wireless local loop telecommunication system in the 800 MHz band. The MOC
is responsible for the regulation and oversight of the telecommunication sector,
including wireline and wireless local loop operations. The MOC supervises and
audits the performance of each licensee's legal and contractual obligations. The
MOC also has general authority to issue regulations for telecommunications
operators, subject to such regulations being in accordance with applicable law.
The Ukrainian law requires
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that licensees operating telecommunications systems issue a minimum of 51% of
their equity (on a fully diluted basis) to Ukrainian corporations or
individuals. However, to attract foreign investment, the Ukrainian Foreign
Investment Laws allow foreign investments in telecommunications companies
pursuant to joint investment agreements. Under this format, a Ukrainian partner
can allocate up to 100% of profits in a telecommunication venture to a foreign
partner until the foreign partner has been repaid its investment. Leap is
proceeding under this authority. The nationwide CDMA license granted to TOU
allows TOU to construct, own, operate and maintain a wireless local loop and
mobile telecommunications system throughout Ukraine. To obtain the license, TOU
was required to make a one time payment of $8.1 million ($0.16 per POP). The
term of the license is 15 years and is renewable.
The MOC has also issued a national and international access license
allowing TOU to own, operate and maintain a national and international access
license. The term of the national and international license is 15 years and is
renewable.
Competition. Ukrtelecom is the national wireline provider. UMC is a
wireless telecommunication provider that owns and maintains wireless systems in
NMT technology and a GSM network in Kiev. Kiev Star is a mobile
telecommunications operator providing GSM services. Golden Telecom is a mobile
operator providing GSM services. DCC is a cellular telecommunication company
providing digital amps services.
CHILESAT TELEFONIA PERSONAL, S.A., CHILE
General. Chilesat Telefonia Personal, S.A. ("Chilesat PCS") is a joint
venture company in which Leap holds a 50% interest. In 1997, Chilesat PCS
acquired a nationwide license to offer PCS services in Chile. Chilesat PCS'
partners promptly began the design and development of a nationwide cdmaOne
system provided and financed by QUALCOMM. Currently, a system covering most of
Chile is ready for operation. The balance of the national network is expected to
be completed not later than September 1998. Chilesat PCS began limited
commercial operation in July 1998 and has approximately 1,600 subscribers as of
August 14, 1998. Chilesat expects to have approximately 25,000 subscribers
through a controlled initial startup phase by the end of 1998 although there can
be no assurance these goals will be met.
Market Opportunity. Chile is considered by many to be a technology leader
in Latin America. It has a stable economy and a regulatory environment that is
friendly to foreign investors. Chile has a population of approximately 15
million people. In excess of 70% of the population is concentrated in the center
of the country in the Santiago and Valparaiso regions. Current teledensity is
approximately 15.5%. The real GDP per capita is $4,360. Currently there are
approximately 600,000 PCS and cellular subscribers and approximately 2,800
wireless local loop subscribers in Chile, reflecting a wireless penetration of
approximately 4%.
Strategic Partner. A 50% interest in Chilesat PCS is owned by Telex Chile
and its operating affiliate Chilesat S.A. Chilesat S.A. is the third largest
international long distance operator in Chile. Certain of Chilesat PCS's site
leases are leased or subleased from Telex Chile. Telex Chile is currently
operating under a stand-still agreement with many of its significant lenders
because Telex Chile is unable to make principal reductions in its outstanding
loans as required under its credit facility with such lenders. Thus, there can
be no assurance that Chilesat PCS will be able to rely on Telex Chile or its
affiliates to make additional capital contributions to Chilesat PCS when and if
needed, or maintain site leases. See "Risk Factors -- General Risks -- Joint
Ventures."
Leap Rights and Interests. Leap holds 50% of the stock of Chilesat PCS
through an equity class that has a liquidation preference over the shares held
by Telex Chile and its affiliates. Each of the major partners is entitled to
elect two of the five directors of Chilesat PCS and Leap is entitled to nominate
the chief financial officer. Leap expects to offer Chilesat PCS management
expertise on deployment, marketing, back office and customer care issues. If the
short term loans described below are not repaid on or before January 31, 1999,
Leap will have the right to convert such loan into equity in Chilesat PCS and
thereby increase its voting shares to approximately 65%. In addition, a
Subscription and Shareholders Agreement provides a substantial list of items
which require a super majority vote, further extending Leap's right to be
involved in the management of the Chilesat PCS.
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Capital Requirements and Projected Investments. To complete the nationwide
system and successfully launch service, Leap estimates that Chilesat PCS will
require a total financing of approximately $202 million, including the in-kind
contributions made by Telex Chile described below. Chilesat PCS was initially
capitalized with a $42 million cash contribution from QUALCOMM, a contribution
of the PCS license (valued by the parties at $28 million) and an 11.5 year right
to use a nationwide backbone network from Telex Chile (valued by the parties at
$14 million). A vendor forbearance to finance a full build-out of the system,
including reasonable expansion following the initial rollout, was provided by
QUALCOMM with a cap of $59.5 million. In addition, QUALCOMM has committed to
provide three year handset financing of up to $25 million. Due to delays in
startup and cost overruns, Chilesat PCS has an additional requirement for
working capital through the end of 1998 of approximately $35 million. QUALCOMM
and its affiliates have committed to provide these loans on a short term basis
and Leap expects that additional capital contributions from the shareholders
will be required to take out this loan facility and to facilitate additional
commercial loans to complete the negative cash flow associated with the startup
operation. These short-term loans will be transferred to Leap.
The approximately $35 million of loans from QUALCOMM will be convertible
into common equity that would provide control of Chilesat PCS to Leap following
the conversion. This conversion is available to Leap only if the loans are not
repaid on or before January 31, 1999. It is currently contemplated that there
will be an additional $35 million capital call in approximately December of 1998
which may be used to repay the convertible loan or to provide for additional
operating expenses. If Telex Chile makes at least a $17.5 million cash capital
contribution before January 31, 1999 pursuant to such capital call, Leap has
committed to convert $17.5 million of the short-term loans to equity as its
match to the Telex Chile contribution.
Regulatory Environment. The Subsecretaria Telecomunicaciones regulates the
basic telecommunications network in Chile. In April 1997, Subsecretaria
Telecomunicaciones awarded the three licenses for 1900MHz mobile operations in
Chile. In addition, there are three major cellular operators currently licensed
by the government. The regulatory environment in Chile is considered to be
stable, reliable and neutral to foreign investment. It is believed that the
regulatory environment will not present impediments to an effective marketing
plan, pricing or operations in Chile. Licenses and interconnections have been
received and are in place.
Competition. There are currently three major operators of cellular
services, including CTC/StarTel, Bell South and Entel Cellular. Bell South and
Entel Cellular have set up reciprocal roaming agreements because Bell South
operates in central Chile, whereas Entel operates in the balance of the regions.
Through this arrangement, each is able to provide nationwide coverage. Combined
they are expected to have approximately 220,000 subscribers in 1997. CTC/StarTel
had approximately 200,000 subscribers in 1997. In addition, two additional PCS
licenses were awarded to affiliates of Entel. Entel launched its commercial PCS
service using GSM technology in March of 1998 and currently has approximately
210 base stations deployed throughout Chile.
CHASE TELECOMMUNICATIONS, UNITED STATES
General. Chase Telecommunications, Inc., a Delaware corporation ("Chase"),
was the winning bidder for eleven wideband personal communications service C
Block licenses and now holds 15MHz (as a result of voluntarily disaggregating
half of its C Block spectrum) of spectrum covering approximately 6.3 million
POPs in the Tennessee region with coverage of about 98% of Tennessee. Major
markets include Nashville, Memphis, Knoxville and Chattanooga. Chase was the
sixth largest winner in the PCS C Block auction. Unlike the other Leap
opportunities, Chase involves an investment by Leap of a relatively small amount
of equity capital at this time and does not entail any significant involvement
by Leap in the management of Chase. Limited involvement is required in this
instance by the FCC regulations relating to ownership and control of C block PCS
license holders.
Chase has begun designing and building the cdmaOne wireless
telecommunication network that will serve its licensed areas. It has completed
its system design and base station site selection process on a majority of its
Chattanooga base station sites and has commenced network construction. Chase is
expected to complete
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its Chattanooga build-out in time to launch service in the fourth quarter of
1998, which is expected to make Chase the first PCS provider in the Chattanooga
area. Chase has also begun design of its Nashville, Knoxville and Memphis
networks and expects to launch services in these metropolitan areas in the first
half of 1999. Chase acquired its PCS licenses through the FCC C Block spectrum
auctions in 1996 and has benefited from both favorable government financing
terms on the auction price and a 50% reduction in the aggregate principal amount
due as a result of the subsequent C Block restructuring in which Chase elected
to disaggregate 15MHz of its 30MHz of spectrum in each of its markets.
Market Opportunity. Chase presented Leap an opportunity to break into the
competitive United States markets with a relatively small investment. Chase's
Nashville, Memphis, Knoxville and Chattanooga markets account for approximately
4.6 million of Chase's approximately 6.3 million POPs. The state of Tennessee is
situated in the heart of the growing Southeast with a diverse economic base
including manufacturing, services, retail and wholesale trade, transportation,
finance and agriculture. Tennessee has experienced strong population and
economic growth over the period from 1991 to 1996. In addition, Tennessee's
median household income grew at the second highest rate in the United States
between 1992 and 1994 and at 129% of the national average from 1991 to 1996.
Tennessee continues to attract people and businesses due to its low state excise
and franchise taxes and lack of both personal income tax on earned income and
property tax. Tennessee's job growth was 125% of the U.S. average from 1991 to
1996 and continues to present strong growth for small and mid-sized business.
Strategic Partners. Chase was founded by Tony Chase, formerly the chairman
and CEO of Faith Broadcasting Corporation which operates radio communications
licenses in several major markets in Texas. In addition, Chase has established
strong strategic relationships with QUALCOMM, as an equipment supplier, and
PrimeCo, a major provider of PCS services in the United States. PrimeCo consists
of a partnership of major cellular telephone providers including AirTouch
Communications, Inc. and Bell Atlantic Corporation. PrimeCo commenced CDMA PCS
service in all of its major markets in 1996 and had over 500,000 subscribers by
March 31, 1998. Current intentions are for Chase to arrange roaming agreements
and to use brand recognition under the PrimeCo brand name.
Leap Rights and Interests. Leap holds a 5.8% interest in Chase and has
certain super majority voting rights. Leap does not have a right to board
representation or to otherwise participate in management to any material degree.
Leap does expect that the expertise Leap has in CDMA deployments and network
operations will be utilized by Chase.
Capital Requirements and Projected Investments. The business plan for
building out and launching the entire region requires Chase to raise in excess
of $250 million. Chase has twice attempted and failed to raise high yield debt
in the public market. The current strategy involves a plan to deploy an initial
system in Chattanooga to demonstrate the viability of the Chase business plan
before again seeking to enter the high yield debt market. The current plan
involves QUALCOMM providing to Chase an additional $23 million in vendor
financing and Leap providing $25 million in working capital financing, which is
expected to be sufficient to allow Chase to complete the build-out and startup
of the Chattanooga system. As a result of these interim financings, Leap will
hold warrants to acquire up to an additional 6.6% of the Chase equity. After the
Chattanooga build-out is complete, it is expected that Chase will again need to
seek high-yield debt in the public market and, upon successful completion of
such an offering; the Company expects QUALCOMM will expand its vendor financing
to $130 million; and Leap has committed, subject to certain exceptions, to
convert the working capital loan into $25 million of redeemable preferred stock
in Chase.
Regulatory Environment. In maintaining its PCS licenses, Chase is required
to comply with numerous FCC requirements, including qualifying as "small
business" to receive the bidding credits towards the purchase of its PCS
licenses and entitling Chase to the government financing of these licenses. If
Chase seeks to assign or transfer control of its licenses to an entity not
satisfying the small business requirements or that qualifies for lower bidding
credits, unjust enrichment penalties apply.
Competition. Chase faces and expects to face competition in these markets
from current and potential market entrants including, among others, Sprint
Spectrum, Power Telecom, AT&T, Bell South and Alltel. To the extent that PCS
licensees have not begun operating their PCS services in Chase's licensed
territories, the
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Company believes that such competitors currently are or will soon begin
designing, constructing or operating the respective networks in such
territories. Additionally, the FCC rules allow licensees to partition or
disaggregate their spectrum. If other licensees create such partitioned or
disaggregated licenses, this could increase the number of competitors and the
types of competition in Chase's market.
OZPHONE PTY. LTD., AUSTRALIA
General. Leap holds a 100% equity interest in OzPhone Pty. Ltd. ("OzPhone")
(an Australian corporation formed to participate in Australia's personal
communication services auctions). OzPhone has been awarded eight 800MHz licenses
covering approximately 5.4 million POPs to provide digital mobile and wireless
local loop services in major metropolitan and rural areas throughout Australia.
The regions covered are Brisbane, Perth, Cairns and certain regions of the gold
coast, Tasmania and regional west regions. Planning is underway to launch
regional wireless service in these areas.
OzPhone expects to build regional wireless telephony networks using CMDA
technology and will offer advanced wireless services to improve service quality
and increase choices for customers. The Company believes CDMA technology and
spectral efficiency will be suitable for large city operations and the wide
coverage afforded by CDMA base stations will allow OzPhone's networks to be
extended to rural areas to provide roaming capabilities as well as services to
those areas. OzPhone has a commitment from QUALCOMM to provide wireless
telecommunications subscriber and infrastructure equipment with 100% financing.
Market Opportunity. Leap believes that there is promising growth potential
in telecommunications services in Australia and believes that it can achieve a
market niche through an appropriate regionalized wireless marketing strategy.
Australia is a highly developed country with a stable economic and regulatory
environment and an advanced telecommunications infrastructure. Australia's
population of approximately 19 million people is largely centered on its west
and east coasts. Australia's real GDP per capita in 1997 was $20,062 with a
teledensity of approximately 49.7%. The cellular penetration was only 29% at the
end in 1997.
Strategic Partners. Leap intends to seek one or more local partners to
participate in the development of the opportunity it has recognized in
Australia. Those partners have not yet been identified but they are expected to
be selected based on their local wireless experience and/or other local
contacts.
Capital Requirements and Projected Investments. OzPhone has a projected
capital requirement of approximately $150 million to completely build-out the
region. It is anticipated that this will be done over a five year period. Final
capital raising plans have not yet been completed. As of September 1, 1998, Leap
has invested $6 million to acquire the licenses and expects to invest an
additional $13.3 million in equity to begin limited operations before March
1999.
Regulatory Environment. A deregulation process began in Australia in the
late 1980's and has been monitored by the Australian Telecommunications
Commission. A new Telecommunications Act was introduced to the Australian
Parliament in December, 1996 which has encouraged competition and modernization
of Australia's telephone networks. In 1995, the "Hilmer Reforms" came into
effect and are designed to provide a generalized pro-competition policy spanning
all industries including telecommunications.
Competition. The wireless telecommunications industry in Australia is
currently controlled by three companies, with Telstra accounting for
approximately 60% of total subscribers, Optus accounting for approximately 33%
of total subscribers, and Vodaphone accounting for the remaining 7% of total
subscribers. Approximately one-third of all mobile phone users are now
individual subscribers with small and medium business users comprising
approximately an additional 40% of subscribers. The largest competitor, Telstra,
was partially privatized in 1997 and has been losing market share to Optus
Communications, which entered the fixed and mobile markets in early 1990
effectively ending Telstra's monopoly. Optus' success is due in large part to a
heavy promotional strategy. Vodaphone's entry into the telecommunications market
has further eroded Telstra's market share. The addition of competitors has
caused a sharp decline in the revenues per user though this trend has tended to
stabilize over time. Recent auctions will add three additional competitors to
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<PAGE> 74
the market, including Hutchinson and AAPT in addition to OzPhone. The new
entrants will attempt to win market share through innovative marketing and
distribution strategies and the use of advances in use capacity, especially with
CDMA technology. OzPhone will face some difficulties in competing with AAPT and
the existing wireless carriers due to lack of brand name recognition and an
existing operating history in Australia.
UNITED STATES WIRELESS OPPORTUNITIES.
General. Leap's strategy for wireless telecommunication opportunities in
the United States is based on providing a fixed fee limited mobility cdmaOne
telephone service targeted at the mass consumer market. By providing a fixed
fee, limited mobility service offering, the Company's strategy is different from
the existing model used by most current wireless operators in the United States.
The Company is in the process of developing marketing plans to implement its
strategy, both in the U.S. market and in other foreign markets where the
opportunity could present itself. The Company is currently exploring
opportunities to acquire spectrum for this venture and has formed two
subsidiaries to pursue these opportunities.
In order to pursue wireless telecommunication opportunities in the United
States and implement its strategy, the Company, through one or more entities in
which the Company will hold an equity interest, intends to acquire spectrum and
operate in the U.S. broadband PCS frequency blocks or enter into reseller
agreements with PCS operators for minutes of use. To the extent that the Company
is qualified to hold the subject spectrum, it is anticipated that Leap will
acquire such spectrum through a subsidiary in which Leap initially holds a 75%
equity interest, with the remaining equity interest being held by other
investors. To the extent that the Company is not able to directly or indirectly
acquire spectrum, it is anticipated that Leap will enter into reseller
agreements with operators, with Leap making, as required, equity investments in
such operators in accordance with applicable law. To the extent that available
spectrum is in the C and F Blocks, the Company's equity participation will have
to be through companies designed to satisfy the FCC "Designated Entity"
requirements. Leap expects that one of the newly formed subsidiaries of Leap,
and those affiliates which are attributable to it under the FCC rules relating
to Designated Entities, will qualify as a Designated Entity, although there can
be no assurance that it will. If the subsidiary does not so qualify, complying
with the "Designated Entity" requirements would limit Leap's ownership in such C
and F Block license holding companies to 25% of the equity of such license
holder.
PCS differs from traditional cellular in three basic ways: frequency,
bandwidth and geographic service areas. PCS networks operate in a higher
frequency band (1850-1990 MHz) than cellular (800-900 MHz). PCS licenses also
comprise 30 MHz bandwidth (A, B and C-Blocks) or 10 MHz bandwidth (D, E and
F-Blocks), versus 25 MHz bandwidth for cellular networks. As a result of the
utilization of improved digital technology from inception, PCS will have more
capacity for new wireless services such as data and video transmission than
traditional analog systems.
Market Opportunity. Wireless telephony penetration is currently
approximately 22% of the potential U.S. market. A market convergence has begun
to occur between the development of wireless and wireline services as wireless
costs rapidly drop below traditional wireline costs for comparable services.
This has resulted in the introduction of new wireless services that have
penetrated new markets. In the U.S. market, incumbent wireline operators are
preparing to offer long distance services to their customers, while at the same
time the traditional long distance carriers are trying to effect entry into the
local loop arena. Wireless carriers have made efforts to offer more
competitively priced services, but have focused on high mobility customers that
generate higher revenues.
Without the economies of scale that volume affords, current wireless
marketing models suffer with the loss of any portion of the traditional business
market segment. Wireless companies operating on such models are likely to
continue to compete for the same customer base and for increasingly diminishing
economic returns. In contrast, the Company's strategy is to provide a
high-quality fixed fee limited mobility cdmaOne wireless telephone service
targeted at the mass consumer market.
Strategic Partners. The Company expects to implement its United States
wireless opportunities through a strategic consortium of companies and
investors.
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Capital Requirements and Projected Investments. Because the scope of this
opportunity has not yet been developed and is subject to market research and
trials, Leap has not yet developed a detailed capital budget or investment
strategy. However, Leap has budgeted approximately $81 million to pursue this
strategy in the U.S. wireless market. The Company will look for opportunities to
acquire spectrum in the U.S. PCS frequency Blocks A, B, D and E. In addition,
the Company will look for opportunities to participate in PCS service provision
by establishing and entering into reseller agreements with qualifying
"Designated Entities" that can hold C and F Block frequency. Furthermore, the
Company may enter into reseller agreements with other holders of spectrum on
favorable terms and conditions. Leap anticipates that it will structure its
reseller relationships and relationships with any Designated Entities in a
fashion to maximize the potential benefit to Leap shareholders as a whole while
complying with applicable FCC requirements.
Regulatory Environment. In this effort, Leap will operate in the complex
United States FCC regulatory scheme. The Company will be required to maintain
compliance with all of the requirements for operating wireless operations in the
United States and the requirements for entering into reseller agreements with
United States operators, including the requirements applicable to Designated
Entities to the extent the subject spectrum is in the C and F Blocks. PCS
licenses are granted for a ten year period at the end of which the licensee must
apply for renewal. Licenses may be revoked by the FCC at any time for cause
including failure to comply with the terms of the licenses or failure to qualify
for such licenses, malfeasance or other misconduct. Construction regulations and
moratoria are in effect in some markets which can create certain risks and costs
associated with the construction of a network. The licensing, construction,
operation, sale and interconnection agreements of wireless telecommunications
systems are regulated to varying degrees by the FCC and State regulatory
agencies. Such regulation is continually evolving and there are a number of
issues on which regulation has been or in the future may be suggested. The
Telecommunications Act of 1996 mandates significant changes in existing
regulations of the telecommunications industry to promote competitive
development of new service offerings to expand the availability of
telecommunication services and to streamline the regulation of the industry.
Competition. The U.S. wireless industry is characterized by intense
competition between PCS, cellular and other wireless service providers. There
can be no assurance that the Company will be able to compete successfully or
that new technologies and products that are more commercially effective than the
Company's technologies and products will not be developed. In addition, many of
the Company's prospective competitors have substantially greater financial,
technical, marketing, sales and distribution resources than those of the
Company. Some competitors are expected to market other services, such as cable
television access, landline telephone service and Internet access with their
wireless telecommunications service offerings. A limited number of the Company's
prospective competitors are operating, or planning to operate, through joint
ventures and affiliation arrangements, wireless telecommunications networks that
cover most of the United States.
The Company will compete directly with other PCS providers in each of its
markets, including principal competitors such as PrimeCo, Sprint and AT&T. The
FCC issued PCS licenses to the A and B Block license winners in June 1995.
Accordingly, the holders of the A and B Block PCS licenses in the Company's
markets have entered the PCS market earlier than the Company. There can be no
assurance that such time-to-market advantage will not have a material adverse
effect on the Company's ability to successfully implement its strategy in the
United States. Also providing competition in a market in which the Company
operates may be holders of three other PCS frequency blocks of spectrum.
Furthermore, PCS licensees may also partition and disaggregate their PCS
licenses into smaller service areas, which could provide new entrants with
further opportunities to enter the PCS market. The Company also expects that the
two incumbent cellular providers in each of the Company's planned United States
markets, all of which have infrastructure in place, a customer base and a brand
name, and have been operational for five to ten years or more, have upgraded or
will upgrade their networks to provide services in competition with the Company.
The Company further expects to compete with other telecommunications
technologies such as paging, enhanced specialized mobile radio and global
satellite networks.
Network and Development Plan. The business plan, if successful in trials,
will be developed for nationwide sales and service in the U.S.
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COMPETITION
There is increasing competition in the wireless telecommunications industry
in the United States and throughout the world. There can be no assurance that
the Company will be able to compete successfully or that new technologies and
products that are more commercially effective than the Company's technologies
and products will not be developed. In addition, many of the Company's
prospective competitors have substantially greater financial, technical,
marketing, sales and distribution resources than those of the Company.
Although the implementation of advanced telecommunications services is in
its early stages in many developing countries, the Company believes competition
is intensifying as businesses and foreign governments realize the market
potential of telecommunications services. Many of the Company's operating
companies currently face competition from existing telecommunication providers.
A number of large American and European companies and large international
telecommunications companies are actively engaged in programs to develop and
commercialize telecommunications services in both developing and developed
countries. In many cases, the Company also competes against the landline
carriers, including government-owned telephone companies. In some cases, the
competition is from government-controlled or -supported entities that are, or
may in the future be, privatized or otherwise become more efficient and
competitive. In addition, the Company's operating companies throughout the world
may face competition with new technologies and services introduced in the
future. Although the Company's operating companies intend to employ relatively
new technologies, there will be a continuing competitive threat from even newer
technologies that may render the technologies employed by such companies
obsolete. See "Risk Factors -- Rapid Technological Change." The Company also
expects that the price that its operating companies charge for their products
and services in certain regions will decline over the next few years as
competition intensifies in their markets. See "-- Leap Operating Companies."
The U.S. wireless industry is characterized by intense competition between
PCS, cellular and other wireless service providers. A limited number of the
Company's prospective competitors are operating, or planning to operate, through
joint ventures and affiliation arrangements, wireless telecommunications
networks that cover most of the United States. In the United States, the Company
will compete directly with other wireless providers in each of its markets, a
number of whom entered the PCS market earlier than the Company. There can be no
assurance that such time-to-market advantage will not have a material adverse
effect on the Company's ability to successfully implement its strategy. Some
competitors are also expected to market other services, such as cable television
access, landline telephone service and Internet access with their wireless
telecommunications service offerings. Furthermore, certain competing licensees
may partition and disaggregate their competing licenses into smaller service
areas, which could provide new entrants with further opportunities to enter the
Company's market. The Company also believes that the two incumbent cellular
providers in each of the Company's planned United States markets, all of which
have infrastructure in place, a customer base and a brand name, and have been
operational for five to ten years or more, have upgraded or will upgrade their
networks to provide services in competition with the Company. The Company
further expects to compete with other telecommunications technologies such as
paging, enhanced specialized mobile radio and global satellite networks. See
"-- United States Wireless Opportunities."
In addition, following the Distribution QUALCOMM may choose to pursue new
CDMA-based wireless telecommunications businesses and ventures that would also
be attractive projects for the Company. QUALCOMM will have no obligation to
refer any such project to the Company and may in fact compete with the Company
for such projects. Also, QUALCOMM will not be restricted from pursuing wireless
telecommunications opportunities that may compete directly with the Company or
the Leap Operating Companies. Any such competition or potential competition
could result in conflict between the Company and QUALCOMM and adversely affect
other relationships between the companies. Moreover, there can be no assurance
that the Company would be able to compete effectively with QUALCOMM with respect
to these opportunities.
In addition, the Company believes that companies holding equity interests
in multiple operating companies throughout the world will be increasingly
predominant in the wireless communications industry and expects to experience
increasing competition from entities with structures resembling that of Leap.
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GOVERNMENT REGULATION
The construction, operation, sale and interconnection arrangements of
wireless telecommunications systems and the grant, maintenance and renewal of
applicable licenses in each of the countries outside the United States in which
Leap has operations are regulated by governmental authorities in each such
country. In some cases, the regulatory authorities also operate or control the
operations of the competitors of the operating companies. Changes in the current
regulatory environment of these markets or future judicial intervention, or
regulations affecting the pricing of the operating companies' services, could
have a material adverse effect on the Company. In addition, the regulatory
framework and authorities in certain of the countries where the Company operates
are relatively recent and, therefore, the enforcement and interpretation of
regulations, the assessment of compliance, and the degree of flexibility of
regulatory authorities are uncertain. Further, changes in the regulatory
framework may limit the ability to add subscribers to developing systems. An
operating company's failure to comply with applicable governmental regulations
or operating requirements could result in the loss of licenses, penalties and/or
fines or otherwise could have a material adverse effect on the Company. For a
more detailed description of the regulatory environment in the United States and
each of the other countries in which Leap operates, see the "Regulatory
Environment" discussion for each of the Leap Operating Companies under
"Business."
The construction, operation, sale and interconnection arrangements of
wireless telecommunications systems and the grant, maintenance and renewal of
applicable licenses in the United States are regulated to varying degrees by
state regulatory agencies, the FCC, the United States Congress and the courts.
The Leap Operating Companies doing business in the United States, and Leap, will
be required to maintain compliance with all of the requirements for operating
wireless operations in the United States and the requirements for entering into
reseller agreements with United States operators. Such regulation is continually
evolving and there are a number of issues on which regulation has been or in the
future may be suggested. The Telecommunications Act of 1996 mandates significant
changes in existing regulations of the telecommunications industry to promote
competitive development of new service offerings to expand the availability of
telecommunications services and to streamline the regulation of the industry.
There can be no assurance that the FCC, Congress, the courts or state agencies
having jurisdiction over the business of any of the Company's United States
operating companies will not adopt or change regulations or take other actions
that would adversely affect the Company's financial condition or results of
operations. Many of the FCC's rules relating to the businesses of the Company's
United States operating companies have not been tested by the courts and are
subject to being changed by Congressional action. In addition, FCC licenses are
subject to renewal and revocation. There can be no assurance that the licenses
of the Company's United States operating companies will be renewed or not be
revoked.
EMPLOYEES
Upon completion of this Distribution, the Company is expected to have
approximately 50 full time employees, excluding employees of the Leap Operating
Companies. It will also have consultants under contract to work on specific
projects.
FACILITIES
The Company intends to lease approximately 50,000 square feet of space for
office and warehouse use in San Diego, California, U.S.A.
LEGAL PROCEEDINGS
Neither the Company nor any of the Leap Operating Companies is a party to
any litigation that the Company believes would, individually or in the
aggregate, have a material adverse effect on Leap and the Leap Operating
Companies, taken as a whole, and Leap is not aware that any such litigation is
threatened. There is a legal challenge in Mexico to the constitutionality of the
government's transfer of the frequency licenses. Neither the Company nor any
Leap Operating Company is a party to the litigation, and the Company believes
that the challenge will not have a material adverse effect on Leap and the Leap
Operating Companies taken as a whole. See "BUSINESS -- Leap Operating
Companies -- Pegaso Telecomunicaciones, S.A. de C.V. and Pegaso Comunicaciones y
Sistemas, S.A. de C.V., Mexico."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Currently, the Board of Directors of the Company is comprised of Harvey P.
White, Thomas J. Bernard, James E. Hoffmann, Alejandro Burillo Azcarraga,
Michael B. Targoff and Jeffrey P. Williams, each listed below, will be appointed
as directors of the Company on or prior to the Distribution Date. Each executive
officer listed below will be elected to the indicated office with the Company on
or prior to the Distribution Date and will serve at the pleasure of the Board of
Directors.
The following table sets forth information concerning the individuals who
will serve as directors and executive officers of the Company following the
Distribution:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harvey P. White.............................. 64 Chairman, Chief Executive Officer, President
and Director
Thomas J. Bernard............................ 66 Executive Vice President and Director
James E. Hoffmann............................ 48 Senior Vice President, General Counsel,
Secretary and Director
Daniel O. Pegg............................... 52 Senior Vice President, Public Affairs
Leonard C. Stephens.......................... 41 Senior Vice President, Human Resources
Tom Williardson.............................. 41 Senior Vice President, Finance and Treasurer
Alejandro Burillo Azcarraga.................. 46 Director
Michael B. Targoff........................... 54 Director
Jeffrey P. Williams.......................... 47 Director
</TABLE>
Certain additional information concerning the directors and executive
officers is set forth below:
Harvey P. White, one of the founders of QUALCOMM, has served as Vice
Chairman of the Board since June 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 Operating Officer and has also been a Director of QUALCOMM since it
began operations in July 1985. 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. He holds a B.A. degree
in Economics from Marshall University.
Thomas J. Bernard 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 Product Division of QUALCOMM. He 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 Telecommunication
Division, Western Operations. Mr. Bernard has served on the Board of Directors
of Sigma Circuits, Inc., a circuit board manufacturing company, since April
1995.
James E. Hoffmann has served as Vice President, Legal Counsel of QUALCOMM
since June 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.
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Daniel O. Pegg has served as Senior Vice President, Public Affairs QUALCOMM
since March 1997. Prior to joining QUALCOMM, Mr. Pegg was President and Chief
Executive Officer of the San Diego Economic Development Corporation for fourteen
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 has served as Vice President Human Resources Operations
for QUALCOMM since December 1995. Prior to joining QUALCOMM, Mr. Stephens was
employed by Pfizer Inc., where he served in a number of human resources
positions over a fourteen year career. He holds a B.A. degree in Political
Science from Howard University.
Tom Williardson joined QUALCOMM in July 1998 and will serve as Senior Vice
President, Finance and Treasurer of the Company. From July 1995 to July 1998,
Mr. Williardson 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. Williardson served as a
principal at The Fremont Group, an investment company. Mr. Williardson 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 from Brigham Young
University.
Alejandro Burillo Azcarraga 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, a NYSE listed company and one of
Mexico's main industrial groups.
Michael B. Targoff was President & Chief Operating Officer of Loral Space &
Communications Limited from its formation in January 1996 through January 1998.
Prior to that, Mr. Targoff was Senior Vice President of Loral Corporation. From
1991, Mr. Targoff was Head Director and the 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 Satelites Mexicanos, S.A. de D.V., as
well as of Foremost Corporation of America. Prior to joining Loral Corporation
in 1981, Mr. Targoff was a Partner in the New York law firm of Wilkie 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.
Jeffrey P. Williams has been a Managing Partner at Greenhill and
Associates, 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.
CLASSIFIED BOARD OF DIRECTORS
The Company's Certificate of Incorporation will provide for a classified
Board of Directors consisting of three classes as nearly equal in number as
possible with the directors in each class serving staggered three-year terms.
The members of the Board will be divided into such classes prior to the
Distribution and following appointment of all of the seven members of the Board.
The terms of the Class I, Class II and Class III directors will expire initially
in 1999, 2000 and 2001, respectively. Initially, Messrs. Hoffmann and Targoff
will be Class I directors, Messrs. Bernard and Burillo will be Class II
directors, and Messrs. White and Williams will be Class III directors. At each
annual meeting of the stockholders of the Company, the successors to the
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class of directors whose term expires will be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
their election. See "Description of Company Capital Stock."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company currently intends to establish an
Audit Committee and a Compensation Committee.
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 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.
COMPENSATION OF DIRECTORS
When traveling from out-of-town, the members of the Board of Directors are
eligible for reimbursement for their travel expenses incurred in connection with
attendance at Board meetings and meetings of committees of the Board of
Directors. Employee directors will not receive any compensation for their
participation in Board or Board committee meetings. The Directors' Plan will
provide for initial option grants to persons upon first joining the Board and
annual option grants to non-employee directors who continue to serve on the
Board. See "-- Equity Incentive Plans."
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COMPENSATION OF EXECUTIVE OFFICERS
All of the information set forth in the following tables reflects
compensation earned during the QUALCOMM fiscal years indicated based upon
services rendered to QUALCOMM by the Company's Chief Executive Officer and the
four other most highly paid executive officers of the Company (collectively, the
"Named Executive Officers"). The services rendered by such individuals to
QUALCOMM were, in some instances, in capacities not equivalent to those
positions in which they will serve for the Company or its subsidiaries.
Therefore, these tables do not reflect the compensation that will be paid to the
executive officers of the Company. As currently contemplated, the base annual
salary for the individuals listed below as officers of Leap immediately
following the Distribution will be as follows, subject to future adjustment in
the discretion of the Board of Directors of the Company: Mr. White, $500,011;
Mr. Bernard, $270,004; Mr. Hoffmann, $185,016; Mr. Stephens, $170,019; and Mr.
Pegg, $210,017. Neither Leap nor its Board of Directors has determined the
amount, if any, of compensation in addition to base salary that may be paid to
such officers following the Distribution.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
--------------------------------- ------------
OTHER
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION(2) OPTIONS SATION(5)
--------------------------- ---- -------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White........................ 1997 $395,713 $250,000 $ 0 0 $37,011
Chief Executive Officer and President 1996 $354,963 $100,000 $ 0 85,000 $34,437
1995 $297,462 $150,000 $ 0 60,000 $ 4,654
Thomas J. Bernard...................... 1997 $245,142 $ 65,000 $ 0 0 $ 6,086
Executive Vice President and Director 1996 $186,976 $ 40,000 $ 0 60,000 $ 0
1995 $ 7,200(3) $ 0 $ 0 0 $ 0
James E. Hoffmann...................... 1997 $149,283 $ 50,000 $ 0 3,000 $ 2,145
Senior Vice President, General 1996 $131,646 $ 20,000 $ 0 4,000 $ 2,191
Counsel, Secretary and Director 1995 $117,454 $ 15,000 $ 0 5,000 $ 2,134
Leonard C. Stephens.................... 1997 $146,828 $ 45,000 $ 42,268 3,000 $ 1,816
Senior Vice President, Human 1996 $112,711 $ 25,000 $ 43,644 15,000 $ 0
Resources 1995 $ 0 $ 0 $ 0 0 $ 0
Daniel O. Pegg......................... 1997 $111,174(4) $ 55,000 $ 0 50,000 $ 0
Senior Vice President, Public Affairs 1996 $ 0 $ 0 $ 0 0 $ 0
1995 $ 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. The Company made payments related to his relocation as
shown above.
(3) Mr. Bernard served as a consultant to QUALCOMM in 1995, and the reported
salary constitutes consulting fees.
(4) 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.
(5) Includes QUALCOMM matching 401(k) contributions, executive benefits payments
and executive retirement stock matching as follows:
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<PAGE> 82
<TABLE>
<CAPTION>
QUALCOMM EXECUTIVE TOTAL
MATCHING EXECUTIVE RETIREMENT OTHER
401(K) BENEFITS CONTRIBUTIONS COMPEN-
NAME YEAR CONTRIBUTIONS PAYMENTS (1) SATION
---- ---- ------------- --------- ------------- -------
<S> <C> <C> <C> <C> <C>
Harvey P. White...................... 1997 $2,145 $2,520 $32,346 $37,011
1996 $2,191 $2,520 $29,726 $34,437
1995 $2,134 $2,520 $ 0 $ 4,654
Thomas J. Bernard.................... 1997 $1,816 $4,270 $ 0 $ 6,086
1996 $ 0 $ 0 $ 0 $ 0
1995 $ 0 $ 0 $ 0 $ 0
James E. Hoffmann.................... 1997 $2,145 $ 0 $ 0 $ 2,145
1996 $2,191 $ 0 $ 0 $ 2,191
1995 $2,134 $ 0 $ 0 $ 2,134
Leonard C. Stephens.................. 1997 $1,816 $ 0 $ 0 $ 1,816
1996 $ 0 $ 0 $ 0 $ 0
1995 $ 0 $ 0 $ 0 $ 0
Daniel O. Pegg....................... 1997 $ 0 $ 0 $ 0 $ 0
1996 $ 0 $ 0 $ 0 $ 0
1995 $ 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 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 and may become partially vested earlier upon
reaching age 62 1/2 and completing ten years of employment with QUALCOMM.
The employee contributions and the stock benefit are unsecured and subject
to the general creditors of QUALCOMM. At September 28, 1997, 1,008 shares
were vested on behalf of Harvey P. White.
The following table shows for the Named Executive Officers the specified
information with respect to grants of options to purchase QUALCOMM Common Stock
("QUALCOMM Options") during 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR OPTION
OPTIONS GRANTED TO TERM(2)
GRANTED EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME (#)(1) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James E. Hoffmann......... 3,000 0.07% $39.81 12/12/06 $ 75,082.88 $ 190,259.78
Leonard C. Stephens....... 3,000 0.07% $39.81 12/12/06 $ 75,082.88 $ 190,259.78
Daniel O. Pegg............ 50,000 1.18% $60.25 03/06/07 $1,893,889.17 $4,799,109.10
</TABLE>
- ---------------
(1) Such options vest according to the following schedule: 20% vest on each of
the first, second, third, fourth and fifth anniversaries of the date of
grant.
(2) Calculated on the assumption that the market value of the underlying stock
increases at the stated values, compounded annually. Options granted under
QUALCOMM's Option Plan generally have a maximum term of ten years. The total
appreciation of the options over their ten year terms at 5% and 10% is 63%
and 159%, respectively.
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<PAGE> 83
The following table shows for each Named Executive Officer the specified
information with respect to exercises of QUALCOMM Options during 1997 and the
value of unexercised options at the end of 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT FY-END
SHARES VALUE (#) ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White............... 0 $0 119,000 176,000 $2,892,030 $3,618,120
Thomas J. Bernard............. 0 $0 6,000 54,000 $ 58,500 $ 699,000
James E. Hoffmann............. 0 $0 9,000 19,000 $ 286,860 $ 488,270
Daniel O. Pegg................ 0 $0 0 50,000 $ 0 $ 0
Leonard C. Stephens........... 0 $0 0 18,000 $ 0 $ 301,950
</TABLE>
- ---------------
(1) 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 $56.06 on the last trading
day of the fiscal year as reported on the Nasdaq National Market.
EQUITY INCENTIVE PLANS
1998 STOCK OPTION PLAN
In September 1998, the Board of Directors adopted, and QUALCOMM, as sole
stockholder of the Company, approved, the Company's 1998 Stock Option Plan (the
"Option Plan"), which provides for the grant of various types of equity-based
compensation to selected officers, directors and employees of and consultants to
the Company and its affiliates. The Option Plan is designed to promote the
success of the Company's business by more closely aligning the interests of
management and the Company's stockholders through the provision of equity-based
incentives to those individuals who are or will be responsible for such success.
The total number of shares of Common Stock that may be issued or awarded
under the Option Plan may not exceed 8,000,000, subject to adjustment as
described below, of which options to purchase approximately 5,481,377 shares
will be granted to holders of outstanding QUALCOMM Options immediately prior to
the Distribution (the "Distribution Options") and 2,518,623 shares would be
available for future grants. The total number of shares of Common Stock reserved
under the Option Plan and the total number of shares issuable under Distribution
Options shall be reduced by the number of shares of Common Stock issued pursuant
to the exercise of QUALCOMM Options between the Record Date and the Distribution
Date as provided in the Employee Benefits Agreement. See "Treatment of QUALCOMM
Employee Stock Options in the Distribution."
The essential features of the Option Plan are outlined below.
General
The Option Plan provides for the grant of both incentive and non-qualified
stock options. Incentive stock options granted under the Option Plan are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Non-qualified
stock options granted under the Option Plan are not intended to qualify as
incentive stock options under the Code. See "Tax Information" for a discussion
of the tax treatment of incentive and non-qualified stock options.
Purpose
The Option Plan was adopted to provide a means by which selected officers,
directors and employees of and consultants to the Company and its affiliates
could be given an opportunity to purchase stock in the
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<PAGE> 84
Company, to assist in retaining the services of employees holding key positions,
to secure and retain the services of persons capable of filling such positions
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
Administration
The Option Plan is administered by the Board of Directors. The Board has
the power to construe and interpret the Option Plan and, subject to the
provisions of the Option Plan, to determine the persons to whom and the dates on
which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration to be paid upon exercise of an option and other terms of the
option. The Board of Directors is authorized to delegate administration of the
Option Plan to a committee composed of not fewer than two members of the Board.
The Board has also delegated administration of the Option Plan to the Stock
Option Committee of the Board with respect to option grants to persons other
than directors and corporate officers of the Company. As used herein with
respect to the Option Plan, the "Board" refers to the Compensation Committee and
the Stock Option Committee as well as to the Board of Directors itself.
Stock Subject to the Plan
If options granted under the Option Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the Option Plan.
Eligibility
Incentive stock options may be granted only to selected employees
(including corporate officers) of the Company and its affiliates. Non-qualified
stock options may be granted to selected employees (including corporate
officers), directors and consultants.
No incentive stock options may be granted under the Option Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed 5 years from the date of
grant. The aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which incentive stock options granted
under the Option Plan are exercisable for the first time by an optionee during
any calendar year (under all such plans of the Company and its affiliates) may
not exceed $100,000.
Terms of Options
The following is a description of the permissible terms of options under
the Option Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the Option Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of non-qualified stock options may not be less than 85% of
the fair market value of the stock subject to the option on the date of the
option grant. The exercise price of options granted under the Option Plan must
be paid either: (i) in cash at the time the option is exercised; or (ii) at the
discretion of the Board, (a) by delivery of other Common Stock of the Company,
(b) pursuant to a deferred payment arrangement or (c) in any other form of legal
consideration acceptable to the Board.
Option Repricing. In the event of a decline in the value of the Company's
Common Stock, the Board has the authority to offer employees the opportunity to
replace outstanding higher priced options, whether incentive or non-qualified,
with new lower priced options.
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<PAGE> 85
Option Exercise. Options granted under the Option Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Options granted under the Option Plan generally are subject to vesting over a
5-year period, with a specified percentage of each option vesting on various
annual anniversary dates of the option's date of grant, provided that the
optionee has continuously provided services to the Company or an affiliate of
the Company from such date of grant until the applicable vesting date. The Board
has the power to accelerate the time during which an option may be exercised. In
addition, options granted under the Option Plan may permit exercise prior to
vesting, but in such event the optionee may be required to enter into an early
exercise stock purchase agreement that allows the Company to repurchase shares
not yet vested at their exercise price should the optionee leave the employ or
cease to be a consultant of the Company before vesting.
Term. The maximum term of options under the Option Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
The Option Plan provides for earlier termination of an option due to the
optionee's cessation of service. Options under the Option Plan generally
terminate thirty (30) days after the optionee ceases to provide services to the
Company or any affiliate of the Company. However, in the event the optionee's
continuous service terminates due to the optionee's permanent and total
disability as defined in Section 22(e)(3) of the Code, then the option may
continue under its original terms if so provided in the option agreement. If the
optionee's continuous service terminates due to the death of the optionee or due
to the optionee's permanent and total disability and such termination due to
disability is followed by the death of the optionee, then the vesting of all
unvested shares may be accelerated as of the date of death of the optionee if so
provided in the option agreement. The Board has discretion to suspend and/or
extend the vesting and/or term of options granted to persons on leaves of
absence. Individual options by their terms may provide for exercise within a
longer period of time following termination of employment or the consulting
relationship.
Restrictions on Transfer. Incentive stock options granted under the Option
Plan may not be transferred except by will or by the laws of descent and
distribution, and may be exercised during the lifetime of the person to whom the
option is granted only by such person. The Option Plan provides that
non-qualified stock options shall be transferable by the optionee only upon such
terms and conditions as set forth in the option agreement as the Board shall
determine in its discretion. In addition, shares subject to repurchase by the
Company under an early exercise stock purchase agreement may be subject to
restrictions on transfer which the Board deems appropriate.
Effect of Certain Corporate Events
If any change is made in the stock subject to the Option Plan or subject to
any option granted under the Option Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration of the Company), the Option Plan and options
outstanding thereunder will be appropriately adjusted as to the type(s) and the
maximum number of securities subject to such plan, the maximum number of
securities which may be granted to an employee in a particular calendar year and
the type(s), number of securities and price per share of stock subject to such
outstanding options.
In the event of a merger or consolidation in which the Company is not the
surviving corporation or a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding prior to
the merger are converted into other property (each a "Change in Control"), then
to the extent permitted by law, any surviving corporation will be required to
either assume options outstanding under the Option Plan or substitute similar
options for those outstanding under such plan, or such outstanding options will
continue in full force and effect. In the event that any surviving corporation
refuses to assume or continue options outstanding under the Option Plan, or to
substitute similar options, then with respect to options other than Distribution
Options held by persons then performing services as employees, directors or
consultants for the Company or any affiliate of the Company, the time during
which such options may be exercised will be accelerated and the options
terminated if not exercised prior to such event, and with respect to
Distribution Options the effect shall be as provided in the applicable option
agreement. In the event of a
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<PAGE> 86
dissolution or liquidation of the Company, any options outstanding under the
Option Plan will terminate if not exercised prior to such event.
In addition, the Option Plan provides that options held by any person who
is terminated for any reason other than cause within twenty-four (24) months
following a Change in Control will accelerate and immediately become fully
vested and exercisable, except if such contemplated Change in Control would
occur prior to the second anniversary of the adoption of the Option Plan by the
Board and such potential acceleration would by itself prohibit the Company from
entering into a "pooling of interests" accounting transaction.
Duration, Amendment and Termination
The Board may suspend or terminate the Option Plan at any time. Unless
sooner terminated, the Option Plan will terminate in September 2008.
The Board may also amend the Option Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve (12) months before or after its adoption by the Board
if the amendment would: (i) increase the number of shares reserved for options
under the Option Plan; (ii) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the Option Plan to satisfy Section 422 of the Code); or (iii) modify
the Option Plan in any other way if such modification requires stockholder
approval in order for the Option Plan to satisfy the requirements of Section 422
of the Code or to comply with the requirements of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Federal Income Tax Information
Incentive Stock Options. Incentive stock options under the Option Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
Non-qualified Stock Options. Non-qualified stock options granted under the
Option Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a non-qualified stock option. Upon exercise of a non-qualified
stock option, the optionee will recognize taxable ordinary income equal to the
excess of the stock's fair market value on the date of exercise over the option
exercise price. Generally, with respect to employees, the Company is required to
withhold taxes in an amount based on the ordinary income recognized. Subject to
the requirement of reasonableness and the satisfaction of a tax-reporting
obligation, the Company generally will be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionee. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon exercise of
the option. Such gain or loss will be: (i) long-term if the stock was held for
more than eighteen (18) months, (ii) mid-term if the stock was held for more
than twelve (12) months but not more than eighteen (18) months or (iii)
short-term if the stock was not held more than twelve (12) months. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. In 1993, Code Section 162(m)
was adopted, which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with applicable Treasury regulations issued under
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<PAGE> 87
Section 162(m), compensation attributable to stock options will qualify as
performance-based compensation, provided that: either (a)(i) the option plan
contains a per-employee limitation on the number of shares for which options may
be granted during a specified period, (ii) the per-employee limitation is
approved by the stockholders, (iii) the option is granted by a Compensation
Committee comprised solely of "outside directors" (as defined in Section 162(m))
and (iv) the exercise price of the option is no less than the fair market value
of the stock on the date of grant; or (b) the option is granted by a
Compensation Committee comprised solely of "outside directors" and is granted
(or exercisable) only upon the achievement (as certified in writing by the
Compensation Committee) of an objective performance goal established by the
Compensation Committee while the outcome is substantially uncertain and approved
by the stockholders.
For the aforementioned reasons, the Option Plan provides for an annual per
employee limitation as required under Section 162(m). Because the Company's
Compensation Committee will be comprised solely of "outside directors," options
granted by such committee will qualify as "performance-based compensation." The
Stock Option Committee will not be comprised solely of "outside directors;"
consequently, options granted by the Stock Option Committee will not qualify as
"performance-based compensation."
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the Option Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the Option Plan who are residents of or are
employed in a country other than the United States may be subject to taxation in
accordance with the tax laws of that particular country in addition to or in
lieu of United States federal income taxes.
EMPLOYEE STOCK PURCHASE PLAN
In September 1998, the Board of Directors adopted, and QUALCOMM, as sole
stockholder of the Company, approved, the Company's Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 200,000 shares of the Company's
Common Stock.
The essential features of the Purchase Plan, as amended, are outlined
below.
Purpose
The purpose of the Purchase Plan is to provide a means by which employees
of the Company (and any parent or subsidiary of the Company designated by the
Board of Directors to participate in the Purchase Plan (an "Affiliate")) may be
given an opportunity to purchase Common Stock of the Company through payroll
deductions, to assist the Company in retaining the services of its employees, to
secure and retain the services of new employees and to provide incentives for
such persons to exert maximum efforts for the success of the Company.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
Administration
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board of Directors is authorized to
delegate administration of the Purchase Plan to a committee composed of not
fewer than two members of the Board. As used herein with respect to the Purchase
Plan, the "Board" refers to the Compensation Committee as well as to the Board
of Directors itself. The Board may abolish any such committee at any time and
revest in the Board the administration of the Purchase Plan.
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<PAGE> 88
Stock Subject to the Purchase Plan
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Common Stock not purchased under such
rights again becomes available for issuance under such plan.
Offerings
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. The Board has discretion to determine
the length of offerings under the Purchase Plan.
Eligibility
Any person who has been in the employ of the Company for at least 90 days
and is customarily employed at least twenty hours per week and five months per
calendar year by the Company (or by any Affiliate), on the first day of an
offering period, is generally eligible to participate in that offering under the
Purchase Plan. The Board may provide that officers of the Company who are
"highly compensated" as defined in the Code are not eligible to be granted
rights under an offering.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or a
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him to buy more than $25,000 worth of stock
(determined based on the fair market value of the shares at the time such rights
are granted) under all employee stock purchase plans of the Company in any
calendar year.
Participation in the Purchase Plan
Eligible employees become participants in the Purchase Plan by delivering
to the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions of up to the maximum
percentage specified by the Board of such employees' base compensation during
the purchase period.
Purchase Price
The purchase price per share at which shares are sold in an offering under
the Purchase Plan cannot be less than the lower of (i) 85% of the fair market
value of a share of Common Stock on the date of commencement of the offering or
(ii) 85% of the fair market value of a share of Common Stock on the date of
purchase.
Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions over
the offering period. A participant may increase or reduce his or her payroll
deductions during the course of an offering only to the extent permitted under
the terms of the offering. Generally, a participant may not increase payroll
deductions after the beginning of any purchase period, but may decrease his or
her participation percentage at any time but on no more than one occasion during
the course of the offering. Notwithstanding the foregoing, a participant may
reduce his or her participation percentage to zero or withdraw from an offering
at any time during the course of the offering. All payroll deductions made for a
participant are credited to his or her account under the Purchase Plan and
deposited with the general funds of the Company.
Purchase of Stock
By executing an agreement to participate in the Purchase Plan, an eligible
employee is entitled to purchase shares under the Purchase Plan. In connection
with offerings made under the Purchase Plan, the Board specifies a maximum
number of shares any employee may be granted the right to purchase. If the
aggregate number of shares to be purchased upon exercise of rights granted in
the offering would exceed the
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<PAGE> 89
maximum aggregate number of shares available for issuance under the Purchase
Plan, the Board would make a pro rata allocation of shares available in a
uniform and equitable manner. Unless the employee's participation is
discontinued, his or her right to purchase shares is exercised automatically at
each exercise date designated by the Board at the applicable price. See
"Withdrawal" below.
Withdrawal
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering a
notice of withdrawal from the Purchase Plan to the Company. Such withdrawal may
be elected at any time prior to the end of the applicable offering except as
provided by the Board or the Committee in the offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, and such employee's interest in the offering will be automatically
terminated. The employee is not entitled to again participate in such offering.
An employee's withdrawal from an offering will not have any effect upon such
employee's eligibility to participate in subsequent offerings under the Purchase
Plan.
Termination of Employment
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
Restrictions on Transfer
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
Effect of Certain Corporate Events
If any change is made in the stock subject to the Purchase Plan, or any
rights granted under the Purchase Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Purchase Plan and
outstanding rights will be appropriately adjusted in the class and maximum
number of shares subject to the Purchase Plan and the class, number of shares
and price per share of stock subject to outstanding rights.
In the event of a dissolution or liquidation of the Company, a merger or
consolidation in which the Company is not the surviving corporation, a reverse
merger in which the Company is the surviving corporation but the shares of the
Company's Common Stock are converted into other property or any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion (i) any surviving corporation may assume outstanding rights or
substitute similar rights for those under the Purchase Plan, (ii) such rights
may continue in full force and effect or (iii) participants' accumulated payroll
deductions may be used to purchase Common Stock immediately prior to the
transaction described above and the participants' rights under the ongoing
offering terminated.
Duration, Amendment and Termination
The Board may suspend or terminate the Purchase Plan at any time. Unless
sooner terminated, the Purchase Plan will terminate in September 2008.
The Board may also amend the Purchase Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve (12) months before or after its
adoption by the Board if the amendment would: (i) increase the number of shares
reserved for
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<PAGE> 90
issuance under the Purchase Plan; (ii) modify the requirements as to eligibility
for participation in the Purchase Plan (to the extent such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3); or (iii) modify the Purchase Plan in any other way if such
modification requires stockholder approval in order for the Purchase Plan to
obtain employee stock purchase plan treatment under Section 423 of the Code or
to comply with the requirements of Rule 16b-3.
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of such plan without
consent of the person to whom such rights were granted.
Federal Income Tax Information
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423 of
the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Generally, other than this, no income
will be taxable to a participant until disposition of the shares acquired, and
the method of taxation will depend upon the holding period of the purchased
shares.
If the stock is disposed of at least two years after the first day of the
offering period and at least one year after the purchase date of the stock, then
the lesser of (i) the excess of the fair market value of the stock at the time
of such disposition over the purchase price of the stock or (ii) 15% of the fair
market value of the stock on the first day of the offering period, will be
treated as ordinary income. Any further gain, or any loss, will be taxed as a
long-term capital gain or loss if it was held for more than eighteen (18)
months, or mid-term capital gain or loss if it was held for more than twelve
(12) months but not more than eighteen (18) months.
If the stock is disposed of before the expiration of either of the holding
periods described above, then the excess of the fair market value of the stock
on the exercise date over the exercise price will be treated as ordinary income
at the time of such disposition. The balance of any gain or loss will be treated
as capital gain or loss. Such gain or loss will be: (i) long-term if the stock
was held for more than eighteen (18) months, (ii) mid-term if the stock was held
for more than twelve (12) months but not more than eighteen (18) months or (iii)
short-term if the stock was not held more than twelve (12) months. Even if the
stock is later disposed of for less than its fair market value on the exercise
date, the same amount of ordinary income is attributed to the participant, and a
capital loss is recognized equal to the difference between the sales price and
the fair market value of the stock on such exercise date.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction to the extent amounts are taxable as ordinary income to a
participant by reason of a disposition before the expiration of the holding
periods described above (subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code, and, perhaps, in the future, the
satisfaction of a withholding or tax reporting obligation).
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of rights granted under
the Purchase Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the Purchase Plan who are residents of or are
employed in a country other than the United States may be subject to taxation in
accordance with the tax laws of that particular country in addition to or in
lieu of United States federal income taxes.
1998 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In September 1998, the Board of Directors adopted, and QUALCOMM, as sole
stockholder of the Company, approved, the Company's 1998 Non-Employee Directors'
Stock Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of Common Stock to non-employee
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directors of the Company. The total number of shares of Common Stock that may be
issued or awarded under the Directors' Plan may not exceed 500,000, subject to
adjustment as described below.
The essential features of the Directors' Plan are outlined below.
General
The Directors' Plan provides for the grant of non-qualified stock options
to "Non-Employee Directors" (defined below in "Eligibility") of the Company.
Such options granted under the Directors' Plan are intended not to qualify as
incentive stock options under the Code. See "Tax Information" for a discussion
of the tax treatment of non-qualified stock options.
Purpose
The Directors' Plan was adopted to provide a means by which Non-Employee
Directors will be given an opportunity to purchase stock of the Company and to
assist in retaining the services of such persons as members of the Board of
Directors of the Company.
Administration
The Directors' Plan is administered by the Board of Directors. The Board
has the power to construe and interpret the Directors' Plan. The Board of
Directors is authorized to delegate administration of the Directors' Plan to a
committee composed of not fewer than two members of the Board.
Stock Subject to the Directors' Plan
If options granted under the Directors' Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the Directors' Plan.
Eligibility
Stock options will be granted under the Directors' Plan only to directors
of the Company who are not otherwise employees of the Company or any affiliate
of the Company ("Non-Employee Directors").
Non-Discretionary Grants
The Directors' Plan provides for (i) a one-time, non-discretionary grant to
each Non-Employee Director of an option to purchase 20,000 shares of the
Company's Common Stock, effective upon the Distribution Date or the subsequent
election of such person for the first time to serve as a Non-Employee Director
of the Company (an "Initial Option") and (ii) an annual grant to be issued at
the time of each annual meeting, to each Non-Employee Director who continues to
serve as such, of an option to purchase 10,000 shares of the Company's Common
Stock (an "Annual Option").
Terms of Options
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan is equal to the fair market value of the Common Stock subject to
the option on the date of the grant. The exercise price of options granted under
the Directors' Plan must be paid either: (i) in cash at the time the option is
exercised, (ii) by delivery of other Common Stock of the Company, (iii)
according to a deferred payment or other arrangement or (iv) in any other form
of legal consideration acceptable to the Board and provided in the applicable
option agreement.
Option Exercise. Initial Options and Annual Options for Non-Employee
Directors will vest over 5 years according to the following schedule: so long as
the optionee continues to serve as a Non-Employee Director or employee of or
consultant to the Company, 20% of the shares subject to the option will vest on
each of the first, second, third, fourth and fifth anniversaries of the date of
grant.
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Term. The term of all options under the Directors' Plan is ten years;
provided; however, such options terminate 30 days after the optionee ceases to
be a Non-Employee Director, employee or consultant. In the event that an
optionee ceases to be a Non-Employee Director, employee or consultant due to the
optionee's (i) retirement at age seventy (70) or older after nine (9) years of
service on the Board or (ii) due to permanent and total disability as defined in
Section 22(e)(3) of the Code, the option will terminate only upon expiration of
the option term. In the event that an optionee ceases to be a Non-Employee
Director, employee or consultant due to the optionee's death or due to the
optionee's termination due to permanent and total disability when such
termination due to disability is followed by death, the vesting of all unvested
shares will be accelerated to such date and the option may be exercised in full
at any time within one year of such termination.
Restrictions on Transfer
The Directors' Plan provides that options shall be transferable by the
optionee only upon such terms and conditions as set forth in the option
agreement as the Board shall determine in its discretion. In addition, shares
subject to repurchase by the Company under an early exercise stock purchase
agreement may be subject to restrictions on transfer which the Board deems
appropriate.
Effect of Certain Corporate Events
If any change is made in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration of the
Company), the Directors' Plan and options outstanding thereunder will be
appropriately adjusted as to the type(s) and the maximum number of securities
subject to such plan and the type(s), number of securities and price per share
of stock subject to such outstanding options.
In the event of: (1) a dissolution or liquidation of the Company, (2) the
sale of all or substantially all of the Company's assets, (3) a merger,
consolidation or reorganization of the Company with or into another corporation
or other legal person, other than a merger, consolidation or reorganization in
which more than fifty percent (50%) of the combined voting power of the
then-outstanding securities of the surviving entity (or if more than one entity
survives the transaction, the controlling entity) immediately after such a
transaction are held in the aggregate by holders of voting securities of the
Company immediately prior to such transaction, (4) the acquisition by any person
of beneficial ownership of securities representing fifty percent (50%) or more
of the combined voting power of the then-outstanding securities of the Company,
or (5) individuals who at the beginning of any consecutive two-year period
constitute the directors of the Company ceasing for any reason to constitute at
least a majority thereof (collectively, a "Change in Control"), then: (i) any
surviving or acquiring corporation shall assume options outstanding under the
Plan or shall substitute similar options or (ii) in the event any surviving or
acquiring corporation refuses to assume such options or to substitute similar
options for those outstanding under the Plan, then (A) with respect to options
held by persons then performing services as directors, employees or consultants,
the vesting of such options and the time during which such options may be
exercised shall be accelerated prior to such event and the options terminated if
not exercised after such acceleration and at or prior to such event, and (B)
with respect to any other options outstanding under the Directors' Plan, such
options shall be terminated if not exercised prior to such event.
Duration, Amendment and Termination
The Board may suspend or terminate the Directors' Plan at any time. Unless
sooner terminated, the Directors' Plan will terminate in September 2008.
The Board may also amend the Directors' Plan at any time or from time to
time. However, except with respect to certain amendments relating to adjustments
upon changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the
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Directors' Plan to satisfy the requirements of Rule 16b-3, any requirements of
Section 144 of the Delaware General Corporation Law, or any Nasdaq National
Market or securities exchange listing requirements.
Federal Income Tax Information
Non-Qualified Stock Options. Options granted under the Directors' Plan are
intended to be treated as non-qualified stock options and are not intended to be
eligible for the favorable federal income tax treatment accorded "incentive
stock options" under the Code. Non-qualified stock options granted under the
Directors' Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a non-qualified stock option. Upon exercise of a non-qualified
stock option, the optionee will recognize taxable ordinary income equal to the
excess of the stock's fair market value on the date of exercise over the option
exercise price. Subject to the requirement of reasonableness, the Company will
be entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be: (i)
long-term if the stock was held for more than eighteen (18) months, (ii)
mid-term if the stock was held for more than twelve (12) months but not more
than eighteen (18) months or (iii) short-term if the stock was not held more
than twelve (12) months. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the Directors' Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the Directors' Plan who are residents of a
country other than the United States may be subject to taxation in accordance
with the tax laws of that particular country in addition to or in lieu of United
States federal income taxes.
TREATMENT OF QUALCOMM EMPLOYEE
STOCK OPTIONS IN THE DISTRIBUTION
As of August 20, 1998, there were outstanding options (the "QUALCOMM
Options") to purchase (i) 21,639,008 shares of QUALCOMM Common Stock under the
QUALCOMM Incorporated 1991 Stock Option Plan (the "QUALCOMM Option Plan") and
(ii) 665,500 shares of QUALCOMM Common Stock under the QUALCOMM Incorporated
1998 Non-employee Directors Stock Option Plan (the "QUALCOMM Director Plan").
Pursuant to the terms of the Employee Benefits Agreement, immediately prior to
the Distribution, Leap will grant, under the 1998 Plan, options to purchase Leap
Common Stock ("Leap Options") to each holder of an outstanding QUALCOMM Option
who is a current or former employee, consultant or director of QUALCOMM
(including, as appropriate, employees, consultants and directors of Leap). The
exercise price and number of shares subject to QUALCOMM Options to purchase
379,000 shares of QUALCOMM Common Stock (based on options outstanding as of
August 20, 1998) held by persons other than such current or former employees,
consultants or directors of QUALCOMM ("Redenominated Options") will be adjusted
in a manner designed to preserve the economic value of such options, but no Leap
Options will be granted with respect to such QUALCOMM options.
The Leap Options will be exercisable for Leap Common Stock on the basis of
one share of Leap Common Stock for every four shares of QUALCOMM Common Stock
subject to the outstanding QUALCOMM Options. No Leap Options to purchase
fractional shares of Leap Common Stock will be granted, but will instead be
rounded down to the nearest whole share. Based on the number of QUALCOMM Options
outstanding on August 20, 1998, it is anticipated that Leap Options to purchase
a total of approximately 5,481,377 shares of Leap Common Stock will be granted
in connection with the Distribution to QUALCOMM option holders.
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In connection with the grant of such Leap Options, the exercise price of
the corresponding QUALCOMM Options will be adjusted and the exercise price of
the Leap Options will be determined in a manner designed to preserve the
economic value of the QUALCOMM Options existing immediately prior to the
Distribution. The economic value will be preserved by allocating the current
exercise price of the QUALCOMM Options between the adjusted QUALCOMM Option and
the Leap Option (as adjusted for the distribution ratio) based on the relative
fair market values of the underlying QUALCOMM Common Stock and Leap Common Stock
after the Distribution so as to preserve the "spread" value of the existing
QUALCOMM Option. For this purpose, the fair market value of a share of Leap
Common Stock will be based on the closing "when issued" sales price per share of
Leap Common Stock immediately before the Distribution. The fair market value of
a share of QUALCOMM Common Stock will be based on the closing sales price per
share of QUALCOMM Common Stock on the Nasdaq National Market immediately before
the Distribution, less one-quarter of the closing "when issued" sales price per
share of Leap Common Stock immediately before the Distribution. As a result,
except with respect to Redenominated Options, following the Distribution each
holder of an outstanding QUALCOMM Option prior to the Distribution will have the
opportunity after the Distribution to obtain Leap Common Stock and the same
number of shares of QUALCOMM Common Stock at the same aggregate exercise price
(as adjusted for the distribution ratio) as if such individual had exercised the
QUALCOMM Options in full (as if such options were fully vested) prior to the
Distribution Date.
The vesting schedules and term of outstanding QUALCOMM Options will not be
affected by the Distribution, and the Leap Options will be subject to the same
vesting schedule and term. Vesting and termination of such options will,
however, be dependent upon an employee's continued employment with QUALCOMM or
Leap, as applicable (under the terms of the companies' respective plans),
following the Distribution.
TREATMENT OF QUALCOMM TRUST CONVERTIBLE PREFERRED
SECURITIES IN THE DISTRIBUTION
In February 1997, QUALCOMM Financial Trust I (the "Trust"), a QUALCOMM
wholly-owned subsidiary trust created under the laws of the State of Delaware,
completed a private placement of $660 million of 5 3/4% Trust Convertible
Preferred Securities (the "QUALCOMM Trust Convertible Preferred Securities").
The sole assets of the Trust are QUALCOMM Incorporated 5 3/4% Convertible
Subordinated Debentures ("Convertible Subordinated Debentures") due February 24,
2012. Holders of the QUALCOMM Trust Convertible Preferred Securities are
entitled to periodic payments from the Trust. The payments by QUALCOMM to the
Trust pursuant to the payment terms of the Convertible Subordinated Debentures
are designed to permit the Trust to fulfill its payment obligations with respect
to the QUALCOMM Trust Convertible Preferred Securities. Pursuant to the terms of
a guaranty, under certain circumstances QUALCOMM may be obligated to make
certain payments to the holders of the QUALCOMM Trust Convertible Preferred
Securities if the Trust fails to make them.
The QUALCOMM Trust Convertible Preferred Securities are convertible into
QUALCOMM Common Stock at the rate of 0.6882 shares of QUALCOMM Common Stock for
each QUALCOMM Trust Convertible Preferred Security (equivalent to a conversion
price of $72.6563 per share of common stock). Distributions on the QUALCOMM
Trust Convertible Preferred Securities are payable until subject to mandatory
redemption on February 24, 2012, at a redemption price of $50 per preferred
security. QUALCOMM has reserved 9,084,240 shares of QUALCOMM Common Stock as of
August 20, 1998 for possible conversion of the QUALCOMM Trust Convertible
Preferred Securities at the option of the holders.
As of August 20, 1998, there were outstanding approximately 13.2 million
QUALCOMM Trust Convertible Preferred Securities, convertible into 9,084,240
shares of QUALCOMM Common Stock as described above. As a result of and
subsequent to the Distribution, each QUALCOMM Trust Convertible Preferred
Security will be convertible, subject and pursuant to the terms of the
Convertible Subordinated Debentures, into both QUALCOMM Common Stock and Leap
Common Stock at the rate of 0.6882 and 0.17205 shares respectively for each
QUALCOMM Trust Convertible Preferred Security. Upon conversion of
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such Trust Convertible Preferred Securities, QUALCOMM will receive benefit in
the form of forgiveness of debt, but Leap will receive no such benefit or other
considerations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The businesses to be conducted by the Company have in the past engaged in
transactions with QUALCOMM and its businesses. Following the Distribution,
QUALCOMM will continue to have a significant relationship with the Company as a
result of the agreements being entered into by QUALCOMM and the Company in
connection with the Distribution, and due to its warrant to purchase 5,500,000
shares of the Company. QUALCOMM's relationships as equipment vendor to Leap and
the Leap Operating Companies and as lender under the Credit Facility will give
QUALCOMM significant influence over Leap and will create certain conflicts with
Leap. In addition, QUALCOMM is not restricted from competing with the Company or
the Leap Operating Companies or pursuing directly wireless telecommunications
businesses or interests which would also be attractive to Leap. See "Risk
Factors -- Potential Conflicts with QUALCOMM," and "Relationship Between
QUALCOMM and the Company After the Distribution."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Immediately prior to the Distribution, all of the outstanding Company
shares will be held by QUALCOMM. The following table sets forth the projected
beneficial ownership of Leap Common Stock immediately following the
Distribution, based on beneficial ownership with respect to shares of QUALCOMM
as of August 20, 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) each executive officer of the Company; and (iv) all directors and officers
of the Company as a group.
<TABLE>
<CAPTION>
COMPANY SHARES PROJECTED TO BE
BENEFICIALLY OWNED(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)(6).................................... 140,516 *
Thomas J. Bernard(5)(6)(7).................................. 7,345 *
James E. Hoffmann(5)(6)..................................... 5,298 *
Daniel O. Pegg(5)(6)(8)..................................... 2,610 *
Leonard C. Stephens(5)(6)................................... 900 *
Alejandro Burillo Azcarraga................................. 0 *
Michael B. Targoff.......................................... 0 *
Jeffrey P. Williams......................................... 0 *
All Officers and Directors as a group (5 persons)........... 156,669 *
</TABLE>
- ---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders of QUALCOMM and 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. Applicable percentages are based on 17,643,830 shares of
Leap Common Stock outstanding based on the number of shares of QUALCOMM
Common Stock outstanding on August 20, 1998, adjusted as required by rules
promulgated by the Commission.
(2) Except as otherwise noted, reflects, in each case, the number of shares of
QUALCOMM Common Stock beneficially owned as of August 20, 1998, divided by
four (4). 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
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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
exercisable immediately following the Distribution, which expires 10 years
following the Distribution.
(4) Includes 2,500 shares held in a foundation of which Mr. White disclaims
beneficial ownership. Also includes 72,816 shares held in family trusts,
7,500 held in a Family Limited Partnership, 250 shares held in a charitable
remainder trust, and 6,950 shares held in trusts for the benefit of
relatives.
(5) Includes shares issuable upon exercise of options exercisable within 60 days
of August 20, 1998 as follows: Mr. Bernard, 6,600 shares (including 2,100
shares subject to options held by Mr. Bernard's wife); Mr. Hoffmann, 5,100
shares; Mr. Pegg, 2,500; Mr. Stephens, 900; and Mr. White, 50,500 shares.
(6) Does not include shares issuable upon exercise of QUALCOMM stock options.
The officers as of the Distribution will hold options to purchase shares of
QUALCOMM exercisable within 60 days following August 20, 1998 in the
following amounts: Mr. Bernard, 26,400 shares (including 8,400 shares
subject to options held by Mr. Bernard's wife); Mr. Hoffmann, 20,400 shares;
Mr. Pegg, 10,000; Mr. Stephens, 3,600; and Mr. White, 202,000 shares.
(7) Includes 60 shares held by Mr. Bernard's spouse.
(8) Includes 25 shares held in a custodial account for the benefit of Mr. Pegg
and 25 shares held in a custodial account for the benefit of Mr. Pegg's
spouse.
DESCRIPTION OF COMPANY CAPITAL STOCK
Under the Certificate of Incorporation, the total number of shares of all
classes of stock that the Company has authority to issue is 60 million,
consisting of 10 million shares of preferred stock, par value $0.0001 per share
("Preferred Stock") and 50 million shares of Leap Common Stock. Based on the
number of shares of QUALCOMM Common Stock outstanding at August 20, 1998
approximately 17,643,830 shares of Leap Common Stock will be issued to
stockholders of QUALCOMM.
COMMON STOCK
The holders of Leap Common Stock will be entitled to one vote for each
share on all matters voted on by stockholders, and the holders of such shares
will possess all voting power, except as otherwise required by law or provided
in any resolution adopted by the Board of Directors of the Company with respect
to any series of Preferred Stock. It is currently expected that the first annual
meeting of stockholders of the Company will be held in January 1999. Subject to
any preferential or other rights of any outstanding series of Company preferred
stock that may be designated by the Board of Directors of the Company, the
holders of Leap Common Stock will be entitled to such dividends as may be
declared from time to time by the Board of Directors of the Company from funds
available therefor, and upon liquidation will be entitled to receive pro rata
all assets of the Company available for distribution to such holders. See "Risk
Factors -- Dividend Policy."
PREFERRED STOCK
The Board of Directors of the Company will be authorized to provide for the
issuance of shares of Preferred Stock, in one or more series, and to determine,
with respect to any series, the terms and rights of such series, including the
following: (i) the designation of such series; (ii) the rate and time of, and
conditions and preferences with respect to, dividends, and whether such
dividends are cumulative; (iii) the voting rights, if any, of shares of such
series; (iv) the price, timing and conditions regarding the redemption of shares
of such series and whether a sinking fund should be established for such series;
(v) the rights and preferences of shares of such series in the event of
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; and (vi) the right, if any, to convert or exchange shares of
such series into or for stock or securities of any other series or class.
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The Company believes that the availability of the Preferred Stock will
provide the Company with increased flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs which might
arise. Having such authorized shares available for issuance will allow the
Company to issue shares of Preferred Stock without the expense and delay of a
special stockholders' meeting. The authorized shares of Preferred Stock, as well
as shares of Leap Common Stock, will be available for issuance without further
action by the Company's stockholders, unless action is required by applicable
law or the rules of any stock exchange on which the Company's securities may be
listed or unless the Company is restricted by the Preferred Stock.
On September , 1998, the Board of Directors adopted a Stockholder Rights
Plan. See "Description of Rights Agreement." In connection with the Rights Plan,
the Board of Directors of the Company declared a dividend of one Right for each
outstanding share of Common Stock of the Company. Each Right will entitle the
registered holder thereof, after the Rights become exercisable and until
September , 2008 (or the earlier redemption, exchange or termination of the
Rights), to purchase from the Company one one-thousandth ( 1/1000) of a share of
Series A Junior Participating Preferred Stock, par value $.0001 per share (the
"Series A Preferred Shares"), at a price of per one
one-thousandth ( 1/1000) of a Series A Preferred Share, subject to certain
anti-dilution adjustments. Each Series A Preferred Share purchasable upon
exercise of the Rights will be entitled, when, as and if declared, to a minimum
preferential quarterly dividend payment of $10.00 per share but will be entitled
to an aggregate dividend of 1,000 times the dividend, if any, declared per share
of Common Stock. In the event of liquidation, dissolution or winding up of the
Company, the holders of the Series A Preferred Shares will be entitled to a
preferential liquidation payment of $1,000 per share plus any accrued but unpaid
dividends but will be entitled to an aggregate payment of 1,000 times the
payment made per share of Common Stock. Each Series A Preferred Share will have
1,000 votes and will vote together with the shares of Common Stock. Finally, in
the event of any merger, consolidation or other transaction in which outstanding
shares of Leap Common Stock are exchanged, each Series A Preferred Share will be
entitled to receive 1,000 times the amount received per share of Common Stock.
Series A Preferred Shares will not be redeemable. The Company has reserved for
issuance 75,000 Series A Preferred Shares issuable upon exercise of the Rights.
WARRANTS
Following the Distribution, there will be an outstanding warrant (the
"Warrant"), held by QUALCOMM, to purchase 5,500,000 shares of Leap Common Stock
at an exercise price equal to the average price of the last sales price per
share of the Leap Common Stock on the Nasdaq National Market for each of the
five (5) consecutive trading days beginning on and including the Distribution
Date. The Warrant is exercisable at any time during the ten (10) years following
the Distribution. Based upon the number of shares expected to be outstanding and
reserved for issuance pursuant to outstanding options and convertible securities
as of the Distribution, upon exercise in full of the Warrant, QUALCOMM would
hold approximately 18% of the outstanding Leap Common Stock, assuming exercise
of all such outstanding options and convertible securities.
LEAP COMMON STOCK RESERVED FOR ISSUANCE
QUALCOMM will retain the Warrant following the Distribution, which will be
immediately exercisable and will entitle QUALCOMM to purchase 5,500,000 shares
of Leap Common Stock at a purchase price equal to the average of the last sales
price per share of Leap Common Stock on the Nasdaq National Market for each of
the five (5) consecutive trading days beginning with and including the
Distribution Date. In addition, based on the number of QUALCOMM Options
outstanding on August 20, 1998, it is anticipated that Leap Options to purchase
a total of approximately 5,481,377 shares of Leap Common Stock will be granted
in connection with the Distribution to QUALCOMM option holders. In addition to
the Leap Options to be granted to QUALCOMM option holders who will continue as
employees of Leap after the Distribution, Leap intends to grant stock options to
purchase Leap Common Stock following the Distribution to employees, officers,
directors and consultants of Leap as part of its ongoing equity incentive
program. Leap has reserved an aggregate 8,700,000 shares for issuance to its
employees, officers, directors and consultants under its 1998
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Stock Option Plan, Employee Stock Purchase Plan and 1998 Directors' Stock Option
Plan, which will permit the grant of options to purchase an additional
approximately 3,218,623 shares following the grant of options to QUALCOMM option
holders in connection with the Distribution. Finally, due to and subsequent to
the Distribution, the outstanding Trust Convertible Preferred Securities
convertible into QUALCOMM Common Stock will additionally be convertible into an
aggregate 2,271,060 shares of Leap Common Stock. As a result, collectively,
there will be 16,471,060 shares of Leap Common Stock reserved for issuance
following the Distribution.
RECENT SALES OF UNREGISTERED SECURITIES
In June 1998, Leap sold 1,000 shares of Common Stock to QUALCOMM for $.10
in a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof. In connection with the Distribution
contemplated by this Information Statement, each outstanding share of Leap
Common Stock will be converted and split into the number of shares of Leap
Common Stock necessary to provide QUALCOMM with all shares to be transferred in
the Distribution. In connection with the Distribution, Leap will also issue a
warrant to purchase 5,500,000 shares of Common Stock to QUALCOMM in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
NO PREEMPTIVE RIGHTS
No holder of any stock of the Company of any class authorized at the
Distribution Date will then have any preemptive right to subscribe to any
securities of the Company of any kind or class.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Leap Common Stock will be Harris
Trust Company of California.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"), an anti-takeover law. In general, the
statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation also requires that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. In addition, special meetings of
stockholders of the Company may be called only by a majority of the authorized
number of directors, the Chairman of the Board or the President of the Company.
The Certificate of Incorporation also provides for a classified Board of
Directors consisting of three classes of directors. In addition, the Certificate
of Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. The Company's Bylaws require
advance notice by a stockholder of a proposal or director nomination which such
stockholder desires to present at the annual meeting of stockholders. The
Company's Certificate of Incorporation and Bylaws also require that the holders
of at least 66 2/3% of the voting stock of the Company must approve any
amendment to either the Certificate of Incorporation or Bylaws affecting certain
provisions. These provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company.
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DESCRIPTION OF RIGHTS AGREEMENT
On September , 1998, the Board of Directors of the Company adopted a
Stockholder Rights Plan. The following description of the Stockholder Rights
Plan is intended as a summary only and is qualified in its entirety by reference
to the Rights Agreement dated as of September , 1998 between the Company and
Harris Trust Company of California (the "Rights Agreement"), which is filed as
an exhibit to the Company's Registration Statement on Form 10, of which this
Information Statement forms a part.
In connection with the Rights Plan, the Board of Directors of the Company
declared a dividend of one preferred share purchase right (the "Rights") for
each outstanding share of Common Stock of the Company outstanding at the close
of business on September , 1998. Each Right will entitle the registered holder
thereof, after the Rights become exercisable and until September , 2008 (or
the earlier redemption, exchange or termination of the Rights), to purchase from
the Company one one-thousandth ( 1/1000) of a share of Series A Junior
Participating Preferred Stock, par value $.0001 per share (the "Series A
Preferred Shares"), at a price of per one one-thousandth
( 1/1000) of a Series A Preferred Share, subject to certain anti-dilution
adjustments (the "Purchase Price"). Until the earlier to occur of (i) ten (10)
days following a public announcement that a person or group of affiliated or
associated persons (other than an Existing Holder (as defined below)) has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Leap Common Stock (an "Acquiring Person") or (ii) ten (10)
business days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person or group of affiliated persons
becomes an Acquiring Person) following the commencement or announcement of an
intention to make a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15% or more of
the outstanding Leap Common Stock (the earlier of (i) and (ii) being called the
"Rights Distribution Date"), the Rights will be evidenced, with respect to any
of the Common Stock certificates outstanding as of the Record Date, by such
Common Stock certificate. "Existing Holder" means QUALCOMM Incorporated,
together with its affiliates and associates (but excluding individual officers,
directors and employees of QUALCOMM Incorporated) unless and until such Existing
Holder has acquired beneficial ownership of one or more additional shares of
Common Stock. The Rights will be transferred with and only with the Common Stock
until the Rights Distribution Date or earlier redemption or expiration of the
Rights. As soon as practicable following the Rights Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the outstanding Leap Common Stock as of the close of
business on the Rights Distribution Date and such separate Right Certificates
alone will evidence the Rights. The Rights will at no time have any voting
rights.
Each Series A Preferred Share purchasable upon exercise of the Rights will
be entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $10.00 per share but will be entitled to an aggregate
dividend of 1,000 times the dividend, if any, declared per share of Common
Stock. In the event of liquidation, dissolution or winding up of the Company,
the holders of the Series A Preferred Shares will be entitled to a preferential
liquidation payment of $1,000 per share plus any accrued but unpaid dividends
but will be entitled to an aggregate payment of 1,000 times the payment made per
share of Common Stock. Each Series A Preferred Share will have 1,000 votes and
will vote together with the shares of Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which outstanding shares of Leap
Common Stock are exchanged, each Series A Preferred Share will be entitled to
receive 1,000 times the amount received per share of Common Stock. Series A
Preferred Shares will not be redeemable. These Rights are protected by customary
anti-dilution provisions. Because of the nature of the Series A Preferred
Share's dividend, liquidation and voting rights, the value of one one-thousandth
of a Series A Preferred Share purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
In the event that a person or group becomes an Acquiring Person or if the
Company were the surviving corporation in a merger with an Acquiring Person or
any affiliate or associate of an Acquiring Person and the outstanding shares of
Leap Common Stock were not changed or exchanged, each holder of a Right, other
than Rights that are or were acquired or beneficially owned by the Acquiring
Person (which Rights will thereafter be void), will thereafter have the right to
receive upon exercise that number of shares of Common Stock having a market
value of two times the then current Purchase Price of one Right. In the event
that, after a person or group has become an Acquiring Person, the Company were
acquired in a merger or other business
94
<PAGE> 100
combination transaction or more than 50% of its assets or earning power were
sold, proper provision shall be made so that each holder of a Right shall
thereafter have the right to receive, upon the exercise thereof at the then
current Purchase Price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction would have a market
value of two times the then current Purchase Price of one Right.
At any time after a person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the last sentence in the
previous paragraph or the acquisition by such Acquiring Person of 50% or more of
the then outstanding shares of Leap Common Stock, the Board of Directors may
cause the Company to exchange the Rights (other than Rights owned by an
Acquiring Person which have become void), in whole or in part, for shares of
Common Stock at an exchange rate equal to that number of shares of Common Stock
having an aggregate value equal to the difference between the value of the
shares of Common Stock issuable upon exercise of a Right and the Purchase Price
therefor (with such values being based on the current per share market price, as
determined under the Rights Agreement) per Right (subject to adjustment).
The Rights may be redeemed in whole, but not in part, at a price of $.01
per Right (the "Redemption Price") by the Board of Directors at any time prior
to the time that an Acquiring Person has become such. The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will receive the
Redemption Price.
The Rights will expire on September , 2008 (unless earlier redeemed,
exchanged or terminated). Harris Trust Company of California is the Rights
Agent.
The Purchase Price payable, and the number of one one-thousandths of a
Series A Preferred Share or other securities or property issuable, upon exercise
of the Rights are subject to adjustment from time to time to prevent dilution
(i) in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Shares, (ii) upon the grant to
holders of the Series A Preferred Shares of certain rights or warrants to
subscribe for or purchase Series A Preferred Shares or convertible securities at
less than the current market price of the Series A Preferred Shares or (iii)
upon the distribution to holders of the Series A Preferred Shares of evidences
of indebtedness, cash, securities or assets (excluding regular periodic cash
dividends at a rate not in excess of 125% of the rate of the last regular
periodic cash dividend theretofore paid or, in case regular periodic cash
dividends have not theretofore been paid, at a rate not in excess of 50% of the
average net income per share of the Company for the four quarters ended
immediately prior to the payment of such dividend, or dividends payable in
Series A Preferred Shares (which dividends will be subject to the adjustment
described in clause (i) above)) or of subscription rights or warrants (other
than those referred to above).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company beyond those as an existing stockholder,
including, without limitation, the right to vote or to receive dividends.
Any of the provisions of the Rights Agreement may be amended by the Board
of Directors of the Company for so long as the Rights are then redeemable, and
after the Rights are no longer redeemable, the Company may amend or supplement
the Rights Agreement in any manner that does not adversely affect the interests
of the holder of the Rights.
One Right was distributed to stockholders of the Company for each share of
Leap Common Stock owned of record by them on September , 1998. As long as the
Rights are attached to the shares of Common Stock, the Company will issue one
Right with each new share of Common Stock (including, without limitation, the
shares of Leap Common Stock that will be distributed in the Distribution) so
that all such shares will have attached Rights. The Company has agreed that,
from and after the Rights Distribution Date, the Company will reserve 75,000
Series A Preferred Shares initially for issuance upon exercise of the Rights.
95
<PAGE> 101
The Rights may have some anti-takeover affects. The rights are designed to
assure that all of the Company's stockholders receive fair and equal treatment
in the event of any proposed takeover of the Company and to guard against
partial tender offers, open market accumulations and other abusive tactics to
gain control of the Company without paying all stockholders a control premium.
The Rights will cause substantial dilution to a person or group (other than an
Existing Holder) that acquires 15% or more of the Company's stock on terms not
approved by the Company's Board of Directors. The Rights should not interfere
with any merger or other business combination approved by the Board of Directors
at any time prior to the first date that a person or group has become an
Acquiring Person.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Officers and directors of the Company are covered by certain provisions of
the DGCL, the Certificate of Incorporation, the By-laws and insurance policies
which serve to limit, and, in certain instances, to indemnify them against,
certain liabilities which they may incur in such capacities. None of such
provisions would have retroactive effect for periods prior to the Distribution
Date, and the Company is not aware of any claim or proceeding in the last three
years, or any threatened claim, which would have been or would be covered by
these provisions. These various provisions are described below.
Elimination of Liability in Certain Circumstances. In June 1986, Delaware
enacted legislation which authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. This duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations now authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting negligence or gross negligence in
the exercise of their duty of care. Although the statute does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Certificate of
Incorporation limits the liability of Directors to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by such legislation. Specifically, the
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as director, except for liability: (i) for
any breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) for unlawful payments of
dividends or unlawful share repurchases or redemptions as provided in Section
174 of the DGCL; or (iv) for any transaction from which the director derived an
improper personal benefit.
Indemnification and Insurance. As a Delaware corporation, the Company has
the power, under specified circumstances generally requiring the director or
officer to act in good faith and in a manner he reasonably believes to be in or
not opposed to the Company's best interests, to indemnify its directors and
officers in connection with actions, suits or proceedings brought against them
by a third party or in the name of the Company, by reason of the fact that they
were or are such directors or officers, against expenses, judgments, fines and
amounts paid in settlement in connection with any such action, suit or
proceeding. The By-laws generally provide for mandatory indemnification of the
Company's directors and officers to the full extent provided by Delaware
corporate law.
The Company intends to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the Company, or is or was a
director or officer of the Company serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Company would have the power or
obligation to indemnify him against such liability under the provisions of the
By-laws.
96
<PAGE> 102
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Leap Shares in
the Distribution will be passed upon for QUALCOMM by Cooley Godward LLP, San
Diego, California and for the Company by Latham & Watkins, San Diego,
California.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
10 (the "Registration Statement," which term shall include any amendments or
supplements thereto) under the Exchange Act with respect to the shares of Leap
Common Stock being received by QUALCOMM stockholders in the Distribution. This
Information Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. With respect to each contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. The Commission maintains a web site
that contains reports, proxy statements, registration statements and other
information regarding registrants that file electronically with the Commission
at http://www.sec.gov. Copies of all or any part of the Registration Statement
and reports, proxy statements and the other information filed electronically by
the Company may be obtained from the Commission at its principal offices in
Washington D.C. after payment of amounts prescribed by the Commission.
Following the Distribution, the Company intends to furnish to its
stockholders annual reports containing consolidated financial statements
prepared in accordance with generally accepted accounting principles and audited
by an independent public accounting firm accompanied by an opinion expressed by
such independent public accounting firm.
97
<PAGE> 103
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEAP WIRELESS INTERNATIONAL, INC. (A DEVELOPMENT STAGE
COMPANY)
Condensed Combined Financial Statements (unaudited):
Condensed Combined Balance Sheet at May 31, 1998
(unaudited)............................................ F-2
Condensed Combined Statements of Operations for the nine
months ended
May 31, 1998 and 1997 and for the period from September
1, 1995 (inception) to May 31, 1998 (unaudited)........ F-3
Condensed Combined Statements of Cash Flows for the nine
months ended
May 31, 1998 and 1997 and for the period from September
1, 1995 (inception) to May 31, 1998 (unaudited)........ F-4
Condensed Combined Statements of Stockholder's Equity for
the nine months ended May 31, 1998 and the period from
September 1, 1995 (inception) to May 31, 1998
(unaudited)............................................ F-5
Notes to Condensed Combined Financial Statements
(unaudited)............................................ F-6
Combined Financial Statements:
Report of Price Waterhouse LLP, Independent Accountants... F-10
Report of Coopers & Lybrand, Independent Accountants...... F-11
Combined Balance Sheets at August 31, 1997 and 1996....... F-12
Combined Statements of Operations for the fiscal years
ended August 31, 1997 and 1996 and for the period from
September 1, 1995 (inception) to August 31, 1997....... F-13
Combined Statements of Cash Flows for the fiscal years
ended August 31, 1997 and 1996 and for the period from
September 1, 1995 (inception) to August 31, 1997....... F-14
Combined Statements of Stockholder's Equity for each of
the fiscal years in the period from September 1, 1995
(inception) to August 31, 1997......................... F-15
Notes to Combined Financial Statements.................... F-16
CHILESAT TELEFONIA PERSONAL S.A. (A COMPANY IN THE
DEVELOPMENT STAGE)
Financial Statements:
Report of Price Waterhouse LLP, Independent Accountants... F-26
Balance Sheet at December 31, 1997........................ F-27
Statement of Income for the period from inception (March
3, 1997) to December 31, 1997.......................... F-28
Statement of Cash Flows for the period from inception
(March 3, 1997) to December 31, 1997................... F-29
Statement of Shareholders' Equity for the period from
inception (March 3, 1997) to December 31, 1997......... F-30
Notes to Financial Statements............................. F-31
</TABLE>
F-1
<PAGE> 104
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MAY 31, 1998
------------
<S> <C>
Current assets.............................................. $ --
Loans receivable............................................ 15,000
Investments in wireless operating companies................. 50,493
--------
Total assets................................................ $ 65,493
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities.................... $ 2,949
--------
Commitments (Note 4)
Stockholder's equity:
Parent's investment....................................... 84,303
Deficit accumulated during the development stage.......... (19,834)
Cumulative translation adjustment......................... (1,925)
--------
Total stockholder's equity............................. 62,544
--------
Total liabilities and stockholder's equity.................. $ 65,493
========
</TABLE>
See accompanying notes.
F-2
<PAGE> 105
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE PERIOD FROM
MAY 31, SEPTEMBER 1, 1995
------------------- (INCEPTION)
1998 1997 TO MAY 31, 1998
-------- ------- --------------------
<S> <C> <C> <C>
Equity in net losses of wireless operating
companies........................................... $ (1,775) $ (20) $ (1,608)
General and administrative expenses................... (16,452) (994) (18,226)
-------- ------- --------
Loss before income taxes.............................. (18,227) (1,014) (19,834)
Income tax expense.................................... -- -- --
-------- ------- --------
Net loss.............................................. $(18,227) $(1,014) $(19,834)
======== ======= ========
Unaudited proforma basic and diluted net loss per
common share (Note 1)............................... $ (1.03)
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 106
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
NINE MONTHS ENDED MAY 31, FROM SEPTEMBER 1, 1995
-------------------------- (INCEPTION)
1998 1997 TO MAY 31, 1998
---------- ---------- ----------------------
<S> <C> <C> <C>
Operating activities:
Net loss...................................... $(18,227) $ (1,014) $(19,834)
Equity in net losses of wireless operating
companies.................................. 1,775 20 1,608
Provision for bad debt........................ 1,700 -- 1,700
Change in accounts payable and accrued
liabilities................................... 2,667 98 2,949
-------- -------- --------
Net cash used in operating activities........... (12,085) (896) (13,577)
-------- -------- --------
Investing activities:
Investments in wireless operating companies... (5,110) (54,659) (59,769)
Issuance of loans receivable.................. (16,700) -- (16,700)
-------- -------- --------
Net cash used in investing activities........... (21,810) (54,659) (76,469)
-------- -------- --------
Financing activities:
Parent's investment........................... 33,895 55,555 90,046
-------- -------- --------
Net cash provided by financing activities....... 33,895 55,555 90,046
-------- -------- --------
Net change in cash and cash equivalents......... -- -- --
Cash and cash equivalents at beginning of
period........................................ -- -- --
-------- -------- --------
Cash and cash equivalents at end of period...... $ -- $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 107
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
PARENT'S ACCUMULATED TRANSLATION
INVESTMENT DEFICIT ADJUSTMENT TOTAL
---------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Balance at September 1, 1995 (Inception)........ $ -- $ -- $ -- $ --
Transfers from QUALCOMM......................... 285 -- -- 285
Net loss........................................ -- (396) -- (396)
------- -------- ------- -------
Balance at August 31, 1996...................... 285 (396) -- (111)
Transfers from QUALCOMM......................... 55,866 -- -- 55,866
Net loss........................................ (1,211) -- (1,211)
Cumulative translation adjustment............... -- -- 58 58
------- -------- ------- -------
Balance at August 31, 1997...................... 56,151 (1,607) 58 54,602
Transfers from QUALCOMM......................... 33,895 -- -- 33,895
Net loss........................................ -- (18,227) -- (18,227)
Intercompany profit elimination................. (5,743) -- -- (5,743)
Cumulative translation adjustment............... -- -- (1,983) (1,983)
------- -------- ------- -------
Balance at May 31, 1998......................... $84,303 $(19,834) $(1,925) $62,544
======= ======== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 108
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
On June 24, 1998, QUALCOMM Incorporated ("QUALCOMM") created a separate
wholly-owned company, Leap Wireless International, Inc. (the "Company" or
"Leap"), a Delaware corporation. The Company has entered into a Separation and
Distribution Agreement with QUALCOMM pursuant to which certain of QUALCOMM's
joint venture and equity interests in domestic and international
terrestrial-based wireless telecommunications operating companies will be
transferred to the Company, followed by a spin-off of the subsidiary to the
stockholders of QUALCOMM (the "Distribution"). QUALCOMM intends to complete the
Distribution before September 27, 1998. The Company's business strategy is to
operate, manage, support and otherwise participate in Code Division Multiple
Access ("CDMA") based wireless telecommunications businesses and ventures in
emerging international markets and the United States. Initially, the Company
expects that its principal markets for its intended activity will be in Latin
America, Eastern Europe, Asia-Pacific and the United States. QUALCOMM is a
Delaware corporation that develops, manufactures, markets, licenses and operates
advanced communications systems and products based on digital wireless
technology, including mobile and fixed satellite communications systems and
products and digital wireless telephone systems and products using QUALCOMM's
proprietary CDMA technology. QUALCOMM has entered into, and will retain upon the
Distribution, equipment sales and services and vendor financing agreements with
the wireless telecommunications operating companies to be transferred to the
Company.
Following the Distribution, QUALCOMM and the Company will be operated as
independent companies. QUALCOMM and the Company will, however, continue to have
a relationship as a result of the various agreements being entered into between
QUALCOMM and the Company in connection with the Distribution.
Basis Of Presentation
The accompanying interim condensed financial statements have been prepared
by the Company, 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.
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
financial statements and notes thereto should be read in conjunction with the
financial statements and notes hereto included in the Company's combined
financial statements for the fiscal year ended August 31, 1997. 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.
The combined financial statements reflect the financial position, results
of operations, cash flows and changes in stockholder's equity of the business
that will be transferred to the Company from QUALCOMM as if the Company were a
separate entity for all periods presented and as if the historical joint venture
and equity interests in wireless operating companies were owned by the Company.
However, for the periods covered by the financial statements, such joint venture
and equity interests were directly or indirectly owned
F-6
<PAGE> 109
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
by QUALCOMM. The financial statements have been presented as if the Company were
a development stage company with an inception date of September 1, 1995. As of
May 31, 1998, neither the Company nor its investees had generated any revenues
from their planned principal operations. The financial statements have been
prepared using the historical basis in the assets and liabilities and historical
results of operations related to the Company's business. The Company had no cash
balances as of May 31, 1998 as no specific cash accounts had been designated by
QUALCOMM for the Company. When Company liabilities are paid or investments are
made, it is assumed that the cash used by the Company was funded by a
stockholder cash contribution. Changes in stockholder's equity represent
QUALCOMM's contribution after giving effect to the net operating cash used by
the Company and amounts necessary to finance the acquisition of ownership
interests in wireless operating companies.
The Company had no employees or QUALCOMM employees wholly dedicated to its
business during the fiscal periods presented. QUALCOMM departmental labor and
other direct costs have been allocated to the Company based on estimates of
incremental efforts expended and incremental costs incurred related to the
Company's business. General corporate overhead related to QUALCOMM's corporate
headquarters and common support divisions have been allocated to the Company
generally based on the proportion of the Company's costs and expenses to
QUALCOMM's costs and expenses. Management believes these allocations reasonably
approximate costs incurred by QUALCOMM on behalf of the Company's operations.
However, the costs as allocated to the Company are not necessarily indicative of
the costs that would have been incurred if the Company had performed these
functions as a stand-alone entity. Subsequent to the separation of the Company
from QUALCOMM, the Company will have its own staff perform necessary functions
using its own resources or purchased services and will be responsible for the
costs and expenses associated with the management of a public corporation.
The financial information included herein may not necessarily reflect the
results of operations, financial position, cash flows and changes in
stockholder's equity of the Company in the future or what they would have been
had it been a separate, stand-alone entity during the periods presented.
Unaudited Pro Forma Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share"
which the Company has adopted to compute unaudited pro forma net loss per common
share ("EPS") amount for the nine months ended May 31, 1998.
The Company had no shares of common stock outstanding during the nine
months ended May 31, 1998. The unaudited pro forma net loss per common share was
calculated by dividing the net loss for the first nine months of fiscal 1998 of
$18,227,000 by the 17,643,830 expected shares of common stock of the Company to
be issued upon the Distribution based on QUALCOMM shares outstanding as of
August 20, 1998. Such shares reflect the expected issuance upon the Distribution
of one of the Company's shares of common stock for every four shares of QUALCOMM
common stock outstanding. Replacement stock options and awards for approximately
5,481,377 shares, the conversion of QUALCOMM's Trust Convertible Preferred
Securities which are convertible into shares of QUALCOMM and approximately
2,271,000 shares of Company common stock and the exercise of a warrant to be
issued to QUALCOMM for approximately 5,500,000 shares of Company common stock
have not been considered in calculating the pro forma net loss per common share
because their effect would be anti-dilutive. As a result, the Company's
unaudited pro forma basic and diluted net loss per common share are the same.
F-7
<PAGE> 110
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2. INVESTMENTS IN WIRELESS OPERATING COMPANIES
The Company's joint venture and equity interests in wireless operating
companies consist of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1998
------------
<S> <C>
Investments at equity....................................... $46,493
Investment at cost.......................................... 4,000
-------
$50,493
=======
</TABLE>
The Company has joint venture and equity interests in companies that hold
cellular telephone licenses or are seeking such licenses. Its participation in
each company differs from market to market and the Company does not have
majority interests in such companies. The Company's ability to withdraw funds,
including dividends, from its participation in such investments is dependent in
many cases on receiving the consent of the other participants, over which the
Company has no control.
During November 1997, QUALCOMMTel entered into a letter of intent to
purchase a controlling interest in a Russian telephone company for approximately
$10 million, subject to adjustment and pending due diligence procedures. In
connection with the potential acquisition, during November and December of 1997
QUALCOMMTel provided $1.7 million in interest-bearing loans under an exclusivity
clause to meet the interim working capital needs of the potential acquiree. Such
loans were to become part of the purchase price consideration in the event the
acquisition was completed. Otherwise, such loans and accrued interest were
repayable no later than 180 days after the date of issuance. Subsequent
negotiations failed to result in an acquisition agreement and, due to
substantial doubt on the ability of the potential acquiree to repay such loans,
the Company provided a $1.7 million bad debt allowance against the receivable.
As the minority interest holder has not contributed any capital to QUALCOMMTel,
the Company has not allocated any loss resulting from the bad debt allowance to
the minority interest. As of May 31, 1998, QUALCOMMTel has no other assets and
no liabilities.
During the first nine months of fiscal 1998, QUALCOMM recognized revenues
on equipment sold and interest income on vendor financing provided to companies
in which the Company holds an ownership interest accounted for under the equity
method of accounting. As the joint venture and equity interests of the Company
were directly or indirectly legally owned by QUALCOMM as of May 31, 1998, in
accordance with the equity method of accounting, QUALCOMM eliminated its
ownership share of the profits on the sales of equipment and on interest
capitalized by investees thereby reducing its equity investment in the
companies. The profit elimination has been presented as a reduction to the
Company's investment and as a reduction in the stockholder's net investment. The
profit elimination has been treated as a non-cash transaction for purposes of
the statement of cash flows. Upon the spin-off, Leap's investments in the
wireless carriers will no longer be impacted by such intercompany profit
eliminations on post-Distribution QUALCOMM sales and financing activity.
The cumulative profit eliminated as of May 31, 1998 amounted to $5,743,000.
The resulting basis differential as compared to the Company's underlying equity
in the investee will be amortized against equity in earnings of the investee as
the equipment is sold or utilized by the investees.
In May 1998, the Company provided $15 million in loans to certain
subsidiaries of Transworld Communications (U.S.A.), Inc. ("TWC"). In July 1998,
the Company purchased 60% of the respective common stock of the TWC subsidiaries
for a purchase price of $51.8 million, consisting of $36.8 million in cash and
forgiveness of the $15 million in outstanding loans. The acquired subsidiaries
of TWC are
F-8
<PAGE> 111
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
development stage companies and together are developing and will operate a
satellite-based communications system for long-distance voice, video and data
services in the Russian Federation.
Condensed combined financial information for wireless operating companies
accounted for under the equity method is summarized follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1998
------------
<S> <C>
Condensed Combined Balance Sheet Information:
Current assets............................................ $ 17,476
Non-current assets........................................ 114,791
Current liabilities....................................... 23,666
Non-current liabilities................................... 58,981
Redeemable preferred equity............................... 14,800
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, 1998 MAY 31, 1997
------------ ------------
<S> <C> <C>
Condensed Combined Statement of Operations
Information:
Operating expenses............................... $(3,152) $ (314)
Net losses....................................... (2,970) (339)
</TABLE>
As of May 31, 1998, the wireless operating companies had not yet commenced
commercial revenue and cash flow generating operations.
NOTE 3. INCOME TAXES
The Company has not recorded provisions for federal and state income taxes
for the nine months ended May 31, 1998 and 1997 due to net operating losses
during those periods.
NOTE 4. COMMITMENTS
As of May 31, 1998, the Company had an outstanding commitment to provide
$100 million in equity contributions to Pegaso Telecomunicaciones, S.A. de C.V.,
a development stage joint venture in which the Company held 49% of the
outstanding common shares as of May 31, 1998.
Due to the nature of the Company's business, the Company expects to
continue to enter into new joint venture and equity interests in which the
Company provides significant equity contributions and debt. Also, the Company
may provide further equity or debt, as necessary, to support the future
build-out and operational needs of the wireless operating companies in which the
Company has already invested as of May 31, 1998.
F-9
<PAGE> 112
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Leap Wireless International, Inc.
In our opinion, based upon our audits and the report of other auditors, the
accompanying combined balance sheets and the related combined statements of
operations, of cash flows and of changes in stockholder's equity present fairly,
in all material respects, the financial position of Leap Wireless International,
Inc. (a development stage company) at August 31, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended and for the period
from September 1, 1995 (inception) through August 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
combined restated financial statements of Telesystems Ukraine, an investee,
which statements reflect total assets of $8,640,000 at August 31, 1997 and a net
loss of $82,000 for the period from inception (April 1, 1997) to August 31,
1997. Those statements were audited by other auditors whose report thereon has
been furnished to us, and our opinion expressed herein, insofar as it relates to
the amounts included for Telesystems Ukraine, is based solely on the report of
the other auditors. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
June 29, 1998
F-10
<PAGE> 113
REPORT OF INDEPENDENT ACCOUNTANTS
To the stockholders of both Telesystems of Ukraine Limited Liability Company and
the Joint Investment Activity between Telesystems of Ukraine Limited Liability
Company and Qualcomm International Inc., together referred to as "Telesystems
Ukraine" (a development stage enterprise):
We have audited the combined restated balance sheet of Telesystems Ukraine as at
31 August 1997 and the related combined statements of income, changes in
stockholders' equity and cash flows for the period from inception of the Joint
Investment Activity (1 April 1997) to 31 August 1997. These combined financial
statements (not presented separately herein) have been restated in accordance
with generally accepted accounting principles in the United States of America
and have been prepared from the Ukrainian financial statements. They are not the
Statutory financial statements of either Telesystems of Ukraine Limited
Liability Company or the Joint Investment Activity between Telesystems of
Ukraine Limited Liability Company and Qualcomm International Inc. The
preparation of the Ukrainian financial statements and the information required
for restatement in accordance with generally accepted accounting principles in
the United States of America is the responsibility of the management of
Telesystems Ukraine. Our responsibility is to express an opinion on these
restated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined restated financial statements referred to above
present fairly, in all material respects, the combined financial position of
Telesystems of Ukraine Limited Liability Company and the Joint Investment
Activity between Telesystems of Ukraine Limited Liability Company and Qualcomm
International Inc. at 31 August 1997 and the combined results of their
operations and their cash flows for the period then ended, in conformity with
generally accepted accounting principles in the United States of America.
COOPERS & LYBRAND
Kyiv, Ukraine
June 24, 1998
F-11
<PAGE> 114
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
----------------
1997 1996
------- -----
<S> <C> <C>
Current assets.............................................. $ -- $ --
Investments in wireless operating companies................. 54,884 --
------- -----
Total assets................................................ $54,884 $ --
======= =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities.................... $ 282 $ 111
------- -----
Commitments (Note 5)
Stockholder's equity:
Parent's investment....................................... 56,151 285
Deficit accumulated during the development stage.......... (1,607) (396)
Cumulative translation adjustment......................... 58 --
------- -----
Total stockholder's equity............................. 54,602 (111)
------- -----
Total liabilities and stockholder's equity.................. $54,884 $ --
======= =====
</TABLE>
See accompanying notes.
F-12
<PAGE> 115
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
YEARS ENDED AUGUST 31, FROM SEPTEMBER 1, 1995
---------------------- (INCEPTION)
1997 1996 TO AUGUST 31, 1997
--------- ------- ----------------------
<S> <C> <C> <C>
Equity in net earnings of wireless operating
companies........................................ $ 167 $ -- $ 167
General and administrative expenses................ (1,378) (396) (1,774)
------- ----- -------
Loss before income taxes........................... (1,211) (396) (1,607)
Income tax expense................................. -- -- --
------- ----- -------
Net loss........................................... $(1,211) $(396) $(1,607)
======= ===== =======
Unaudited pro forma basic and diluted net loss per
common share (Note 1)............................ $ (0.07)
=======
</TABLE>
See accompanying notes.
F-13
<PAGE> 116
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
YEARS ENDED AUGUST 31, FROM SEPTEMBER 1, 1995
----------------------- (INCEPTION)
1997 1996 TO AUGUST 31, 1997
---------- ------- ----------------------
<S> <C> <C> <C>
Operating activities:
Net loss........................................ $ (1,211) $(396) $ (1,607)
Equity in net earnings of wireless operating
companies.................................... (167) -- (167)
Change in accounts payable and accrued
liabilities.................................. 171 111 282
-------- ----- --------
Net cash used in operating activities............. (1,207) (285) (1,492)
-------- ----- --------
Investing activities:
Investments in wireless operating companies..... (54,659) -- (54,659)
-------- ----- --------
Net cash used in investing activities............. (54,659) -- (54,659)
-------- ----- --------
Financing activities:
Parent's investment............................. 55,866 285 56,151
-------- ----- --------
Net cash provided by financing activities......... 55,866 285 56,151
-------- ----- --------
Net change in cash and cash equivalents........... -- -- --
Cash and cash equivalents at beginning of
period.......................................... -- -- --
-------- ----- --------
Cash and cash equivalents at end of period........ $ -- $ -- $ --
======== ===== ========
</TABLE>
See accompanying notes.
F-14
<PAGE> 117
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
STOCKHOLDER'S ACCUMULATED TRANSLATION
INVESTMENT DEFICIT ADJUSTMENT TOTAL
------------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Balance at September 1, 1995 (inception)..... $ -- $ -- $-- $ --
Transfers from QUALCOMM...................... 285 -- -- 285
Net loss..................................... -- (396) -- (396)
------- ------- --- -------
Balance at August 31, 1996................... 285 (396) -- (111)
Transfers from QUALCOMM...................... 55,866 -- -- 55,866
Net loss..................................... -- (1,211) -- (1,211)
Cumulative translation adjustment............ -- -- 58 58
------- ------- --- -------
Balance at August 31, 1997................... $56,151 $(1,607) $58 $54,602
======= ======= === =======
</TABLE>
See accompanying notes.
F-15
<PAGE> 118
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
The Company
On June 24, 1998, QUALCOMM Incorporated ("QUALCOMM") created a separate
wholly-owned company, Leap Wireless International, Inc. (the "Company" or
"Leap"), a Delaware corporation. It is the Company's intent to enter into a
Separation and Distribution Agreement with QUALCOMM pursuant to which certain of
QUALCOMM's joint ventures and equity interests in domestic and international
terrestrial-based wireless telecommunications operating companies will be
transferred to the Company, followed by a spin-off of the Company to the
stockholders of QUALCOMM (the "Distribution"). QUALCOMM intends to complete the
Distribution before September 27, 1998. The Company's business strategy is to
operate, manage, support and otherwise participate in Code Division Multiple
Access ("CDMA") based wireless telecommunications businesses and ventures in
emerging international markets and the United States. Initially, the Company
expects that its principal markets for its intended activity will be in Latin
America, Eastern Europe, Asia-Pacific and the United States. QUALCOMM is a
Delaware corporation that develops, manufactures, markets, licenses and operates
advanced communications systems and products based on digital wireless
technology, including mobile and fixed satellite communications systems and
products and digital wireless telephone systems and products using QUALCOMM's
proprietary CDMA technology. QUALCOMM has entered into, and will retain upon the
Distribution, equipment sales and services and vendor financing agreements with
the wireless telecommunications operating companies to be transferred to the
Company.
Following the Distribution, QUALCOMM and the Company will be operated as
independent companies. QUALCOMM and the Company will, however, continue to have
a relationship as a result of the various agreements being entered into between
QUALCOMM and the Company in connection with the Distribution.
Basis of Presentation
The combined financial statements reflect the financial position, results
of operations, cash flows and changes in stockholder's equity of the business
that will be transferred to the Company from QUALCOMM as if the Company were a
separate entity for all periods presented, as if the historical investments as
of August 31, 1997 and significant agreements entered into subsequent to August
31, 1997 in wireless operating companies were owned or entered into by the
Company. However, for the periods covered by the financial statements, such
investments were directly or indirectly legally owned by QUALCOMM. The financial
statements have been presented as if the Company were a development stage
company with an inception date of September 1, 1995. The Company did not engage
in any significant activity prior to fiscal 1996 and, as of August 31, 1997,
neither the Company nor its investees had generated any revenues from their
planned principal operations. The financial statements have been prepared using
the historical basis in the assets and liabilities and historical results of
operations related to the Company's business. The Company had no cash balances
as of August 31, 1997 and 1996 as no specific cash accounts had been designated
by QUALCOMM for the Company. When Company liabilities are paid or investments
are made, it is assumed that the cash used by the Company was funded by a
stockholder cash contribution. Changes in stockholder's equity represent
QUALCOMM's contribution after giving effect to the net operating cash used by
the Company and amounts necessary to finance the acquisition of ownership
interests in wireless operating companies.
The Company had no employees or QUALCOMM employees wholly dedicated to its
business during the fiscal periods presented. QUALCOMM departmental labor and
other direct costs have been allocated to the Company based on estimates of
incremental efforts expended and incremental costs incurred related to the
Company's business. General corporate overhead related to QUALCOMM's corporate
headquarters and common support divisions have been allocated to the Company
generally based on the proportion of the
F-16
<PAGE> 119
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Company's costs and expenses to QUALCOMM's costs and expenses. Management
believes these allocations reasonably approximate costs incurred by QUALCOMM on
behalf of the Company's operations. However, the costs as allocated to the
Company are not necessarily indicative of the costs that would have been
incurred if the Company had performed these functions as a stand-alone entity.
Subsequent to the separation of the Company from QUALCOMM, the Company will have
its own staff perform necessary functions using its own resources or purchased
services and will be responsible for the costs and expenses associated with the
management of a public corporation.
The financial information included herein may not necessarily reflect the
financial position, results of operations, cash flows and changes in
stockholder's equity of the Company in the future or what they would have been
had it been a separate, stand-alone entity during the periods presented.
Additional Capital Needs; Substantial Leverage
The Company does not have any operating history as an independent public
company and is at an early stage of development. As such, the Company is subject
to the risks inherent in the establishment of a new business enterprise and its
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets and companies experiencing rapid
growth. To date, the Company has generated no revenue from its ownership
interests in or management roles with the wireless operating companies. The
Company's ability to generate revenues will be dependent on a number of factors,
including the future operations and profitability of the operating companies.
The operating companies are expected to incur substantial losses for the
foreseeable future and are subject to substantial risks. The Company will be
required to recognize a share of these companies' start-up operating losses as a
result of the Company's ownership interests in these companies. The industry in
which the operating companies operate is highly competitive and is subject to a
number of significant project, market, political, credit and exchange risks,
among others. The Company may be required to provide substantial funding to
these entities to finance completion of their wireless operating systems. The
build-out of the operating companies' wireless systems may take a number of
years to complete. There can be no assurance that any of the existing operating
companies or any other companies in which the Company may acquire a joint
venture or equity interest will be able to obtain sufficient financing to
build-out their systems, meet their payment obligations to the Company or
others, including the Federal Communications Commission ("FCC") and other
regulatory agencies, or become profitable. The failure of these companies to
build-out their systems, meet their payment obligations or become profitable
would adversely affect the value of the Company's assets and its future
profitability. The time required for the Company to reach or sustain
profitability is highly uncertain, and there can be no assurance that the
Company will be able to achieve or maintain profitability. Moreover, if
profitability is achieved, the level of such profitability cannot be predicted
and may vary significantly from quarter to quarter.
The Company expects to have significant future capital requirements
relating to funding of its existing wireless operating companies and operating
companies in which the Company may acquire joint venture or equity interests and
to general working capital needs and other cash requirements. The magnitude of
these capital requirements will depend on a number of factors, including the
specific capital needs of the operating companies, additional capital needed to
acquire or maintain other joint venture or equity interests, competing
technological and market developments and changes in existing and future
relationships.
The Company expects to obtain much of its required near term financing
through borrowings under a credit facility provided by QUALCOMM (the "Credit
Facility"). The Company expects, however, that it will reach its borrowing limit
under the Credit Facility by the end of fiscal 1999. The Company will have no
other available sources of working capital as of the date of the Distribution.
In addition, because the Company
F-17
<PAGE> 120
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
expects to be subject to restrictive covenants and other obligations under the
Credit Facility, there can be no assurance that the Company will have continued
access to these borrowings when required.
There can be no assurance that the Company will be able to obtain such
additional required financing on favorable terms or at all. The terms of the
Credit Facility will likely include security interests in favor of QUALCOMM and
other restrictive covenants, and may significantly limit or prevent the Company
from obtaining additional debt financing. If additional funds are raised through
equity financings, dilution to the Company's existing stockholders would result.
To the extent that such additional financing is raised by the sale or other
transfer of any of the Company's equity interests in the wireless operating
companies, the Company will be diluted or relinquish ownership of such
interests. If adequate additional financing is not available, the Company may be
forced to default on any then existing funding obligations to the operating
companies, significantly modify its business plan and, in the case of failure to
obtain working capital financing, cease operations. Accordingly, the failure to
obtain adequate additional financing would have a material adverse effect on the
Company's business, results of operations, liquidity and financial position.
As a result of its capital requirements, including expected borrowings
under the Credit Facility, the Company expects that it will be highly leveraged
after the Distribution. The degree to which the Company is leveraged could have
important consequences, including: (i) the Company's ability to obtain
additional financing in the future may be impaired; (ii) a substantial portion
of the Company's future cash flows from operations may be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing the
funds available for operations; (iii) the Company may be hindered in its ability
to adjust rapidly to changing market conditions; and (iv) the Company's
substantial degree of leverage may make it more vulnerable in the event of a
downturn in general economic conditions or in its business. There can be no
assurance that the Company's future cash flows will be sufficient to meet the
Company's debt service requirements or that the Company will be able to
refinance any of its indebtedness at maturity.
The Company experienced net losses for the years ended August 31, 1997 and
1996 of approximately $1.2 million and $396,000, respectively. Following the
Distribution, the Company will be responsible for the additional costs
associated with being an independent public company, including costs related to
corporate governance, listed and registered securities and investor relations
issues. Further, as the existing operating companies are in the early stages of
developing and deploying their respective telecommunications systems, which
require significant expenditures, a substantial portion of which are incurred
before corresponding revenues are generated. In addition, the degree to which
the Company and its operating companies are expected to be leveraged will lead
to significant interest expense and principal repayment obligations with respect
to outstanding indebtedness. The Company therefore expects to incur significant
expenses in advance of generating revenues, and as a result, to incur
substantial additional losses in the foreseeable future. There can be no
assurance that the Company or any of the operating companies will achieve or
sustain profitability in the near term or at all.
Financial Statement Preparation
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.
Investments in Wireless Operating Companies
Investments in corporate entities with less than 20% voting interest are
generally accounted for under the cost method. The Company uses the equity
method to account for ownership interests in partnerships and for
F-18
<PAGE> 121
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
investments in corporate entities in which it has voting interest of 20% to 50%
or in which it otherwise exercises significant influence. Under the equity
method, the investment is originally recorded at cost and adjusted to recognize
the Company's share of net earnings or losses of the investee, limited to the
extent of the Company's investment in, advances to and financial guarantees for
the investee.
Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
total amount of an asset may not be recoverable. An impairment loss would be
recognized when estimated future cash flows expected to result from the use of
the asset and its eventual disposition are less than its carrying amount.
Foreign Currency
Results of operations for international investments are translated using
average exchange rates during the period, while assets and liabilities are
translated using end-of-period rates. The resulting exchange gains or losses are
accumulated in the "cumulative translation adjustment" account, a component of
stockholder's equity. For operations in countries treated as highly
inflationary, financial statement amounts are translated at historical exchange
rates, with all other assets and liabilities translated at year-end exchange
rates. The effects of translating the financial position and results of
operations of local currency operations have not been significant to the
Company's financial statements. Gains and losses resulting from the Company's
foreign currency transactions have not been significant in relation to its
operations.
Income Taxes
Historically, the Company's operations have been included in the
consolidated income tax returns filed by QUALCOMM. Income tax expense in the
Company's financial statements has been calculated on a separate tax return
basis.
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred tax asset and/or liability is computed
for both the expected future impact of differences between the financial
statement and tax bases of assets and liabilities and for the expected future
tax benefit to be derived from tax loss and tax credit carry forwards. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be "more likely than not" realized in future tax returns. Tax
rate changes are reflected in income in the period such changes are enacted.
Unaudited Pro Forma Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share"
which the Company has adopted to compute the unaudited pro forma net loss per
common share ("EPS") amount for fiscal 1997.
The Company had no shares of common stock outstanding during fiscal 1997
and 1996. The unaudited pro forma net loss per common share was calculated by
dividing the 1997 net loss of $1,211,000 by the 17,643,830 expected shares of
Common Stock of the Company to be issued upon the Distribution based on QUALCOMM
shares outstanding as of August 20, 1998. Such shares reflect the expected
issuance upon the Distribution of one of the Company's shares of common stock
for every four shares of QUALCOMM common stock outstanding. Replacement stock
options and awards for approximately 5,481,377 shares, the conversion of
QUALCOMM's Trust Convertible Preferred Securities which are expected to be
convertible into shares of QUALCOMM and approximately 2,271,800 shares of the
Company common stock and the exercise of a warrant to be issued to QUALCOMM for
approximately 5,500,000 shares of common stock have
F-19
<PAGE> 122
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
not been considered in calculating the unaudited pro forma net loss per common
share because their effect would be anti-dilutive. As a result, the Company's
unaudited pro forma basic and diluted net loss per common share are the same.
NOTE 2. INVESTMENTS IN WIRELESS OPERATING COMPANIES
The Company's investments in wireless operating companies consist of the
following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Investments at equity.................................... $50,884 $ --
Investment at cost....................................... 4,000 --
------- -------
$54,884 $ --
======= =======
</TABLE>
The Company has joint venture and equity interests in companies that hold
cellular telephone licenses or are seeking such licenses. Its participation in
each company differs and the Company does not have majority interests in such
companies. The Company's ability to withdraw funds, including dividends, from
its participation in such investments is dependent in many cases on receiving
the consent of the other participants, over which the Company has no control.
Condensed combined financial information for wireless operating companies
during the period under which the Company accounted for the investment under the
equity method is summarized as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------
<S> <C>
Condensed Combined Balance Sheet Information:
Current assets............................................ $37,824
Non-current assets........................................ 23,439
Current liabilities....................................... 559
Non-current liabilities................................... 7,589
Redeemable preferred equity............................... 8,850
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1997
---------------
<S> <C>
Condensed Combined Statement of Operations Information:
Operating expenses........................................ $ (331)
Net income................................................ 332
</TABLE>
As of August 31, 1997, none of the wireless operating companies had
commenced commercial revenue generating operations. Any income derived resulted
principally from earnings on investments and cash. The Company had no equity
method investments as of August 31, 1996.
Chilesat Telefonia Personal S.A.
In February 1997, the Company entered into a subscription and shareholders
agreement to purchase $42 million of voting preferred shares representing a 50%
ownership interest in a privately held corporate joint venture, Chilesat
Telefonia Personal S.A. ("Chilesat PCS"), a development stage enterprise. The
Company holds its shares in Chilesat PCS via a wholly-owned subsidiary of
QUALCOMM, Inversiones QUALCOMM Chile S.A. ("Inversiones QUALCOMM"), which held
no other assets and had no liabilities as of August 31, 1997. The remaining 50%
ownership interest represented by voting common shares is owned by Telex-Chile
S.A. and its subsidiary Chilesat S.A. (together "Telex-Chile"). Pursuant to the
agreement, in March 1997, the Company placed the $42 million purchase price in
an escrow account pending the grant of a license to
F-20
<PAGE> 123
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
operate wireless services in Chile by the Subsecretaria de Telecommunications de
Chile to Chilesat PCS. Upon the award of the license, the escrowed amount of $42
million was released to Chilesat PCS in June 1997. The preferred shares are
entitled to a liquidation preference in an amount equal to the original purchase
price per share during a six year period (the "Preference Period") beginning
with April 1997. Pursuant to the Subscription and Shareholders Agreement,
Telex-Chile has a right to call either 50% or 100% of the Company's shares, at
the option of Telex-Chile, for the purposes of placement of such shares with (i)
a reputable international operator or (ii) an investor not in competition with
QUALCOMM as an equipment vendor. The call price increases significantly on a
quarterly basis and expires in March of 1999. The Company may provide debt
funding to Chilesat PCS as necessary to support future wireless network
build-out and operational needs.
The Company accounts for its investment under the equity method of
accounting. During the Preference Period, all of the cumulative net losses up to
$42 million are allocated to Telex-Chile until the adjusted capital account of
Telex-Chile, reflecting its initial contribution of the wireless licenses and an
11.5 year right to use the Telex-Chile nationwide fiber-optic network valued by
the joint venture partners at $28 million and $14 million, respectively, has
been depleted. Upon depletion of the Telex-Chile capital account during the
Preference Period, the Company will record 100% of the Chilesat PCS cumulative
net operating losses until its $42 million adjusted capital account has been
depleted. Upon the expiration of the Preference Period, the Company will record
equity income and loss activity of Chilesat PCS in accordance with its ownership
interest. As of August 31, 1997, Chilesat PCS had not completed its initial
network build-out, and operational activity was not significant. The Company
recorded $207,000 in equity income resulting from this investment during fiscal
1997.
Under its licensing agreement with the Chilean government, Chilesat PCS is
obligated to meet certain network build-out milestones by December 1998 and has
provided a $59 million letter of credit to support the payment of government
fines if the build-out milestones are not met. The Company has guaranteed
reimbursement to the issuing bank of the Company's proportional share, based on
its ownership interest, of any government fines paid under the letter of credit.
Additionally, the Company has pledged its shares in Chilesat PCS to the issuing
bank as collateral for the letter of credit facility.
During fiscal 1997, QUALCOMM entered into agreements with Chilesat PCS to
supply approximately $94 million of Personal Communications Services ("PCS")
infrastructure and subscriber equipment and services. QUALCOMM also agreed to
provide approximately $60 million in vendor financing to Chilesat PCS for the
purchase of infrastructure equipment and services. The vendor financing
agreement restricts the ability of Chilesat PCS to declare or pay dividends. As
of August 31, 1997, QUALCOMM had outstanding long-term financed receivable
balances of approximately $8.6 million resulting from initial contract milestone
payments due to QUALCOMM under its agreements with Chilesat PCS.
Telesystems of Ukraine
In April of 1997, the Company, through a QUALCOMM wholly owned subsidiary,
QUALCOMM International Inc., paid approximately $74,000 to acquire a 49%
ownership interest in Telesystems of Ukraine ("TOU"), a privately held
development stage Ukrainian limited liability company. The Company has the
contractual right to elect four of the seven members to serve on the TOU Board
of Directors. However, the Company does not exercise control of TOU as
significant participatory company governance decisions are made at the
shareholder level over which the Company does not have majority voting rights.
The Company, via QUALCOMM International Inc., also invested approximately $8.6
million pursuant to a joint investment agreement ("JIA") with TOU to establish a
wireless communications network in Ukraine. Under Ukranian law, the JIA
investment is equity with features similar to redeemable preferred stock. The
Company accounts for its combined investments under the equity method of
accounting. The Company will record all of the
F-21
<PAGE> 124
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
profits and losses of the joint activity with TOU until the Company's $8.6
million investment plus a specified return has been repaid, thereafter, profits
and losses will be recorded according to the Company's ownership interest in
TOU. The Company's equity losses amounted to $40,000 in fiscal 1997. During
fiscal 1997, TOU purchased frequency licenses and began network planning efforts
for a wireless communications network in Ukraine. The Company may provide
further investments and debt as necessary to support future network build-out
and operational needs.
During fiscal 1997, QUALCOMM entered into agreements with TOU to supply
wireless local loop infrastructure and subscriber equipment and services. As of
August 31, 1997, QUALCOMM had not provided any significant equipment or services
under the agreements.
Chase Telecommunications, Inc.
In December 1996, the Company purchased $4 million of Chase
Telecommunications, Inc. ("Chase") Class B Common Stock, representing less than
6% of the outstanding capital stock of Chase. The Company is accounting for its
investment under the cost method of accounting. It is not practicable to
estimate the fair value of the investment as Chase is a closely held domestic
corporation and is not publicly traded.
Chase is a development stage company that will require significant
financing to complete its Personal Communications Services ("PCS") network
build-out and to meet its payment obligations relating to the purchase of PCS
licenses covering the Tennessee region from the FCC. Chase's failure to obtain
sufficient financing or to meet its obligations to the FCC could adversely
affect the value of the Company's investment in Chase. There can be no assurance
that Chase will be successful in obtaining sufficient financing for its network
build-out or in meeting its payment obligations to the FCC.
NOTE 3. EMPLOYEE BENEFIT PLANS
Prior to August 31, 1997, the Company did not have any employees dedicated
solely to its affairs. QUALCOMM employees who expended efforts on behalf of the
Company participated in QUALCOMM employee benefit plans. The Company expects to
enter into employee benefit plans prior to the date of the Distribution
including an equity incentive plan which will provide for the grant of various
types of equity-based compensation to employees of the Company, including
incentive stock option plans, non-qualified stock option plans and other stock
based awards and a non-employee directors' stock option plan to provide for the
grant of options to purchase shares of the Company's Common Stock to
non-employee directors of the Company.
NOTE 4. INCOME TAXES
The Company has not recorded provisions for federal and state income taxes
for fiscal 1997 and 1996 due to net operating losses ("NOL") during those years.
The following is a reconciliation from the statutory U.S. federal income
tax rate to the Company's effective rate of income tax expense for the years
ended August 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
U.S. federal statutory tax rate............................. (34)% (34)%
State taxes, net of U.S. federal income..................... (5)% (5)%
--- ---
Tax benefit................................................. (39)% (39)%
Increase in valuation allowance............................. 39% 39%
--- ---
Effective tax rate.......................................... --% --%
=== ===
</TABLE>
At August 31, 1997 and 1996, the Company had total deferred tax assets of
approximately $0.5 million and $0.2 million, respectively, which consisted of
NOL carryforwards. Realization of the future tax benefits of
F-22
<PAGE> 125
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
the NOL carryforwards is dependent on many factors, including the Company's
ability to generate taxable income within the net operating loss carryforward
period. Due to the uncertainty surrounding the ultimate realization of such
deferred tax assets, the Company has provided a valuation allowance for the
entire balance.
At August 31, 1997, the Company had NOL carryforwards available to offset
future income for federal income tax reporting purposes of approximately $1.6
million, which expire in years 2011 and 2012. State NOL carryforwards of
approximately $0.8 million at August 31, 1997 expire in years 2011 and 2012. As
a result of the distribution of the Company to the stockholders of QUALCOMM, the
Company will be subject to an annual limitation on the utilization of federal
and state NOL carryforwards generated from the date the businesses are
transferred to the Company from QUALCOMM to the date of Distribution. NOL's
generated prior to the date on which the businesses are transferred to the
Company, will remain with QUALCOMM.
NOTE 5. COMMITMENTS
The Company did not have any firm commitments to provide equity or debt to
its wireless operating company joint venture and equity interests as of August
31, 1997. However, due to the nature of the Company's business, the Company
expects to continue to enter into new joint venture and equity interests in
which the Company provides significant equity contributions and debt. Also, the
Company may provide further equity or debt, as necessary, to support the future
build-out and operational needs of the wireless operating companies in which the
Company has already invested as of August 31, 1997.
NOTE 6. SUBSEQUENT EVENTS
Subsequent to August 31, 1997, the Company became, or will become upon the
Distribution, a party to the following significant agreements concerning
wireless operating companies:
PEGASO
In April 1998, the Company, through a wholly owned subsidiary, QUALCOMM PCS
Mexico, Inc. entered into a joint venture agreement pursuant to which it
obtained a 49% ownership interest in a newly formed development stage entity,
Pegaso Telecomunicaciones, S.A. de C.V. ("PEGASO"), a Mexico corporation. In May
of 1998, PEGASO obtained the right to acquire PCS licenses together providing
nationwide coverage in Mexico. Pursuant to the joint venture agreement, the
Company will be required to provide equity contributions necessary for its
proportionate share of license payments and other financial requirements as a
result of the business plan. The Company expects that it will invest $100
million in the joint venture before October 1, 1998. The Company expects that
PEGASO will begin commercial service of wireless services in December 1998.
QUALCOMMTel
During October 1997, the Company became a 70% common owner in a start-up
joint venture, QUALCOMM Telecommunications Ltd. ("QUALCOMMTel"), a Cayman
Islands corporation. Upon its formation, QUALCOMMTel had no significant assets
or liabilities. The minority 30% interest is held by Tiller International
Limited ("Tiller"), a private investment company. In the event that QUALCOMMTel
makes a call on its stockholders to provide equity contributions, at the request
of Tiller, the Company is required to fund 100% of Tiller's share of the equity
contributions. Such loans will be collateralized by Tiller's shares in
QUALCOMMTel and carry an interest rate of LIBOR plus 3% with principal and
interest to be repayable from 80% of future net earnings of QUALCOMMTel.
QUALCOMMTel is intended to be an intermediate holding company to facilitate the
Company's business prospects in the Russian Federation.
In February 1998, QUALCOMMTel entered into an agreement with Tass Telecom,
a Russian company, providing for their participation, subject to terms and
conditions, in the development of wireless communica-
F-23
<PAGE> 126
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
tions networks in the Russian Federation. Pursuant to the agreement and subject
to terms and conditions, QUALCOMMTel and TASS Telecomm will become 50/50 joint
venture partners in Metrosvyaz Limited ("Metrosvyaz"), a Cyprus corporation,
intended to invest in joint ventures with local Russian telecommunications
operations for the formation, development, financing and operations of CDMA
based wireless networks.
Additionally, QUALCOMMTel will commit, subject to terms and conditions, up
to $500 million in joint venture funding which may be in the form of debt or
equity, to Metrosvyaz to support its business plan. QUALCOMMTel may transfer a
significant portion of the $500 million in funding obligations to QUALCOMM
relating to vendor financing elements of the business plan. However, no
decisions relating to the relative funding by QUALCOMM and QUALCOMMTel have been
finalized (see Note 7).
OzPhone
In June 1998, the Company, via its wholly owned subsidiary OzPhone Pty
Limited ("OzPhone"), an Australian company, acquired wireless communication
licenses to provide digital mobile and wireless local loop services in
Australia. OzPhone was formed in April 1998 to participate in auctions for the
licenses. The total cost of the licenses was approximately $6.2 million.
Chilesat PCS
During June 1998, the Company and Inversiones QUALCOMM entered into
agreements with Chilesat PCS to provide or guarantee approximately $35 million
in short-term loans, convertible into common equity if not repaid on or before
January 31, 1999. If converted, the Company and Inversiones QUALCOMM would hold
voting shares of approximately 65% of Chilesat PCS. This conversion is available
to the Company and Inversiones QUALCOMM only if the loans are not repaid on or
before January 31, 1999. Chilesat PCS currently contemplates that it will issue
a $35 million capital call in approximately December of 1998 which may be used
to repay the convertible loan or to provide for additional operating expenses.
If Telex-Chile makes at least a $17.5 million cash contribution before January
31, 1999 pursuant to such capital call, the Company and Inversiones QUALCOMM
have committed to convert $17.5 million of the short-term loans to equity. As
part of the agreement, Telex-Chile agreed to eliminate call rights it had with
respect to the Company's existing 50% voting preferred shares in Chilesat PCS.
Telex-Chile has been unable to make principal repayments on its outstanding
loans and is under standstill agreements with many of its significant lenders.
Thus, the Company may not be able to count on Telex-Chile to provide additional
capital to Chilesat PCS when and if needed.
NOTE 7. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT AUDITORS (UNAUDITED)
On August 3, 1998, the Company, via its wholly-owned subsidiary Orrengrove
Investments Limited, purchased common stock from each of the subsidiaries (the
"Related Subsidiaries") of Transword Communications for an aggregate purchase
price of $51.8 million. Upon the acquisition, the Company became a 60% common
shareholder in each of the Related Subsidiaries. The consideration was paid via
a $36.8 million cash payment and the forgiveness of $15 million in short term
loans previously granted to the Related Subsidiaries by the Company in May of
1998. The Related Subsidiaries together are telecommunications companies in the
development stage formed in part to help create a modern telecommunications
infrastructure for the Russian Federation and the countries of the former East
Bloc. The Related Subsidiaries have developed and are completing the
installation of a satellite-based communications system for long-distance voice,
video and data services using its exclusive rights to Russian Loutch II
satellite capacity. At the time of the acquisition, the Related Subsidiaries
comprised substantially all of the business, assets and liabilities of TWC on a
F-24
<PAGE> 127
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
consolidated basis. After the acquisition, TWC remains a 40% common shareholder
in each of the Related Subsidiaries. The Company will account for the
acquisition under the purchase method of accounting.
In August 1998, QUALCOMMTel became a 50% owner and partner in Metrosvyaz, a
newly-formed joint venture with TASS Telecomm. As of the formation, Metrosvyaz
had no assets or liabilities and no historical operating activity. Concurrent
with the formation of Metrosvyaz, QUALCOMM entered into a $175 million eight
year multiple drawdown loan facility under which Metrosvyaz would be able to
borrow funds, subject to certain terms and conditions, to support its business
plan, including equipment purchases, and working capital needs. The $175 million
facility is related to a $500 million financing commitment entered into by
QUALCOMMTel in February 1998 (See Note 6). Upon the Distribution, QUALCOMMTel
will assume $75 million of the $175 million financing obligation from QUALCOMM.
Furthermore, of the original $500 million commitment, the Company expects that
$150 million of financing will be provided by QUALCOMMTel, with the remaining
$350 million in financing to be provided by QUALCOMM as vendor financing.
The $175 million facility carries a 13% interest rate and borrowings are
generally repayable approximately 4 years from the date of the draw subject to a
final repayment in August 2006 of any outstanding draws then outstanding.
Borrowings under the facility are collateralized by substantially all the
assets of Metrosvyaz. Upon the assumption of $75 million of the facility by
QUALCOMMTel, it is expected that QUALCOMMTel will re-negotiate certain terms
with Metrosvyaz allowing for more favorable financing terms.
In June of 1998, the Company agreed to provide a $25 million working
capital facility to Chase. Borrowings under the facility are subject to interest
at prime plus 4 1/2% and are to be repaid by June of 2006. Borrowings are
collateralized by substantially all of the assets of Chase.
F-25
<PAGE> 128
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Chilesat Telefonia Personal S.A.
(a company in the development stage)
In our opinion, the accompanying balance sheet and the related statements of
income, of cash flows and of changes in shareholders' equity present fairly, in
all material respects, the financial position of Chilesat Telefonia Personal
S.A. (a company in the development stage) at December 31, 1997, and the results
of its operations and cash flows for the period from inception (March 3, 1997)
to December 31, 1997, in conformity with generally accepted accounting
principles of the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards of
the United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Santiago, Chile,
February 27, 1998
F-26
<PAGE> 129
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
CURRENT ASSETS
Cash and cash equivalents................................. 24,875
Accounts receivable from related companies................ 10
Other accounts receivable................................. 133
Recoverable taxes......................................... 6,228
Other current assets...................................... 695
------
Total current assets.............................. 31,941
------
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 40,093
OTHER ASSETS................................................ 4
------
Total assets...................................... 72,038
======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... 380
Accounts payable to related companies..................... 247
Accrued liabilities and withholdings...................... 960
------
Total current liabilities......................... 1,587
------
LONG-TERM LIABILITIES
Note payable to related company........................... 24,198
Other long-term liabilities............................... 4,579
------
Total long-term liabilities....................... 28,777
------
COMMITMENTS AND CONTINGENCIES............................... --
SHAREHOLDERS' EQUITY
Preferred stock (8,400,000 shares authorized, issued and
outstanding, with no par value)........................ 42,000
Common stock (8,400,000 shares authorized, issued and
outstanding, with no par value)........................ 1,964
Surplus accumulated during the development stage.......... 55
Cumulative translation adjustment......................... (2,345)
------
Total shareholders' equity........................ 41,674
------
Total liabilities and shareholders' equity........ 72,038
======
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-27
<PAGE> 130
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (MARCH 3, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
OPERATING RESULTS
General and administrative expenses....................... (663)
------
Operating loss.................................... (663)
NON-OPERATING RESULTS
Interest income........................................... 2,022
Currency exchange losses.................................. (1,280)
Other expenses, net....................................... (24)
------
Net income and surplus accumulated during the
development stage................................. 55
======
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-28
<PAGE> 131
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 3, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
CASH FLOW USED IN OPERATING ACTIVITIES
Net income................................................ 55
Adjustments to reconcile to net cash used in operating
activities:
Depreciation........................................... 4
Changes in working capital:
Accounts receivable from related companies................ (10)
Other accounts receivable................................. (133)
Recoverable taxes......................................... (6,171)
Other current assets...................................... (695)
Accounts payable.......................................... 380
Accounts payable to related companies..................... (32)
Accrued liabilities and withholdings...................... 957
-------
Cash flow used in operating activities...................... (5,645)
-------
CASH FLOW USED IN INVESTING ACTIVITIES
Acquisition of property, plant and equipment.............. (38,038)
Other..................................................... (4)
-------
Cash flow used in investing activities...................... (38,042)
-------
CASH FLOW FROM FINANCING ACTIVITIES
Notes payable to related companies........................ 24,198
Capital increase.......................................... 42,000
Other long-term liabilities............................... 4,579
-------
Cash flow provided by financing activities.................. 70,777
-------
Net increase in cash........................................ 27,090
Effect of exchange rate changes on cash..................... (2,215)
-------
Increase in cash............................................ 24,875
Cash and cash equivalents at the beginning of the period.... --
-------
Cash and cash equivalents at the end of the period.......... 24,875
=======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................... 923
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
As indicated in Note 1, Chilesat S.A. contributed non-cash assets and
liabilities to the joint venture on March 3, 1997. The net assets contributed at
that date are summarized as follows:
<TABLE>
<S> <C>
Current assets.............................................. 57
Property, plant and equipment............................... 2,189
Current liabilities......................................... (282)
-----
Net assets contributed...................................... 1,964
=====
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-29
<PAGE> 132
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MARCH 3, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
SURPLUS
ACCUMULATED
DURING THE CUMULATIVE
NUMBER PREFERRED COMMON DEVELOPMENT TRANSLATION
OF SHARES STOCK STOCK STAGE ADJUSTMENT TOTAL
---------- -------------- -------------- -------------- -------------- --------------
(US$ IN 000'S) (US$ IN 000'S) (US$ IN 000'S) (US$ IN 000'S) (US$ IN 000'S)
<S> <C> <C> <C> <C> <C> <C>
Capital increase at
inception on March 3,
1997...................... 16,800,000 42,000 1,964 -- -- 43,964
Share subscriptions
receivable................ -- (42,000) -- -- -- (42,000)
Payment of share
subscriptions
receivable................ -- 42,000 -- -- -- 42,000
Cumulative translation
adjustment................ -- -- -- -- (2,345) (2,345)
Net income for the period... -- -- -- 55 -- 55
---------- ------- ----- -- ------ -------
Balance at December 31,
1997...................... 16,800,000 42,000 1,964 55 (2,345) 41,674
========== ======= ===== == ====== =======
</TABLE>
The accompanying notes form an integral part of these financial statements.
F-30
<PAGE> 133
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- THE COMPANY
Chilesat Telefonia Personal S.A. (the "Company") is a joint venture created
on March 3, 1997 by Telex-Chile S.A. and its subsidiary Chilesat S.A. (together
"Chilesat") and Inversiones Qualcomm Chile S.A. ("Qualcomm") for the purpose of
building and operating a mobile PCS telephone system (personal communication
system) in Chile.
Pursuant to the terms of the Subscription and Shareholders' Agreement
("Shareholders' Agreement"), Chilesat and Qualcomm hold all of the outstanding
common and preferred shares of the Company, respectively. Each partner has a 50%
ownership in the joint venture. Each partner has the right to elect two
representatives to the Board of Directors and a fifth independent director is
elected by a vote of at least 75% of the shareholders. Approval of 4/5 of the
directors is required for a number of significant operating and management
decisions. The common directors are entitled to nominate the general manager,
and the preferred directors are entitled to nominate the CFO. However, approval
of the nominations requires approval by 4/5 of the directors.
Because Chilesat's contributions to the joint venture were non-cash assets
and liabilities whose fair values were not readily determinable, the non-cash
assets and liabilities contributed were recorded at predecessor basis.
As one of the non-cash assets contributed, Chilesat S.A. provided a
contract entitling the Company to the right to use a part of Chilesat's network
for a period of 11.5 years and the right to receive signal distribution services
for the same period. The contract is for the Company's sole and exclusive use of
signal transmissions. Chilesat is responsible for meeting the Company's
transmission requirements as well as the supervision, control, maintenance and
repair of the network. Chilesat also contributed the already existing entity
Chilesat Telefonia Personal S.A., among whose assets was the PCS license to
operate in Chile. As there was no predecessor value associated with the right to
use of the network and to receive signal distribution services, there will be no
ongoing cost associated with the use of the network and receipt of signal
distribution services charged to results of operations by the Company for 11.5
years.
The Company is the holder of one of three national licenses to provide PCS
services in Chile. These services must be ready for operations under the
conditions of the license by June 23, 1998 in the case of the geographical area
covered by Chile's 4th and 10th regions and by December 23, 1998 for the
remainder of the country. The Company is currently in the development stage and
is constructing its mobile PCS telephone system infrastructure. The Company has
entered into a System Equipment Purchase Agreement with Qualcomm Incorporated
whereby Qualcomm Incorporated will provide manufacturing, engineering,
equipping, integrating, installing, testing and technical assistance for the
mobile PCS telephone system.
Under the terms of the Shareholders' Agreement, the Company will purchase
from Qualcomm Incorporated all network hardware and software manufactured by
Qualcomm Incorporated and at least 50% of all mobile and fixed handsets
purchased by the Company until the later of five years following the formation
of the joint venture or the date on which Qualcomm Incorporated ceases to hold
preferred shares representing more than 24% of the capital stock of the Company.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) GENERAL
Chilesat Telefonia Personal S.A. is a development stage company as defined
in accordance with Statement of Financial Accounting Standards No. 7 due to the
fact that planned principal operations have not commenced. As indicated in Note
1, the company is currently engaged in the construction of its mobile PCS
F-31
<PAGE> 134
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
telephone system infrastructure. Testing of the installations between Chile's
4th and 10th regions with friendly users is expected to commence in July, 1998
with full commercial operations planned for September, 1998. Completion of the
infrastructure necessary to cover the remainder of Chile is planned for
September, 1998.
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States ("U.S. GAAP"). The
preparation of financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
b) PERIOD OF FINANCIAL STATEMENTS
The financial statements for the Company are presented for the period from
the date of formation of the joint venture on March 3, 1997 through December 31,
1997.
c) TRANSLATION OF THE CHILEAN PESO FINANCIAL STATEMENTS
The financial statements give effect to the translation of the Chilean peso
financial statements of the Company (not submitted herewith) to United States
dollars. All asset and liability accounts have been translated (after
eliminating the effects of accounting for inflation in Chile) at the Observed
Exchange Rates determined by the Central Bank of Chile at December 31, 1997 of
Ch$ 439.18 per US$ 1. Capital stock has been translated at historic Observed
Exchange Rates. Income and expense accounts have been translated at average
monthly Observed Exchange Rates. The net effects of translation are recorded in
the cumulative translation adjustment account as a component of the Company's
equity.
d) MONETARY ASSETS AND LIABILITIES IN OTHER CURRENCIES
Monetary assets and liabilities denominated in foreign currency have been
translated at year-end exchange rates. The effects of such translation have been
recorded as exchange gains or losses in the statement of income. Certain assets
and liabilities are denominated in UFs (Unidades de Fomento). The UF is a
Chilean inflation-indexed, peso-denominated monetary unit which is set daily in
advance based on changes in the Consumer Price Index. The adjustment to the
closing value of UF-denominated assets and liabilities have also been recorded
as part of Currency exchange losses in the statement of income.
e) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at acquisition cost plus
capitalized interest and direct costs incurred during the construction phase of
the mobile PCS telephone system. Depreciation is applied using the straight-line
method over the estimated useful lives of the assets once the assets are placed
in service. As of December 31, 1997, no depreciation charge has been made with
respect to the infrastructure as the mobile PCS telephone system was not yet
operational.
f) ADVERTISING
It is the Company's policy to record the cost of advertising as it is
incurred. For the period from inception (March 3, 1997) through to December 31,
1997, the Company recorded US$338,000 as advertising expense.
g) INCOME TAXES
Income taxes have been recorded in accordance with Statement of Financial
Accounting Standards No. 109 (FAS 109). Income taxes payable for the current
year are recorded in current liabilities, if applicable. Future taxes arising
from differences between the amounts shown for assets and liabilities in the
balance sheet
F-32
<PAGE> 135
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
and the tax basis of those assets and liabilities at the balance sheet date have
been recorded as deferred income taxes. Deferred income tax assets are reduced
by a valuation allowance if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred income tax assets
will not be realized.
h) LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the total amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated future cash
flows expected to result from the use of the asset and its eventual disposition
are less than its carrying amount.
i) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents, including securities
purchased under resale agreements. Securities purchased under agreements to
resell include investments in instruments issued by the Central Bank of Chile
acquired under resale agreements, and are stated at cost plus accrued interest.
Cash and cash equivalents at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
(US$ IN 000'S)
---------------
<S> <C>
Cash and bank deposits................................. 899
Time deposits.......................................... 10,195
Securities purchased under agreements to resell (Note
3)................................................... 13,736
Other.................................................. 45
----------
24,875
</TABLE>
j) RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 (FAS 130), Reporting
Comprehensive Income, is effective for fiscal years beginning after December 15,
1997. FAS 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. "Comprehensive income" is
defined in this statement as the change in equity (net assets) of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period
(including net income) except those resulting from investments by owners and
distributions to owners. The adoption of this new standard will result in the
presentation of components of other comprehensive income which, in the case of
the Company for the period from inception (March 3, 1997) to December 31, 1997,
will only include the cumulative translation adjustment for the period.
Statement of Financial Accounting Standards No. 131 (FAS 131), Disclosures
About Segments of an Enterprise and Related Information, is effective for fiscal
years beginning after December 15, 1997. This standard establishes guidance
related to segment disclosure utilizing the "management approach", whereby
external segment reporting is aligned with segment reporting for internal
management purposes. The previous standard followed a "products and services"
model. This standard is not expected to have an effect on the disclosures of the
Company as it only operates a single operating segment.
F-33
<PAGE> 136
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 3 -- SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell at December 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT
FINANCIAL INSTITUTION UNDERLYING FINANCIAL INSTRUMENT (US$ IN 000'S) MATURITY DATE
--------------------- ------------------------------- --------------- -------------
<S> <C> <C> <C>
Banco de A. Edwards Central Bank of Chile Debentures 6,417 February 10, 1998
Banco de A. Edwards Central Bank of Chile Debentures 6,491 February 12, 1998
Banco de A. Edwards Central Bank of Chile Debentures 828 February 19, 1998
-------
Total 13,736
=======
</TABLE>
At December 31, 1997, the underlying financial instruments were in the
custody of the counter party to the agreements. Central Bank of Chile Debentures
are generally considered to be low-risk securities and are generally not subject
to significant market volatility.
NOTE 4 -- RECOVERABLE TAXES
Recoverable taxes at December 31, 1997 relate to value added taxes (VAT) of
US$ 6,228,000 incurred primarily on the importation of property, plant and
equipment required for the Company's mobile PCS telephone system. VAT relating
to the importation of capital goods may be recovered by the Company in
accordance with Chilean law (Note 11 c).
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
(US$ IN 000'S)
---------------
<S> <C>
Land........................................................ 140
Buildings and infrastructure................................ 39,771
Machinery and equipment..................................... 88
Other....................................................... 98
Less: Accumulated depreciation.............................. (4)
------
Total net......................................... 40,093
======
Estimated useful lives of assets are:
</TABLE>
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Machinery and equipment..................................... 10
Other....................................................... 5 - 10
</TABLE>
For the period from inception (March 3, 1997) to December 31, 1997 the
Company capitalized US$ 1,508,000 of interest as part of the cost of
construction of the mobile PCS telephone system.
F-34
<PAGE> 137
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 6 -- ACCRUED LIABILITIES AND WITHHOLDINGS
Accrued liabilities and withholdings at December 31, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
Amounts payable for construction in progress................ 597
Advertising and marketing expenses.......................... 278
Employee vacations.......................................... 33
Other....................................................... 52
---
Total............................................. 960
===
</TABLE>
NOTE 7 -- RELATED PARTY TRANSACTIONS
a) RELATED PARTY TRANSACTIONS AND BALANCES
<TABLE>
<CAPTION>
AMOUNT OF BALANCES BALANCES
COMPANY RELATIONSHIP TRANSACTION TRANSACTIONS RECEIVABLE PAYABLE
------- ------------ ----------- ------------ ---------- --------
(US$ IN 000'S)
<S> <C> <C> <C> <C> <C>
Chilesat Servicios Affiliate Reimbursement of 47 10 --
Empresariales S.A. costs incurred on
their behalf
Chilesat S.A Shareholder Reimbursement of 589 -- 196
costs incurred in
connection with
construction
Rent 30 -- --
Qualcomm Incorporated Affiliate Purchase of 23,655 -- 23,655
equipment
Accrued interest on 543 -- 543
note payable
Telex-Chile S.A Shareholder Reimbursement of 49 -- --
costs incurred in
connection with
construction
Telsys S.A Affiliate Computer services 39 -- 39
</TABLE>
b) NOTE PAYABLE TO RELATED COMPANY
As a means of financing the Company's purchase of infrastructure equipment
from Qualcomm Incorporated, it entered into a Deferred Payment Agreement whereby
Qualcomm Incorporated defers payment for the equipment subject to the terms and
conditions set forth in the Agreement. The assets of the Company secure the
obligation. The shares of the Company have also been pledged by Telex-Chile in
guaranty. Qualcomm Incorporated and Bank of America's liens on the Company's
assets and shares are pari passu interests.
Under the terms of the agreement, Qualcomm Incorporated will make loans for
the equipment, software and services it provides to the Company up to a maximum
of US$ 59.5 million. Loans may bear interest based upon a LIBOR or Base Rate or
the Eurodollar. The obligation to repay these loans and interest is evidenced by
promissory notes. Interest accrues on the principal but remains unpaid, with
accrued interest added monthly to the outstanding principal amount of the
applicable loan until the first principal payment, at which time interest is
payable on the same dates as the principal payments.
F-35
<PAGE> 138
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The note payable at December 31, 1997 is comprised of LIBOR loans and bears
interest at LIBOR + 3% (8% per annum at December 31, 1997). The scheduled
principal repayments, including accrued interest, are as follows:
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
1999................................................... 3,025
2000................................................... 6,050
2001................................................... 6,049
2002................................................... 6,049
2003................................................... 3,025
------
Total........................................ 24,198
======
</TABLE>
The terms of the financing arrangement with Qualcomm Incorporated include
certain positive and negative covenants, the most significant of which are as
follows:
The Company shall not
<TABLE>
<C> <S>
i) Incur any additional encumbrances or liens.
ii) Create any indebtedness other than indebtedness incurred for
the purposes of partial or full repayment of the notes
payable.
iii) Incur operating lease obligations greater than one year and
exceeding US$ 1 million for any twelve month period.
iv) Consolidate or merge with another entity.
v) Guarantee any indebtedness.
vi) Acquire stock or the assets of any other person.
vii) Advance funds.
viii) Become liable for a capital lease obligation exceeding US$ 1
million.
ix) Enter into transactions with affiliates, except arm's length
transactions in the ordinary course of business.
x) Invest in other than investment grade instruments.
xi) Declare or pay cash dividends or make distributions in
excess of 30% of excess cash flows during the third and
fourth annual periods of operations of the Company,
increasing to 50% after period 4.
xii) Maintain funded debt to total capitalization greater than
0.65, 0.71 and 0.75 in annual periods 1, 2 and 3 and
thereafter, respectively.
xiii) Permit Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") to be less than US$ 1.
xiv) Permit funded debt to EBITDA to exceed 23.91, 4.74, 3.32 and
2.4 in annual periods 2, 3, 4 and 5, respectively.
xv) Permit EBITDA to interest expense to be less than 0.47,
2.38, 3.00 and 3.00 in annual periods 2, 3, 4 and 5,
respectively.
xvi) Incur capital expenditures greater than US$ 116 million
until the Company has more than 50,000 subscribers, at which
time the threshold increases.
</TABLE>
The Company is in compliance with these covenants.
F-36
<PAGE> 139
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 8 -- OTHER LONG-TERM LIABILITIES
This balance is mainly comprised of deferred customs duties.
Under Chilean law, the payment of customs duties levied on machinery and
equipment can be deferred over a period of up to seven years. The balance at
December 31, 1997 represents amounts owing at maturity including accrued
interest. The scheduled repayments are as follows:
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
1999................................................... --
2000................................................... 1,294
2001................................................... --
2002................................................... 1,505
2003 and thereafter.................................... 1,709
------
Total........................................ 4,508
Other.................................................. 71
------
Total other long-term liabilities............ 4,579
======
</TABLE>
NOTE 9 -- INCOME TAXES
The Company has not made a provision for current income taxes payable as it
incurred tax losses for the period from inception (March 3, 1997) to December
31, 1997.
At December 31, 1997, income tax loss carryforwards of approximately
US$5,233,000 were available to apply against income tax liabilities in future
years. Under Chilean law, such income tax loss carryforwards never expire.
Deferred income taxes at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
Assets:
Tax loss carryforwards................................. 785
Allowance for income tax loss carryforwards............ (655)
------
Deferred income tax assets............................. 130
------
Liabilities:
Capitalized interest................................... (130)
------
Deferred income tax liabilities........................ (130)
------
Net deferred income taxes.............................. --
======
</TABLE>
Because the Company is in the development stage and has no history of
generating taxable income against which tax loss carryforwards would be applied,
an allowance was recorded at December 31, 1997 with respect to those tax loss
carryforwards which, based on the weight of available evidence, are not likely
be realized.
NOTE 10 -- SHAREHOLDERS' EQUITY
a) AUTHORIZED CAPITAL
Authorized capital stock of the Company is comprised of 8,400,000 Series A
preferred shares and 8,400,000 Series B ordinary shares. Qualcomm holds all the
outstanding preferred shares whereas Chilesat
F-37
<PAGE> 140
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
holds all the ordinary shares. The preference with respect to the preferred
shares consists of the right to be paid before any other series of shares in the
event of liquidation of the Company up to the amount of the stated value of the
preferred shares. The preference has a duration of 6 years as from April 10,
1997, after which all shareholders shall have equal rights with respect to the
liquidation of the Company.
b) DIVIDENDS
Chilean law permits the payment of dividends only in Chilean pesos and
these are limited to the retained earnings balances in the Company's statutory
financial statements at each calendar year end. As the Company has an
accumulated deficit at December 31, 1997 in its statutory financial statements,
it is prohibited from declaring and paying dividends until such time that it
generates sufficient retained earnings.
c) CAPITAL INCREASE
Pursuant to the terms of the shareholders' agreement, Qualcomm agreed to
subscribe for 8,400,000 Series A preferred shares in exchange for its cash
contribution of US$42 million and Chilesat agreed to subscribe for 8,400,000
Series B ordinary shares for its contribution of a contract for the right to use
a part of Chilesat's network and signal distribution services and certain net
assets. Qualcomm contributed the funds into an escrow account on March 3, 1997
and a receivable balance for share subscriptions was recorded. With the
exception of US$1,500,000 of funds made available to the Company, the funds were
not to be distributed to it until official publication of the awarding of the
PCS license. The awarding of the PCS license was published and the Company
received the funds in June, 1997, at which time the share subscription
receivable was settled.
d) PUT AND CALL OPTIONS
As part of the Shareholders' Agreement between Qualcomm and Chilesat,
Chilesat acquired an option to purchase, for the purpose of placement with (i) a
reputable international operator or (ii) an investor not in competition with
Qualcomm as vendor and system integrator, either 50% or 100% of the preferred
shares held by Qualcomm at the option of Chilesat. The option is exercisable
until the earlier of (i) 21 months following the award of the PCS license to the
Company or (ii) 3 months following the release of the Company's surety
obligations with Subtel. At the same time, Qualcomm acquired an option to sell
its preferred shares to Chilesat in the event that the Company is no longer
using Qualcomm technology in its mobile PCS telephone system.
NOTE 11 -- FAIR VALUE
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at December 31, 1997, when the estimate
of such value is practicable:
- Cash and cash equivalents, recoverable taxes and accrued liabilities and
withholdings have been stated at carrying value which is equivalent to
fair value.
- The fair values of the note payable to related company and other
long-term liabilities were based on interest rates currently available to
the Company for debt with similar terms and remaining maturities. The
carrying value of the note payable to related company approximates fair
value because the terms of the loan agreement require that the stated
rate of interest be periodically adjusted to the market rate.
F-38
<PAGE> 141
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The estimated fair value of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------------
CARRYING
AMOUNTS FAIR VALUE
-------------- --------------
(US$ IN 000'S) (US$ IN 000'S)
-------------- --------------
<S> <C> <C>
Assets:
Cash and cash equivalents.............................. 24,875 24,875
Recoverable taxes...................................... 6,228 6,228
------ ------
Total assets................................... 31,103 31,103
====== ======
Liabilities:
Accrued liabilities and withholdings................... 960 960
Note payable to related company........................ 24,198 24,198
Other long-term liabilities............................ 4,579 3,117
------ ------
Total liabilities.............................. 29,737 28,275
====== ======
</TABLE>
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
a) OPERATING LEASES
At December 31, 1997, the Company had entered into operating leases
relating to the rental of sites for towers and antennas required for the
operation of its mobile PCS telephone system. The following is a schedule by
year of future minimum rental payments required under operating leases that have
initial or remaining noncancelable lease terms in excess of one year at December
31, 1997:
<TABLE>
<CAPTION>
(US$ IN 000'S)
--------------
<S> <C>
Year ending December 31,
1998................................................... 943
1999................................................... 905
2000................................................... 905
2001................................................... 905
2002................................................... 997
</TABLE>
Rental expense for the period from inception (March 3, 1997) to December
31, 1997 was US$91,000.
b) SECURITY FOR DEBT AND OTHER OBLIGATIONS
The Company was required to provide a standby letter of credit facility in
the amount of US$58 million in favor of the Subsecretariat of Telecommunications
of Chile ("Subtel") to assure the fulfillment of the requirement that the
Company's PCS services be operational by June 23, 1998 in the case of the
geographical area covered by Chile's 4th to 10th regions and by December 23,
1998 for the remainder of the country. If the Company meets this condition by
these dates, the standby letter of credit will no longer be required by Subtel.
The Company solicited the Bank of America National Trust to issue a standby
letter of credit in favor of local financial institutions which, in turn, issued
a standby letter of credit in favor of Subtel.
The Company has pledged it PCS license as security against the notes
payable to Qualcomm Incorporated and the standby letter of credit from the Bank
of America National Trust.
Telex-Chile S.A. and Chilesat S.A. have pledged 83,920 and 8,316,080 Series
B common shares of the Company, respectively, as security for 50% of the notes
payable to Qualcomm Incorporated and the standby
F-39
<PAGE> 142
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
letter of credit from the Bank of America National Trust. Inversiones Qualcomm
Chile S.A. has also pledged 8,400,000 Series A preferred shares of the Company
as security for the standby letter of credit from the Bank of America National
Trust.
NOTE 13 -- SUBSEQUENT EVENTS
a) NOTES PAYABLE TO RELATED COMPANIES
During the period from January 1, 1998 through February 27, 1998, the
Company borrowed an additional US$11,932,000 under its financing agreement with
Qualcomm Incorporated relating to additional equipment purchases for its mobile
PCS telephone system.
b) TELEX-CHILE S.A.
Telex-Chile S.A., a shareholder of the Company and the parent company of
Chilesat S.A., also a shareholder of the Company, had a working capital
deficiency of approximately US$ 74 million at December 31, 1997. Telex-Chile
S.A. is presently negotiating to restructure or refinance its debt obligations.
Telex-Chile has been unable to find a strategic partner to make capital
contributions to provide working and investment capital to the company. The
management of Telex-Chile S.A. believes that the company will be successful in
its attempt to restructure or refinance its debt obligations and in its search
to incorporate a strategic partner. It is at least reasonably possible, however,
that the outcome of these negotiations may not be favorable to Telex-Chile S.A.
As mentioned in Note 10, Telex-Chile S.A. has granted a pledge on Series B
shares in Chilesat Telefonia Personal S.A. to guarantee the Company's notes
payable to Qualcomm and the standby letter of credit from Bank of America
National Trust. Telex-Chile S.A. is also guarantor of such obligations. Chilesat
S.A. has also entered into a contract to provide use of its fiber optic network
and to provide signal distributions services to the Company for 11.5 years (Note
1). The potential impact of the matter mentioned in the preceding paragraph on
the financial condition or results of operations of the Company cannot be
estimated at this time.
c) VALUE ADDED TAXES
On January 6, 1998, the Company recovered US$5,551,000 of VAT from the
Chilean Government relating to the importation of equipment for its mobile PCS
telephone system.
F-40
<PAGE> 143
ANNEX 1
DRAFT, SUBJECT
TO COMPLETION OF
ANALYSES AND INTERNAL
LEHMAN BROTHERS
APPROVAL
Board of Directors
QUALCOMM Incorporated
6455 Lusk Boulevard
San Diego, CA 92121
Dear Members of the Board:
We understand that QUALCOMM Incorporated ("QUALCOMM" or the "Company") has
announced its plans to distribute to the holders of common stock of the Company
100% of the outstanding shares of common stock of Leap Wireless International,
Inc. ("Leap"), so that holders of shares of common stock of QUALCOMM will
receive one share of Leap for every four shares of QUALCOMM owned by them (the
"Distribution"). Leap is a wholly owned subsidiary of QUALCOMM, created in
connection with the Distribution, which will own all of the outstanding capital
stock of Leap, the operating subsidiary of QUALCOMM which is being spun off.
Information about the Distribution is included in the Registration Statement of
the Company on Form 10, as filed with the Securities and Exchange Commission
(the "Commission") on June 30, 1998 [and amended to the date hereof] (the "Form
10"), and in the Information Statement dated as of the date hereof to be mailed
to QUALCOMM shareholders in connection with the Distribution (the "Information
Statement"). QUALCOMM after the Distribution is hereinafter referred to as "New
QUALCOMM." Certain elements of the relationship between New QUALCOMM and Leap
following the Distribution are set forth in a series of intercompany agreements
(the "Agreements") which were filed as exhibits to the Form 10. Upon advice of
QUALCOMM and its legal and accounting advisors, we understand that receipt of
the Leap common stock will be treated as a taxable dividend to the stockholders
of QUALCOMM for federal income tax purposes.
In connection with the Distribution, we have been requested by QUALCOMM to
render our opinion with respect to (i) the fairness, from a financial point of
view, to the holders of common stock of QUALCOMM, of the Distribution, and (ii)
whether the Distribution will materially impair the ability of New QUALCOMM and
Leap to fund in the future, from external sources or through internally
generated funds, their respective currently anticipated operating and capital
requirements (as currently projected in the financial forecasts prepared by the
management of QUALCOMM). We have not been requested to opine as to, and our
opinion does not in any manner address, (i) QUALCOMM's underlying business
decision to proceed with or effect the Distribution or (ii) the ability of New
QUALCOMM or Leap to access the capital markets at any time following the
distribution.
In arriving at our opinion, we reviewed and analyzed: (i) the Agreements,
(ii) the Form 10, the Information Statement and such other publicly available
information concerning QUALCOMM, New QUALCOMM, Leap and the Distribution which
we believe to be relevant to our inquiry, (iii) financial and operating
information with respect to the business, operations and prospects of QUALCOMM,
New QUALCOMM and Leap furnished to us by QUALCOMM, (iv) a comparison of the
historical financial results and present financial conditions of QUALCOMM and,
on a pro forma basis, New QUALCOMM and Leap, with those of other publicly held
companies that we deemed relevant, (v) the trading history of QUALCOMM common
stock and a comparison of such trading history with those of other publicly held
companies that we deemed relevant, (vi) publicly available research reports
regarding QUALCOMM, (vii) the terms of selected recent spin-off transactions
that we deemed relevant and the market performance of securities involved in
such transactions both before and after the consummation of such transactions,
(viii) the terms of certain recent public stock offerings and merger
transactions that we deemed relevant, and (ix) the proposed terms of the credit
facility to be provided to Leap by New QUALCOMM. In addition, we
A-1
<PAGE> 144
have had discussions with the management of QUALCOMM and the proposed management
of Leap concerning the business, operations, assets, financial condition and
prospects of QUALCOMM and, on a pro forma basis, New QUALCOMM and Leap, and
undertook such other studies, analyses and investigations as we deemed
appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification and have further relied upon the assurances of the
management of QUALCOMM that they are not aware of any facts that would make such
information inaccurate or misleading. With respect to the financial forecasts of
New QUALCOMM and Leap, upon advice of QUALCOMM we have assumed that such
forecasts have been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of QUALCOMM as to the future
financial performance of New QUALCOMM and Leap and that New QUALCOMM and Leap
will perform in accordance with such forecasts. In arriving at our opinion, we
have not conducted a physical inspection of the properties or facilities of
QUALCOMM or Leap and have not made nor obtained any evaluations or appraisals of
the assets or liabilities of QUALCOMM or Leap. [In addition, you have not
authorized us to solicit, and we have not solicited, any indications of interest
from any third party with respect to a purchase of the businesses or assets of
Leap.] Our opinion is necessarily based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
In addition, we express no opinion as to the prices at which shares of
common stock of New QUALCOMM or Leap actually will trade following the
consummation of the Distribution. The process by which securities trading
markets establish a market price for any security is complex, involving the
interaction of numerous factors, and market prices will fluctuate with changes
in, among other things, the financial condition, business and prospects of the
issuer and comparable companies and economic and financial market conditions. In
addition, trading in shares of Leap will likely be characterized by a period of
redistribution among QUALCOMM's shareholders who receive such shares in the
Distribution (especially in light of the taxable nature of the distribution
which may temporarily depress the market price of such shares during such
period). Accordingly, this opinion should not be viewed as providing any
assurance that the combined market value of the shares of common stock of New
QUALCOMM and the shares of common stock of Leap to be received by a stockholder
of QUALCOMM in the Distribution will be in excess of the current market value of
the common stock of QUALCOMM owned by such stockholder at any time prior to
announcement or consummation of the Distribution.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the Distribution (i) is fair, from a financial point of view,
to the holders of common stock of QUALCOMM and (ii) will not materially impair
the ability of New QUALCOMM and Leap to fund in the future, from external
sources or through internally generated funds, their respective currently
anticipated operating and capital requirements (as currently projected in the
financial forecasts prepared by the management of QUALCOMM).
We have acted as financial advisor to QUALCOMM in connection with the
Distribution and will receive a fee for our services which is contingent upon
the consummation of the Distribution. In addition, QUALCOMM has agreed to
indemnify us for certain liabilities that may arise out of the rendering of this
opinion. We also have performed various investment banking services for QUALCOMM
in the past and have received customary fees for such services. In the ordinary
course of our business, we actively trade in the securities of QUALCOMM for our
own account and for the accounts of our customers and, accordingly, may at any
time hold long and/or short positions in such securities or in the securities of
New QUALCOMM or Leap following the Distribution.
A-2
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This opinion is solely for the use and benefit of the Board of Directors of
QUALCOMM. This opinion is not intended to be and does not constitute a
recommendation to any current or prospective stockholders of QUALCOMM, New
QUALCOMM or Leap as to any action or investment decisions which may be taken by
such stockholders with respect to shares owned or to be received by them.
Very truly yours,
LEHMAN BROTHERS
By:
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Managing Director
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