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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1998
REGISTRATION NO. 333-64459
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LEAP WIRELESS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 4812 33-0811062
(STATE OR JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
10307 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
(877) 977-5327
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
HARVEY P. WHITE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LEAP WIRELESS INTERNATIONAL, INC.
10307 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
(877) 977-5327
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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SCOTT N. WOLFE FREDERICK T. MUTO
DAVID A. HAHN THOMAS A. COLL
LATHAM & WATKINS COOLEY GODWARD LLP
701 B STREET, SUITE 2100 4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CA 92101-8193 SAN DIEGO, CA 92121-2128
(619) 236-1234 (619) 550-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE FEE
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Common Stock, $0.0001 par value(2)....... 2,271,060(2) $6.87 $15,602,182.20 $4,602.64(3)
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933.
(2) Each share of Common Stock includes a right to purchase one one-thousandth
of a share of the Company's Series A Junior Participating Preferred Stock,
par value $0.0001 per share.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 13, 1998
PROSPECTUS
2,271,060 SHARES
LEAP WIRELESS INTERNATIONAL, INC.
COMMON STOCK
This Prospectus relates to the issuance by Leap Wireless International,
Inc. ("Leap" or the "Company") of up to 2,271,060 shares of Common Stock of the
Company, par value $.0001 per share, (the "Common Stock"), including certain
attached preferred stock purchase rights (the "Rights"), upon the possible
future conversion of the Trust Convertible Preferred Securities (the "Trust
Preferred Securities") of QUALCOMM Financial Trust I, a wholly-owned statutory
business trust of QUALCOMM Incorporated ("QUALCOMM").
The Company was formed as a wholly-owned subsidiary of QUALCOMM. On
September 23, 1998 (the "Distribution Date"), QUALCOMM distributed all of the
outstanding Common Stock of the Company to QUALCOMM's stockholders as a taxable
dividend (the "Distribution"). As a result of the Distribution, and pursuant to
a resolution of the QUALCOMM Board of Directors as permitted by the Indenture
relating to the Trust Preferred Securities, each holder of a Trust Preferred
Security is entitled to receive both QUALCOMM Common Stock and Leap Common Stock
at a rate of 0.6882 and 0.17205 shares, respectively, upon the future conversion
of such Trust Preferred Security. The Company agreed to issue Common Stock upon
the future conversion of the Trust Preferred Securities (the "Offering") in
consideration for the transfer of the Leap Business from QUALCOMM to the Company
in connection with the Distribution. The Company will receive no additional
consideration or forgiveness of debt upon conversion of the Trust Preferred
Securities and the issuance of Common Stock.
The last reported sale price of the Common Stock, which is quoted under the
symbol "LWIN" on the Nasdaq National Market, on October 9, 1998 was $3.00 per
share.
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 11.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
, 1998
This prospectus includes trademarks of Leap Wireless International, Inc. as
well as trademarks of companies other than Leap.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Combined Financial Statements and Notes thereto, appearing
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995,
and includes this statement for purposes of such safe harbor provisions.
Forward-looking statements, which are based upon certain assumptions and
describe future plans, strategies and expectations of the Company are generally
identifiable by use of the words "believes," "expects," "intends,"
"anticipates," "plans to," "estimates," "projects" or similar expressions. The
ability of the Company to predict results or the actual effect of future plans
or strategies is inherently uncertain. Important factors which may cause actual
results to differ materially from the forward-looking statements contained
herein or in other public statements by the Company are described in the section
entitled "Risk Factors."
THE COMPANY
Leap Wireless International, Inc. ("Leap" or the "Company") manages,
supports, operates and otherwise participates in Code Division Multiple Access
("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, 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, 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 has been and is expected to 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
are 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.
Leap owns certain joint venture and equity interests (held directly by Leap
or indirectly by companies controlled by Leap) formerly held by QUALCOMM in
Pegaso Telecomunicaciones S.A. de C.V. (Mexico), Metrosvyaz Limited (Russia),
Orrengrove Investments Limited (Russia), 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 and
Leap have also agreed that, if certain events occur within eighteen months after
the Distribution, certain assets and liabilities related to Telesystems of
Ukraine ("TOU"), QUALCOMM's operating company in Ukraine, will be transferred to
Leap. There can be no assurance that such events will occur or that legal
impediments to transfer will be removed, or that
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QUALCOMM's interest in TOU will be so transferred. See "Business -- Potential
Acquisition of Ukraine Operating Company."
The Company's wireless telecommunications systems are based on 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 Prospectus, "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.
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, formerly Vice Chairman of the Board of QUALCOMM and the Company's
President, Chief Executive Officer and Chairman of the Board; Thomas J. Bernard,
who was a Senior Vice President of QUALCOMM, who is the Company's Executive Vice
President; and James E. Hoffmann, formerly 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
businesses and ventures transferred to the Company in the Distribution (the
"Leap Business") have 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.
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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 within twelve months 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.
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 Prospectus 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 within twelve months
after the Distribution.
- The Company's joint ventures have generated net losses since inception,
and the Company 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.
- The Company will be subject to a number of international risks as a
result of its international business operations. Certain of the countries
in which the Company's joint ventures are doing business, including
Russia and Mexico, are experiencing volatile financial and currency
markets.
- 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 are
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 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.
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- 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.
RELATIONSHIP BETWEEN QUALCOMM AND THE COMPANY
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 between QUALCOMM and Leap:
Separation and Distribution Agreement. Pursuant to the Separation and
Distribution Agreement, QUALCOMM agreed to transfer the Leap Business to Leap.
QUALCOMM also agreed to contribute to Leap the following: (i) $10 million in
cash; (ii) certain indebtedness of certain of the operating companies in the
amount of approximately $113 million owed to QUALCOMM, approximately $30.8
million of which is indebtedness under certain 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 was transferred to Leap in connection with the
separation of the companies (the "Separation"), and QUALCOMM retained 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
issued to QUALCOMM a warrant to purchase 5,500,000 shares of Leap Common Stock
(the "Warrant"), exercisable during the 10 years following the Distribution. In
addition, Leap assumed 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 $73.8 million, including $4.2 million which will be indebtedness
of Chilesat Telefonia Personal convertible into equity on certain terms and
conditions; (ii) QUALCOMM's obligations to manage operations of the Leap
Operating Companies; and (iii) certain accrued liabilities with respect to
Leap's employees in the amount of approximately $2 million.
Under the Separation and Distribution Agreement, QUALCOMM and Leap have
agreed that, if certain events occur within eighteen months after the
Distribution, certain assets and liabilities related to Telesystems of Ukraine
("TOU") will be transferred to Leap. The Separation and Distribution Agreement
also provided that, subject to the terms and conditions thereof, QUALCOMM and
the Company will take all reasonable steps necessary to effect the Distribution.
Leap also agreed 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. In addition, the
Company agreed 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 has 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 granted 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 further agreed 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 provides, 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. The Company has entered into a secured credit facility
with QUALCOMM (the "Credit Facility"). The Credit Facility consists 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
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<PAGE> 7
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") sets 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 agreed 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, 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
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
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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"), governs 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 agreed 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 assumed and agreed 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 agreed to grant options to purchase shares of Leap
Common Stock to certain holders of options to purchase shares of QUALCOMM Common
Stock.
Tax Agreement. The Tax Agreement generally requires QUALCOMM to pay, and
indemnify 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
agreed to issue the shares of Leap Common Stock offered hereby to holders of
QUALCOMM's Trust 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."
7
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company(1)...................... 2,271,060 shares
Use of proceeds............................................. The Company agreed to issue
Common Stock upon the future
conversion of the Trust
Preferred Securities in
consideration for the transfer
of the Leap Business from
QUALCOMM to the Company in
connection with the
Distribution. The Company will
receive no additional
consideration or forgiveness of
debt upon conversion of the
Trust Preferred Securities and
the issuance of Common Stock
offered hereby.
Nasdaq National Market symbol............................... LWIN
</TABLE>
- ---------------
(1) Issuable upon the future conversion of the Trust Preferred Securities.
8
<PAGE> 10
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 Prospectus. 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 ENDED YEARS ENDED NINE MONTHS PRO FORMA
SEPTEMBER 1, 1995 MAY 31, AUGUST 31, ENDED YEAR ENDED
(INCEPTION) TO ------------------ --------------- 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)...... $ (1,328) $ (1,535) $ (139) $ 207 $ -- $ (3,042) $(1,247)
General and administrative
expenses.................... (17,945) (16,188) (994) (1,361) (396) (16,188) (1,361)
-------- -------- ------- ------- ----- -------- -------
Loss before income taxes...... (19,273) (17,723) (1,133) (1,154) (396) (19,230) (2,608)
Income tax expense............ -- -- -- -- -- -- --
-------- -------- ------- ------- ----- -------- -------
Net loss.................. $(19,273) $(17,723) $(1,133) $(1,154) $(396) $(19,230) $(2,608)
======== ======== ======= ======= ===== ======== =======
Unaudited pro forma basic and
diluted net loss per common
share(2).................... $ (1.00) $ (0.07) $ (1.09) $ (0.15)
======== ======= ======== =======
Shares used in computing
unaudited pro forma basic
and diluted net loss per
common share................ 17,648 17,648 17,648 17,648
BALANCE SHEET DATA(1)(3):
Cash (at end of period)....... $ -- $ -- $ -- $ 10,000
Working capital (deficit)..... (2,897) (279) (111) 8,053
Total assets.................. 57,777 46,267 -- 279,389
Stockholders' equity.......... 54,880 45,988 (111) 260,492
</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 Company's
equity activity from its investment in Chilesat Telefonia Personal, S.A. The
pro forma statement of operations data for the periods ended May 31, 1998
and August 31, 1997 reflect the
9
<PAGE> 11
Company's equity activity from its investment in Chilesat Telefonia
Personal, S.A. The pro forma balance sheet data at May 31, 1998 reflects
investments in ChileSat Telefonia Personal, S.A. and Chase
Telecommunications, Inc. and additional investments, to be contributed by
QUALCOMM, in Pegaso Telecomunicaciones, S.A. de C.V., QUALCOMM
Telecommunications Ltd., and OzPhone Pty. Ltd. The Company accounts for its
investment in Chase Telecommunications, Inc. using the cost basis method of
accounting.
(2) 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 17,647,684 shares of common
stock of the Company issued upon the Distribution. See Note 1 of Combined
Financial Statements.
(3) Pro forma balance sheet data 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.
10
<PAGE> 12
RISK FACTORS
This Prospectus 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 Prospectus.
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. The
capital markets in the United States and worldwide are currently experiencing
severe volatility and uncertainty. There can be no assurance that such markets
will improve or that the Company will be able to access such markets or raise
additional capital on favorable terms or at all. 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.
11
<PAGE> 13
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 Credit Facility bears a variable interest rate, which exposes the Company to
interest rate risk. The Company has 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
within twelve months 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 $17.7 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
12
<PAGE> 14
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.
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 and other
markets in which the Company may operate are in countries with economies in
various stages of development or structural reform, some of which are subject to
rapid fluctuations in currency exchange rates, 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, economic and political 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. Agreements between Leap and/or
the Leap Operating Companies and other parties relating to the development,
construction or operation of wireless operating systems in international markets
may be abandoned or breached by such other parties or may be difficult to
enforce in such markets due to political and market instability, the limited
development of the judicial systems in such markets and other factors affecting
such markets. 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 Russia, Latin America,
Asia and other emerging markets. The risks and volatility associated with the
Company's markets may adversely impact the ability of the Company and the Leap
Operating Companies to raise capital.
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. dollar and
the applicable local currency. Exchange rates for currencies of the countries in
which the Company's Leap 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, or on the likelihood of repayment of
certain obligations to the Company.
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
13
<PAGE> 15
Operating Companies are located, including political, regulatory and competitive
risks. The following is a summary of such country-specific risks:
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. The Russian government
is experiencing extreme political volatility and has defaulted on certain of its
obligations to foreign investors and governments. News reports have indicated
that a number of Russian banks have become insolvent. The pace of political
reform has slowed and the recent dismissal of a significant number of government
leaders by the Russian President has contributed to continuing political
instability. Such political instability could lead to a return to a state
controlled economy, market inefficiencies and hyperinflation. Further, the IMF
has indicated that continued support would be conditioned on continued
implementation of political reform and the institution of a market based
economy, which cannot be assured. This economic and political instability could
have a material adverse effect on the value of the Company's businesses and
prospects in Russia, including but not limited to nationalization of
telecommunications operations. In addition, 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, QUALCOMM's CDMA
equipment has not yet been approved in Russia for mobility applications. Any or
all of these factors could negatively impact the Company's prospects in Russia.
Moreover, the Company's Russian operating companies are currently subject to
increasing competition from other vendors of telecommunications equipment. 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 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 is expected to have 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
economy of that country which historically has been closely tied to fluctuations
in the price of certain natural resources. 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.
14
<PAGE> 16
Doing Business in Mexico
Mexico continues to experience a high rate of inflation, 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 Ukraine
Under the Separation and Distribution Agreement, QUALCOMM and Leap have
agreed that, if certain events occur within eighteen months after the
Distribution, certain assets and liabilities related to TOU will be transferred
to Leap. There can be no assurance that such events will occur or that legal
impediments to transfer will be removed, or that QUALCOMM's interest in TOU will
ever be transferred to Leap.
In the event QUALCOMM's interest in TOU is transferred to the Company, it
will subject the Company to certain risks of 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
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.
POTENTIAL CONFLICTS WITH QUALCOMM
Leap owns 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 has retained 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. The
ability of the Leap Operating Companies to construct and operate their wireless
operating systems and their business and future prospects may be substantially
dependent upon QUALCOMM's performance under QUALCOMM's agreements with the Leap
Operating Companies. Neither Leap nor any of the Leap Operating Companies will
be able to exercise any substantial control over QUALCOMM or its management or
the performance by QUALCOMM of such agreements. There can be no assurance that
QUALCOMM will perform services or other obligations under such agreements in a
timely or sufficient manner, or at all. Failure by QUALCOMM to fully perform
under such agreements could have a material adverse effect on Leap and/or the
Leap Operating Companies. In addition, 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.
15
<PAGE> 17
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 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
16
<PAGE> 18
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 partners 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
A significant portion of the Company's assets 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, on September 21, 1998 the Company filed a request 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 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.
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
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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
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. 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
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<PAGE> 20
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 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
An aggregate of 17,647,684 shares of Leap Common Stock were issued in the
Distribution. The holders of such shares are subject to potential substantial
dilution due to the significant number of shares of Leap Common Stock that are
reserved for issuance. 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
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<PAGE> 21
upon exercise of the Warrants to be issued to QUALCOMM; 3,157,260 shares for
issuance to its employees, officers, directors and consultants pursuant to
Leap's equity incentive plans; 5,542,740 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 the Trust Preferred Securities. The
Company agreed to issue Common Stock upon the future conversion of the Trust
Preferred Securities in consideration for the transfer of the Leap Business from
QUALCOMM to the Company in connection with the Distribution. The Company will
receive no additional consideration or forgiveness of debt upon conversion of
the Trust Preferred Securities and the issuance of Common Stock. Upon conversion
of the Trust Preferred Securities, QUALCOMM will receive benefit in the form of
forgiveness of debt. 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 48.3% 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.
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"), excluding shares of the Company's stock acquired by QUALCOMM upon
exercise of the Warrant. 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.
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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 involved the distribution of an aggregate of 17,647,684
shares of Leap Common Stock to the stockholders of QUALCOMM. A substantial
portion of such shares are 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
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
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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.
RELATIONSHIP BETWEEN QUALCOMM
AND THE COMPANY AFTER THE DISTRIBUTION
For purposes of facilitating an orderly transfer 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,
have entered 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 Prospectus
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
Immediately prior to the Distribution, QUALCOMM and the Company entered
into the Separation and Distribution Agreement which sets 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 transferred the Leap Business to Leap.
QUALCOMM also contributed to Leap the following: (i) $10 million in cash; (ii)
certain other indebtedness of the operating companies in the amount of
approximately $113 million owed to QUALCOMM, approximately $30.8 million of
which is indebtedness under certain 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 transferred. No intellectual
property was transferred to Leap in connection with the Separation, and QUALCOMM
retained 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
issued to QUALCOMM the Warrant. In addition, Leap assumed 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 $73.8 million, including $4.2 million which will be
indebtedness of Chilesat Telefonia Personal convertible into equity on certain
terms and conditions; (ii) QUALCOMM's obligations to
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manage operations of the Leap Operating Companies; and (iii) certain accrued
liabilities with respect to Leap's employees in the amount of approximately $2
million.
The Separation and Distribution Agreement also (i) includes releases of
claims of each party to the other, except as expressly set forth in the
Separation and Distribution Agreement, (ii) provides for the allocation of
certain contingent liabilities and (iii) provides the parties with certain
indemnification rights against each other.
Leap also agreed 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
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 also agreed 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 has 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 granted 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 further agreed 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 also agreed, 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.
Under the Separation and Distribution Agreement, QUALCOMM and Leap have
agreed that, if certain events occur within eighteen months after the
Distribution, certain assets and liabilities related to TOU will be transferred
to Leap. There can be no assurance that such events will occur or that legal
impediments to transfer will be removed, or that QUALCOMM's interest in TOU will
ever be transferred to Leap.
CREDIT FACILITY
Immediately prior to the Distribution, the Company entered into a secured
Credit Facility with QUALCOMM. The Credit Facility consists 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. The Credit Facility
requires a 2% origination fee. 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 bear interest at a variable rate
equal to LIBOR plus 5.25% per annum. Interest is 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.
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The Credit Facility requires the Company to, among other things, achieve
and maintain a total debt to total capitalization financial ratio. The Credit
Facility also contains 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 agreed 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 was in compliance with the financial covenant at the time of
the Distribution. 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 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") sets 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 agreed 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
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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 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 entered into an Interim Services Agreement
immediately prior to the Distribution (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 agreed 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") governs
the employee benefit obligations of the Company, including both compensation and
benefits, with respect to employees assigned to the Company as of the
Distribution Date. Pursuant to 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 Prospectus. 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 prior to 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 has granted options to purchase shares of Leap Common Stock to
certain holders of options to purchase shares of QUALCOMM Common Stock.
TAX AGREEMENT
The Tax Agreement generally requires QUALCOMM to pay, and indemnify 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
25
<PAGE> 27
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 further provides 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.
CONVERSION AGREEMENT
Pursuant to the Conversion Agreement, the Company agreed to issue the Leap
Common Stock offered hereby to holders of the Trust Preferred Securities
("Holders"), to which this Prospectus relates, 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. Leap is also obligated to file and keep
effective, subject to certain exceptions, this registration statement covering
the shares of Leap Common Stock issuable upon conversion of the Trust Preferred
Securities. Upon conversion of such Trust Preferred Securities, QUALCOMM will
receive benefit in the form of forgiveness of debt, but Leap will receive no
such benefit or other consideration.
QUALCOMM TRUST CONVERTIBLE PREFERRED SECURITIES
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 Trust 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 Trust 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 Trust 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 Trust
Preferred Securities if the Trust fails to make them. Distributions on the Trust
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 September 11, 1998
for possible conversion of the Trust Preferred Securities at the option of the
holders.
Prior to the Distribution, the Trust Preferred Securities were convertible
only into QUALCOMM Common Stock, at the rate of 0.6882 shares of QUALCOMM Common
Stock for each Trust Preferred Security (equivalent to a conversion price of
$72.6563 per share of common stock). As of September 11, 1998, there were
outstanding approximately 13.2 million Trust Preferred Securities, convertible
into 9,084,240 shares of QUALCOMM Common Stock. As a result of and subsequent to
the Distribution, and pursuant to a resolution of the Board of Directors of
QUALCOMM, each Trust Preferred Security is 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 Trust Preferred Security. The Company agreed to issue
Common Stock upon the future conversion of the Trust Preferred Securities in
consideration for the transfer of the Leap Business from QUALCOMM to the Company
in connection with the Distribution. The Company will receive no additional
consideration or forgiveness of debt upon conversion of the Trust Preferred
Securities and the issuance of Common Stock. Upon conversion of such Trust
Preferred Securities, QUALCOMM will receive benefit in the form of forgiveness
of debt.
26
<PAGE> 28
USE OF PROCEEDS
The shares of Leap Common Stock offered hereby will be issued to Holders
upon the possible future conversion of the Trust Preferred Securities held by
such Holders. The Company agreed to issue Common Stock upon the future
conversion of the Trust Preferred Securities in consideration for the transfer
of the Leap Business from QUALCOMM to the Company in connection with the
Distribution. The Company will receive no additional consideration or
forgiveness of debt upon conversion of the Trust Preferred Securities and the
issuance of Common Stock. Upon the conversion of the Trust Preferred Securities,
QUALCOMM may receive benefit in the form of forgiveness of debt. See
"Relationship with QUALCOMM after the Distribution -- Conversion Agreement."
PLAN OF DISTRIBUTION
The shares of Leap Common Stock offered hereunder will be issued from time
to time by the Company to Holders upon exercise of such Holders' conversion
rights. For a description of the conversion rights of Holders. See "QUALCOMM
Trust Convertible Preferred Securities." Pursuant to the Conversion Agreement,
QUALCOMM has agreed to pay all expenses of the Company, including professional
fees, incurred in connection with the registration of the Common Stock being
registered hereby and the additional expenses that will be incurred from time to
time to maintain such registration statement. The Company is expected to incur
certain administrative expenses in connection with the issuance of Common Stock
upon the conversion of the Trust Preferred Securities.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market System under the
symbol "LWIN." The high and low reported sale prices per share for the Common
Stock from the commencement of trading on September 24, 1998 until October 9,
1998 were $9 and $2 11/16, respectively. The number of stockholders of record as
of October 9, 1998 was approximately 2,150. On October 9, 1998, the last
reported sale price of the Common Stock as reported by the Nasdaq National
Market System was $3 per share.
DIVIDEND POLICY
To date, the Company has neither declared nor paid any cash dividends on
shares of its Common Stock. The Company is prohibited by the terms of the Credit
Agreement from declaring or paying cash dividends upon any of its capital stock.
See "Relationship with QUALCOMM after the Distribution -- Credit Facility." The
Company currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future.
27
<PAGE> 29
CAPITALIZATION
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 Prospectus. 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.
<TABLE>
<CAPTION>
AS OF MAY 31, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Credit facility(1)..................................... $ -- $ 5,300
-------- --------
Stockholder's equity:
Parent's investment.................................. 76,048 --
Deficit accumulated during the development stage..... (19,273) (19,273)
Common stock(2)...................................... -- 2
Additional paid-in-capital(3)........................ -- 281,658
Cumulative translation adjustment.................... (1,895) (1,895)
-------- --------
Total stockholder's equity................... 54,880 260,492
-------- --------
Total capitalization......................... $ 54,880 $265,792
======== ========
</TABLE>
- ---------------
(1) QUALCOMM has provided 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 is payable eight years after
September 23, 1998. The loan bears interest at a variable rate equal to
LIBOR plus 5.25% per annum. Interest accrues quarterly with cash interest
payments beginning September 2001. Approximately $22.8 million is
anticipated to be outstanding as of October 5, 1998 related to the financing
of the 2% origination fee of $5.3 million and a loan by the Company to an
affiliated entity made subsequent to the Distribution.
(2) The number of shares of Leap Common Stock outstanding as of the Distribution
Date was 17,647,684. Such shares reflect the 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 $147.6 million in investments in wireless operating companies and
$113 million in loans receivable.
28
<PAGE> 30
DILUTION
As of May 31, 1998, the pro forma net tangible book value of the Company's
Common Stock was $260.5 million or $14.76 per share of Common Stock. Pro forma
net tangible book value per share represents the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding as of September 23, 1998. Dilution per share represents the
difference between the pro forma net tangible book value per share prior to the
Offering and the pro forma net tangible book value per share after the Offering.
Upon conversion of the Trust Preferred Securities, QUALCOMM will receive benefit
in the form of forgiveness of debt, but Leap will receive no such benefit or
additional consideration. After giving effect to the issuance by the Company of
2,271,060 shares offered hereby, the Company's pro forma net tangible book value
as of May 31, 1998 would have been $260.5 million or $13.08 per share of Common
Stock. This represents an immediate decrease in such pro forma net tangible book
value of $1.68 per share to existing stockholders. Holders of Trust Preferred
Securities will receive 0.17205 shares of the Company's Common Stock upon
conversion thereof, the value of which will depend upon the market price of the
Company's Common Stock as of the date of conversion. At an assumed conversion
price per share of $6.87, the average of the high and low sales prices of the
Company's Common Stock on September 24, 1998, the Holders would suffer no
dilution based on such assumed conversion price relative to the estimated $13.08
pro forma net tangible book value per share after the Offering. The following
table indicates the relation between such assumed conversion price and pro forma
net tangible book value:
<TABLE>
<S> <C>
Assumed conversion price per share..................... $ 6.87
Pro forma net tangible book value per share as of May
31, 1998 prior to Offering.......................... $14.76
Decrease in pro forma net tangible book value per
share attributable to new investors................. $(1.68)
------
Pro forma net tangible book value per share after
Offering.............................................. $13.08
</TABLE>
SUBSTANTIAL FUTURE DILUTION FROM LEAP SHARE RESERVES
The foregoing computations assume no exercise of stock options or warrants
as of September 23, 1998. The holders of Leap Common Stock will be subject to
potential substantial dilution as of September 23, 1998 due to the significant
number of shares of Common Stock of the Company that are reserved for issuance
following September 23, 1998. Collectively, in addition to the 2,271,060 shares
of Common Stock reserved for issuance upon the conversion of the Trust Preferred
Securities, there are 14,200,000 shares of Common Stock of the Company reserved
for issuance after September 23, 1998 consisting of the following: 5,500,000
shares reserved for issuance upon exercise of the Warrant issued to QUALCOMM;
3,157,260 shares reserved for issuance to the Company's employees, officers,
directors and consultants pursuant to Leap's equity incentive plans; and
5,542,740 shares reserved for issuance upon exercise of options to purchase
Common Stock of the Company which are held by QUALCOMM employees, officers,
directors and consultants as a result of option grants to such persons in
connection with the Distribution at a weighted average exercise price of $3.71.
To the extent that any shares are issued upon exercise of options, warrants or
rights that are presently outstanding or granted in the future, or reserved for
future issuance under the Company's stock plans, there will be further dilution
to new investors.
29
<PAGE> 31
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
Prospectus, 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 give 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 Prospectus 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 Separation and Distribution Agreement (except
for the potential transfer of TOU following the Distribution) and the agreements
to be entered into pursuant to the Separation and Distribution Agreement
including the completion of all the asset transfers and contract assignments
contemplated thereby.
30
<PAGE> 32
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1998
--------------------------------------
PRO FORMA
ADJUSTMENTS
LEAP RELATED
HISTORICAL TO LEAP PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Equity in net losses of wireless operating companies...... $ (1,535) $(1,507)(1) $ (3,042)
General and administrative expenses....................... (16,188) -- (16,188)
-------- ------- --------
Loss before income taxes.................................. (17,723) -- (19,230)
Income tax expense........................................ -- -- --
-------- ------- --------
Net loss.................................................. $(17,723) $(1,507) $(19,230)
======== ======= ========
Unaudited pro forma basic and diluted net loss per common
share(2)................................................ $ (1.00) $ (1.09)
======== ========
Shares used in computing unaudited pro forma basic and
diluted net loss per common share(2).................... 17,648 17,648
======== ========
</TABLE>
- ---------------
(1) The Company has a 70% interest in QUALCOMMTel Isle of Man, which holds a 50%
non-controlling interest in Orrengove Investments Ltd. Orrengrove acquired a
60% equity interest in the Transworld Companies on August 4, 1998. Because
Orrengrove financed its investment in the Transworld Companies and no other
capital will have been contributed to Orrengove or QUALCOMMTel Isle of Man
prior to the Distribution, the Company's pro forma balance sheet reflects no
basis related to its equity interest in QUALCOMMTel Isle of Man. The pro
forma adjustment reflects the equity loss that would have been incurred by
the Company during the period presented in connection with its investment in
the Transworld Companies. The Company will record its share of equity losses
to the extent of its $51.8 million note receivable from Orrengove.
(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
17,647,684 shares of common stock of the Company issued upon the
Distribution based on QUALCOMM Common Stock outstanding as of September 11,
1998. Such shares reflect the 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 include:
(a) options to purchase 5,542,740 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; (c) 2,271,060 shares of Leap Common
Stock reserved for issuance by Leap in the event of conversion of the Trust
Preferred Securities; (d) options to purchase 60,000 shares of Leap Common
Stock issued to certain of the Company's directors; and (e) options to
purchase 765,000 shares of Leap Common Stock issued to the Company's
employees.
31
<PAGE> 33
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1997
--------------------------------------
PRO FORMA
ADJUSTMENTS
LEAP RELATED TO
HISTORICAL LEAP PRO FORMA
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Equity in net earnings (losses) of wireless operating
companies................................................ $ 207 $(1,454)(1) $(1,247)
General and administrative expenses........................ (1,361) -- (1,361)
------- ------- -------
Loss before income taxes................................... (1,154) (1,454) (2,608)
Income tax expense......................................... -- -- --
------- ------- -------
Net loss................................................... $(1,154) $(1,454) $(2,608)
======= ======= =======
Unaudited pro forma basic and diluted net loss per common
share(2)................................................. $ (0.07) $ (0.15)
======= =======
Shares used in computing unaudited pro forma basic and
diluted net loss per common share(2)..................... 17,648 17,648
======= =======
</TABLE>
- ---------------
(1) The Company has a 70% interest in QUALCOMMTel Isle of Man, which holds a 50%
non-controlling interest in Orrengrove Investments Ltd. Orrengrove acquired
a 60% equity interest in the Transworld Companies on August 4, 1998. Because
Orrengrove financed its investment in the Transworld Companies and no other
capital has been contributed to Orrengrove or QUALCOMMTel Isle of Man, the
Company's pro forma balance sheet reflects no basis related to its equity
interest in QUALCOMMTel Isle of Man. The pro forma adjustment reflects the
equity loss that would have been incurred by the Company during the period
presented in connection with its investment in the Transworld Companies. The
Company will record its share of equity losses to the extent of its $51.8
million note receivable from Orrengrove.
(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 17,647,684 shares of Common Stock of the Company issued upon the
Distribution based on QUALCOMM Common Stock outstanding as of September 11,
1998. Such shares reflect the 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 include:
(a) options to purchase 5,542,740 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; (c) 2,271,060 shares of Leap Common
Stock reserved for issuance by Leap in the event of conversion of the Trust
Preferred Securities; (d) options to purchase 60,000 shares of Leap Common
Stock issued to certain of the Company's directors; and (e) options to
purchase 765,000 shares of Leap Common Stock issued to the Company's
employees.
32
<PAGE> 34
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MAY 31, 1998
---------------------------------------
PRO FORMA
ADJUSTMENTS
LEAP RELATED TO PRO
HISTORICAL LEAP(1) FORMA
---------- ----------- --------
(IN THOUSANDS)
<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............. 42,777 104,823(4) 147,600
Loans receivable........................................ 15,000 98,000(5) 113,000
Other assets............................................ -- 8,739(6) 8,739
-------- -------- --------
Total assets.................................. $ 57,777 $221,612 $279,389
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.............. $ 2,897 $ (2,897)(7) $ --
Other current liabilities............................. -- 1,997(8) 1,997
-------- -------- --------
Total current liabilities..................... 2,897 (900) 1,997
Loans payable to banks.................................. -- 11,600(5) 11,600
Long-term debt.......................................... -- 5,300(9) 5,300
-------- -------- --------
Total liabilities............................. 2,897 16,000 18,897
-------- -------- --------
COMMITMENTS(5)
STOCKHOLDERS' EQUITY:
Parent's investment..................................... 76,048 (76,048)(10) --
Common stock............................................ -- 2(11) 2
Additional paid-in-capital.............................. -- 281,658(10) --
-- 21,400(12) --
-- (21,400)(12) 281,658
Deficit accumulated during the development stage........ (19,273) -- (19,273)
Cumulative translation adjustment....................... (1,895) -- (1,895)
-------- -------- --------
Total stockholders' equity.................... 54,880 205,612 260,492
-------- -------- --------
Total liabilities and stockholders' equity.... $ 57,777 $221,612 $279,389
======== ======== ========
</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 made subsequent to May 31, 1998 and prior
to the Distribution Date in the following companies: Pegaso
Telecomunicaciones, S.A. de C.V., QUALCOMMTel Cayman and OzPhone. Such
investments were transferred by QUALCOMM to Leap prior to the Distribution
Date.
(5) Reflects loans issued to investees and loans payable to banks incurred
subsequent to May 31, 1998, but prior to the Distribution, in connection
with the partial funding of certain of the loans receivable. Leap
33
<PAGE> 35
has total non-cancelable debt commitments of $135 million; $61.2 million
was funded by Leap prior to the Distribution, leaving $73.8 million in
non-cancelable debt commitments payable within 15 months of the
Distribution. Leap plans to fund its non-cancelable debt commitments with
funds under the Credit Facility.
Chilesat PCS Convertible Loans
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, approximately $30.8 million in principal was
outstanding.
Chase and Metrosvyaz Working Capital Loans
The Company 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 a 5-year term at an interest
rate of 13%. Amounts outstanding as of the Distribution Date for Chase and
Metrosvyaz were $13 million and $17.4 million, respectively.
Orrengrove Investments, Ltd.
The Company has a $51.8 million promissory note from Orrengrove advanced in
connection with its $51.8 million investment in the Transworld Companies.
The note matures on September 20, 2003 and bears interest at 13%. QUALCOMM
transferred a 70% interest in QUALCOMMTel Isle of Man, which holds a 50%
interest in Orrengrove, to the Company prior to the Distribution. Because
Orrengrove financed its investment in the Transworld Companies and no other
capital will have been contributed to Orrengrove or QUALCOMMTel Isle of Man
prior to the Distribution, the Company's pro forma balance sheet reflects
no basis related to its equity interest in QUALCOMMTel Isle of Man.
Loans Payable to Banks
The maximum principal amount of the loan is $15.8 million with an interest
rate of 8.56%. The entire principal balance and accrued interest is due and
payable on February 15, 1999. As of the Distribution Date, approximately
$11.6 million was outstanding.
(6) Reflects the contribution of intangible 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 vacation and sick time accruals and accrued
bonuses from QUALCOMM to Leap prior to the Distribution Date.
(9) QUALCOMM provided 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 is payable eight years following the Distribution Date. The loan
bears interest at a variable rate of LIBOR plus 5.25%. Interest accrues
quarterly with cash interest payments beginning September 2001.
Approximately $5.3 million was outstanding as of the Distribution Date
related to the financing of the 2% origination fee.
(10) Reflects the distribution of all outstanding shares of Leap Common Stock to
QUALCOMM stockholders.
34
<PAGE> 36
(11) Reflects the distribution of 17,647,684 Leap shares to QUALCOMM
stockholders at $0.0001 per share par value based on QUALCOMM Common Stock
outstanding as of September 11, 1998. Such shares reflect the 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 the Trust Preferred
Securities upon conversion of such securities into shares of QUALCOMM
Common Stock and Leap Common Stock.
35
<PAGE> 37
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 Prospectus. 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 Prospectus. 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 Prospectus.
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, NINE MONTHS ENDED YEARS ENDED
1995 (INCEPTION) MAY 31, 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...................... $ (1,328) $ (1,535) $ (139) $ 207 $ --
General and administrative expenses........ (17,945) (16,188) (994) (1,361) (396)
-------- -------- ------- ------- -----
Loss before income taxes................... (19,273) (17,723) (1,133) (1,154) (396)
Income tax expense......................... -- -- -- -- --
-------- -------- ------- ------- -----
Net loss................................... $(19,273) $(17,723) $(1,133) $(1,154) $(396)
======== ======== ======= ======= =====
Unaudited pro forma basic and diluted net
loss per common share.................... $ (1.00) $ (0.07)
======== =======
Shares used in computing unaudited pro
forma basic and diluted net loss per
common share............................. 17,648 17,648
======== =======
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit).................. $ (2,897) $ (279) $(111)
Total assets............................... 57,777 46,267 --
Stockholder's equity....................... 54,880 45,988 (111)
</TABLE>
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<PAGE> 38
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 for the Company, 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
37
<PAGE> 39
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 $1.5 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 consisted 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 $139,000,
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 $16.2 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 consisted primarily of the following: corporate allocations of $5.1
million, consulting and marketing expenses of $4.1 million, project development
expenses of $3.7 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 consisted 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
$207,000, 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
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<PAGE> 40
from the entities' temporary investment of their capital funds prior to being
expended for network build-out, offset by costs incurred prior to service launch
during the network build-out and testing phases. Such costs included 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 consisted 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 consisted 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 a wireless operating company
in Chile. 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 were 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 received $10 million in cash from
QUALCOMM in connection with the Separation and entered 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 within
twelve months 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.
39
<PAGE> 41
Operating Activities
In the first nine months of fiscal 1998, $11.9 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 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 over fifteen months 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 $16.7 million for the first nine
months of fiscal 1998 and $46.0 million for the corresponding period in fiscal
1997. The 1998 activity results from the Company providing $15 million in loans
to certain subsidiaries of Transworld Communications (U.S.A.), Inc. Also, the
Company funded a $1.7 million loan receivable related to a potential business
combination. Investment activity in the corresponding period for fiscal 1997
represented the Company's $42 million investment in preferred voting stock of
Chilesat PCS and the $4.0 million purchase of Series B Common Stock in Chase
Telecommunications, Inc. The Company is expected to have $73.8 million in
outstanding non-cancelable debt commitments to its investments in wireless
operating companies as of the date of the Distribution. Such commitments are
expected to be funded within fifteen months 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 $46.0 million in fiscal
1997. There were no investments in fiscal 1996. The fiscal 1997 investment
consisted of the purchase of $42 million of voting preferred shares representing
a 50% ownership interest in a corporate joint venture, Chilesat PCS and the
investment of $4 million in Chase Telecommunications Inc. in which the Company
holds less than a 7% ownership interest.
Financing Activities
Cash provided by financing activities during the first nine months of
fiscal 1998 and 1997 amounted to $28.6 million and $46.9 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 $47.2 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 entered into a $265.0
million secured Credit Facility pursuant to which it will have access to funds
from QUALCOMM. The Credit Facility consists 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
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<PAGE> 42
contains a financial covenant and operating covenants, including restrictions on
the ability of the Company to 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 has agreed 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 was in compliance with the financial covenant at the
Distribution. In addition, the Credit Facility permits uses of funds only for
specified purposes consistent with approved business plans, restricts the nature
and breadth of the Company's investments and imposes 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; however, there can be no
assurance that the Company will be successful in its efforts to raise the
capital required to fund operations on 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
court ordered protection from 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
41
<PAGE> 43
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.
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 function 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, including Mexico and Russia, significant devaluations
relative to the U.S. dollar have occurred and may occur again in the future. In
such circumstances, the Company may experience economic loss with respect to 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. Russia, Chile and
Mexico, for example, have 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 inflation on their operations. The Company believes risks
associated with
42
<PAGE> 44
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.
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 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,
43
<PAGE> 45
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain 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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<PAGE> 46
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, 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 has been and is expected to 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
are 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.
Leap owns certain joint venture and equity interests (held directly by Leap
or indirectly by companies controlled by Leap) formerly held by QUALCOMM in
Pegaso Telecomunicaciones S.A. de C.V. (Mexico), Metrosvyaz Limited (Russia),
Orrengrove Investments Limited (Russia), 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 and
Leap have also agreed that, if certain events occur within eighteen months after
the Distribution, certain assets and liabilities related to Telesystems of
Ukraine ("TOU"), QUALCOMM's operating company in Ukraine, will be transferred to
Leap. There can be no assurance that such events will occur or that legal
impediments to transfer will be removed, or that QUALCOMM's interest in TOU will
be so transferred.
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 Prospectus,
"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
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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, formerly Vice Chairman of the Board of QUALCOMM and the Company's
President, Chief Executive Officer and Chairman of the Board; Thomas J. Bernard,
formerly Senior Vice President of QUALCOMM, who is the Company's Executive Vice
President; and James E. Hoffmann, formerly 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 within twelve months 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
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<PAGE> 48
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 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
it 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 30, 1998, Chilesat PCS had approximately
3,000 subscribers after two 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"). In
addition, QUALCOMM and Leap have agreed that, if certain events occur within
eighteen months after the Distribution, certain assets and liabilities related
to TOU will be transferred to Leap. There can be no assurance that such events
will occur or that legal impediments to transfer will be removed, or that
QUALCOMM's interest in TOU will ever be transferred to Leap. The Ukrainian
operating company, Telesystems of Ukraine, is scheduled to commence commercial
operation in Kiev in late 1998 and is anticipated to follow with national
coverage. See "Risk Factors -- International Risks -- Doing Business in
Ukraine."
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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/
EXPECTED
EQUITY REAL GDP LICENSED EQUITY TOTAL EQUITY COMMERCIAL
INVESTMENT LOCATION INTEREST PER 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 33%(2) $ 2,947 99.0 48.5(2) N/A N/A Dec 98
Chase Telecommunications,
Inc..................... Tennessee, 6.4% 27,175(3) 6.3 0.4 N/A N/A Sep 98
U.S.A.
Chilesat Telefonia
Personal, S.A.(4)....... Chile 50% 3,229 14.9 7.5 3,000 1,500 Aug 98
EASTERN EUROPE
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) 5.9 5.9 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 thirty-three percent (33%) 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 Telecomunicaciones, S.A. de C.V. is expected to be
diluted to no less than a 25% equity interest through new capital raising
committed prior to the date of this Prospectus, 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
Cayman Islands 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 Man 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 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.
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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 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
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<PAGE> 51
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. 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.
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
equity interests in Russia are examples of the Company's plan to invest in
developing countries 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.
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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. The Company has 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 has committed
approximately $265 million to the Company by way of the Credit Facility. Leap
and QUALCOMM also have entered 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
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.
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LEAP OPERATING COMPANIES
Leap's operating companies consist of joint ventures and other entities
around the world, each of which is described below.
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 interests 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.
In late September 1998, the Company provided a $17.5 million loan (the
"Pegaso Loan") to Pegaso S.A. de C.V., a Mexican company 96%-owned by Alejandro
Burillo Azcarraga, a member of the Company's Board of Directors. The Pegaso Loan
bears interest at the rate of 13% per annum and is repayable in installments of
$7.5 million on or before October 31, 1998 and $10 million on or before December
31, 1998. The purpose of the Pegaso Loan is to facilitate investment by Pegaso
S.A. de C.V. in PEGASO, the joint venture in which the Company has an interest,
and to ensure that all capital contributions required for the acquisition of the
Mexican licenses on September 30, 1998 were made by the respective investors.
The Pegaso Loan is guaranteed by Mr. Burillo and is secured by a pledge of all
of the shares of Pegaso S.A. de C.V. and Mr. Burillo's interest in an unrelated
joint venture with QUALCOMM to operate a satellite tracking, management and
two-way communications systems for the trucking industry in Mexico.
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Leap Rights and Interests. Leap, through a wholly-owned subsidiary,
currently owns a 33% interest in PEGASO and has invested $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 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
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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.
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. One of the Transworld
Companies, through a subsidiary, intends to implement a long distance network in
Russia consisting of earth stations deployed in various regions of Russia. The
long distance network has been designed to work in conjunction with satellite
services being provided by another Transworld Company to Tass Loutch Telecom.
This network is intended to be used by Tass Loutch Telecom to offer long
distance and international telephone services in Russia to local operators.
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.
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Strategic Partners. The 50% of Metrosvyaz and the 50% of Orrengrove not
owned by the respective QUALCOMMTel organizations are owned by Teletal Limited,
a holding company affiliated with 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 Teletal Limited. 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
Teletal Limited. In each of Metrosvyaz and Orrengrove, the parent company has a
right to elect four of nine Directors with Teletal Limited also having a right
to elect four Directors. The ninth director will be jointly elected by the
respective QUALCOMMTel entity and Teletal Limited. 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 play a significant role in 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) have invested 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 Teletal
Limited 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. Approximately $44 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.
There can be no assurance that either Metrosvyaz or 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
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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.
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 November 1998. Chilesat PCS began limited commercial
operation in July 1998 and has approximately 3,000 subscribers as of August 30,
1998. Chilesat expects to have approximately 20,000 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.
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.
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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 has
launched service in Chattanooga and is the first PCS provider in the Chattanooga
area. Chase has also begun design of its Nashville, Knoxville and Memphis
networks and, if suitable additional financing can be obtained, 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
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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.
Leap Rights and Interests. Leap holds a 6.4% interest in Chase. 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 $22 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 approximately 5.6% 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, if it is successful in completing
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 senior unsecured notes 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 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 ten 800MHz
licenses covering approximately 5.9 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.
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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
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. Leap has entered into a contract to acquire F
Block licenses to operate wireless telecommunications systems in four BTAs in
North Carolina, and the Company is currently exploring opportunities to acquire
other spectrum for this venture. The Company 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 or 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 either directly or through a subsidiary in
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which Leap initially holds at least 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 it or 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.
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
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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.
TELESYSTEMS OF UKRAINE
Under the Separation and Distribution Agreement, QUALCOMM and Leap have
agreed that, if certain events occur within eighteen months after the
Distribution, certain assets and liabilities related to QUALCOMM's operating
company in Ukraine, Telesystems of Ukraine ("TOU"), will be transferred to Leap.
There can be no assurance that such events will occur or that legal impediments
to transfer will be removed, or that QUALCOMM's interest in TOU will ever be
transferred to Leap. Set forth below is a description of the interest in TOU
Leap may acquire, and of TOU itself.
General. In the event QUALCOMM transfers TOU to Leap, Leap will hold up to
a 49% participation interest in 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.
TOU currently is in the process of deploying 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
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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. In the event QUALCOMM transfers TOU to Leap, the
Company's partners will 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. QUALCOMM and Rhuta-Farm currently 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. In the event QUALCOMM transfers TOU to Leap,
Leap will have up to 49% of the voting rights of TOU, though by contract Leap
would also have the right to elect the majority of TOU's board of directors.
Leap would also have the right to appoint many of the operating officers of the
company. Leap would play 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. In the event QUALCOMM transfers TOU to Leap, 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 and/or QUALCOMM. The partners in TOU contributed
approximately $150,000 in equity to the venture. In addition, as of June 29,
1998, QUALCOMM 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 if transferred to
Leap would provide 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 up to
$70 million of equipment financing for a full country build-out and may 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 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
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telecommunication venture to a foreign partner until the foreign partner has
been repaid its investment. Leap would proceed 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.
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
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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.
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.
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EMPLOYEES
The Company has approximately 50 full time employees, excluding employees
of the Leap Operating Companies. It also has consultants under contract to work
on specific projects.
FACILITIES
The Company has leased approximately 50,000 square feet of office space 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
The following table sets forth information concerning the directors and
executive officers of the Company:
<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 Willardson.................... 47 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, served as Vice Chairman
of the Board of QUALCOMM from June 1998 to September 1998. From May 1992 until
June 1998 he served as President of QUALCOMM and from February 1994 to August
1995 as Chief Operating Officer of QUALCOMM. Prior to May 1992 he was Executive
Vice President and Chief 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 Telecommunications
Division, Western Operations. Mr. Bernard served on the Board of Directors of
Sigma Circuits, Inc., a circuit board manufacturing company, from April 1995 to
July 1998.
James E. Hoffmann served as Vice President, Legal Counsel of QUALCOMM from
June 1998 to September 1998. From February 1995 until June 1998, he served as
Vice President of QUALCOMM and Division Counsel for the Infrastructure Products
Division, having joined QUALCOMM as Senior Legal Counsel in June 1993. Prior to
joining QUALCOMM, Mr. Hoffmann was a partner in the law firm of Gray, Cary, Ames
& Frye, where he practiced transactional corporate law. He holds a B.S. degree
from the United States Naval Academy, an M.B.A. degree from Golden Gate
University and a J.D. degree from University of California, Hastings College of
the Law.
Daniel O. Pegg served as Senior Vice President, Public Affairs of QUALCOMM
from March 1997 to September 1998. Prior to joining QUALCOMM, Mr. Pegg was
President and Chief Executive Officer of the San Diego Economic Development
Corporation for 14 years. Mr. Pegg served on the Board of Directors of
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Gensia Pharmaceuticals from 1986 to 1996. Mr. Pegg holds a B.A. degree from
California State University at Los Angeles.
Leonard C. Stephens served as Vice President, Human Resources Operations
for QUALCOMM from December 1995 to September 1998. Prior to joining QUALCOMM,
Mr. Stephens was employed by Pfizer Inc., where he served in a number of human
resources positions over a 14 year career. He holds a B.A. degree in Political
Science from Howard University.
Tom Willardson joined QUALCOMM in July 1998 to serve as Senior Vice
President, Finance and Treasurer of the Company. From July 1995 to July 1998,
Mr. Willardson was Vice President and Associate Managing Director of Bechtel
Enterprises, Inc., a wholly-owned investment and development subsidiary of
Bechtel Group, Inc. From January 1986 to July 1995, Mr. Willardson served as a
principal at The Fremont Group, an investment company. Mr. Willardson was
re-elected in June 1998 to serve as a Director of Cost Plus, Inc. where he has
served as a Director since March 1991. He holds an M.B.A. degree from the
University of Southern California and a B.S. degree 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, an 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 a Director and a principal Loral executive responsible for
Loral's satellite manufacturing joint venture with Alcatel, Aerospatiale, Alenia
and Daimler Benz Aerospace. Mr. Targoff was also the President and is a Director
of Globalstar Telecommunications Limited, the company that is the public owner
of Globalstar, Loral's global mobile satellite system. Mr. Targoff is also a
Director of 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 Willkie Farr and Gallagher. Mr.
Targoff attended Brown University where he received a B.A. degree in 1966. From
Columbia University School of Law, he earned a J.D. degree in 1969 and was a
Hamilton Fisk Scholar and Editor of the Columbia Journal of Law and Social
Problems.
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 provides 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 terms
of the Class I, Class II and Class III directors will expire initially in 1999,
2000 and 2001, respectively. Messrs. Hoffmann and Targoff are Class I directors,
Messrs. Bernard and Burillo are Class II directors, and Messrs. White and
Williams are Class III directors. At each annual meeting of the stockholders of
the Company, the successors to the 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."
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COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has established 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 members of the Audit Committee are Messrs. Targoff and
Williams.
The Compensation Committee will review management compensation programs,
approve compensation changes for senior executive officers, review compensation
changes for senior management, and administer management stock plans. The
members of the Compensation Committee are Messrs. Burillo, Targoff and Williams.
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."
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. The base annual salary for the individuals
listed below as officers of Leap is 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.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
---------------------------------------- LONG-TERM
OTHER COMPENSATION
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.................. 1998 $480,373 (3) $ 0 75,000 $91,822
Chairman of the Board, 1997 $395,713 $250,000 $ 0 0 $37,011
Chief Executive Officer and 1996 $354,963 $100,000 $ 0 85,000 $34,437
President
Thomas J. Bernard................ 1998 $287,509 (3) $ 0 0 $34,545
Executive Vice President and 1997 $245,142 $ 65,000 $ 0 0 $ 6,086
Director 1996 $186,976 $ 40,000 $ 0 60,000 $ 0
James E. Hoffmann................ 1998 $178,930 (3) $ 0 4,000 $13,899
Senior Vice President, General 1997 $149,283 $ 50,000 $ 0 3,000 $10,048
Counsel, Secretary and Director 1996 $131,646 $ 20,000 $ 0 4,000 $ 9,418
Leonard C. Stephens.............. 1998 $176,930 (3) $104,947 6,000 $ 2,258
Senior Vice President, Human 1997 $146,828 $ 45,000 $ 42,268 3,000 $ 1,816
Resources 1996 $112,711 $ 25,000 $ 43,644 15,000 $ 0
Daniel O. Pegg................... 1998 $209,868 (3) $ 0 0 $41,475
Senior Vice President, Public 1997 $111,174(4) $ 55,000 $ 0 50,000 $ 3,463
Affairs 1996 $ 0 $ 0 $ 0 0 $ 0
</TABLE>
- ---------------
(1) As permitted by rules established by the Commission, no amounts are shown
with respect to certain "perquisites" where such amounts do not exceed the
lesser of either $50,000 or 10% of the total of annual salary and bonus.
(2) In December 1995, Leonard C. Stephens joined QUALCOMM as Vice President of
Human Resources. The Company made payments related to his relocation as
shown above and in the 1998 fiscal year reimbursed Mr. Stephens in the
amount of $50,705 for the income taxes arising from the relocation payment
in such year.
(3) Bonus for the 1998 fiscal year has not yet been determined.
(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:
<TABLE>
<CAPTION>
QUALCOMM TOTAL
MATCHING EXECUTIVE EXECUTIVE FINANCIAL OTHER
401(K) BENEFITS RETIREMENT PLANNING COMPEN-
NAME YEAR CONTRIBUTIONS PAYMENTS CONTRIBUTIONS(1) SERVICES SATION
---- ---- ------------- --------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White............ 1998 $ 2,313 $2,520 $48,919 $38,070 $91,822
1997 $ 2,145 $2,520 $32,346 $ 0 $37,011
1996 $ 2,191 $2,520 $29,726 $ 0 $34,437
Thomas J. Bernard.......... 1998 $ 2,659 $4,270 $26,532 $ 1,084 $34,545
1997 $ 1,816 $4,270 $ 0 $ 0 $ 6,086
1996 $ 0 $ 0 $ 0 $ 0 $ 0
James E. Hoffmann.......... 1998 $ 2,659 $ 0 $ 8,916 $ 2,324 $13,899
1997 $ 2,145 $ 0 $ 7,903 $ 0 $10,048
1996 $ 2,191 $ 0 $ 7,227 $ 0 $ 9,418
Leonard C. Stephens........ 1998 $ 2,258 $ 0 $ 0 $ 0 $ 2,258
1997 $ 1,816 $ 0 $ 0 $ 0 $ 1,816
1996 $ 0 $ 0 $ 0 $ 0 $ 0
Daniel O. Pegg............. 1998 $14,048 $4,475 $ 9,174 $14,048 $41,745
1997 $ 0 $ 0 $ 3,463 $ 0 $ 3,463
1996 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
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<PAGE> 71
- ---------------
(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.
As part of the Distribution, the Company assumed QUALCOMM's obligation to
pay premiums under an existing split dollar life insurance policy for the
benefit of Harvey P. White and his wife. The initial annual premiums are
approximately $590,000, and the policy's death benefit is initially $9,800,000.
Upon the death of the second to die of Mr. White and his wife, the Company will
receive out of the policy's proceeds a full reimbursement of any premiums paid
under the policy.
The 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 fiscal 1998:
QUALCOMM OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO OPTION 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......... 4,000 0.07% $64.18 12/04/07 $ 161,393.93 $ 408,971.71
Leonard C. Stephens....... 6,000 0.10% $64.18 12/04/07 $ 242,090.90 $ 613,457.57
Harvey P. White........... 75,000 1.23% $62.35 11/13/07 $2,939,850.37 $7,449,571.43
</TABLE>
- ---------------
(1) 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> 72
Leap was not an independent public company as of the end of its 1998 fiscal
year and, accordingly, the following table sets forth for each Named Executive
Officer the specified information with respect to grants of options to purchase
Leap Common Stock ("Leap Options") as of September 27, 1998, the end of
QUALCOMM's 1998 fiscal year.
LEAP OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM(1)
GRANTED EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME (#) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White............ 36,000(2) 19.50% $2.59 07/05/03 $108,136.36 $158,294.34
15,000(3) 8.12% 2.42 01/26/05 54,249.78 85,326.07
21,250(4) 11.31% 4.06 07/11/06 51,439.97 111,656.26
18,750(5) 10.16% 5.59 11/13/07 24,926.15 93,670.26
Thomas J. Bernard.......... 7,500(6) 4.06% 3.56 01/04/06 20,699.04 39,811.15
7,500(7) 4.06% 4.06 07/11/06 18,155.28 39,407.74
James E. Hoffmann.......... 4,000(8) 2.17% 2.08 06/10/03 13,980.50 19,446.41
1,250(9) 0.68% 2.43 10/06/04 4,396.19 6,805.88
1,000(10) 0.34% 3.44 12/07/05 2,856.26 5,363.55
750(11) 0.41% 3.49 12/12/06 2,344.12 4,654.92
1,000(12) 0.34% 5.75 12/04/07 1,168.85 4,893.95
Daniel O. Pegg............. 12,500(13) 6.77% 5.28 03/08/07 17,627.44 57,894.94
Leonard C. Stephens........ 3,750(14) 2.03% 3.44 12/07/05 10,710.98 20,113.32
750(15) 0.41% 3.49 12/12/06 2,344.12 4,654.92
1,500(16) 0.81% 5.75 12/04/07 1,793.27 7,340.93
</TABLE>
- ---------------
(1) Calculated on the assumption that the market value of the underlying stock
increases at the stated values, compounded annually. Options granted under
the Company's 1998 Stock Option Plan generally have a maximum term of ten
years, however, Leap Options granted in connection with the Distribution in
respect of outstanding QUALCOMM Options have a remaining term equal to the
corresponding QUALCOMM Option.
(2) Options became fully-exercisable on 9/23/98.
(3) Options vest as follows: 6,000 shares on date of grant; 3,000 shares on
1/27/99; and 6,000 shares on 1/27/00.
(4) Options vest as follows: 8,500 shares on date of grant and 4,250 shares per
year thereafter beginning on 7/12/99.
(5) Options vest as follows: 3,750 shares per year beginning on 11/14/98.
(6) Options vest as follows: 1,500 shares on date of grant; 1,500 shares on
1/5/99; 1,500 shares on 1/5/00; and 3,000 shares on 1/5/01.
(7) Options vest as follows: 3,000 shares on date of grant and 1,500 shares per
year thereafter beginning on 7/12/99.
(8) Options became fully-exercisable on 9/23/98.
(9) Options vest as follows: 500 shares on date of grant; 250 shares on
10/7/98; and 500 shares on 10/7/99.
(10) Options vest as follows: 200 shares on date of grant; 200 shares on each of
12/8/98 and 12/8/99; and 400 shares on 12/8/00.
(11) Options vest as follows: 150 shares on date of grant and 150 shares per
year thereafter beginning on 12/13/98.
(12) Options vest as follows: 200 shares per year beginning on 12/5/98.
(13) Options vest as follows: 2,500 shares on date of grant and 2,500 shares per
year thereafter beginning on 3/7/99.
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<PAGE> 73
(14) Options vest as follows: 750 shares on date of grant; 750 shares on each of
12/8/98 and 12/8/99; and 1,500 shares on 12/8/00.
(15) Options vest as follows: 150 shares on date of grant and 150 shares per
year thereafter beginning on 12/13/98.
(16) Options vest as follows: 300 shares per year beginning on 12/5/98.
The following table shows for each Named Executive Officer the specified
information with respect to exercises of QUALCOMM Options during fiscal 1998 and
the value of unexercised options at the end of fiscal 1998.
QUALCOMM 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................ 6,000 $132,540 202,000 162,000 $3,950,860 $1,154,850
Thomas J. Bernard.............. 0 $ 0 18,000 42,000 $ 136,500 $ 374,700
James E. Hoffmann.............. 0 $ 0 19,400 12,600 $ 509,560 $ 141,310
Daniel O. Pegg................. 0 $ 0 10,000 40,000 $ 0 $ 0
Leonard C. Stephens............ 0 $ 0 3,600 20,400 $ 45,276 $ 181,104
</TABLE>
- ---------------
(1) Represents the closing price per share of the underlying shares on the last
day of the fiscal year less the option exercise price multiplied by the
number of shares. The closing value per share was $51.00 on the last trading
day of the fiscal year as reported on the Nasdaq National Market.
Leap was not an independent public company as of the end of its 1998 fiscal
year and, accordingly, the following table sets forth for each Named Executive
Officer the specified information with respect to Leap Options as of September
27, 1998, the end of QUALCOMM's 1998 fiscal year.
LEAP AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END OPTIONS AT FY-END
SHARES VALUE (#) ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White................... 0 $0 50,500 40,500 $249,105 $135,518
Thomas J. Bernard................. 0 $0 4,500 10,500 $ 17,355 $ 41,745
James E. Hoffmann................. 0 $0 4,850 3,150 $ 26,841 $ 11,994
Daniel O. Pegg.................... 0 $0 2,500 10,000 $ 6,175 $ 24,700
Leonard C. Stephens............... 0 $0 900 5,100 $ 3,872 $ 18,486
</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 $7.75 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
72
<PAGE> 74
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 5,542,740 shares
were granted to holders of outstanding QUALCOMM Options immediately prior to the
Distribution (the "Distribution Options") and 2,457,260 shares will be available
for future grants.
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 "Federal Income 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 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
Compensation Committee of the Board. As used herein with respect to the Option
Plan, the "Board" refers to the Compensation 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
73
<PAGE> 75
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.
In connection with the Distribution, the Company made grants of options
under the Option Plan to the Named Executive Officers in respect of their
outstanding QUALCOMM Options, as follows: Mr. White, 91,000 options, of which
50,500 options are immediately exercisable; Mr. Bernard, 15,000 options, of
which 4,500 options are immediately exercisable; Mr. Hoffmann, 8,000 options, of
which 4,850 options are immediately exercisable; Mr. Pegg, 12,500 options, of
which 2,500 options are immediately exercisable; and Mr. Stephens, 6,000
options, of which 900 are immediately exercisable. Each of these individuals
will be eligible to receive grants of additional options under the Option Plan
in the future, at the discretion of the Compensation Committee.
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.
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
74
<PAGE> 76
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 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").
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<PAGE> 77
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.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term or short-term depending on how long the optionee holds
the stock. Capital gains are generally subject to lower tax rates than ordinary
income. Slightly different rules may apply to optionees who are subject to
Section 16 of the Exchange Act or who acquire stock subject to certain
repurchase options.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, Code Section 162(m) and the satisfaction of a
tax reporting obligation) to a corresponding business expense deduction in the
tax year in which the disqualifying disposition occurs.
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, Code Section 162(m) 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 twelve (12) months or (ii) short-term if the stock was held twelve
(12) months or less. 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. Code Section 162(m) 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 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
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<PAGE> 78
Compensation Committee) of an objective performance goal established by the
compensation committee while the outcome is substantially uncertain and approved
by the stockholders.
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 has delegated
administration of the Purchase Plan to the Compensation Committee 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 at any time revest in the Board the administration of the Purchase Plan.
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 ninety
days and is customarily employed at least twenty hours per week and five months
per calendar year by the Company (or by any
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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 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.
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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 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.
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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 more than two years after the beginning of the
offering period and more than 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) the excess
of the fair market value of the stock as of the beginning of the offering period
over the purchase price (determined as of the beginning 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 twelve (12)
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 purchase date over the purchase 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 twelve (12) months or (ii) 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 purchase 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 purchase 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 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 "Federal Income Tax Information" for
a discussion of the tax treatment of non-qualified stock options.
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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 has delegated administration of the Directors' Plan to the
Compensation Committee 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"). Upon the Distribution Date, Messrs. Burillo, Targoff
and Williams each received a grant of an option to purchase 20,000 shares of the
Company's Common Stock under the Directors' Plan.
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.
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
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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 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
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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, Code Section
162(m) 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 twelve (12) months or
(ii) short-term if the stock was not held for 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.
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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. QUALCOMM has a significant
relationship with the Company as a result of the agreements entered into by
QUALCOMM and the Company in connection with the Distribution, and due to
QUALCOMM's 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."
In late September 1998, the Company provided a $17.5 million loan (the
"Pegaso Loan") to Pegaso S.A. de C.V., a Mexican company 96%-owned by Alejandro
Burillo Azcarraga, a member of the Company's Board of Directors. The Pegaso Loan
bears interest at the rate of 13% per annum and is repayable in installments of
$7.5 million on or before October 31, 1998 and $10 million on or before December
31, 1998. The purpose of the Pegaso Loan is to facilitate investment by Pegaso
S.A. de C.V. in PEGASO, the joint venture in which the Company has an interest,
and to ensure that all capital contributions required for the acquisition of the
Mexican licenses on September 30, 1998 were made by the respective investors.
The Pegaso Loan is guaranteed by Mr. Burillo and is secured by a pledge of all
of the shares of Pegaso S.A. de C.V. and Mr. Burillo's interest in an unrelated
joint venture with QUALCOMM to operate a satellite tracking, management and
two-way communications systems for the trucking industry in Mexico.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Leap Common
Stock as of October 9, 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 Named 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)................................ 319,263 1.8%
Thomas J. Bernard(5)(6)(7).............................. 7,994 *
James E. Hoffmann(5)(6)................................. 10,198 *
Daniel O. Pegg(5)(6)(8)................................. 8,110 *
Leonard C. Stephens(5)(6)............................... 1,967 *
Alejandro Burillo Azcarraga............................. 0 *
Michael B. Targoff...................................... 0 *
Jeffrey P. Williams..................................... 0 *
All Officers and Directors as a group (9 persons)....... 347,532 2.0%
</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 and has a business address care of Leap Wireless
International, Inc., 10307 Pacific Center Court, San Diego, California
92121. Applicable percentages are based on 17,647,684 shares of Leap Common
Stock outstanding, adjusted as required by rules promulgated by the
Commission.
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(2) In addition to shares held in the individual's sole name, this column
includes shares held by the spouse and other members of the named person's
immediate household who share that household with the named person, and
shares held in family trusts.
(3) Consists entirely of a Warrant to purchase shares of Leap Common Stock,
fully exercisable immediately, which expires 10 years following the
Distribution. QUALCOMM Incorporated's business address is 6455 Lusk Blvd.,
San Diego, California 92121.
(4) Includes 2,500 shares held in a foundation of which Mr. White disclaims
beneficial ownership. Also includes 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 October 9, 1998 as follows: Mr. Bernard, 7,250 shares (including 2,750
shares subject to options held by Mr. Bernard's wife); Mr. Hoffmann, 5,500
shares; Mr. Pegg, 2,500; Mr. Stephens, 1,950; and Mr. White, 54,250 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 October 9, 1998 in the
following amounts: Mr. Bernard, 29,000 shares (including 11,000 shares
subject to options held by Mr. Bernard's wife); Mr. Hoffmann, 22,000 shares;
Mr. Pegg, 10,000; Mr. Stephens, 7,800; and Mr. White, 217,000 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,
25 shares held in a custodial account for the benefit of Mr. Pegg's spouse
and 500 shares held by Mr. Pegg's minor son.
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 85 million,
consisting of 10 million shares of preferred stock, par value $0.0001 per share
("Preferred Stock") and 75 million shares of Leap Common Stock.
COMMON STOCK
As of October 9, 1998, the Company had 17,648,386 shares of Common Stock
outstanding. The holders of Leap Common Stock are entitled to one vote for each
share on all matters voted on by stockholders, and the holders of such shares
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 is 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.
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
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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 9, 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 10, 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 $90.00 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
In connection with the Distribution, the Company issued a Warrant to
purchase 5,500,000 shares of Leap Common Stock (the "Warrant") to QUALCOMM at an
exercise price of $6.10625 per share. The Warrant is exercisable during the ten
(10) years following the Distribution. Upon exercise in full of the Warrant,
QUALCOMM would hold approximately 18% of the outstanding Leap Common Stock,
assuming exercise of all outstanding options and convertible securities.
LEAP COMMON STOCK RESERVED FOR ISSUANCE
QUALCOMM holds the Warrant, which is immediately exercisable and entitles
QUALCOMM to purchase 5,500,000 shares of Leap Common Stock at a purchase price
of $6.10625 per share of Leap Common Stock. In addition, based on the number of
QUALCOMM Options outstanding on September 11, 1998, options to purchase a total
of approximately 5,542,740 shares of Leap Common Stock were granted in
connection with the Distribution to QUALCOMM option holders. In addition to the
Leap Options granted to QUALCOMM option holders who continued as employees of
Leap after the Distribution, Leap intends to grant stock options to purchase
Leap Common Stock 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 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 2,957,260 shares of Common Stock 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 Preferred Securities convertible into QUALCOMM Common Stock
are convertible into an aggregate 2,271,060 shares of Leap Common Stock. As a
result, collectively, 16,471,060 shares of Leap Common Stock were 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
86
<PAGE> 88
connection with the Distribution, each outstanding share of Leap Common Stock
was 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 also issued 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 is 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.
DESCRIPTION OF RIGHTS AGREEMENT
On September 9, 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 14, 1998 between the Company and
Harris Trust Company of California (the "Rights Agreement"), a form of which is
filed as an exhibit to the Company's Registration Statement on Form S-1, of
which this Prospectus 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 11, 1998. Each Right will entitle the registered holder
thereof, after the Rights become exercisable and until September 10, 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 $90.00 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
87
<PAGE> 89
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 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.
88
<PAGE> 90
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.
The Rights will expire on September 10, 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 11, 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.
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 Bylaws, individual
indemnification agreements with the Company 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.
89
<PAGE> 91
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 Bylaws generally provide for mandatory indemnification of the
Company's directors and officers to the full extent provided by Delaware
corporate law. In addition, the Company intends to enter into indemnification
agreements with its directors and officers which generally provide for mandatory
indemnification under circumstances for which indemnification would otherwise be
discretionary under Delaware 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
Bylaws.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time. As of October
9, 1998, the Company had outstanding 17,648,386 shares of Common Stock. Of these
shares, 17,559,800 shares will generally be freely tradable without restriction
or further registration under the Securities Act and 88,586 shares will
generally be freely tradeable without further registration under the Securities
Act, subject to the volume and other restrictions under Rule 144. In addition,
as of September 23, 1998, holders of vested options to purchase approximately
1,488,149 shares of Common Stock will be able to sell without restriction
pursuant to a Form S-8 registration statement filed with respect to such shares.
Future sales of shares by existing stockholders could have an adverse effect on
the market price of the Common Stock or otherwise impair the Company's ability
to raise additional capital. See "Description of Capital Stock."
The Company has filed registration statements under the Securities Act
covering shares of Common Stock reserved for issuance under the Company's stock
option plans. Such registration statements cover approximately 8,700,000 shares.
Shares registered under such registration statements will, subject to Rule 144
volume limitations applicable to Affiliates, be available for sale in the open
market.
90
<PAGE> 92
EXPERTS
The combined financial statements as of August 31, 1997 and 1996 and for
each of the two years in the period ended August 31, 1997 and for the period
from September 1, 1995 (inception) to August 31, 1997 of Leap Wireless
International, Inc. and the combined consolidated financial statements as of
December 31, 1997 and 1996 and for each of the two years in the period ended
December 31, 1997 and for the period from June 25, 1990 (inception) to December
31, 1997 of the Transworld Companies included in this Registration Statement
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements as of December 31, 1997 and for the period from
March 3, 1997 (inception) to December 31, 1997 of Chilesat Telefonia Personal
S.A. included in this Registration Statement have been so included in reliance
on the report of Price Waterhouse, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Leap Common Stock
will be passed upon for the Company by Latham & Watkins, San Diego, California.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement," which term shall include any amendments or
supplements thereto) under the Securities with respect to the shares offered
hereby. This Prospectus 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.
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.
91
<PAGE> 93
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
Combined Balance Sheets at August 31, 1997 and 1996....... F-11
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-12
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-13
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-14
Notes to Combined Financial Statements.................... F-15
CHILESAT TELEFONIA PERSONAL S.A. (A COMPANY IN THE
DEVELOPMENT STAGE)
Financial Statements:
Report of Price Waterhouse, Independent Accountants....... F-25
Balance Sheet at December 31, 1997........................ F-26
Statement of Income for the period from inception (March
3, 1997) to December 31, 1997.......................... F-27
Statement of Cash Flows for the period from inception
(March 3, 1997) to December 31, 1997................... F-28
Statement of Shareholders' Equity for the period from
inception (March 3, 1997) to December 31, 1997......... F-29
Notes to Financial Statements............................. F-30
TRANSWORLD COMPANIES (ENTITIES IN THE DEVELOPMENT STAGE)
Combined Consolidated Financial Statements:
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................ F-40
Combined Consolidated Balance Sheets at December 31, 1997
and 1996 and at June 30, 1998 (unaudited).............. F-41
Combined Consolidated Statements of Operations for the
years ended December 31, 1997 and 1996 and for the
period from June 25, 1990 (inception) to December 31,
1997 and for the six months ended June 30, 1998 and
1997 and for the period from June 25, 1990 (inception)
to June 30, 1998 (unaudited)........................... F-42
Combined Consolidated Statements of Cash Flows for the six
months ended June 30, 1998 and 1997 and for the period
from June 25, 1990 (inception) to June 30, 1998
(unaudited) and for the years ended December 31, 1997
and 1996 and for the period from June 25, 1990
(inception) to December 31, 1997....................... F-43
Combined Consolidated Statements of Stockholder's Equity
for the period from June 25, 1990 (inception) to
December 31, 1998 and for the period from June 25, 1990
to June 30, 1998 (unaudited)........................... F-44
Notes to Combined Consolidated Financial Statements....... F-45
</TABLE>
F-1
<PAGE> 94
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MAY 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $ --
Loans receivable............................................ 15,000
Investments in wireless operating companies................. 42,777
--------
Total assets...................................... $ 57,777
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities.................... $ 2,897
--------
Commitments (Note 4)
Stockholder's equity:
Parent's investment....................................... 76,048
Deficit accumulated during the development stage.......... (19,273)
Cumulative translation adjustment......................... (1,895)
--------
Total stockholder's equity........................ 54,880
--------
Total liabilities and stockholder's equity........ $ 57,777
========
</TABLE>
See accompanying notes.
F-2
<PAGE> 95
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE PERIOD FROM
MAY 31, SEPTEMBER 1, 1995
------------------- (INCEPTION)
1998 1997 TO MAY 31, 1998
-------- ------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Equity in net losses of wireless operating
companies........................................... $ (1,535) $ (139) $ (1,328)
General and administrative expenses................... (16,188) (994) (17,945)
-------- ------- --------
Loss before income taxes.............................. (17,723) (1,133) (19,273)
Income tax expense.................................... -- -- --
-------- ------- --------
Net loss.............................................. $(17,723) $(1,133) $(19,273)
======== ======= ========
Unaudited proforma basic and diluted net loss per
common share (Note 1)............................... $ (1.00)
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 96
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE PERIOD FROM
MAY 31, SEPTEMBER 1, 1995
-------------------- (INCEPTION)
1998 1997 TO MAY 31, 1998
-------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net loss........................................... $(17,723) $ (1,133) $(19,273)
Equity in net losses of wireless operating
companies....................................... 1,535 139 1,328
Provision for bad debt............................. 1,700 -- 1,700
Change in accounts payable and accrued
liabilities..................................... 2,618 98 2,897
-------- -------- --------
Net cash used in operating activities................ (11,870) (896) (13,348)
-------- -------- --------
Investing activities:
Investments in wireless operating companies........ -- (46,000) (46,000)
Issuance of loans receivable....................... (16,700) -- (16,700)
-------- -------- --------
Net cash used in investing activities................ (16,700) (46,000) (62,700)
-------- -------- --------
Financing activities:
Parent's investment................................ 28,570 46,896 76,048
-------- -------- --------
Net cash provided by financing activities............ 28,570 46,896 76,048
-------- -------- --------
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> 97
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
PARENT'S ACCUMULATED TRANSLATION
INVESTMENT DEFICIT ADJUSTMENT TOTAL
---------- ----------- ----------- --------
(IN THOUSANDS)
<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....................... 47,193 -- -- 47,193
Net loss...................................... (1,154) -- (1,154)
Cumulative translation adjustment............. -- 60 60
------- -------- ------- --------
Balance at August 31, 1997.................... 47,478 (1,550) 60 45,988
Transfers from QUALCOMM....................... 28,570 -- -- 28,570
Net loss...................................... -- (17,723) -- (17,723)
Cumulative translation adjustment............. -- -- (1,955) (1,955)
------- -------- ------- --------
Balance at May 31, 1998....................... $76,048 $(19,273) $(1,895) $ 54,880
======= ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 98
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 intends to enter 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 23, 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
F-6
<PAGE> 99
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
covered by the financial statements, such joint venture and equity interests
were directly or indirectly 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. 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
$17,723,000 by the 17,647,684 shares of common stock of the Company issued upon
the Distribution based on QUALCOMM shares outstanding as of September 11, 1998.
Such shares reflect the 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 5,542,740 shares, the
conversion of QUALCOMM's Trust Convertible Preferred Securities which are
convertible into shares of QUALCOMM and 2,271,060 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> 100
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 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.
NOTE 2. INVESTMENTS IN WIRELESS OPERATING COMPANIES
The Company's investments in wireless operating companies consist of the
following (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1998
------------
<S> <C>
Investment at equity.................................... $38,777
Investment at cost...................................... 4,000
-------
$42,777
=======
</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.
The Company is a 70% common owner in QUALCOMM Telecommunications, Ltd.
("QUALCOMMTel"), a Cayman Islands Corporation. In 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.
F-8
<PAGE> 101
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
In May 1998, the Company provided $15 million in loans to certain
subsidiaries of Transworld Communications (U.S.A.), Inc. ("TWC"). In August
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 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 financial information for the wireless operating company
accounted for under the equity method is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1998
------------
<S> <C>
Condensed Balance Sheet Information:
Current assets........................................ $17,020
Non-current assets.................................... 92,212
Current liabilities................................... 12,731
Non-current liabilities............................... 58,981
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, 1998 MAY 31, 1997
------------ ------------
<S> <C> <C>
Condensed Statement of Operations
Information:
Operating expenses......................... $(2,671) $(279)
Net losses................................. (3,069) (278)
</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> 102
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Leap Wireless International, Inc.
In our opinion, 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 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 provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Diego, California
June 29, 1998
F-10
<PAGE> 103
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
----------------
1997 1996
------- -----
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ -- $ --
Investments in wireless operating companies................. 46,267 --
------- -----
Total assets...................................... $46,267 $ --
======= =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities.................... $ 279 $ 111
------- -----
Commitments (Note 5)
Stockholder's equity:
Parent's investment....................................... 47,478 285
Deficit accumulated during the development stage.......... (1,550) (396)
Cumulative translation adjustment......................... 60 --
------- -----
Total stockholder's equity........................ 45,988 (111)
------- -----
Total liabilities and stockholder's equity........ $46,267 $ --
======= =====
</TABLE>
See accompanying notes.
F-11
<PAGE> 104
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED FOR THE PERIOD
AUGUST 31, FROM SEPTEMBER 1, 1995
---------------- (INCEPTION)
1997 1996 TO AUGUST 31, 1997
------- ----- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Equity in net earnings of wireless operating
companies........................................... $ 207 $ -- $ 207
General and administrative expenses................... (1,361) (396) (1,757)
------- ----- -------
Loss before income taxes.............................. (1,154) (396) (1,550)
Income tax expense.................................... -- -- --
------- ----- -------
Net loss.............................................. $(1,154) $(396) $(1,550)
======= ===== =======
Unaudited pro forma basic and diluted net loss per
common share (Note 1)............................... $ (0.07)
=======
</TABLE>
See accompanying notes.
F-12
<PAGE> 105
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED FOR THE PERIOD
AUGUST 31, FROM SEPTEMBER 1, 1995
----------------- (INCEPTION)
1997 1996 TO AUGUST 31, 1997
-------- ----- ----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net loss........................................... $ (1,154) $(396) $ (1,550)
Equity in net earnings of wireless operating
companies....................................... (207) -- (207)
Change in accounts payable and accrued
liabilities..................................... 168 111 279
-------- ----- --------
Net cash used in operating activities................ (1,193) (285) (1,478)
-------- ----- --------
Investing activities:
Investments in wireless operating companies........ (46,000) -- (46,000)
-------- ----- --------
Net cash used in investing activities................ (46,000) -- (46,000)
-------- ----- --------
Financing activities:
Parent's investment................................ 47,193 285 47,478
-------- ----- --------
Net cash provided by financing activities............ 47,193 285 47,478
-------- ----- --------
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-13
<PAGE> 106
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
PARENT'S ACCUMULATED TRANSLATION
INVESTMENT DEFICIT ADJUSTMENT TOTAL
---------- ----------- ------------ -------
(IN THOUSANDS)
<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........................ 47,193 -- -- 47,193
Net loss....................................... -- (1,154) -- (1,154)
Cumulative translation adjustment.............. -- -- 60 60
------- ------- --- -------
Balance at August 31, 1997..................... $47,478 $(1,550) $60 $45,988
======= ======= === =======
</TABLE>
See accompanying notes.
F-14
<PAGE> 107
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 23, 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 Company's costs and expenses to
QUALCOMM's costs and expenses. Management believes these allocations
F-15
<PAGE> 108
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-16
<PAGE> 109
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 investments in corporate entities in which it has voting
interest of 20% to 50% or in which it otherwise exercises significant influence
and for ownership interests in partnerships. Under the equity method, the
investment is originally recorded at cost and adjusted
F-17
<PAGE> 110
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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. Such earnings or losses of the Company's investees
are adjusted to reflect the amortization of any differences between the carrying
value of the investment and the Company's equity in the net assets of 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. The functional currency of the Company's foreign investees
that operate in highly inflationary economies is the U.S. dollar. The monetary
assets and liabilities of these foreign investees are translated into U.S.
dollars at the exchange rate in effect at the balance sheet date. Revenues,
expenses, gains and losses are translated at the average exchange rate for the
period, and non-monetary assets and liabilities are translated at historical
rates. Resulting remeasurement gains or losses of these foreign investees are
recognized in the combined results of operations. 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 $1,154,000 by the 17,647,684 shares of Common
Stock of the Company issued upon the Distribution based on QUALCOMM shares
outstanding as of September 11, 1998. Such shares reflect the issuance upon the
Distribution of one of the Company's shares of common stock for every four
shares of QUALCOMM common stock outstanding.
F-18
<PAGE> 111
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Replacement stock options and awards for 5,542,740 shares, the conversion of
QUALCOMM's Trust Convertible Preferred Securities which are expected to be
convertible into shares of QUALCOMM and 2,271,060 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 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.
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 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.
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>
Investment at equity..................................... $42,267 $ --
Investment at cost....................................... 4,000 --
------- -------
$46,267 $ --
======= =======
</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.
F-19
<PAGE> 112
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Condensed financial information for the wireless operating company 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 Balance Sheet Information:
Current assets....................................... $37,565
Non-current assets................................... 15,058
Current liabilities.................................. 665
Non-current liabilities.............................. 7,461
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
AUGUST 31, 1997
---------------
<S> <C>
Condensed Statement of Operations Information:
Operating expenses................................... $(274)
Net income........................................... 414
</TABLE>
As of August 31, 1997, the wireless operating companies had not 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 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. 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. Upon the commencement of commercial operations of the Chilesat PCS
network, the Company's recognition of its share of the operating results of
Chilesat PCS will be adjusted to include the amortization of the excess of the
basis of the Company's investment in Chilesat PCS over the Company's equity in
the net assets of Chilesat PCS. This basis difference is related to the fair
value of non-cash assets contributed to Chilesat PCS by Telex-Chile, which
consist of a wireless telecommunications license and a contract to use part of
Telex-Chile's existing telecommunications network. For purposes of computing
amortization expense, the Company's pro
F-20
<PAGE> 113
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
rata share of the fair values of the license and the contract, $14 million and
$7 million, respectively, will be amortized over the remainder of their useful
lives.
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.
Chase Telecommunications, Inc.
In December 1996, the Company purchased $4 million of Chase
Telecommunications, Inc. ("Chase") Class B Common Stock, representing less than
7% 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.
F-21
<PAGE> 114
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 $0.6 million and $0.2 million, respectively, which consisted of
NOL carryforwards. Realization of the future tax benefits of 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 March 1999.
F-22
<PAGE> 115
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 Teletal
Limited, a Russian company, providing for their participation, subject to terms
and conditions, in the development of wireless communications networks in the
Russian Federation. Pursuant to the agreement and subject to terms and
conditions, QUALCOMMTel and Teletal Limited 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.
However, Telex-Chile has informed the Company that it has the intention to, and
will have the ability to, fund its $17.5 million portion of the capital call
prior to January 31, 1999.
F-23
<PAGE> 116
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT ACCOUNTANTS
(UNAUDITED)
In August 1998, the Company, via its equity investee Orrengrove Investments
Limited, purchased common stock from each of the subsidiaries (the "Related
Subsidiaries") of Transword Communications (U.S.A.), Inc. ("TWC") 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 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 Teletal Limited. 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. The Company has
committed, subject to certain exceptions, to convert the facility into $25
million of redeemable preferred stock in Chase. The Company received warrants,
in connection with this financing, to acquire up to approximately 5.6% of Chase
equity.
In September of 1998, of the Company provided a $17.5 million loan (the
"Pegaso Loan") to Pegaso S.A. de C.V., a Mexican company 96%-owned by Alejandro
Burillo Azcarraga, a member of the Company's Board of Directors. The Pegaso Loan
bears interest at the rate of 13% per annum and is repayable in installments of
$7.5 million on or before October 31, 1998 and $10 million on or before December
31, 1998. The purpose of the Pegaso Loan is to facilitate investment by Pegaso
S.A. de C.V. in PEGASO, the joint venture in which the Company has an interest,
and to ensure that all capital contributions required for the acquisition of the
Mexican licenses on September 30, 1998 were made by the respective investors.
The Pegaso Loan is guaranteed by Mr. Burillo and is secured by a pledge of all
of the shares of Pegaso S.A. de C.V. and Mr. Burillo's interest in an unrelated
joint venture with QUALCOMM to operate a satellite tracking, management and
two-way communications systems for the trucking industry in Mexico.
F-24
<PAGE> 117
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-25
<PAGE> 118
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-26
<PAGE> 119
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-27
<PAGE> 120
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-28
<PAGE> 121
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-29
<PAGE> 122
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 their predecessor basis of
zero.
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.
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
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.
F-30
<PAGE> 123
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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$338,000 as advertising expense.
G) INCOME TAXES
Income taxes have been recorded in accordance with Statement of Financial
Accounting Standards No. 109 (FAS 109). Income taxes payable for the current
year are recorded in current liabilities, if applicable. Future taxes arising
from differences between the amounts shown for assets and liabilities in the
balance sheet and the tax basis of those assets and liabilities at the balance
sheet date have been recorded as deferred income taxes. Deferred income tax
assets are reduced by a valuation allowance if, based on the weight of available
F-31
<PAGE> 124
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
evidence, it is more likely than not that some portion or all of the deferred
income tax assets will not be realized.
H) LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the total amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated future cash
flows expected to result from the use of the asset and its eventual disposition
are less than its carrying amount.
I) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents, including securities
purchased under resale agreements. Securities purchased under agreements to
resell include investments in instruments issued by the Central Bank of Chile
acquired under resale agreements, and are stated at cost plus accrued interest.
Cash and cash equivalents at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
(US$ 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-32
<PAGE> 125
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
======
</TABLE>
Estimated useful lives of assets are:
<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$1,508,000 of interest as part of the cost of construction
of the mobile PCS telephone system.
F-33
<PAGE> 126
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
NOTE 6 -- ACCRUED LIABILITIES AND WITHHOLDINGS
Accrued liabilities and withholdings at December 31, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
(US$ 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 543 -- 543
on 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-34
<PAGE> 127
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
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.
F-35
<PAGE> 128
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
xvi) Incur capital expenditures greater than US$116 million until the
Company has more than 50,000 subscribers, at which time the threshold
increases.
The Company is in compliance with these covenants.
NOTE 8 -- OTHER LONG-TERM LIABILITIES
This balance is mainly comprised of deferred customs duties.
Under Chilean law, the payment of customs duties levied on machinery and
equipment can be deferred over a period of up to seven years. The balance at
December 31, 1997 represents amounts owing at maturity including accrued
interest. The scheduled repayments are as follows:
<TABLE>
<CAPTION>
(US$ 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.
F-36
<PAGE> 129
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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 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.
F-37
<PAGE> 130
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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.
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.
F-38
<PAGE> 131
CHILESAT TELEFONIA PERSONAL S.A.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
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 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-39
<PAGE> 132
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of QUALCOMM Incorporated and Leap Wireless International, Inc.
In our opinion, the accompanying combined consolidated balance sheets and
the related combined consolidated statements of operations, of cash flows and of
stockholders' equity present fairly, in all material respects, the financial
position of the Transworld Companies (companies in the development stage) at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended and for the period from June 25, 1990 (inception)
through December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Companies'
management; our responsibility is to express an opinion on these financial
statements based on our audits. 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 provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Diego, California
August 28, 1998
F-40
<PAGE> 133
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
COMBINED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1998 1997 1996
------------ -------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 11,425 $ 49 $ 2,443
Note receivable, net..................................... 4,250
Note receivable from a related party, net................ 394 394 93
Other current assets..................................... 660 11 278
-------- -------- -------
Total current assets............................. 12,479 454 7,064
-------- -------- -------
Property and equipment, net................................ 5,915 5,691 5,992
Investment in joint venture................................ 51 21 20
Other assets............................................... 506 7 7
-------- -------- -------
Total assets..................................... $ 18,951 $ 6,173 $13,083
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................. $ 2,397 $ 700 $ 604
Current portion of notes payable to related parties...... 15,000 120 120
-------- -------- -------
Total current liabilities........................ 17,397 820 724
-------- -------- -------
Note payable to a related party, net of current portion.... 60
Commitments and contingencies (Note 9)
Stockholders' equity:
Parent's investment...................................... 21,127 21,127 21,127
Deficit accumulated during the development stage......... (19,573) (15,774) (8,828)
-------- -------- -------
Total stockholders' equity....................... 1,554 5,353 12,299
-------- -------- -------
Total liabilities and stockholders' equity....... $ 18,951 $ 6,173 $13,083
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
F-41
<PAGE> 134
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM JUNE 25, 1990
SIX MONTHS ENDED YEAR ENDED (INCEPTION) TO
------------------- --------------------------- ---------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1998 1997
-------- -------- ------------ ------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue...................... $ -- $ -- $ -- $ -- $ 361 $ 361
General and administrative
expenses................... 3,816 2,742 5,448 4,396 18,551 14,735
------ ------ ------ ------ ------- -------
Operating loss............... 3,816 2,742 5,448 4,396 18,190 14,374
Interest (income) net........ (17) (134) (315) (114) (513) (496)
Write-down of note
receivable................. 1,510 1,510 1,510
Loss on investment in joint
venture.................... 150 301 82 384 384
Currency exchange gains...... 2 2 2
------ ------ ------ ------ ------- -------
Net loss..................... $3,799 $2,758 $6,946 $4,364 $19,573 $15,774
====== ====== ====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
F-42
<PAGE> 135
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM JUNE 25,
1990
SIX MONTHS ENDED YEAR ENDED (INCEPTION) TO
------------------- --------------------------- --------------------------
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, DECEMBER 31,
1998 1997 1997 1996 1998 1997
-------- -------- ------------ ------------ ----------- ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from development activities:
Net loss....................................... $(3,799) $(2,758) $(6,946) $(4,364) $(19,573) $(15,774)
Adjustments to reconcile net loss to net cash
used in development activities:
Depreciation and amortization................ 761 726 1,285 328 2,451 1,690
Company's share in losses of equity
investee................................... 151 302 83 384 384
Accrued interest and expenses contributed as
capital.................................... -- 41 41 41
Write-down of note receivable................ 1,510 1,510 1,510
Allowance on note receivable from related
party...................................... 200 306 506 306
Changes in assets and liabilities:
(Increase) decrease in other assets.......... (1,148) 180 267 (73) (1,166) (18)
Increase in note receivable from related
party...................................... (200) (372) (607) (93) (900) (700)
Increase (decrease) in accounts payable and
accrued liabilities........................ 1,697 (131) 96 235 2,397 700
Increase (decrease) in notes payable to
related parties............................ (120) (60) (60) 180 120
------- ------- ------- ------- -------- --------
Net cash used in development activities.......... (2,609) (2,264) (3,847) (3,663) (14,350) (11,741)
======= ======= ======= ======= ======== ========
Cash flow from investing activities:
Purchases of property and equipment............ (985) (929) (984) (670) (8,052) (7,067)
Payments on note receivable.................... 1,888 2,740 750 --
Investment in common stock..................... (1,510) (1,510)
Investment in joint venture.................... (30) (151) (303) (103) (435) (405)
------- ------- ------- ------- -------- --------
Net cash (used in) provided by investing
activities..................................... (1,015) 808 1,453 (23) (9,997) (8,982)
======= ======= ======= ======= ======== ========
Cash flows from financing activities:
Net payable to related party................... 15,000 15,000
Parent investments............................. -- -- 4,685 20,772 20,772
------- ------- ------- ------- -------- --------
Net cash provided by financing activities........ 15,000 -- -- 4,685 35,772 20,772
======= ======= ======= ======= ======== ========
Net increase (decrease) in cash and cash
equivalents.................................... 11,376 (1,456) (2,394) 999 11,425 49
Cash and cash equivalents, beginning of period... 49 2,443 2,443 1,444 -- --
------- ------- ------- ------- -------- --------
Cash and cash equivalents, end of period......... $11,425 $ 987 $ 49 $ 2,443 $ 11,425 $ 49
Non-cash investing and financing activities:
Contribution of equipment...................... $ $ $ $ 314 $ 314 $ 314
======= ======= ======= ======= ======== ========
Cash payment for interest...................... $ 834 $ $20,175 $ $ 95,156 $ 36,897
======= ======= ======= ======= ======== ========
Conversion of investment in common stock to a
note receivable.............................. $ $ $ $ 5,000 $ 5,000 $ 5,000
======= ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
F-43
<PAGE> 136
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
COMBINED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
JUNE 25, 1990 (INCEPTION) TO JUNE 30,1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
PARENT'S DEVELOPMENT STOCKHOLDERS'
INVESTMENT STAGE EQUITY
---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at June 25, 1990 (inception)..................... $ -- $ -- $ --
Transfers from Transworld Communications (U.S.A.),
Inc................................................. 550 550
Net loss............................................... (457) (457)
------- -------- -------
Balance at December 31, 1990............................. 550 (457) 93
Transfers from Transworld Communications (U.S.A.),
Inc................................................. 50 50
Net loss............................................... (111) (111)
------- -------- -------
Balance at December 31, 1991............................. 600 (568) 32
Net loss............................................... (178) (178)
------- -------- -------
Balance at December 31, 1992............................. 600 (746) (146)
Transfers to Transworld Communications (U.S.A.),
Inc................................................. (23) (23)
Net loss............................................... (399) (399)
------- -------- -------
Balance at December 31, 1993............................. 577 (1,145) (568)
Transfers from Transworld Communications (U.S.A.),
Inc................................................. 3,573 3,573
Net loss............................................... (1,095) (1,095)
------- -------- -------
Balance at December 31, 1994............................. 4,150 (2,240) 1,910
Transfers from Transworld Communications (U.S.A.),
Inc................................................. 11,937 11,937
Net loss............................................... (2,224) (2,224)
------- -------- -------
Balance at December 31, 1995............................. 16,087 (4,464) 11,623
Transfers from Transworld Communications (U.S.A.),
Inc................................................. 5,040 5,040
Net loss............................................... (4,364) (4,364)
------- -------- -------
Balance at December 31, 1996............................. 21,127 (8,828) 12,299
Net loss............................................... (6,946) (6,946)
------- -------- -------
Balance at December 31, 1997............................. 21,127 (15,774) 5,353
Net loss (unaudited)................................... (3,799) (3,799)
------- -------- -------
Balance at June 30, 1998 (unaudited)..................... $21,127 $(19,573) $ 1,554
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these combined consolidated
financial statements.
F-44
<PAGE> 137
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANIES
The Company is made up of Transworld Telecommunications, Inc., Transworld
Communications Services, Inc. and Transworld Communications (Bermuda), Ltd.
(collectively the "Transworld Companies" or "Company"), formerly the
wholly-owned subsidiaries of Transworld Communications (U.S.A.), Inc. On August
4, 1998, QUALCOMM, via its wholly owned subsidiary Orrengrove Investments
Limited, purchased common stock from Transworld Telecommunications, Inc.,
Transworld Communications Services, Inc. and Transworld Communications
(Bermuda), Ltd. for an aggregate purchase price of $51.8 million. Upon the
acquisition, QUALCOMM became a 60% common shareholder in the Company. The
consideration included a $36.8 million cash payment and the forgiveness of $15
million in short-term loans previously granted by QUALCOMM on May 21, 1998 to
Transworld Communications, (U.S.A.), Inc. After the acquisition, Transworld
Communications (U.S.A.), Inc. remains a 40% common shareholder in the Company.
Transworld Telecommunications, Inc. was incorporated on May 1, 1998 and received
primarily all of the assets and liabilities of Transworld Communications
(U.S.A.), Inc. except for $5 million in cash and certain trademarks in
connection with QUALCOMM's investment on August 4, 1998. Transworld
Communications Services, Inc. was incorporated on January 18, 1996 and
Transworld Communications (Bermuda), Ltd. was incorporated on July 15, 1996.
Orrengrove Investments Ltd. ("Orrengrove") is a wholly owned subsidiary of
QUALCOMM Telecommunications Ltd., an Isle of Man company ("QUALCOMMTel Isle of
Man"), which is a wholly owned subsidiary of QUALCOMM. QUALCOMM has committed to
transfer 50% of QUALCOMMTel Isle of Man's ownership interest in Orrengrove prior
to September 23, 1998 to Teletal Limited. QUALCOMM has also committed to
transfer 30% of its ownership interest in QUALCOMMTel Isle of Man prior to
September 23, 1998 to Tiller International Limited. Consequently, prior to
September 23, 1998, it is expected that QUALCOMM will hold a 70% interest in
QUALCOMMTel Isle of Man, and QUALCOMMTel Isle of Man will hold a 50% interest in
Orrengrove. Finally, it is expected that QUALCOMM will thereafter transfer its
remaining 70% interest in QUALCOMMTel Isle of Man to Leap Wireless
International, Inc. prior to the consummation of QUALCOMM's anticipated
spin-off.
Transworld Companies were created to build and operate a modern
telecommunications infrastructure for the Commonwealth of Independent States
(CIS), formerly known as the Soviet Union. The Company's business is developing
rapidly, with operations in CIS emerging economies, which by nature have an
uncertain economic, political and regulatory environment. The general risks of
conducting business in the CIS and other developing countries include the
possibility for rapid changes in government policies and regulations, economic
conditions, the tax regime and foreign currency regulations.
2. DEVELOPMENT STAGE ACTIVITIES AND DEPENDENCY ON ADDITIONAL FINANCING
The Company is a development stage enterprise which has incurred
substantial operating losses and negative cash flows from network development
and operations since inception. To date, the Company has focused primarily on
the development of its product line, the development and construction of its
networks, the hiring of management and other key personnel, the raising of
capital, the acquisition of equipment, the implementation of its sales and
marketing strategy and the development of operating systems. The development of
the Company's business and the deployment of its services and systems will
require significant additional capital expenditures, a substantial portion of
which will need to be incurred before the realization of significant revenues.
Together with associated start-up operating expenses, these capital expenditures
will result in substantial negative cash flow until an adequate
revenue-generating customer base is established. In order to implement its
business plan, significant capital will be required to fund capital
expenditures, working capital, debt service and operating losses. The Company's
principal capital expenditure requirements involve
F-45
<PAGE> 138
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the purchase, installation and construction of network operations centers, other
network infrastructure and customer located equipment, development and
construction of the network.
The Company expects that its future capital requirements will require it to
obtain additional financing, which may include the sale or issuance of equity
and debt securities either through one or more offerings or to one or more
strategic investors. There can be no assurance that the Company will be
successful in raising additional capital in sufficient amounts to fund its
strategic objectives, or that such funds, if available, will be available on
terms that the Company will consider acceptable. Failure to raise sufficient
funds may require the Company to modify, delay or abandon some of its planned
future expansion or expenditures, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
As discussed in Notes 1 and 11, QUALCOMM, via its wholly owned subsidiary
Orrengrove Investments Limited, acquired a 60% interest in the Company on August
4, 1998, which resulted in the receipt of approximately $51.8 million in net
proceeds. It is the opinion of Company management that such net proceeds will be
adequate to support the Company's operations through December 31, 1998. However,
based upon the factors discussed above, there can be no assurance that the
Company will achieve profitability or positive cash flow in the future or that
sufficient financing will be available to complete the Company's planned network
development efforts.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined consolidated financial statements reflect the financial
position, results of operations, cash flows and changes in stockholders' equity
of the business of Transworld Companies and that which was transferred to
Transworld Telecommunications, Inc. on August 4, 1998, as discussed in Note 1.
The financial statements have been presented for all periods since the inception
of Transworld Communications (U.S.A.), Inc. in June 1990. All of the revenues
and expenses of Transworld Communications Services, Inc. have been included in
the presentation of the combined consolidated financial statements since 100% of
business operations were conducted through the consolidated activities of
Transworld Communications Services, Inc. and its wholly-owned subsidiary, the
activities of Transworld Communications (Bermuda), Ltd. and the assets,
liabilities, rights and obligations contributed to Transworld
Telecommunications, Inc.
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.
Investment in Joint Venture
The Company has an equity investment in a joint venture. The Company uses
the equity method to account for investments in corporate entities in which it
has voting interest of 20% to 50% or in which it otherwise exercises significant
influence and for ownership interests in partnerships. 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. The Company maintained a 50% voting interest at June 30, 1998
(unaudited) and December 31, 1997 and 1996.
F-46
<PAGE> 139
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated on a
straight-line basis over the lesser of the estimated useful lives, ranging from
five to eight years for telecommunications equipment and five to seven years for
furniture, fixtures and equipment and other property. Construction in process
reflects amounts incurred for the configuration and build-out of
telecommunications equipment not yet placed in service.
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.
Start-up Activities
The Company expenses all costs related to start-up activities as incurred.
Revenue recognition
In 1993 and 1994, the Company permitted third parties the right to transmit
data across the Company's network. Revenue totaling approximately $361,000 was
recognized during the years ended December 31, 1994 and 1993 when earned.
Income Taxes
Historically, the Company's operations have been included in the
consolidated income tax returns filed by Transworld Communications (U.S.A.),
Inc. 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
statements and tax bases of assets and liabilities and for the expected future
tax benefit to be derived from tax loss. 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.
Foreign Currency
The functional currency of the Company's foreign operations is United
States dollars. The Company maintains most of the cash balances in dollar
denominated bank accounts and has no significant foreign currency monetary
assets and liabilities at December 31, 1997 and 1996. Gains and losses resulting
from the Company's foreign currency transactions are included in the combined
consolidated statement of operations.
The Company does not currently hedge against foreign currency fluctuations
although the Company may take such steps in the future. Under current practices,
the Company's results of operations could be adversely affected by fluctuations
in exchange rates.
F-47
<PAGE> 140
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value of Financial Instruments
At December 31, 1997 and 1996, the carrying amounts of the Company's cash
and cash equivalents and accounts payable approximate fair value due to the
short-term maturities of these balances. Additionally, the carrying amounts of
the note receivable and note receivable from a related party approximates fair
value since the current effective interest rate reflects the market rate for
debt with similar terms and remaining maturities.
Comprehensive Income
Statement of Financial Accounting Standards No. 130 (FAS 130), Reporting
Comprehensive Income, was adopted by the Company in the first quarter of fiscal
1998 and has been applied to all prior periods presented for comparative
purposes. 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 did not impact the
Company's financial statements because there were no differences between net
income and comprehensive income.
Recent Accounting Pronouncements
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 a significant effect on the
disclosures of the financial statements of the Company.
4. NOTES RECEIVABLE
In 1995, the Company invested $5 million to purchase 504,032 shares of
non-marketable International Business Communication System, Inc. ("IBCS") common
stock (5% of IBCS' outstanding common stock) with the intention of forming a
strategic alliance to provide telecommunications services in CIS.
In 1996, the Company and IBCS entered into an agreement whereby IBCS
repurchased the shares of common stock owned by the Company. IBCS agreed to pay
the Company $5.5 million in the form of a $4.75 million promissory note and
$750,000 cash at closing. The promissory note was secured by substantially all
of the assets of ZAO Rustel, a Russian telecommunications company, and an
affiliate of IBCS. The promissory note accrued interest at 10% and was payable
at the earlier of March 31, 1997, or 10 days after an offering, as defined.
In August 1997, the Company extended the maturity date of the note through
December 31, 1997. As a part of this agreement, IBCS prepaid $1 million, of
which $852,582 represented principal.
In 1997, the Company extended the due date of the promissory note twice and
collected $2.74 million plus accrued interest. At December 31, 1997, management
determined that the balance due was uncollectible and recorded a write-down of
$1.5 million including accrued interest of $70,000.
F-48
<PAGE> 141
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Telecommunications equipment............................... $5,274 $5,274
Construction-in-progress................................... 1,479 660
Furniture, fixtures and equipment.......................... 627 462
------ ------
7,380 6,396
Less accumulated depreciation and amortization............. 1,689 404
------ ------
$5,691 $5,992
====== ======
</TABLE>
The Company's telecommunications equipment and construction-in-progress are
primarily maintained in a foreign country.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Trade accounts payable...................................... $541 $570
Payroll and related taxes................................... 83 34
Other....................................................... 76 --
---- ----
$700 $604
==== ====
</TABLE>
7. RELATED PARTY TRANSACTIONS
Note Receivable from a Related Party
Since 1996, the Company has advanced certain amounts to another investor in
TASS Loutch Telecom ("TLT") for the investor's share of TLT's expenses in
exchange for a note receivable. The Company has advanced approximately $900,000,
$700,000 and $93,000 to a related party at June 30, 1998 (unaudited) and
December 31, 1997 and 1996, respectively. Amounts outstanding include accrued
interest at prime plus two percent [10.5% at June 30, 1998 (unaudited) and
December 31, 1997 and 1996] compounded quarterly. Principal and interest is due
December 31, 1998.
The Company is negotiating with the related party regarding approximately
$500,000 and $300,000 of unreconciled differences in the note receivable at June
30, 1998 (unaudited) and December 31, 1997. As a result, the Company has
established reserves for these amounts at June 30, 1998 (unaudited) and December
31, 1997.
Notes Payable to Related Parties
In May 1998, QUALCOMM advanced the Company $15 million in exchange for a
note payable bearing interest at prime plus 2% [10.5% at June 30, 1998
(unaudited)] payable in full on the first anniversary of the note. The note was
subsequently converted to equity as part of the QUALCOMM acquisition of 60% of
the Company. The note, which was guaranteed by shares of Transworld
Communications (U.S.A.), Inc., accrued interest at 12.5% and was paid in full at
August 4, 1998, and the interest was forgiven.
F-49
<PAGE> 142
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In May 1996, the Company agreed to pay $420,000 to a former stockholder of
Transworld Communications (U.S.A.), Inc. in exchange for certain services
performed. Under the terms of the agreement, the Company made a $240,000 cash
payment in November 1996 and agreed to pay the remaining $180,000 in three equal
installments through May 1998.
Consulting Agreement with a Related Party
The Company will be required to pay a consulting fee to a related party of
up to $2.5 million based on 5% of the net proceeds from any future debt or
equity financings ("Offering"). The consulting fee will only be payable if the
Company completes such Offering. At December 31, 1997, the Company had not yet
completed any such Offering, and management did not deem the completion of an
Offering to be probable. The Company, accordingly, did not accrue the $2.5
million fee at December 31, 1997. The $15 million advanced to the Company by
QUALCOMM on May 19, 1998 in exchange for a note payable obligated the Company to
pay $750,000 to the related party under this agreement, and such amount was
reflected as a liability in the June 30, 1998 balance sheet.
8. INCOME TAXES
The Company has not recorded provisions for federal and state income taxes
for the six months ended June 30, 1998 (unaudited) and the years ended December
31, 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 periods
ended:
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED
ENDED DECEMBER 31,
JUNE 30, --------------
1998 1997 1996
----------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
U.S. federal statutory tax rate.................. (34)% (34)% (34)%
State taxes, net of U.S. federal income.......... (5)% (4)% (4)%
--- --- ---
Tax benefit...................................... (39)% (38)% (38)%
Increase in valuation allowance.................. 39% 38% 38%
--- --- ---
Effective tax rate............................... --% --% --%
=== === ===
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
1998 1997 1996
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax asset:
U.S. net operating losses................. $ 4,600 $ 3,800 $ 2,020
Foreign net operating losses.............. 125 80 15
------- ------- -------
4,725 3,880 2,035
Less valuation allowance.................... (4,725) (3,880) (2,035)
------- ------- -------
Net deferred tax asset...................... $ -- $ -- $ --
======= ======= =======
</TABLE>
The Company has provided a deferred tax asset valuation allowance for its
net deferred tax assets as it is considered more likely than not that such
amounts will not be realized.
F-50
<PAGE> 143
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1997, the Company had U.S. net operating loss carryforwards
of approximately $10 million for income tax reporting purposes that expire in
years 2005 through 2013 and foreign net operating loss carryforwards of
approximately $250,000 that expire in years 2001 through 2002.
As a result of the sale of stock of the Transworld Companies, the Company
may be subject to an annual limitation on the utilization of federal and state
NOL carryforwards generated from the date the businesses are transferred.
9. COMMITMENTS AND CONTINGENCIES
Transponder Agreements
The Company has obtained, through a number of agreements, the rights to
utilize certain Russian Loutch I and Loutch II satellite capacity. The
agreements give the Company rights to the capacity on satellites under the
Loutch I and Loutch II programs for up to 20 years.
In December 1993, the Company entered into an agreement with a third party
for the sole and exclusive use of two transponders on each of the first two
Loutch II satellites. The third party was responsible for modifying the
transponders on the first satellite for commercial use. At June 30, 1998
(unaudited) and December 31, 1997, under this agreement the Company had paid
approximately $5.3 million of the $7 million commitment. The commitment is
expected to be satisfied during 1999.
In December 1993, the Company entered into an agreement to provide
commercial capacity on satellites in the Loutch I program (the Loutch I
Agreement). In exchange, the Company has agreed to pay $45,000 per month per
satellite for which services are to be provided. The term of the agreement is 20
years commencing from the date of the agreement and can be canceled by the
licensor in the event of continued default by the Company. The Company has the
right to terminate this agreement once each year. At June 30, 1998 (unaudited)
and December 31, 1997, the Company had not yet begun to use the satellites and
as such, no payment obligation existed.
Financing Assistance Agreement
In June 1997, the Company entered into an agreement with a consulting
company pursuant to which the consulting company agreed to provide certain
services related to raising funds for the Company. As compensation for the
agreed upon services, the consulting company is entitled under the agreement to
receive a fee of five percent of the gross amount or value of any investments in
and/or loans to the Company by a third party. The agreement also provides that,
in the event that an investor invests equity in the Company, the consulting
company is to receive a warrant to purchase the Company's common stock at a
certain exercise price as described in the agreement. At December 31, 1997, the
Company had not yet completed any such transactions. At June 30, 1998, the
Company accrued $750,000 under this agreement because QUALCOMM had on May 19,
1998 advanced $15 million to the Company in exchange for a note payable, which
may have obligated the Company to pay $750,000 under this agreement. The Company
disputes the amount.
Construction-in-Progress
In August 1996, the Company entered into an agreement to purchase certain
telecommunications equipment for $1 million. At June 30, 1998 (unaudited) and
December 31, 1997, remaining costs to be incurred for this project approximated
$100,000 and $300,000, respectively.
In September 1997, the Company entered into an agreement to have six earth
stations built over an indefinite period. The agreement establishes a price
guarantee for two years at approximately $1 million per earth station. In
conjunction with this purchase order, the Company paid approximately $600,000 as
a down
F-51
<PAGE> 144
TRANSWORLD COMPANIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
payment. The Company expects the construction of these earth stations to be
completed in the first quarter of 1999. At June 30, 1998 (unaudited) and
December 31, 1997, the Company had ordered four earth stations under this
agreement.
Lease Commitments
The Company leases certain office space in the United States and
internationally in Bermuda and Russia under non-cancelable operating lease
agreements. Rent expense for the years ended December 31, 1997 and 1996 and from
June 25, 1990 (inception) to December 31, 1997 was approximately $435,000,
$81,000 and $695,000, respectively. Future minimum lease payments under all
non-cancelable operating lease arrangements as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998..................................................... $ 321,000
1999..................................................... 322,000
2000..................................................... 324,000
2001..................................................... 260,000
2002..................................................... 1,000
----------
$1,228,000
==========
</TABLE>
Legal Matters
The Company is a party to various legal actions and administrative
proceedings arising in the normal course of business. In the opinion of
Company's management, disposition of these matters is not expected to have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
10. STOCKHOLDERS' EQUITY
During the periods presented, Transworld Communications (U.S.A.), Inc.
issued common stock to various parties in exchange for contributions of cash and
other assets. These contributions have been reflected as investments by
Transworld Communications (U.S.A.), Inc. in the combined consolidated statements
of the Transworld Companies. The other assets contributed have been reflected as
investments based upon the fair value of the assets received.
11. SUBSEQUENT EVENTS
On August 4, 1998, QUALCOMM, via its wholly owned subsidiary Orrengrove
Investments Limited, purchased common stock from Transworld Telecommunications,
Inc., Transworld Communications Services, Inc. and Transworld Communications
(Bermuda), Ltd. for an aggregate purchase price of $51.8 million. Upon the
acquisition, QUALCOMM became a 60 percent common shareholder in the Company. The
consideration was paid via a $36.8 million cash payment and the forgiveness of
$15 million in short-term loans previously granted by QUALCOMM on May 20, 1998
and the related unpaid accrued interest. After the acquisition, Transworld
Communications (U.S.A.), Inc. remains a 40 percent common shareholder in the
Company.
F-52
<PAGE> 145
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALERSHIP, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATIONS THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 11
Relationship Between QUALCOMM and the
Company after the Distribution...... 22
QUALCOMM Trust Convertible Preferred
Securities.......................... 26
Use of Proceeds....................... 27
Plan of Distribution.................. 27
Price Range of Common Stock........... 27
Dividend Policy....................... 27
Capitalization........................ 28
Dilution.............................. 29
Pro Forma Financial Statements........ 30
Selected Historical Combined Financial
Data................................ 36
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
Business.............................. 45
Management............................ 66
Equity Incentive Plans................ 72
Certain Relationships and Related
Transactions........................ 84
Security Ownership of Certain
Beneficial Owners................... 84
Description of Company Capital
Stock............................... 85
Description of Rights Agreement....... 87
Liability and Indemnification of
Directors and Officers.............. 89
Shares Eligible for Future Sale....... 90
Experts............................... 91
Legal Matters......................... 91
Additional Information................ 91
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,271,060 SHARES
LEAP WIRELESS
INTERNATIONAL, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 146
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Pursuant to the Conversion Agreement, QUALCOMM has agreed to pay all
expenses of the Company, including professional fees, incurred in connection
with the registration of the issuance of the Common Stock being registered
hereby. The following table sets forth all expenses payable by the Registrant in
connection with the initial registration of the issuance of the Common Stock
being registered hereby. Additional expenses will be incurred from time to time
to maintain this Registration Statement which will also be paid by QUALCOMM. All
the amounts shown are estimates except for the SEC registration fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 4,602.40
Printing and engraving expenses............................. $12,000.00
Legal fees and expenses..................................... $25,000.00
Accounting fees and expenses................................ $15,000.00
Miscellaneous............................................... $ 3,397.60
Total............................................. $60,000.00
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Officers and directors of the Company are covered by certain provisions of
the DGCL, the Certificate of Incorporation, the Bylaws 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,
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 Bylaws generally provide for mandatory indemnification of the
Company's directors and officers to the full extent provided by Delaware
corporate law. In addition, the Company has entered into indemnification
agreements
II-1
<PAGE> 147
with its directors and officers which generally provide for mandatory
indemnification under circumstances for which indemnification would otherwise be
discretionary under Delaware 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
Bylaws.
ITEM 15. 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, Leap also
issued 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
3.1 (1) Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2 (1) Form of Amended and Restated Bylaws of the Registrant
3.3 (2) Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of the Registrant
4.1 (1) Form of Common Stock Certificate
4.2 Warrant, dated as of September 23, 1998, issued to QUALCOMM
Incorporated ("QUALCOMM")
4.3 (2) Rights Agreement, dated as of September 14, 1998, between
the Registrant and Harris Trust Company of California
5.1 Opinion of Latham & Watkins
10.1 Separation and Distribution Agreement, dated as of September
23, 1998, between QUALCOMM and the Registrant
10.2 Credit Agreement, dated as of September 23, 1998, between
QUALCOMM and the Registrant
10.3 Tax Matters Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant
10.4 Interim Services Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant
10.5 Master Agreement Regarding Equipment Procurement, dated as
of September 23, 1998, between QUALCOMM and the Registrant
10.6 Employee Benefits Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant
10.7 Conversion Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant
10.8 Assignment and Assumption Agreement, dated as of September
23, 1998, between QUALCOMM and the Registrant
</TABLE>
II-2
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.9 (1) Form of Registrant's 1998 Stock Option Plan (the "Option
Plan")
10.10 (1) Form of non-qualified/incentive stock option under the
Option Plan
10.11 (1) Form of non-qualified stock option under the Option Plan to
be granted to QUALCOMM option holders in connection with the
Distribution
10.12 (1) Form of Registrant's 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan")
10.13 (1) Form of non-qualified stock option under the Directors' Plan
10.14 (1) Form of Registrant's Employee Stock Purchase Plan
10.15 (1) Assignment and Assumption of Lease dated August 11, 1998
between QUALCOMM and Vaxa International, Inc.
10.16 (1) Form of Indemnity Agreement to be entered into between the
Registrant and its directors and officers
21.1 (1) Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent auditors
23.2 Consent of Price Waterhouse, independent accountants
23.3 Consent of Latham & Watkins. Reference is made to exhibit
5.1
24.1* Power of Attorney (included in signature page)
</TABLE>
- ---------------
* Previously filed.
(1) Filed as an exhibit to the Company's Registration Statement on Form 10, as
amended (File No. 0-29752), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K dated
September 14, 1998, and incorporated herein by reference.
(b) SCHEDULES.
Not applicable.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
II-3
<PAGE> 149
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Diego, County of San Diego, State of California, on October 13, 1998.
By: /s/ JAMES E. HOFFMANN
------------------------------------
James E. Hoffmann
Senior Vice President, General
Counsel
and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
HARVEY P. WHITE* President, Chief Executive October 13, 1998
- ----------------------------------------------------- Officer and Director
Harvey P. White
TOM WILLARDSON* Senior Vice President, October 13, 1998
- ----------------------------------------------------- Finance and Treasurer
Tom Willardson
THOMAS J. BERNARD* Executive Vice President and October 13, 1998
- ----------------------------------------------------- Director
Thomas J. Bernard
/s/ JAMES E. HOFFMANN Senior Vice President, October 13, 1998
- ----------------------------------------------------- General Counsel and Director
James E. Hoffmann
Director October , 1998
- -----------------------------------------------------
Alejandro Burillo Azcarraga
MICHAEL B. TARGOFF* Director October 13, 1998
- -----------------------------------------------------
Michael B. Targoff
JEFFREY P. WILLIAMS* Director October 13, 1998
- -----------------------------------------------------
Jeffrey P. Williams
*By: /s/ JAMES E. HOFFMANN
------------------------------------------------
James E. Hoffmann
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 151
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
3.1 (1) Form of Amended and Restated Certificate of Incorporation of
the Registrant..............................................
3.2 (1) Form of Amended and Restated Bylaws of the Registrant.......
3.3 (2) Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of the Registrant.............
4.1 (1) Form of Common Stock Certificate............................
4.2 Warrant, dated as of September 23, 1998, issued to QUALCOMM
Incorporated ("QUALCOMM")...................................
4.3 (2) Rights Agreement, dated as of September 14, 1998, between
the Registrant and Harris Trust Company of California.......
5.1 Opinion of Latham & Watkins.................................
10.1 Separation and Distribution Agreement, dated as of September
23, 1998, between QUALCOMM and the Registrant...............
10.2 Credit Agreement, dated as of September 23, 1998, between
QUALCOMM and the Registrant.................................
10.3 Tax Matters Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant.........................
10.4 Interim Services Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant.........................
10.5 Master Agreement Regarding Equipment Procurement, dated as
of September 23, 1998, between QUALCOMM and the
Registrant..................................................
10.6 Employee Benefits Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant.........................
10.7 Conversion Agreement, dated as of September 23, 1998,
between QUALCOMM and the Registrant.........................
10.8 Assignment and Assumption Agreement, dated as of September
23, 1998, between QUALCOMM and the Registrant...............
10.9 (1) Form of Registrant's 1998 Stock Option Plan (the "Option
Plan")......................................................
10.10(1) Form of non-qualified/incentive stock option under the
Option Plan.................................................
10.11(1) Form of non-qualified stock option under the Option Plan to
be granted to QUALCOMM option holders in connection with the
Distribution................................................
10.12(1) Form of Registrant's 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan").........................
10.13(1) Form of non-qualified stock option under the Directors'
Plan........................................................
10.14(1) Form of Registrant's Employee Stock Purchase Plan...........
10.15(1) Assignment and Assumption of Lease dated August 11, 1998
between QUALCOMM and Vaxa International, Inc................
10.16(1) Form of Indemnity Agreement to be entered into between the
Registrant and its directors and officers...................
21.1 (1) Subsidiaries of the Registrant..............................
23.1 Consent of PricewaterhouseCoopers LLP, independent
auditors....................................................
23.2 Consent of Price Waterhouse, independent accountants........
23.3 Consent of Latham & Watkins. Reference is made to exhibit
5.1.........................................................
24.1* Power of Attorney (included in signature page)..............
</TABLE>
- ---------------
* Previously filed.
(1) Filed as an exhibit to the Company's Registration Statement on Form 10, as
amended (File No. 0-29752), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Current Report on Form 8-K dated
September 14, 1998, and incorporated herein by reference.
<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 23, 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 (as adjusted for
the stock split to be effected on or about September 14, 1998) 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 September 23, 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
<PAGE> 2
Stock so purchased, together with any other securities or property to which the
Holder hereof is 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
2.
<PAGE> 3
prices of the Common Stock over the five (5) day period ending five business
days prior to the Determination Date;
(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.
<PAGE> 4
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 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
4.
<PAGE> 5
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 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.
<PAGE> 14
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
14.
<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.
5.14 FCC ISSUES. Notwithstanding any other provision of this
Warrant, Holder hereby agrees that it will not exercise the Warrant in a manner
that would (i) preclude the Company from qualifying as a "Publicly Traded
Corporation With Widely Disbursed Voting Power" (a "PTCWWDVP") under 47 CFR
24.720(m) as a result of the Company not satisfying the provisions of 47 CFR
24.720(m)(2) (which restriction on exercise shall only be applicable so
16.
<PAGE> 17
long as the Company is seeking to acquire, acquires and/or holds, directly or
indirectly, C and F Block broadband PCS licenses on the basis of qualifying as a
PTCWWDVP), or (ii) cause any change in the Company's status as a small business
designated entity as defined by the rules and regulations of the Federal
Communications Commission (to the extent the Company thereupon would not be
qualified to hold, directly or indirectly, C and F Block broadband PCS licenses
as to which it is, directly or indirectly, the licensee), and any such exercise
shall be invalid ab initio to the extent such exercise would preclude such
qualification or cause any such change; provided, however, that in the event the
rules and regulations of the Federal Communications Commission should later be
changed (or a waiver of any such rules and regulations is obtained) to permit
exercise of any rights otherwise restricted as described above, Holder shall
then be entitled to exercise such additional rights.
[THIS SPACE INTENTIONALLY LEFT BLANK]
17.
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 23rd day of September,
1998.
LEAP WIRELESS INTERNATIONAL, INC.
a Delaware corporation
By: /s/ HARVEY P. WHITE
---------------------------------
Harvey P. White
Chief Executive Officer and
President
ATTEST:
By: /S/ JAMES E. HOFFMANN
--------------------------------------
James E. Hoffmann
Senior Vice President, General Counsel
and Secretary
<PAGE> 19
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 5.1
[LATHAM & WATKINS LETTERHEAD]
October 13, 1998
Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, California 92121
Re: Form S-1 Registration Statement to File No. 333 - 64459; 2,271,060
Shares of Common Stock, $0.0001 par value
Ladies and Gentlemen:
We are acting as counsel for Leap Wireless International, Inc., a
Delaware corporation (the "Company"), in connection with the registration
statement on Form S-1 (the "Registration Statement") filed by you with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the offering from time to time, as set forth in the prospectus
contained in the Registration Statement, by the Company of 2,271,060 shares of
common stock of the Company, par value $0.0001 per share (the "Shares"),
issuable upon the conversion of the QUALCOMM Trust Convertible Preferred
Securities (as defined in the Registration Statement) pursuant to the terms of
that certain Conversion Agreement (the "Conversion Agreement") dated as of
September 23, 1998 by and between QUALCOMM Incorporated and the Company and upon
receipt by the Company of a Notice of Conversion (as defined in the Conversion
Agreement).
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization and issuance of the Shares and for the
purposes of this opinion, have assumed such proceedings will be timely completed
in the manner presently proposed. In addition, we have made such legal and
factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
<PAGE> 2
Leap Wireless International, Inc.
October 13, 1998
Page 2
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We have been furnished with, and with your consent have relied upon,
certificates of officers of the Company with respect to certain factual matters.
In addition, we have obtained and relied upon such certificates and assurances
from public officials as we have deemed necessary.
We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of the any other jurisdiction or as to any matters of municipal law or the
laws of any local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof, the Shares have been duly authorized by
all necessary corporate action of the Company and, upon issuance thereof upon
the conversion of the QUALCOMM Trust Convertible Preferred Securities by the
holders thereof and the Company's receipt of a Notice of Conversion in
accordance with the terms and conditions of the Conversion Agreement, will be
validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters" in
the Prospectus included therein.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be relied
upon by you for any other propose, or furnished to, quoted to, or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
LATHAM & WATKINS
<PAGE> 1
EXHIBIT 10.1
SEPARATION AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
QUALCOMM INCORPORATED
AND
LEAP WIRELESS INTERNATIONAL, INC.
DATED AS OF
SEPTEMBER 23, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
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 Leap Assets...................................................................3
1.19 Leap Business.................................................................3
1.20 Leap Group....................................................................3
1.21 Leap Operating Assets.........................................................4
1.22 Leap Policies.................................................................4
1.23 Liabilities...................................................................4
1.24 Person........................................................................4
1.25 Policies......................................................................4
1.26 Privileges....................................................................4
1.27 Privileged Information........................................................4
1.28 QUALCOMM Business.............................................................5
1.29 QUALCOMM Common Stock.........................................................5
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
1.30 QUALCOMM Group................................................................5
1.31 QUALCOMM Policies.............................................................5
1.32 Record Date...................................................................5
1.33 Related Entity................................................................5
1.34 Security Interest.............................................................5
1.35 Shared Policies...............................................................5
1.36 Subsidiary....................................................................5
1.37 Tax Agreement.................................................................5
1.38 Tax...........................................................................6
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..............................................................8
2.4 Termination Of Agreements.....................................................9
2.5 Disclaimer Of Representations And Warranties..................................9
2.6 Governmental Approvals And Consents; Deferred Transfers......................10
2.7 Assignment Of Assumed Leap Liabilities.......................................12
2.8 QUALCOMM Consideration; Leap Reserve Shares..................................12
ARTICLE 3 THE DISTRIBUTION..........................................................13
3.1 The Distribution.............................................................13
3.2 Actions Prior To The Distribution............................................13
3.3 Conditions To Distribution...................................................14
3.4 Fractional Shares............................................................15
ARTICLE 4 INDEMNIFICATION...........................................................15
4.1 Indemnification By Leap......................................................15
4.2 Indemnification By QUALCOMM..................................................16
4.3 Indemnification Obligations Net Of Insurance Proceeds And Other Amounts......16
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
4.4 Procedures For Indemnification Of Third Party Claims.........................17
4.5 Additional Matters...........................................................18
4.6 Survival Of Indemnities......................................................19
ARTICLE 5 CERTAIN COVENANTS AND OTHER AGREEMENTS OF THE PARTIES.....................19
5.1 Restriction on Interests.....................................................19
5.2 Restriction on Use of Other Technology.......................................19
5.3 Restriction on Employee Solicitation or Hiring...............................20
5.4 Right of First Refusal.......................................................21
5.5 Competition..................................................................22
5.6 Management of Interests......................................................23
5.7 Investment Company Act.......................................................23
5.8 License Grant By Leap........................................................23
5.9 Metrosvyaz Limited; Equipment Requirements...................................23
ARTICLE 6 CONFIDENTIALITY...........................................................24
6.1 Confidentiality..............................................................24
6.2 Protective Arrangements......................................................24
ARTICLE 7 ACCESS TO INFORMATION AND SERVICES........................................25
7.1 Provision of Corporate Records...............................................25
7.2 Access to Information........................................................25
7.3 Production of Witnesses......................................................26
7.4 Reimbursement................................................................26
7.5 Retention of Records.........................................................26
7.6 Privileged Matters...........................................................26
ARTICLE 8 INSURANCE.................................................................28
8.1 Policies and Rights Included Within the Leap Assets..........................28
8.2 Post-Distribution Date Claims................................................28
8.3 Administration and Reserves..................................................29
8.4 Agreement for Waiver of Conflict and Shared Defense..........................29
ARTICLE 9 ARBITRATION; DISPUTE RESOLUTION...........................................30
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
9.1 Disputes.....................................................................30
9.2 Alternative Dispute Resolution...............................................30
9.3 Arbitration Procedure........................................................30
9.4 Confidentiality..............................................................33
ARTICLE 10 FURTHER ASSURANCES........................................................33
10.1 Further Assurances...........................................................33
ARTICLE 11 TERMINATION...............................................................34
11.1 Termination By Mutual Consent................................................34
ARTICLE 12 MISCELLANEOUS.............................................................34
12.1 Counterparts; Entire Agreement...............................................34
12.2 Governing Law................................................................34
12.3 Assignability................................................................34
12.4 Third Party Beneficiaries....................................................35
12.5 Notices......................................................................35
12.6 Severability.................................................................35
12.7 Publicity....................................................................36
12.8 Expenses.....................................................................36
12.9 Headings.....................................................................36
12.10 Survival Of Covenants........................................................36
12.11 Waivers Of Default...........................................................36
12.12 Specific Performance.........................................................36
12.13 Amendments...................................................................36
12.14 Interpretation...............................................................37
12.15 Legal Counsel................................................................37
</TABLE>
<PAGE> 6
SEPARATION AND DISTRIBUTION AGREEMENT
THIS SEPARATION AND DISTRIBUTION AGREEMENT (including all exhibits and
schedules hereto, the "Agreement"), dated as of September 23, 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.
1.
<PAGE> 7
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; provided, however, with respect to the
Ukraine Assets (defined in Section 2.2) and Ukraine Liabilities (defined in
Section 2.3), Distribution Date shall be the date on which they are transferred
and assumed, if at all, pursuant to 2.6(c) hereof.
2.
<PAGE> 8
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 LEAP ASSETS has the definition set forth in Section 2.2.
1.19 LEAP BUSINESS means the business of operating Leap Operating
Assets.
1.20 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
3.
<PAGE> 9
1.21 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; provided,
however, that with respect to the assets listed on Schedule A-7, such assets
shall only be included in this definition if and when they are transferred
pursuant to Section 2.6(c).
1.22 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.
1.23 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 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.
1.24 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.
1.25 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.
1.26 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.
1.27 PRIVILEGED INFORMATION means all Information as to which QUALCOMM,
Leap or any of their Subsidiaries are entitled to assert the protection of a
Privilege.
4.
<PAGE> 10
1.28 QUALCOMM BUSINESS means the collective business of QUALCOMM,
excluding the Leap Business.
1.29 QUALCOMM COMMON STOCK means the Common Stock, $0.0001 par value per
share, of QUALCOMM.
1.30 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.
1.31 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.
1.32 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.
1.33 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.
1.34 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.
1.35 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.
1.36 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.
5.
<PAGE> 11
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, 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.
6.
<PAGE> 12
(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, 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; provided, however,
the assets listed on Schedule A-7 (including assets primarily related thereto,
if any, transferable pursuant to the following subparagraphs (ii) and (iii), but
excluding any Excluded Assets (defined below) primarily related thereto, the
"Ukraine Assets") shall not be deemed Leap Assets, and shall not be transferred
to Leap, until such time as they are transferable as described in Section 2.6;
(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.
7.
<PAGE> 13
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; provided, however, the Liabilities listed on Schedule B-7
(including Liabilities primarily related thereto, if any, transferable pursuant
to the following subparagraphs (ii) through (v), but excluding any Excluded
Liabilities (defined below) primarily related thereto, the "Ukraine
Liabilities") shall not be deemed Leap Liabilities, and shall not be transferred
to and assumed by Leap, until such time as the Leap Assets are transferred as
described in Section 2.6;
(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;
(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
8.
<PAGE> 14
(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
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
9.
<PAGE> 15
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) Except with respect to Ukraine Assets and Ukraine
Liabilities, which are governed by subsection (c) below:
(i) 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.
(ii) 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).
(iii) 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.
(iv) 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.
(c) This subsection (c) shall govern the transfer of the Ukraine
Assets and the assumption of Ukraine Liabilities.
(i) The parties expect that the valid, complete and
perfected transfer or assignment to Leap of the Ukraine Assets and the
assumption by Leap of the Ukraine
10.
<PAGE> 16
Liabilities may under certain circumstances be a violation of applicable laws
or require a Consent or Governmental Approval in connection with the Separation
or the Distribution if transferred at the time of the Separation. Therefore, the
transfer and assumption, respectively, of the Ukraine Assets and Ukraine
Liabilities shall be deferred until following the Separation and Distribution,
and any purported transfer or assignment shall be null and void, until such time
following the Separation and Distribution as all legal impediments are removed
and/or each of such Consents or Governmental Approvals have been obtained.
(ii) 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 the Ukraine Assets and the assumption of Ukraine
Liabilities, are obtained or removed (as appropriate), the transfer and
assumption thereof, respectively, shall be automatically effected as soon as
possible following the Separation and the Distribution in accordance with the
terms of this Agreement, or as otherwise agreed by the parties within thirty
(30) days thereafter.
(iii) Subject to the other provisions of this subsection
(c), the parties shall use commercially reasonable efforts to effect the valid,
complete and perfected transfer or assignment to Leap of the Ukraine Assets and
the assumption by Leap of the Ukraine Liabilities, and take all reasonable
actions relating thereto, including the obtainment of all necessary Consents and
Governmental Approvals.
(iv) Notwithstanding any other provision of this
subsection (c) or any other provision of this Agreement, Leap shall have no
rights to manage, control, transfer, impair, discharge or otherwise possess the
Ukraine Assets and/or Ukraine Liabilities, until the transfer and assumption
thereof pursuant hereto. Leap acknowledges and agrees that QUALCOMM shall have
all rights of ownership with respect to the Ukraine Assets and Ukraine
Liabilities until the transfer to and assumption by Leap thereof pursuant
hereto, including without limitation voting rights and rights to transfer or
dispose of the same. To the extent prior to the transfer to and assumption by
Leap of the Ukraine Assets and Ukraine Liabilities, respectively, the
composition of Ukraine Assets and/or Ukraine Liabilities is altered (including
any reduction thereof as a result of a transfer or disposition thereof, or
discharge thereof, by QUALCOMM) as a result of QUALCOMM's exercise of such
rights, the Ukraine Assets and Ukraine Liabilities will be transferred and
assumed pursuant hereto as so altered. For example, in the event QUALCOMM
transfers or disposes of all or a portion of the Ukraine Assets and Ukraine
Liabilities, only the remaining Ukraine Assets and Ukraine Liabilities, if any,
shall be transferable and assumable pursuant hereto, and Leap shall not be
entitled to any proceeds of such transfer or disposal, or have any further
rights or obligations with respect to the Ukraine Assets and Ukraine Liabilities
so transferred or disposed.
(v) The foregoing provisions of this subsection (c) shall
expire and be of no further force and effect as of the date that is eighteen
(18) months following the Distribution; and if by such time the Ukraine Assets
and Ukraine Liabilities have not been transferred to Leap pursuant hereto, the
parties thereafter shall have no obligation hereunder to effect such transfer.
11.
<PAGE> 17
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 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.
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ARTICLE 3
THE DISTRIBUTION
3.1 THE DISTRIBUTION.
(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.
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.
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(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 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 by Leap shall
exempt Leap for a period of sixty (60) days from all provisions of the
Investment Company Act applicable to investment companies as such, (c) Leap is
not (with such qualifications or other modifications of terms acceptable to
QUALCOMM) 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
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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. 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.
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<PAGE> 21
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;
(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.
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(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 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
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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).
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
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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, 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:
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(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
(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
20.
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(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.
(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.
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(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.
(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
22.
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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.
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. 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.
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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 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
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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 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,
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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.
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
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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 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.
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(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.
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
28.
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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 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.
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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.
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.
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(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 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:
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(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.
(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.
(vii) 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.
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(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 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
33.
<PAGE> 39
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.
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.
34.
<PAGE> 40
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. Leap shall not be entitled, solely as
a result of it directly or indirectly holding an ownership interest in a
Portfolio Investment (as such term is defined in the Credit Agreement) that has
an agreement with any member of the QUALCOMM Group, to assert any claim or cause
of action against QUALCOMM and/or such member of the QUALCOMM Group (if
different) as a result of the failure by such member of the QUALCOMM Group to
perform such QUALCOMM Group member's obligations thereunder, except for any
claim which asserts one or more causes of action otherwise available to the
Portfolio Investment, and which seeks damages which do not exceed the damages
available to the Portfolio Investment, and which Leap is a successor in interest
to such claim.
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:
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
35.
<PAGE> 41
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.
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.
36.
<PAGE> 42
(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: (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.
37.
<PAGE> 43
IN WITNESS WHEREOF, the parties have caused this Separation and
Distribution Agreement to be executed by their duly authorized representatives.
QUALCOMM INCORPORATED:
By: /s/ Anthony S. Thornley
----------------------------------
Name: Anthony S. Thornley
Title: Executive Vice President and
Chief Financial Officer
LEAP WIRELESS INTERNATIONAL, INC.:
By: /s/ Harvey P. White
----------------------------------
Name: Harvey P. White
Title: President and Chief Executive
Officer
38.
<PAGE> 44
SCHEDULE A-1
(ASSETS RELATED TO CHASE TELECOMMUNICATIONS HOLDINGS, INC.)
449,340 Class B Common Shares of Chase Telecommunications Holdings, 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.
<PAGE> 45
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 thereon) 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.
Foreign investment contract (DL-600).
<PAGE> 46
SCHEDULE A-3
(ASSETS RELATED TO METROSVYAZ/RUSSIA)
2,240 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 thereon) 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.
<PAGE> 47
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.
<PAGE> 48
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.
<PAGE> 49
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.
<PAGE> 50
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".
<PAGE> 51
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.
All work product and work in process for site acquisition, RF planning and
network planning services related to Tucson, Arizona, Albuquerque, New Mexico
and Hawaii performed by QUALCOMM prior to the date of the Distribution.
<PAGE> 52
LEAP ASSET INVENTORY SUMMARY*
AS OF SEPTEMBER 5, 1998
<TABLE>
<CAPTION>
ASSET TYPE STATUS
---------- ------
<S> <C>
TENANT IMPROVEMENTS
o Main floor & mezzanine build-out in-process
o Leasehold Improvements purchased
o One copy machine to be ordered
o Misc FF&E (coffee makers, white boards, fax etc.) to be ordered
COMPUTER RELATED
o 80 Laptop computer ThinkPads, monitors, keyboards on-order
o 2 Scanjet printers, 2 color printers, 4 LaserJets on-order
o 4 Compaq servers, server software, desktop software on-order
o Network routers, hubs (Cisco) on-order
o Sun Workstation & plotter on-hand
FURNITURE
o New furniture: 54 desks, 8 leather chairs, 46 desk chairs,
94 side chairs, 58 bookcases, 4 conf tables, 44 conf chairs,
13 credenzas, 13 lobby chairs, 4 end tables, 2 enclosed
white boards, 10 lateral files, 24 round tables,
18 cubicles on-order
TELEPHONE EQUIPMENT
o PBX on-order
o Handsets (new) on-order
o Q-Phones (52 Q-phones, 5 kits) on-order
AUDIO VISUAL EQUIPMENT
o 5-35mm slide projectors, 3 TV's, 3 VCR's, misc. on-order
o Epson projector on-order
FITNESS EQUIPMENT
o 2 stair-climbers, exercise bikes, treadmill, various press
and curl machines, stands to be ordered
OFFICE SUPPLIES
o Misc. supplies on hand on-hand
</TABLE>
- --------------
* Estimates. Does not include financial assets such as cash, accounts
receivable, notes receivable, intangible assets, etc.
<PAGE> 53
SCHEDULE B-1
(LIABILITIES RELATED TO CHASE TELECOMMUNICATIONS HOLDINGS, 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.
<PAGE> 54
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.
Foreign investment contract (DL-600).
<PAGE> 55
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.
<PAGE> 56
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.
<PAGE> 57
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.
<PAGE> 58
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.
<PAGE> 59
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".
<PAGE> 60
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.
<PAGE> 1
EXHIBIT 10.2
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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(i) Investment Capital Loans TC "(i) Investment Capital
Loans" \l "4"...................................................24
(ii) Working Capital Loans...........................................24
(ii) Working Capital Loans TC "(ii) Working Capital
Loans" \l "4"...................................................24
(c) Investment Capital Loans in Excess of Aggregate Investment
Capital Loan Commitment; Working Capital Loans in Excess of
Aggregate Working Capital Loan Commitment.............................24
(d) Breakage Charge.......................................................24
(e) Application of Prepayments............................................24
2.11 Survivability.............................................................24
2.12 Promissory Notes..........................................................25
(a) Investment Capital Notes..............................................25
(b) The Working Capital Notes.............................................25
2.13 Net Payments..............................................................25
2.14 Changed Circumstances; Taxes..............................................26
2.15 Capital Requirements......................................................31
2.16 Substitution of Lenders...................................................31
2.17 Conversion to High Yield Structure........................................31
SECTION 3. CONDITIONS OF LENDING...............................................32
3.1 Conditions Precedent to Initial Loans.....................................32
(a) Notes.................................................................32
(b) Security Agreement....................................................32
(c) Financing Statements..................................................32
(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.................................................33
(j) Consummation of Distribution and Other Transactions...................33
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(k) Adverse Change........................................................34
(l) Consents, Approvals...................................................34
(m) Organizational Documentation; Etc.....................................34
(n) Litigation............................................................34
(o) Board Resolutions.....................................................34
(p) Incumbency Certificates...............................................34
(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.........................................35
SECTION 4. REPRESENTATIONS AND WARRANTIES......................................36
4.1 Representations and Warranties of Borrower................................36
(a) Corporate Organization; Structure.....................................36
(b) Corporate Power; Authorization; Conflicts.............................36
(c) Approvals.............................................................36
(d) Enforceability........................................................37
(e) Financial Statements/Projections......................................37
(f) Litigation............................................................37
(g) Use of Proceeds.......................................................37
(h) Compliance With Laws, Other Agreements................................37
(i) Event of Default......................................................37
(j) Collateral Documents..................................................38
(k) No Subordination......................................................38
(l) Subsidiaries..........................................................38
(m) Taxes.................................................................38
(n) Ownership and Liens...................................................38
(o) Indebtedness..........................................................38
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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...............................................40
5.1 Affirmative Covenants.....................................................40
(a) Compliance With Laws, Other Agreements................................40
(b) Reporting Requirements................................................41
(c) Insurance.............................................................42
(d) Taxes and Other Indebtedness..........................................43
(e) Maintenance of Existence; Conduct of Business.........................43
(f) Financial Records, Inspection.........................................43
(g) Use of Proceeds.......................................................43
(h) Consents, Approvals...................................................43
(i) Environmental Condition...............................................44
(j) Renegotiation of Financial Covenants..................................44
(k) Further Assurances....................................................44
5.2 Negative Covenants........................................................44
(a) Encumbrances, Liens, Etc..............................................44
(b) Indebtedness..........................................................45
(c) Consolidation/Merger/Change of Control................................45
(d) Disposition of Assets.................................................45
(e) Investments...........................................................45
(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..............................46
(l) ERISA Compliance......................................................46
(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......................................49
SECTION 7. ADMINISTRATIVE AGENT................................................49
7.1 Appointment of ABN AMRO Bank N.V. as Administrative Agent.................49
7.2 Delegation of Duties by Administrative Agent..............................50
7.3 Liability of Administrative Agent.........................................50
7.4 Reliance by Administrative Agent..........................................50
7.5 Notice of Default.........................................................51
7.6 Non-Reliance by Lenders...................................................51
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 September
23, 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, 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
September 23, 1998 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 September 23, 1998 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 September 23, 1998, 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.
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"Specified Agreements" means the Separation and Distribution
Agreement, the Equipment Agreement and the Tax Agreement, each dated as of
September 23, 1998, 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
17.
<PAGE> 25
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) 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) 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.
(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
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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 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
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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 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
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(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;
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
27.
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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) 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").
(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.
28.
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(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 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
29.
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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.
(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
30.
<PAGE> 38
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.
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
31.
<PAGE> 39
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.
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 24, 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.
32.
<PAGE> 40
(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 a senior vice
president (such certificate 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.
33.
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(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 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.
34.
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(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 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
35.
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(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 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
36.
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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.
(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.
37.
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(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
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,
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<PAGE> 46
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.
(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.
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<PAGE> 47
(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 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,
40.
<PAGE> 48
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 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;
41.
<PAGE> 49
(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 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
42.
<PAGE> 50
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.
(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, APPPROVALS. 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
43.
<PAGE> 51
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.
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
44.
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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.
(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.
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<PAGE> 53
(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.
(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
46.
<PAGE> 54
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:
(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, AND SECTION
5(e) of the Securities Pledge Agreement, 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
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(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
(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
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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.
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
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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 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
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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 Administrative 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 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
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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 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
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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 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
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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;
(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;
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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.
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
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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.: (619) 882-6010
With a copy to:
Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, California 92121
Attention: General Counsel
Fax No.: (619) 882-6010
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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) 658-2503
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
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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, the same shall have been delivered to the parties and any of the
securities of Borrower are listed or approved for listing upon notice of
issuance on the NASDAQ National Market System.
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 becomes available on a
non-
61.
<PAGE> 69
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: /s/ Harvey P. White
-------------------------------------
Harvey P. White,
President and Chief Executive Officer
ADMINISTRATIVE AGENT: ABN AMRO BANK N.V., AS ADMINISTRATIVE
AGENT
By: /s/ John A. Miller
-------------------------------------
Name: John A. Miller
Title: Group Vice President
By: /s/ Judith M. Bresnen
-------------------------------------
Name: Judith M. Bresnen
Title: Vice President
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
CREDIT AGREEMENT
<PAGE> 71
LENDER: QUALCOMM INCORPORATED
By: /s/ Anthony S. Thornley
------------------------------------
Name: Anthony S. Thornley
Title: Executive Vice President and
Chief Financial Officer
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 WORKING CAPITAL LOAN
COMMITMENT 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
$[__________________] [DATE]
San Diego, California, U.S.A.
LEAP WIRELESS INTERNATIONAL, INC., a Delaware corporation ("Borrower"),
for value received, hereby promises to pay to the order of [NAME OF LENDER]
("Lender"), at the offices of [NAME OF ADMINISTRATIVE AGENT] ("Administrative
Agent") or at such other office as the Administrative Agent may specify from
time to time, in lawful money of the United States of America at Maturity (as
defined in that certain Credit Agreement dated as of [DATE], by and among
Borrower, the Lenders party thereto and the Administrative Agent, as the same
may from time to time be amended, modified, supplemented or restated, the
"Credit Agreement"), the lesser of (i) the principal amount of
________________________________ Dollars ($___________________) 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
$[_______________________] [DATE]
San Diego, California, U.S.A.
LEAP WIRELESS INTERNATIONAL, INC., a Delaware corporation ("Borrower"),
for value received, hereby promises to pay to the order of [NAME OF LENDER]
("Lender"), at the offices of [NAME OF ADMINISTRATIVE AGENT] ("Administrative
Agent") or at such other office as the Administrative Agent may specify from
time to time, in lawful money of the United States of America at Maturity (as
defined in that certain Credit Agreement dated as of [DATE], by and among
Borrower, the Lenders party thereto and the Administrative Agent, as the same
may from time to time be amended, modified, supplemented or restated, the
"Credit Agreement"), the lesser of (i) the principal amount of
______________________________ Dollars ($____________________) 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 September 23, 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
<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:__________________________________
<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 September 23, 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
1.
<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 September
23, 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 September 23, 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 thereof) whether arising out of goods sold or
services rendered by the Grantor or from any other
1.
<PAGE> 85
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.
"OzPhone Shares" means the 8 Ordinary Shares in OzPhone Pty Ltd.
referred to in Schedule II and includes all rights attaching to those shares.
4.
<PAGE> 88
"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.
"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 country, 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 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.
5.
<PAGE> 89
"Security Agreement" means this Security Agreement and all Schedules
hereto, as the same may from time to time be amended, modified, supplemented or
restated.
"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 subject to the proviso below 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;
6.
<PAGE> 90
(f) All Fixtures;
(g) All General Intangibles;
(h) All Instruments;
(i) All Inventory;
(j) All Investment Property, provided that: the security created by
this Agreement does not attach to the OzPhone Shares unless and until the
Grantor is entered in the register of members of OzPhone Pty Ltd. as the
shareholder of the OzPhone Shares;
(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,
7.
<PAGE> 91
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 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.
8.
<PAGE> 92
(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 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
9.
<PAGE> 93
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 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
10.
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Incorporated, as the Agent on behalf and for the benefit of the Lenders named in
a Credit Agreement dated as of September 23, 1998, as the same may thereafter
from time to time be amended, modified, supplemented or restated."
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.
11.
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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 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.
12.
<PAGE> 96
(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 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.
13.
<PAGE> 97
(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 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.
14.
<PAGE> 98
(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 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
15.
<PAGE> 99
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. 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
16.
<PAGE> 100
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.
17.
<PAGE> 101
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
18.
<PAGE> 102
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.
19.
<PAGE> 103
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:____________________________
20.
<PAGE> 104
SCHEDULE I
LOCATION OF THE GRANTOR'S CHIEF EXECUTIVE OFFICE, PRINCIPAL
PLACE OF BUSINESS, AND RECORDS PERTAINING TO COLLATERAL
10307 Pacific Center Court
San Diego, California 92121
<PAGE> 105
SCHEDULE II
LIST OF COLLATERAL DELIVERED BY
THE GRANTOR TO THE AGENT
Stock certificate(s) for 449,340 Class B Common Shares of Chase
Telecommunications Holdings, Inc.
Warrant to purchase 526,973 Class B Common Shares of Chase Telecommunications
Holdings, Inc.
Promissory notes evidencing all outstanding 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.
Stock certificate(s) for 10,999,900 shares of stock in Inversiones QUALCOMM
Chile, S.A.
Stock certificate(s) for 2,240 Shares of QUALCOMM Telecommunications, Ltd.
(Cayman Islands).
Stock certificate(s) for 70 Shares of QUALCOMM Telecommunications Limited (Isle
of Man).
8 Ordinary Shares of OzPhone Pty. Ltd.
Stock certificate(s) for 1000 Shares of QUALCOMM PCS Mexico, Inc.
Stock certificate(s) representing 100% of the issue and outstanding shares of
Cricket Communications, Inc.
Stock certificate(s) representing 100% of the issue and outstanding shares of
Cricket Holdings, Inc.
Promissory Note, with a principal amount of $51.8 million, made by Orrengrove
Investments Limited payable to Leap Wireless International, Inc.
<PAGE> 106
SCHEDULE III
PATENTS, PATENT LICENSES, TRADEMARKS, TRADEMARK LICENSES,
COPYRIGHTS AND COPYRIGHT LICENSES OF THE GRANTOR
None.
<PAGE> 107
SCHEDULE IV.1
DEPOSIT ACCOUNTS
Bank of America N.T. & S.A.
Attn: Mr. Alan Silbergh
Cash Management Services
Unit No. 15093
555 California Street
P. O. Box 37000
San Francisco, CA 94137
Payroll Account No. 12335-28491 and
Concentration (Main Account) No. 12339-28234
<PAGE> 108
SCHEDULE IV.2
SECURITIES ACCOUNTS
Dreyfus Cash Management Plus
Attn: Sue Ann Cormack
400 South Hope Street, 5th Floor
Los Angeles, CA 90071
Money Market Account No. 719-0360105829
Blackrock
Attn: Vincent Begatto,
Funds Manager
400 Belleview Pkwy.
Wilmington, DE 19809
Money Market Account No. 20775
<PAGE> 109
EXHIBIT F
FORM OF SECURITIES PLEDGE AGREEMENT
THIS SECURITIES PLEDGE AGREEMENT ("Securities Pledge Agreement") dated
as of September 23, 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, the warrant, and the 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
1.
<PAGE> 110
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.
"Pledged Collateral" shall have the meaning set forth in SECTION 2(a),
below.
"OzPhone Shares" means the 8 Ordinary Shares in OzPhone Pty Ltd.
referred to in Schedule I and includes all rights attached to those shares.
"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 and mortgages to the Agent, and
grants to the Agent, on behalf and for the benefit of the Lenders, a security
interest by way of mortgage in all of the following (collectively, the "Pledged
Collateral"), except as specifically provided in Section 6, below and subject to
the proviso 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, provided that: the pledge and mortgage over the OzPhone Shares
shall not take effect unless and until the Pledgor is entered in the register of
members of OzPhone Pty Ltd. as the shareholder of those OzPhone 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.
2.
<PAGE> 111
(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 or otherwise when the security takes effect in
the case of the OzPhone Shares, 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, 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.
3.
<PAGE> 112
(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:
(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. Without limiting the foregoing, the
Pledgor shall, at the Pledgor's expense, promptly (but in any event within
thirty days after the date the security attaches to the OzPhone Shares) deliver
to the Agent share certificates respecting the 8 Ordinary Shares of OzPhone Pty.
Ltd in the name of Pledgor and executed instruments of transfer or assignment
(including without limitation stock powers) executed in blank, in respect of
such shares.
(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 or upon
obtaining any additional shares of Stock upon the exercise of the warrant shown
in 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, 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 assignment (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.
4.
<PAGE> 113
(e) The Pledgor shall not vote, in person or by proxy, to alter,
add to or delete Article 25A of the constitution of OzPhone Pty. Ltd.
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 or principal
payments paid in respect of the Pledged Securities, except such cash dividends
or cash interest or principal 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 or principal 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 or principal 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
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
5.
<PAGE> 114
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 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
6.
<PAGE> 115
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 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.
7.
<PAGE> 116
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 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> 117
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> 118
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> 119
SCHEDULE I
Attached to and forming a part of that certain Securities Pledge
Agreement ("Securities Pledge Agreement") dated as of September 23, 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").
Stock certificate(s) for 449,340 Class B Common Shares of Chase
Telecommunications Holdings, Inc.
Warrant to purchase 526,973 Class B Common Shares of Chase Telecommunications
Holdings, Inc.
Promissory notes evidencing all outstanding 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.
Stock certificate(s) for 10,999,900 shares of stock in Inversiones QUALCOMM
Chile, S.A.
Stock certificate(s) for 2,240 Shares of QUALCOMM Telecommunications, Ltd.
(Cayman Islands).
Stock certificate(s) for 70 Shares of QUALCOMM Telecommunications Limited (Isle
of Man).
8 Ordinary Shares of OzPhone Pty. Ltd.
Stock certificate(s) for 1000 Shares of QUALCOMM PCS Mexico, Inc.
Stock certificate(s) representing 100% of the issue and outstanding shares of
Cricket Communications, Inc.
Stock certificate(s) representing 100% of the issue and outstanding shares of
Cricket Holdings, Inc.
Promissory Note, with a principal amount of $51.8 million, made by Orrengrove
Investments Limited payable to Leap Wireless International, Inc.
SECURITIES PLEDGE AGREEMENT (Borrower)
<PAGE> 120
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 September 23, 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 CERTIFICATE NUMBER OF SHARES
STOCK OR NOTE ISSUER CLASS OF STOCK OR NOTES NUMBERS OR NOTE IDENTIFICATION OR AMOUNT OF NOTE
- -------------------- ----------------------- ------------------------------ -----------------
<S> <C> <C> <C>
- -------------------- ----------------------- ------------------------------ -----------------
- -------------------- ----------------------- ------------------------------ -----------------
- -------------------- ----------------------- ------------------------------ -----------------
- -------------------- ----------------------- ------------------------------ -----------------
</TABLE>
SECURITIES PLEDGE AGREEMENT (Borrower)
<PAGE> 121
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 September 23, 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> 122
that were delivered to such Assignor pursuant to the conditions precedent set
forth in SECTION 3 of the Credit Agreement. The Assignor hereby notifies the
Assignee that the opinion of Latham & Watkins dated September 23, 1998 (the
"Opinion") which was delivered in connection with the execution and delivery of
the Credit Agreement speaks only as of the date thereof and to its addressees
and Latham & Watkins has no responsibility or obligation to update the Opinion,
to consider its applicability or correctness to other than its addressees, or to
take into account changes in law, facts or any other development of which they
may later become aware.
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
2.
<PAGE> 123
(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 performance by a Lender.
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> 124
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> 125
ADMINISTRATIVE AGENT:
RECORDED this _______ day of
_______________, 199__/200__
ABN AMRO BANK N.V., as Administrative Agent
By: ______________________________
Name: ____________________________
Title: ___________________________
By: ______________________________
Name: ____________________________
Title: ___________________________
BORROWER:
ACCEPTED this _______ day of
_______________, 199__/200__
LEAP WIRELESS INTERNATIONAL, INC.,
a Delaware corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
5.
<PAGE> 126
SCHEDULE I
ASSIGNOR'S OUTSTANDING LOANS
(PRIOR TO ASSIGNMENT)
Investment Capital Loans $_______________
Working Capital Loans $_______________
Schedule I
<PAGE> 127
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> 128
SCHEDULE III
ASSIGNOR'S COMMITMENT AMOUNTS
(PRIOR TO ASSIGNMENT)
<TABLE>
<S> <C>
Investment Capital Loan Commitment $______________
Working Capital Loan Commitment $______________
</TABLE>
Schedule III
<PAGE> 129
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 10.3
TAX MATTERS AGREEMENT
This TAX MATTERS AGREEMENT ("AGREEMENT") is made effective as
of September 23, 1998 (the "EFFECTIVE DATE") by and between QUALCOMM
Incorporated ("QUALCOMM"), a Delaware corporation, and Leap Wireless
International, Inc. ("LEAP WIRELESS") a Delaware corporation.
RECITALS
WHEREAS, QUALCOMM intends to contribute certain of its assets
to the capital of Leap Wireless in exchange for, among other things, all of the
issued and outstanding capital stock of Leap Wireless and shortly thereafter
distribute one hundred percent (100%) of its shares of Leap Wireless stock to
its shareholders on September 23, 1998, and
WHEREAS, QUALCOMM, on behalf of itself and QUALCOMM's present
and future Subsidiaries other than Leap Wireless and Leap Wireless's present and
future Subsidiaries (the "QUALCOMM GROUP"), and Leap Wireless, on behalf of
itself and Leap Wireless's present and future Subsidiaries (the "LEAP WIRELESS
GROUP"), have determined that it is necessary and desirable to provide for
allocations between the QUALCOMM Group and the Leap Wireless 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
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.
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<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 Wireless Businesses" means the assets owned and businesses
conducted by the Leap Wireless Group immediately after the Separation Date.
1.10. "Separation Date" means the date on which QUALCOMM distributes
100% of the stock of Leap Wireless to its shareholders.
1.11 "Subsidiary" means an entity in which QUALCOMM or Leap Wireless,
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 valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise,
2
<PAGE> 3
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 Wireless 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 Wireless 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
Wireless shall prepare and timely file any consolidated or combined or separate
foreign Tax return that includes a Leap Wireless Group member for any
Pre-Separation Period.
(d) Amendments. With respect to any return that includes any
Leap Wireless Business and for which QUALCOMM has responsibility under this
Section 2.01, QUALCOMM
3
<PAGE> 4
shall not file an amended return or change any Tax accounting method or election
without Leap Wireless's consent (which shall not be unreasonably withheld) if
such action would increase any Tax for which any Leap Wireless 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 Wireless shall prepare
and timely file all federal, state, local and foreign income Tax returns for
each Leap Wireless 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 Wireless 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 Wireless 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 Wireless Businesses, except
with respect to Taxes relating to Leap Wireless'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 Wireless
Group member described in Section 3.03).
(b) Except as otherwise provided in this Article III, Leap
Wireless 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 Wireless Businesses. Leap Wireless 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 Wireless's non-US. Subsidiaries or any predecessor or successor thereof.
Leap Wireless 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 Wireless 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 Wireless, as the case may be; provided,
however, that any amount payable by any QUALCOMM Group member or Leap Wireless
Group member in respect of any such refund shall paid on an After Tax Basis.
4
<PAGE> 5
3.02. Adjustments to Tax.
(a) QUALCOMM shall be responsible for, and shall indemnify and
hold harmless each Leap Wireless 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 Wireless Businesses
for any Pre-Separation Period, except with respect to Adjustments to Tax related
to Leap Wireless'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 Wireless
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 Wireless Group member, Leap
Wireless shall pay promptly to QUALCOMM the amount of the Tax Benefit realized
by the Leap Wireless Group, net of any Tax Detriment, if any, experienced by the
Leap Wireless 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 Wireless Group member, QUALCOMM shall pay promptly to Leap
Wireless the amount of the Tax Detriment realized by the Leap Wireless Group on
an After Tax Basis upon receiving written notification from Leap Wireless of
such amount.
(b) Leap Wireless 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 Wireless's non-U.S. Subsidiaries or any predecessor or
successor thereto, and (ii) for any Post-Separation Period with respect to Leap
Wireless Businesses. Leap Wireless 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 Wireless is responsible under this Section 3.02
reduces the Tax liability of an QUALCOMM Group member, QUALCOMM shall pay
promptly to Leap Wireless 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 Wireless
is responsible under this Section 3.02 increases the Tax liability of an
QUALCOMM Group member, Leap Wireless 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 Wireless
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
Wireless 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 Wireless any
refund when received or reduction in
5
<PAGE> 6
Tax when reported on an 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 Wireless 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 Wireless
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 Wireless during regular
business hours.
4.03. Notice, Defense, and Settlement of Tax Claims. If a member of the
QUALCOMM Group or Leap Wireless 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
Wireless, as the case may be. QUALCOMM and Leap Wireless 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
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<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
Wireless 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 Wireless 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 Wireless 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 Agreement supersedes
all proposals, oral or written and all negotiations, conversations or
7
<PAGE> 8
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 shall
be addressed to the then current principal address of each party. 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.
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.
8
<PAGE> 9
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/ Anthony S. Thornley By: /s/ Harvey P. White
------------------------------ ---------------------------------
Name: Anthony S. Thornley Name: Harvey P. White
--------------------------- ------------------------------
Title: Executive Vice President & Title: President & Chief Executive
Chief Financial Officer Officer
-------------------------- ------------------------------
9
<PAGE> 1
EXHIBIT 10.4
INTERIM SERVICES AGREEMENT
THIS INTERIM SERVICES AGREEMENT ("Agreement"), dated as of September
23, 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> 2
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
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(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.
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(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.
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(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
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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: /s/ Anthony S. Thornley
------------------------------------------
Name: Anthony S. Thornley
----------------------------------------
Title: Executive Vice President &
Chief Financial Officer
---------------------------------------
LEAP WIRELESS INTERNATIONAL, INC.:
By: /s/ HARVEY P. WHITE
------------------------------------------
Name: Harvey P. White
----------------------------------------
Title: President & Chief Executive Officer
---------------------------------------
6.
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EXHIBIT 10.5
MASTER AGREEMENT REGARDING EQUIPMENT PROCUREMENT
This Master Agreement Regarding Equipment Procurement (the "Agreement")
is made effective as of the 23rd day of September, 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 September 23, 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(R) (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.
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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)."
"BTSs" shall have the meaning ascribed thereto in the definition of
"Product(s)."
"cdmaOne(R)" 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
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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.
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"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.
"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.
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"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.
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2. 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
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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.
(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
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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
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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 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
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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
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Factors, with those offered by the Person submitting the Lowest Competing
Infrastructure Bid (otherwise there shall be no obligation to accept QUALCOMM's
offer).
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).
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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).
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
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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.
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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.
(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
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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
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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 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
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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
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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).
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
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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.
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
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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.
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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.
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) 845-6060
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.
21
<PAGE> 22
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;
22
<PAGE> 23
(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. 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
23
<PAGE> 24
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 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
24
<PAGE> 25
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
25
<PAGE> 26
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.
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: /s/ Harvey P. White By: /s/ Anthony S. Thornley
-------------------------------- --------------------------------
Print Name: Harvey P. White Print Name: Anthony S. Thornley
------------------------ ------------------------
Title: President & Chief Executive Title: Executive Vice President &
----------------------------- -----------------------------
Officer Chief Financial Officer
----------------------------- -----------------------------
25
<PAGE> 1
Exhibit 10.6
EMPLOYEE BENEFITS AGREEMENT
BETWEEN
QUALCOMM INCORPORATED
AND
LEAP WIRELESS INTERNATIONAL, INC.
SEPTEMBER 23, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <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 ......................................................... 2
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 IRS ........................................................... 2
1.13 Leap 401(k) Plan .............................................. 2
1.14 Leap Entity ................................................... 2
1.15 Leap Individual ............................................... 2
1.16 Leap Stock Value .............................................. 2
1.17 Long Term Incentive Plan ...................................... 2
1.18 Medical Plan .................................................. 2
1.19 Non-Employee Director ......................................... 3
1.20 Option ........................................................ 3
1.21 Person ........................................................ 3
1.22 Plan .......................................................... 3
1.23 QUALCOMM 401(k) Plan .......................................... 3
1.24 QUALCOMM Entity ............................................... 3
1.25 QUALCOMM Stock Value .......................................... 3
1.26 QUALCOMM WCP .................................................. 3
1.27 SEC ........................................................... 3
1.28 Stock Purchase Plan ........................................... 3
ARTICLE 2 GENERAL PRINCIPLES .................................................. 4
2.1 Assumption of Liabilities ..................................... 4
2.2 Retention of Liabilities ...................................... 4
2.3 Establishment Of Leap Plans ................................... 4
2.4 Terms Of Participation In Leap Plans .......................... 5
ARTICLE 3 HEALTH AND WELFARE PLANS ............................................ 5
3.1 COBRA ......................................................... 5
3.2 FMLA .......................................................... 5
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
3.3 Workers' Compensation Programs ................................ 6
ARTICLE 4 DEFINED CONTRIBUTION PLANS .......................................... 6
4.1 Leap 401(k) Plan .............................................. 6
4.2 Leap Executive Retirement Plans ............................... 7
ARTICLE 5 EMPLOYEE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS
UNDER QUALCOMM LONG-TERM INCENTIVE PLANS; LIFE INSURANCE ............ 7
5.1 Leap Option Grants with respect to Certain QUALCOMM Options ... 7
5.2 Adjustment of QUALCOMM Options held by Persons other than
Employees, Consultants and Non-Employee Directors of
QUALCOMM ...................................................... 8
5.3 Amendment of QUALCOMM Options held by Leap Employees .......... 8
5.4 Savings Clause ................................................ 8
5.5 Issuance of Leap Shares with respect to Certain QUALCOMM
Option Exercises .............................................. 9
5.6 Black-Out of Certain Exercises of QUALCOMM Options ............ 9
5.7 Registration Requirements ..................................... 9
5.8 Split Dollar Life Insurance ................................... 10
ARTICLE 6 GENERAL AND ADMINISTRATIVE .......................................... 10
6.1 Accounting Methodologies And Assumptions ...................... 10
6.2 Sharing Of Participant Information ............................ 10
6.3 Non-Termination Of Employment; No Third-Party Beneficiaries ... 10
6.4 Beneficiary Designations ...................................... 11
6.5 Requests For Agency Rulings And Opinions ...................... 11
6.6 Fiduciary Matters ............................................. 11
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 ....................................................... 12
7.6 Severability .................................................. 13
7.7 Modification And Amendment; Entire Agreement .................. 13
7.8 Dispute Resolution ............................................ 13
7.9 Governing Law ................................................. 13
</TABLE>
Exhibit A Distribution Stock Option Agreement
Exhibit B Option Amendment Agreement
<PAGE> 4
EMPLOYEE BENEFITS AGREEMENT
THIS EMPLOYEE BENEFITS AGREEMENT ("Agreement"), dated as of September 23,
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.
<PAGE> 5
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.
1.8 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.
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 IRS means the Internal Revenue Service.
1.13 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.
1.14 LEAP ENTITY means any Person that is, at the relevant time, an
Affiliate of Leap.
1.15 LEAP INDIVIDUAL means any individual who is an employee of QUALCOMM or
a QUALCOMM Entity who receives an offer of employment from Leap or a Leap Entity
on or before the Distribution Date with employment to commence after the
Distribution Date and who accepts such offer.
1.16 LEAP STOCK VALUE means the last sales price per share of Leap Common
Stock (traded on a "when-issued" basis) on the Distribution Date.
1.17 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.
1.18 MEDICAL PLAN, when immediately preceded by "QUALCOMM," means the
QUALCOMM Medical Expense Plan for Employees. When immediately preceded by
"Leap,"
2
<PAGE> 6
Medical Plan means the medical plan to be established by Leap effective no later
than Immediately after the Distribution Date.
1.19 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-Employee Director
means a member of Leap's Board of Directors who is not an employee of Leap or a
Leap Entity.
1.20 OPTION, when immediately preceded by "QUALCOMM," means an option to
purchase QUALCOMM Common Stock, and 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.
1.21 PERSON means any individual or legal entity.
1.22 PLAN, when immediately preceded by "QUALCOMM" or "Leap," means any
plan, policy, program (including, without limitation, any workers compensation
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. 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.
1.23 QUALCOMM 401(k) PLAN means the QUALCOMM 401(k) Savings Plan, as in
effect from time to time.
1.24 QUALCOMM ENTITY means any Person that is, at the relevant time, an
Affiliate of QUALCOMM, except that the term "QUALCOMM Entity" shall not include
Leap or a Leap Entity.
1.25 QUALCOMM STOCK VALUE means the last "regular way" 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.
1.26 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.
1.27 SEC means the United States Securities and Exchange Commission.
1.28 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.
3
<PAGE> 7
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 arising under a QUALCOMM Plan, but only to the extent such
Liabilities relate to the payment of a bonus to a Leap Individual or relate to
the payment or crediting of accrued vacation and sick pay; (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 Leap
Plans); (c) all Liabilities relating to, arising out of or resulting from any
other actual or alleged employment relationship with Leap or a Leap Entity
(including without limitation, actual or alleged offers of employment with Leap
or a Leap Entity made prior to the Close of the Distribution Date to employees
of QUALCOMM, a QUALCOMM Entity or any other Person, by any Person who at the
time of the actual or alleged offer of employment was an employee of QUALCOMM or
a QUALCOMM Entity and who then became an employee of 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 for which QUALCOMM has accrued a liability
and which would be payable for the first time after the Distribution Date, 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 applicable QUALCOMM Plan may provide that
termination of employment with QUALCOMM terminates QUALCOMM's liability for this
bonus.
2.2 RETENTION OF LIABILITIES. To the extent that Liabilities under a
QUALCOMM Plan that relate to the employment of a Leap Individual by QUALCOMM or
a QUALCOMM Entity prior to the Close of the Distribution Date are not assumed by
Leap, then QUALCOMM, the QUALCOMM Entity, or the QUALCOMM Plan respectively,
shall retain, discharge and pay such Liabilities.
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"), and the Leap Medical
Plan for the benefit of current, future, and former employees of Leap and the
Leap Entities. Leap shall also adopt, or cause to be adopted, as soon as
practicable, 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.
4
<PAGE> 8
2.4 TERMS OF PARTICIPATION IN LEAP PLANS. The Leap Plans 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, or limit the ability of Leap to amend, modify or
terminate any Leap Plan.
ARTICLE 3
HEALTH AND WELFARE PLANS
3.1 COBRA. 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. Leap
Individuals shall be permitted to timely elect health care continuation coverage
in accordance with the terms of the QUALCOMM Health and Welfare Plans, and
QUALCOMM and the QUALCOMM Health and Welfare Plans shall accept and honor such
timely and properly-made elections, to the fullest extent required under the
provisions of COBRA.
3.2 FMLA.
(a) 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.
5
<PAGE> 9
(b) 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 WORKERS' COMPENSATION PROGRAMS. QUALCOMM and the QUALCOMM WCP shall
retain, discharge and pay all Liabilities arising under the QUALCOMM WCP,
including, without limitation, all Liabilities relating to claims that are, or
have been, incurred under the QUALCOM WCP before the Close of the Distribution
Date by Leap Individuals. Leap and the Leap WCP shall retain, discharge and pay
all Liabilities arising under the Leap WCP. Each party shall fully cooperate
with the other with respect to the administration and reporting of claims under
the QUALCOMM WCP and the Leap WCP, to the extent that such cooperation is
permitted under applicable law and does not otherwise have a material adverse
effect on the QUALCOMM WCP or the Leap WCP.
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. As soon as
practicable 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 (including, without
limitation, the failure of the QUALCOMM 401(k) Plan to be a "qualified plan"
under the Code); and (ii) QUALCOMM shall cause the accounts of the Leap
Individuals under the QUALCOMM 401(k) Plan, and the assets in such accounts,
which are held in trust as of the Close of the Distribution Date to be
transferred in kind to the Leap 401(k) Plan, and the related trust, and Leap
shall cause such transferred accounts and assets to be accepted in kind by such
plan and trust. 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 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.
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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 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")
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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.
(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 one-fourth of 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 one-fourth of
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 under which such Option was originally
granted.
5.3 AMENDMENT OF QUALCOMM OPTIONS HELD BY LEAP INDIVIDUALS. 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, 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 or a Leap Entity rather than QUALCOMM or a QUALCOMM Entity,
all as more fully set forth in and in accordance with the terms of the Option
Amendment Agreement in the form substantially as attached hereto as Exhibit B
and, with respect to each such Leap Individual, subject to the execution and
delivery by such Leap Individual of such Option Amendment Agreement.
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
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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. 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 prorated 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.
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.
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5.8 SPLIT DOLLAR LIFE INSURANCE. QUALCOMM and Leap shall take all actions
necessary or appropriate to assign to Leap, effective on the Distribution Date,
(i) QUALCOMM's rights and interests in the split dollar life insurance policy
(including, without limitation, all riders to such policy that are then in
effect) covering the life of Leap's Chief Executive Officer, and (ii) QUALCOMM's
obligations under any agreements requiring QUALCOMM to pay any premiums for any
split dollar life insurance policy (including, without limitation, all riders to
such policy that are then in effect) covering the life of Leap's Chief Executive
Officer. Such actions shall include Leap's acceptance of any collateral
assignments, policy endorsements or such other documentation executed by or on
behalf of such individual, or any trustee of any trust to which such
individual's policy rights or incidents of ownership under the assigned split
dollar policy have 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 and to release QUALCOMM from such obligations. 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 individual, or any trustee of any trust to which
such individual's policy rights or incidents of ownership under the assigned
split dollar policy has been assigned; provided however, that an amount equal to
the sum of premiums paid by QUALCOMM under such split dollar life insurance
policy, and for which QUALCOMM has not otherwise been reimbursed, shall be
transferred by Leap to QUALCOMM within thirty days of Leap receiving payment
under the terms of such split dollar life insurance policy or agreement relating
to it. Leap shall transfer to QUALCOMM, no later than the thirtieth business day
after the Distribution Date, a pro-rated portion of the cost of all premiums
paid by QUALCOMM to maintain in effect the split dollar life insurance policy
(including, without limitation, all riders to such policy that are then in
effect) for the month in which falls the Distribution Date; such pro-rata amount
shall be determined based on the number of calendar days in the month, and the
premium cost allocable to the Distribution Date and the calendar days that
follow the Distribution Date and fall in that month shall be the pro-rata amount
that Leap shall transfer to QUALCOMM.
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, or any
other agreements entered into between QUALCOMM or a QUALCOMM Entity and Leap or
a Leap Entity relating to this Agreement or the Separation and Distribution
Agreement, shall be
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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; or to continue to be employed by or
return to employment with QUALCOMM or a QUALCOMM Entity, or Leap or a Leap
Entity. 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; 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 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.
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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.
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. 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 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.
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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 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.
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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: /s/ Anthony S. Thornley
-----------------------------------
Name: Anthony S. Thornley
Title: Executive Vice President and
Chief Financial Officer
LEAP WIRELESS INTERNATIONAL, INC.:
By: /s/ Harvey P. White
-----------------------------------
Name: Harvey P. White
Title: President and Chief Executive
Officer
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EXHIBIT 10.7
CONVERSION AGREEMENT
THIS CONVERSION AGREEMENT ("Agreement"), dated as of September 23, 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,
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, subject in each instance to applicable law;
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:
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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 EXCHANGE ACT means the Securities Exchange Act of 1934, 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.
1.8 HOLDER shall have the meaning assigned thereto in the Indenture.
1.9 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.
1.10 MATURITY shall have the meaning assigned thereto in the Indenture.
1.11 NOTICE OF CONVERSION shall have the meaning assigned thereto in the
Indenture.
1.12 PERSON means any individual or legal entity.
1.13 REGISTRABLE SECURITIES means the shares Leap Common Stock or any other
securities of Leap into which the Convertible Preferred Securities and/or
Debentures, as appropriate, are from time to time convertible.
1.14 SEC means the United States Securities and Exchange Commission.
1.15 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.
1.16 TRUST means the QUALCOMM Financial Trust I, a Delaware statutory
business trust.
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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
Leap Common Stock at an initial conversion rate of 0.17205 shares for each $50
in aggregate principal amount of Debentures. Subject to the terms hereof and
applicable law, conversion of such securities shall be governed by all
provisions of Article XV of the Indenture, so that, among 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. Leap is obligated to do the following:
(a) Prior to the Distribution, Leap (i) shall prepare and file with
the SEC a "shelf" registration statement under Rule 415 under the Securities
Act, on Form S-1, S-3, S-4 or other appropriate form(s) reasonably agreed to by
QUALCOMM, in order to effect and maintain the registration under the Securities
Act of, the issuance (subject to the terms hereof) of the Registrable Securities
(a "Registration Statement"); (ii) shall use its reasonable efforts to cause
such Registration Statement to be declared effective prior to or currently with
the Distribution, and if such effectiveness cannot be attained by that time then
as soon thereafter as practicable; and (iii) following the Distribution and such
effectiveness, shall use reasonable efforts to maintain the effectiveness of
such Registration Statement in accordance with the following paragraph.
(b) Leap shall prepare and file with the SEC (i) such amendments and
supplements to the Registration Statement and the prospectus used in connection
therewith, (ii) such documents required to be filed with the SEC under Sections
13, 14(a) and 15(d) of the Exchange Act and (iii) such other filings required by
the SEC, in each case as may be necessary to keep the Registration Statement
continuously effective and not misleading until the earlier of such date as all
of the Convertible Preferred Securities and Debentures have been either repaid
in full, redeemed, converted or cancelled in accordance with their terms and the
Indenture and are no longer outstanding.
Notwithstanding the foregoing, if, at any time following the
effectiveness of the Registration Statement, Leap shall have determined that (i)
the happening of any event requires
3
<PAGE> 4
the making of any changes to the Registration Statement or the prospectus
related to the Registrable Securities, so that, as of such date, the
Registration Statement and the prospectus do not contain an untrue statement of
a material fact and do not omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (ii) the continued
effectiveness of the Registration Statement would require Leap to disclose a
material financing, acquisition or other material corporate transaction or
development, and the Leap Board of Directors shall have determined in good faith
that such disclosure is not in the best interests of Leap and its stockholders,
then in either case under clause (i) or (ii) above, Leap may suspend the
effectiveness of the Registration Statement and the issuance of Registrable
Securities pursuant thereto and shall prepare as soon as reasonably practical a
post-effective amendment to the Registration Statement or an amendment or
supplement to the related prospectus or file an appropriate report pursuant to
the Exchange Act or any other required document so that the Registration
Statement and prospectus will not include an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. Leap
shall use its reasonable efforts to minimize the duration of any such suspension
of the effectiveness of the Registration Statement.
(c) Leap shall notify QUALCOMM in writing when the Registration
Statement or any post-effective amendment thereto has become effective and of
any request by the SEC for amendments or supplements to the Registration
Statement or the prospectus included therein or for additional information. Leap
shall notify QUALCOMM in writing of (i) the issuance by the SEC of any stop
order suspending effectiveness of the Registration Statement or the initiation
of any proceedings for that purpose; (ii the receipt by Leap of any notification
with respect to the suspension of the qualification of the securities included
therein for sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) the happening of any event that requires the making of
any changes in the Registration Statement or the prospectus included therein so
that, as of such date, the Registration Statement and prospectus do not contain
an untrue statement of a material fact and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Leap
shall use all reasonable efforts to prevent the issuance, and if issued, to
obtain the withdrawal at the earliest possible time, of any order suspending the
effectiveness of any Registration Statement.
(d) Prior to any issuance of Registrable Securities pursuant to the
Registration Statement, Leap shall register or qualify the Registrable
Securities for offer and sale under the securities or blue sky laws of any
jurisdictions in which the issuance of Registrable Securities to the Holders is
required; provided, however, that in no event shall Leap be obligated to (i)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to so qualify but for this
Section 2.3(e), (ii) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof so subject or (iii) subject
itself to taxation in any such jurisdiction if it is not so subject.
(e) QUALCOMM shall bear all reasonable expenses (exclusive of any
brokerage fees, underwriting discounts and commissions), including without
limitation the reasonable fees and expenses of outside counsel to Leap, (i) in
connection with the initial preparation, printing and filing of the Registration
Statement and any corresponding
4
<PAGE> 5
prospectuses; (ii) in connection with required post-effective amendments and
supplements thereto, including post-effective amendment(s) necessary to convert
the Registration Statement to Form S-3 upon Leap's initial qualification for the
use thereof; and (iii) for expenses primarily relating to the maintenance of
effectiveness of the Registration Statement and any corresponding prospectuses,
excluding expenses incurred by Leap in connection with fulfillment of its
reporting or other obligations as a public company under the Exchange Act.
(f) Leap's obligations to register and issue the Registrable
Securities under this Agreement and the Separation Agreement shall be subject in
all respects to applicable law and to QUALCOMM's furnishing to Leap such
information regarding QUALCOMM and its subsidiaries and the Holders as Leap may
from time to time reasonably request for inclusion or incorporation by reference
in the Registration Statement and any corresponding prospectus in order to
comply with applicable law. In the event that the Registration Statement at any
time (other than as permitted hereby) does not register the issuance by the
Company of any Registrable Securities to the Holders in compliance with
applicable law, the Company shall prepare and file a "no-action" letter with the
SEC's Division of Corporation Finance, or prepare and file a registration
statement on another form of registration statement, or a resale registration
statement, if appropriate, and generally use reasonable efforts to take such
other actions as may be necessary to permit the issuance of Leap Common Stock to
the Holders upon conversion of the Convertible Preferred Securities or
Debentures, as applicable, and the resale thereof (subject to Rule 144 under the
Securities Act, if applicable) in compliance with applicable law.
2.4 INDEMNIFICATION.
(a) As used in this Section 2.4 the following terms shall have the
following respective meanings:
(i) "Registration Statement" shall include any final prospectus,
exhibit, supplement or amendment included in or relating to the Registration
Statement referred to in Section 2.3; and
(ii) "Untrue Statement" shall include any untrue statement or
alleged untrue statement, or any omission or alleged omission to state in the
Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) Leap agrees to indemnify and hold harmless QUALCOMM (and each
person, if any, who controls QUALCOMM within the meaning of Section 15 of the
Securities Act) from and against any losses, claims, damages or liabilities to
which QUALCOMM (or any such officer, director or controlling person) may become
subject (under the Securities Act or otherwise) insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of any failure to comply with the covenants and agreements of Leap contained in
Section 2.3 or 2.4 hereof, or any Untrue Statement contained in the Registration
Statement on or after the effective date thereof or on or after the date of any
prospectus or prospectus supplement, and Leap will reimburse QUALCOMM (or such
officer, director or controlling person, as the case may be) for any reasonable
legal or other expenses reasonably incurred in investigating, defending or
preparing to defend any such action, proceeding or claim;
5
<PAGE> 6
provided, however, that Leap shall not be liable to QUALCOMM in any such case to
the extent that such loss, claim, damage or liability arises out of, or is based
upon, an Untrue Statement made in such Registration Statement in reliance upon
and in conformity with written information furnished to Leap by or on behalf of
QUALCOMM specifically for use in preparation of, or for incorporation by
reference into, the Registration Statement, and Leap shall not be liable under
this Section 2.4 for any settlement of any action effected without its written
consent, which consent shall not unreasonably be withheld.
(c) QUALCOMM agrees to indemnify and hold harmless Leap (and each
person, if any, who controls Leap within the meaning of Section 15 of the
Securities Act) from and against any losses, claims, damages or liabilities to
which Leap (or any such officer, director or controlling person) may become
subject (under the Securities Act or otherwise) insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of any failure to comply with the covenants and agreements of QUALCOMM contained
in Section 2.3 or 2.4 hereof, or any Untrue Statement made in the Registration
Statement on or after the effective date thereof or on or after the date of any
prospectus or prospectus supplement in reliance on and in conformity with
written information furnished to Leap by or on behalf of QUALCOMM specifically
for use in preparation of or for incorporation by reference into the
Registration Statement, and QUALCOMM will reimburse Leap (or such officer,
director or controlling person, as the case may be) for any reasonable legal or
other expenses reasonably incurred in investigating, defending or preparing to
defend any such action, proceeding or claim; provided, however, that QUALCOMM
shall not be liable under this Section 2.4 for any settlement of any action
effected without its written consent, which consent shall not unreasonably be
withheld.
2.5 CONVERSION OF SHARES. Subject to applicable law (including the
effectiveness of the Registration Statement) and the terms of this Agreement,
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
date of issuance.
2.6 SATISFACTION OF QUALCOMM PRINCIPAL REPAYMENT; NO CONSIDERATION TO LEAP.
Leap shall receive no consideration for the issuance of Leap Common Stock upon
conversion of the Convertible Preferred Securities or the Debentures, as
applicable. Leap shall have no obligation to pay principal and/or interest to
Holders under the Indenture.
2.7 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 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
6
<PAGE> 7
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 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 9 of the Separation and
Distribution Agreement.
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.
7
<PAGE> 8
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: /s/ Anthony S. Thornley
-----------------------------------
Name: Anthony S. Thornley
Title: Executive Vice President and
Chief Financial Officer
LEAP WIRELESS INTERNATIONAL, INC.:
By: /s/ Harvey P. White
-----------------------------------
Name: Harvey P. White
Title: President & Chief Executive
Officer
8
<PAGE> 1
EXHIBIT 10.8
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT ("AGREEMENT") is effective as of
the 23rd day of September, 1998 between QUALCOMM INCORPORATED, a Delaware
corporation ("TRANSFEROR"), and LEAP WIRELESS INTERNATIONAL, INC., a Delaware
corporation ("TRANSFEREE").
WHEREAS, Transferor wishes to transfer, assign and delegate (i) all of its
right, title and interest in and to certain of its assets as specifically listed
on Schedules A-1 through A-8 to that certain Separation and Distribution
Agreement (the "SEPARATION AGREEMENT"), dated as of even date herewith, by and
among Transferor and Transferee, except for the assets specifically listed on
Schedule A-7, which may be transferred and assigned following the Distribution
(as defined in the Separation Agreement) pursuant to the Separation Agreement
(the "ASSUMED ASSETS"), and (ii) all of its duties and obligations under certain
of its liabilities and obligations relating to the Assumed Assets listed on
Schedules B-1 through B-8 to the Separation Agreement, except for the
liabilities listed on Schedule B-7, which may be transferred and delegated
following the Distribution pursuant to the Separation Agreement (the "ASSUMED
LIABILITIES"), and the Transferee wishes to accept such transfer, assignment and
delegation, on the terms set forth in this Agreement and the Separation
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and conditions set forth below, and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties to this Agreement agree
as follows:
1. TRANSFER OF ASSUMED ASSETS. Transferor hereby grants, sells, conveys,
transfers, assigns, releases and delivers to Transferee all right, title and
interest of Transferor in and to all of the Assumed Assets, to have and hold the
same unto itself, its successors and assigns, and Transferee hereby acknowledges
and accepts such transfer, including without limitation, receipt of $10,000,000
in cash in accordance with Schedule A-8 of the Separation Agreement; provided,
however, that nothing in this Agreement shall be deemed to be an assignment by
Transferor to Transferee of any contract to be assigned to Transferee hereunder
that requires the consent of any party thereto to the assignment of the contract
until and unless such consent is obtained. Schedules A-1 through A-8 and B-1
through B-8 to the Separation Agreement are attached as Schedules hereto and are
incorporated herein by this reference.
2. ASSUMPTION OF LIABILITIES.
Transferor hereby transfers, assigns and delegates to Transferee all of the
Assumed Liabilities relating to the Assumed Assets and Transferee hereby accepts
such transfer, assignment and delegation and assumes and undertakes to become
liable for such Assumed Liabilities and agrees to faithfully pay, perform and
discharge such Assumed Liabilities when due.
3. FURTHER ASSURANCES.
It is the intent of the parties that all of the Assumed Assets and Assumed
Liabilities be transferred, assigned and delegated to the Transferee as
aforesaid. Each party agrees to execute, acknowledge and deliver any further
deeds, assignments, conveyances and other assurances, documents and instruments
of transfer and take such other actions consistent with the foregoing as may be
necessary to carry out the intent of this Agreement.
1.
<PAGE> 2
4. MISCELLANEOUS.
This Agreement may be executed in any number of counterparts, all of which
together shall be deemed to one and the same instrument. This Agreement shall be
interpreted under the laws of the State of California as applied to contracts
entered into and performed entirely among California residents.
IN WITNESS WHEREOF, this Agreement has been duly executed on behalf of the
parties hereto as of the date first written above.
TRANSFEROR:
QUALCOMM INCORPORATED
/s/ ANTHONY S. THORNLEY
- -----------------------------------
By: Anthony S. Thornley
Title: Executive Vice President and
Chief Financial Officer
TRANSFEREE:
LEAP WIRELESS INTERNATIONAL, INC.
/s/ HARVEY P. SMITH
- -----------------------------------
By: Harvey P. Smith
Title: President and Chief Executive
Officer
2.
<PAGE> 3
SCHEDULE A-1
(ASSETS RELATED TO CHASE TELECOMMUNICATIONS HOLDINGS, INC.)
449,340 Class B Common Shares of Chase Telecommunications Holdings, 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.
<PAGE> 4
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 thereon) 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.
Foreign investment contract (DL-600).
<PAGE> 5
SCHEDULE A-3
(ASSETS RELATED TO METROSVYAZ/RUSSIA)
2,240 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 thereon) 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.
<PAGE> 6
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.
<PAGE> 7
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.
<PAGE> 8
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.
<PAGE> 9
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".
<PAGE> 10
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.
All work product and work in process for site acquisition, RF planning and
network planning services related to Tucson, Arizona, Albuquerque, New Mexico
and Hawaii performed by QUALCOMM prior to the date of the Distribution.
<PAGE> 11
LEAP ASSET INVENTORY SUMMARY*
AS OF SEPTEMBER 5, 1998
<TABLE>
<CAPTION>
ASSET TYPE STATUS
---------- ------
<S> <C>
TENANT IMPROVEMENTS
o Main floor & mezzanine build-out in-process
o Leasehold Improvements purchased
o One copy machine to be ordered
o Misc FF&E (coffee makers, white boards, fax etc.) to be ordered
COMPUTER RELATED
o 80 Laptop computer ThinkPads, monitors, keyboards on-order
o 2 Scanjet printers, 2 color printers, 4 LaserJets on-order
o 4 Compaq servers, server software, desktop software on-order
o Network routers, hubs (Cisco) on-order
o Sun Workstation & plotter on-hand
FURNITURE
o New furniture: 54 desks, 8 leather chairs, 46 desk chairs,
94 side chairs, 58 bookcases, 4 conf tables, 44 conf chairs,
13 credenzas, 13 lobby chairs, 4 end tables, 2 enclosed
white boards, 10 lateral files, 24 round tables,
18 cubicles on-order
TELEPHONE EQUIPMENT
o PBX on-order
o Handsets (new) on-order
o Q-Phones (52 Q-phones, 5 kits) on-order
AUDIO VISUAL EQUIPMENT
o 5-35mm slide projectors, 3 TV's, 3 VCR's, misc. on-order
o Epson projector on-order
FITNESS EQUIPMENT
o 2 stair-climbers, exercise bikes, treadmill, various press
and curl machines, stands to be ordered
OFFICE SUPPLIES
o Misc. supplies on hand on-hand
</TABLE>
- --------------
* Estimates. Does not include financial assets such as cash, accounts
receivable, notes receivable, intangible assets, etc.
<PAGE> 12
SCHEDULE B-1
(LIABILITIES RELATED TO CHASE TELECOMMUNICATIONS HOLDINGS, 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.
<PAGE> 13
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.
Foreign investment contract (DL-600).
<PAGE> 14
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.
<PAGE> 15
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.
<PAGE> 16
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.
<PAGE> 17
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.
<PAGE> 18
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".
<PAGE> 19
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.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated June 29, 1998, relating
to the combined financial statements of Leap Wireless International, Inc., and
August 28, 1998, relating to the combined consolidated financial statements of
the Transworld Companies, which appear in such Prospectus. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
October 12, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 27, 1998,
relating to the financial statements of Chilesat Telefonia Personal S.A., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE
Santiago, Chile
October 9, 1998
