LEAP WIRELESS INTERNATIONAL INC, 424B3, 1999-12-14

LEAP WIRELESS INTERNATIONAL INC
424B3, 1999-12-14
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1
This filing is made pursuant to
Rule 424(b)(3) under the Securities
Act of 1933 in connection with
Registration No. 333-64459

PROSPECTUS

2,271,060 SHARES

LEAP WIRELESS INTERNATIONAL, INC.

COMMON STOCK

Leap is a wireless communications carrier that deploys, owns, operates and
participates in wireless networks in domestic and international markets with
strong growth potential.

This prospectus relates to the issuance of up to 2,271,060 shares of our
common stock. We will issue these shares upon conversion of the Trust
Convertible Preferred Securities of QUALCOMM Financial Trust I. The registration
of these shares of our common stock does not necessarily mean that all of these
shares will be issued.

Our common stock is listed for trading on the Nasdaq National Market under
the symbol LWIN. On December 10, 1999, the last reported sale price of our
common stock was $56.00.

-------------------------

INVESTING IN SHARES OF OUR COMMON STOCK INVOLVES VARIOUS RISKS. IN
CONSIDERING WHETHER TO CONVERT YOUR TRUST CONVERTIBLE PREFERRED SECURITIES INTO
SHARES OF OUR COMMON STOCK, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED
UNDER "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS PROSPECTUS.

-------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS
DETERMINED THAT THIS PROSPECTUS IS ACCURATE AND COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

-------------------------

The date of this prospectus is December 13, 1999.

<PAGE> 2

PROSPECTUS SUMMARY

This summary only highlights the more detailed information appearing
elsewhere in this prospectus. This summary is not complete and may not contain
all the information you should consider before investing in our common stock.
You should read this entire prospectus carefully before deciding whether to
convert your securities. The terms "we," "our" "us," and "Leap" refer to Leap
Wireless International, Inc. and its subsidiaries unless the context suggests
otherwise.

LEAP WIRELESS INTERNATIONAL, INC.

Leap is a wireless communications carrier that deploys, owns, operates and
participates in wireless networks in domestic and international markets with
strong growth potential. Through its operating companies, Leap has launched
all-digital wireless service in the United States, Mexico and Chile. Leap is
dedicated to bringing the benefits of reliable, cost-effective and high-quality
wireless communications services to domestic and growth markets.

Leap's domestic strategy is to offer consumers a simple and affordable
wireless service plan that allows them to make all of the local calls they want
for a low, flat monthly rate. Targeted at the mass consumer market, the service
is marketed under the name "Cricket(SM)" and is identified as "the around-town
phone(SM)" and "comfortable wireless(SM)." Cricket(SM) service was introduced in
March 1999 in Chattanooga, Tennessee using the existing infrastructure of Chase
Telecommunications, Inc., a company that Leap has agreed to acquire. The service
was launched under an agreement that requires the management of Chase
Telecommunications to control the business until Leap's pending acquisition of
Chase Telecommunications receives all necessary governmental approvals and is
completed. The expansion of Cricket(SM) service to Nashville, Tennessee is
currently underway.

Leap plans to introduce Cricket(SM) service to additional markets in the
United States in the future. We recently acquired 36 licenses in the federal
government's 1999 reauction of broadband PCS spectrum licenses. We have also
entered into agreements to purchase several licenses and are considering the
purchase of additional licenses in the United States. Since September 1998, we
have acquired or agreed to acquire wireless communications licenses covering
approximately 24 million potential customers in the United States, based on 1998
population statistics.

In the international arena, Leap plans to focus its efforts in growth
markets where Leap's ability to provide value added services will increase the
likelihood of launching successful wireless ventures. In Mexico, PEGASO
Telecomunicaciones, S.A. de C. V., of which Leap owns a 28.6% ownership
interest, is deploying the first 100% digital wireless communications network in
Mexico. Leap's operating company in Chile, which was recently renamed Smartcom
S.A., operates a nationwide wireless system in Chile. When making new
investments in growth markets, Leap generally expects to seek investment
partners that provide familiarity with local markets, financial and technical
resources, an ability to facilitate development in a particular market, or other
attributes that can contribute to a successful network-building enterprise. Leap
expects to be actively involved in each joint venture operation in which it
holds a significant position.
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Leap uses telecommunications systems based on Code Division Multiple
Access, or "CDMA," technology, an integrated software and hardware system
invented by QUALCOMM Incorporated, a provider of digital wireless communications
products, technologies and services. CDMA technology transmits digital
telecommunications signals in a wireless network. Leap believes that CDMA
technology is the best platform to meet current network requirements as well as
the best platform for third generation, or "3G," based services.

Leap will likely require significant future capital to help meet the
funding requirements of its wireless telecommunications businesses and ventures
and for Leap's general working capital needs. Leap expects to finance its
capital needs through early 2000 through borrowing under its credit agreement
with QUALCOMM and borrowings under vendor financing agreements with equipment
vendors. Leap must obtain additional sources of financing to fund its activities
after early 2000. Because of its capital requirements, Leap expects to maintain
high levels of debt in the near future.

Leap was formed in June 1998 as a subsidiary of QUALCOMM. In September
1998, QUALCOMM distributed all of the common stock of Leap to QUALCOMM's
stockholders as a taxable dividend. Leap's executive offices are located at
10307 Pacific Center Court, San Diego, CA 92121. Its telephone number is (858)
882-6000.

RISK FACTORS

Your ownership of our common stock involves a high degree of investment
risk. You should carefully consider the risk factors discussed in the "Risk
Factors" section of this prospectus in evaluating the ownership of our common
stock.

RELATIONSHIP BETWEEN LEAP AND QUALCOMM

Leap and QUALCOMM entered into various agreements and relationships in
September 1998 in connection with the spin-off of our common stock to QUALCOMM's
stockholders. The principal agreements include a Separation and Distribution
Agreement that governed the transfer of assets and liabilities to Leap and
provided for the issuance of a warrant from Leap to QUALCOMM which, as amended,
is exercisable for 4,500,000 shares of Leap common stock at $6.11 per share; a
Credit Agreement under which we may borrow from QUALCOMM up to $35.2 million
under a working capital sub-facility and up to $229.8 million under an
investment capital sub-facility; and a Master Agreement Regarding Equipment
Acquisition under which Leap and its operating companies are obligated to
purchase minimum amounts of subscriber equipment from QUALCOMM and network
infrastructure equipment from Ericsson. Our relationship with QUALCOMM may
create conflicts of interest between Leap and QUALCOMM. See
"Business -- Relationship Between Leap and QUALCOMM."
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THE OFFERING

COMMON STOCK OFFERED BY LEAP.... 2,271,060 shares

USE OF PROCEEDS................. Leap agreed to issue common stock upon the
conversion of the Trust Convertible
Preferred Securities in consideration for
the transfer of wireless telecommunications
operating company businesses and joint
venture interests from QUALCOMM to Leap.
Leap will receive no consideration or
forgiveness of debt upon conversion of the
Trust Convertible Preferred Securities and
the issuance of common stock offered by this
prospectus.

NASDAQ NATIONAL MARKET SYMBOL... LWIN
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SUMMARY CONSOLIDATED FINANCIAL DATA AND UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following tables contain summary historical consolidated statement of
operations data and consolidated balance sheet data and corresponding pro forma
data for Leap. The historical consolidated financial data for the fiscal years
ended August 31, 1999, 1998 and 1997 were derived from the audited Consolidated
Financial Statements of Leap, as restated, which are included elsewhere in this
prospectus. The historical consolidated financial data for the fiscal year ended
August 31, 1996 was derived from the audited Consolidated Financial Statements
of Leap which are not included in this prospectus. The historical statement of
operations gives effect to the distribution of Leap common stock as if it had
occurred as of September 1, 1995.

The unaudited pro forma financial data are derived from the unaudited pro
forma statement of operations that gives effect to Leap's acquisition on April
19, 1999 of the 50% share of Chilesat Telefonia Personal S.A., recently renamed
Smartcom S.A., that it did not already own. The unaudited pro forma financial
data are based upon available information and assumptions that management
believes are reasonable. The unaudited pro forma statement of operations gives
effect to the acquisition of Smartcom as if it had occurred as of September 1,
1998. The unaudited pro forma financial data are provided for illustrative
purposes only and do not purport to represent what Leap's results of operations
or financial condition actually would have been had the acquisition of Smartcom
in fact occurred on such date or to project Leap's results of operations or
financial condition for any future period or date.

These tables should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the audited
Consolidated Financial Statements and the unaudited Pro Forma Financial
Information included elsewhere in this prospectus.

<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED AUGUST 31, YEAR ENDED
--------------------------------------------- AUGUST 31,
1996 1997(1) 1998(1) 1999 1999
------- ---------- ---------- --------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Operating revenue.......................... $ -- $ -- $ -- $ 3,907 $ 7,577
------- ------- -------- --------- ---------
Operating expenses:
Cost of operating revenues............... -- -- -- (3,810) (5,713)
Selling, general and administrative
expenses.............................. (396) (1,361) (23,888) (28,745) (39,311)
Depreciation and amortization............ -- -- -- (5,824) (15,847)
------- ------- -------- --------- ---------
Total operating expenses.............. (396) (1,361) (23,888) (38,379) (60,871)
------- ------- -------- --------- ---------
Operating loss............................. (396) (1,361) (23,888) (34,472) (53,294)
Equity in net loss of unconsolidated
wireless operating companies............. -- (3,793) (23,118) (100,300) (87,171)
Write-down of investments in unconsolidated
wireless operating companies............. -- -- -- (27,242) (27,242)
Interest income............................ -- -- 273 2,505 1,257
Interest expense and amortization of
discount and facility fee................ -- -- -- (10,356) (17,083)
Foreign currency transaction losses........ -- -- -- (7,211) (11,410)
Gain on sale of wholly owned subsidiary.... -- -- -- 9,097 9,097
Gain on issuance of stock by unconsolidated
wireless operating company............... -- -- -- 3,609 3,609
Other income (expense), net................ -- -- -- (243) (515)
------- ------- -------- --------- ---------
Net loss.............................. $ (396) $(5,154) $(46,733) $(164,613) $(182,752)
======= ======= ======== ========= =========
Basic and diluted net loss per common
share(3)................................. $ (0.02) $ (0.29) $ (2.65) $ (9.19) $ (10.20)
======= ======= ======== ========= =========
Shares used to calculate basic and diluted
net loss per common share(3)............. 17,648 17,648 17,648 17,910 17,910
======= ======= ======== ========= =========
</TABLE>

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<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------
1996 1997(1) 1998(1) 1999
----- ---------- ---------- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA(2):
Cash (at end of period)................................ $ -- $ -- $ -- $ 26,215
Working capital (deficit).............................. (111) (279) (14,789) 6,587
Total assets........................................... -- 42,267 157,752 335,331
Long-term debt......................................... -- -- -- 221,812
Stockholders' equity (deficit)......................... (111) 41,988 142,963 70,900
</TABLE>

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(1) These amounts have been restated for the adoption of the equity method of
accounting during fiscal 1999 for Leap's investment in Chase
Telecommunications Holdings, Inc. See Note 2 of the notes to the
Consolidated Financial Statements of Leap included elsewhere in this
prospectus.

(2) For the fourth quarter of fiscal 1999, the financial statements of Smartcom
are included in the consolidated financial data as a result of Leap's
acquisition of the remaining 50% interest in Smartcom. Prior to the fourth
quarter, Leap's investment in Smartcom was accounted for using the equity
method of accounting.

(3) The basic and diluted net loss per common share for the year ended August
31, 1999 was calculated by dividing the net loss by 17,910,440, the weighted
average number of common shares outstanding during the period. Leap was a
wholly owned subsidiary of QUALCOMM prior to September 23, 1998. The basic
and diluted net loss per common share for the fiscal years ended August 31,
1998 (restated), 1997 (restated) and 1996 was calculated by dividing the net
loss by the 17,647,685 shares of Leap common stock issued in the
distribution to QUALCOMM's stockholders on September 23, 1998.
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RISK FACTORS

WE HAVE A LIMITED OPERATING HISTORY

We have only operated as an independent company since September 1998.
Because Leap and each of its operating companies is at an early stage of
development, we face risks generally associated with establishing a new business
enterprise. When considering our prospects, investors must consider the risks,
expenses and difficulties encountered by companies in their early stages of
development. These risks include possible disruptions and inefficiencies
associated with rapid growth and workplace expansion, the difficulties
associated with raising money to finance new enterprises and the difficulties of
establishing a significant presence in highly competitive markets.

THE CRICKET(SM) BUSINESS STRATEGY IS UNPROVEN

Our business strategy in the United States, marketed under the brand name
Cricket(SM), is to offer consumers a service plan that allows them to make
virtually unlimited local calls for a low, flat monthly rate. This strategy is a
new approach to marketing wireless services, has been introduced in only one
market and may not prove to be successful. Our marketing efforts may not draw
the volume of subscribers necessary to sustain our business plan, our capital
and operating costs may exceed planned levels, and we may be unable to compete
effectively with landline and other wireless service providers in our markets.
In addition, potential customers may perceive the Cricket(SM) service to be less
appealing than other wireless plans which offer more features and options
including the ability to roam outside of the home service area. If our business
strategy proves to be successful, other wireless providers are likely to adopt
similar pricing plans and marketing approaches. Should our competitors choose to
adopt a strategy similar to the Cricket(SM) strategy, some of them they may be
able to price their services more aggressively or attract more customers because
of their stronger market presence and geographic reach and their larger
financial resources.

WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES

Leap experienced net losses of $164.6 million in fiscal 1999, $46.7 million
in fiscal 1998 and $5.2 million in fiscal 1997. According to generally accepted
accounting principles, Leap must recognize some or all of its operating
companies' losses. These losses are likely to be significant for the next
several years as our operating companies launch service in new markets and seek
to increase their subscriber bases in new and existing markets. Leap and its
operating companies may not generate profits in the short term or at all. If
Leap or any of its operating companies fails to achieve profitability, that
failure could have a negative effect on the market value of our common stock.

LEAP AND ITS OPERATING COMPANIES MAY FAIL TO RAISE REQUIRED CAPITAL

Leap and its operating companies require significant additional capital to
build-out and operate planned networks and for general working capital needs. We
also require additional capital to invest in any new wireless opportunities,
including capital for license acquisition costs. Capital markets have recently
been volatile and uncertain. These markets may not improve and Leap and its
operating companies may not be able to access these markets to raise additional
capital. Developing companies in emerging markets such as Latin America have
found it particularly difficult to raise capital. An operating company's
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failure to raise required capital could adversely affect the value and prospects
of that company and thus, could adversely affect the value and prospects of
Leap. If we fail to obtain required new financing, that failure could also
affect the value and prospects of Leap. For example, if we are unable to access
capital markets, we may have to restrict our activities or sell our interests in
one or more operating companies earlier than planned or at a "distressed sale"
price.

YOUR OWNERSHIP INTEREST IN LEAP WILL BE DILUTED UPON ISSUANCE OF SHARES WE HAVE
RESERVED FOR FUTURE ISSUANCE

On November 29, 1999, 18,952,315 shares of our common stock were
outstanding and 14,092,319 additional shares of our common stock were reserved
for issuance.

Of the shares reserved for issuance, 1,959,053 shares are issuable upon
conversion of outstanding QUALCOMM Trust Convertible Preferred Securities. We
agreed to issue shares of our common stock upon the conversion of these
securities in connection with the spin-off of Leap from QUALCOMM. The holders
may convert the QUALCOMM securities at any time into shares of QUALCOMM common
stock and Leap common stock. We will receive no additional consideration upon
the issuance of the Leap common stock and such shares will generally be freely
tradeable by the holders thereof. QUALCOMM has the right to redeem its Trust
Convertible Preferred Securities beginning on March 4, 2000. We believe it is
likely that QUALCOMM will seek to redeem these securities at that time or
shortly thereafter. Given the recent trading prices of QUALCOMM and Leap stock,
it is likely that the holders will convert the Trust Convertible Preferred
Securities and we would issue all 1,959,053 shares reserved for issuance.

In addition to the shares of Leap common stock issuable upon conversion of
outstanding QUALCOMM Trust Convertible Preferred Securities, the following
shares were reserved for issuance as of November 29, 1999:

- 4,500,000 shares reserved for issuance upon exercise of a warrant issued
to QUALCOMM in connection with the spin-off of Leap, which is
exerciseable in whole or in part at any time between now and September
2008;

- 3,951,992 shares reserved for issuance upon exercise of options to
purchase Leap common stock granted to holders of QUALCOMM options in
connection with the distribution of Leap's common stock to the
stockholders of QUALCOMM; and

- 3,681,274 shares reserved for issuance to employees, officers, directors
and consultants under Leap's equity incentive plans.

Dilution of the outstanding number of shares of our common stock could
adversely affect prevailing market prices for our common stock and our ability
to raise capital through an offering of equity securities.

HIGH LEVELS OF DEBT COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION

We expect to obtain much of our required capital through debt financing. A
substantial portion of the debt financing, including all of our vendor
financing, bears or is likely to bear a variable interest rate, exposing us to
interest rate risk.

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Our high leverage could have important consequences, including the
following:

- our ability to obtain additional financing may be impaired;

- a substantial portion of our future cash flows from operations must be
dedicated to the servicing of our debt, thus reducing the funds available
for operations and investments;

- our leverage may reduce our ability to adjust rapidly to changing market
conditions and may make us more vulnerable to future downturns in the
general economy; and

- high levels of debt may reduce the value of stockholders' investments in
Leap because debt holders have priority regarding our assets in the event
of a bankruptcy or liquidation.

We may not have sufficient future cash flows to meet our debt payments or
may not be able to refinance any of our debt at maturity. Our operating
companies will also face additional risks with respect to their equipment
financing arrangements from vendors. These equipment financings will depend on
meeting planned levels of performance such as meeting specific target levels for
potential and actual subscribers. If any Leap operating company fails to meet
performance requirements, its equipment financing may be restricted or
cancelled.

QUALCOMM has provided significant financing to Leap and its operating
companies and has also agreed to provide them with significant additional
financing. We cannot assure you that Leap and its operating companies will not
experience disputes or difficulties with QUALCOMM with respect to these
agreements. The business and prospects of Leap and its operating companies would
be adversely affected if they were not able to draw funds under their financing
agreements with QUALCOMM and other equipment suppliers or obtain other sources
of financing on similar terms.

ADVERSE REGULATORY CHANGES COULD IMPAIR OUR ABILITY TO MAINTAIN EXISTING
LICENSES AND OBTAIN NEW LICENSES

Our operating companies must maintain their existing telecommunications
licenses to continue offering wireless telecommunications services. Changes in
regulations or an operating company's failure to comply with the terms of a
license or failure to have the license renewed could result in a loss of the
license, penalties and fines. For example, an operating company could lose its
license if it failed to construct or operate a wireless network as required by
the license. If a Leap operating company loses a license, that loss could have a
material adverse effect on the operating company and on Leap.

State regulatory agencies, the FCC, the United States Congress, the courts
and other governmental bodies regulate the operation of wireless
telecommunications systems and the use of licenses in the United States. The
FCC, Congress, the courts or other federal, state or local bodies having
jurisdiction over our operating companies may take actions that could negatively
affect our business and financial condition.

Foreign governmental authorities regulate the operation of wireless
telecommunications systems and the use of licenses in the foreign countries in
which our operating companies operate. In some cases, the regulatory authorities
also operate the competitors of Leap's operating companies. Changes in the
current regulatory environment of these

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markets could have a negative effect on us. In addition, the regulatory
frameworks in some of these countries are relatively new and the interpretation
of regulations is uncertain.

We believe that intense competition will surround the acquisition of new
telecommunications licenses. If we fail to obtain new licenses, or cannot
otherwise participate in companies that obtain new licenses, our ability to
expand our operations would be limited.

THE FCC MAY NOT APPROVE OUR ACQUISITION OF CHASE TELECOMMUNICATIONS WHICH COULD
DELAY THE EXPANSION OF THE CRICKET(SM) SERVICE AND RESULT IN SIGNIFICANT COSTS

We have agreed to acquire substantially all of the assets of Chase
Telecommunications Holdings, Inc. which owns C-Block spectrum licenses covering
approximately 6.6 million potential customers in a region that includes
approximately 98% of Tennessee. Because the pending acquisition involves the
transfer of licenses, it is subject to approval by the FCC. One party has lodged
a formal challenge to the license transfers and FCC approval of the transfers
remains uncertain. In addition, the acquisition could fail to close for other
reasons beyond our control. Under the terms of a management agreement and
trademark license agreement, Chase Telecommunications has already introduced the
Cricket(SM) service in Chattanooga, Tennessee and expects to introduce the
service to Nashville, Tennessee in early 2000. If we fail to close the
acquisition of Chase Telecommunications, our expansion of the Cricket(SM)
service according to our roll-out plan will be delayed. Any delay in the
expansion of Cricket(SM) service could make it easier for competitors to
duplicate our strategy and enter our target markets before we do. In addition,
if we fail to close the acquisition of Chase Telecommunications, we will be
required to repurchase a significant amount of Chase Telecommunication's debt
owed to equipment suppliers incurred to finance the purchase of infrastructure
equipment already installed in Tennessee.

THE FCC'S DECISION THAT WE ARE QUALIFIED TO HOLD C-BLOCK AND F-BLOCK LICENSES IS
SUBJECT TO REVIEW AND APPEAL

Our business plan anticipates and depends on our acquisition and operation
of C-Block and F-Block PCS licenses in the United States. We believe that
currently, C-Block and F-Block licenses are generally more available and are
less expensive to obtain than licenses in other spectrum blocks, partly because
a licensee may hold these licenses only if it qualifies as a "designated entity"
under FCC rules.

In July 1999, the FCC issued an opinion and order that found that we were
entitled to acquire C-Block and F-Block licenses. The order approved our
acquisition of the 36 C-Block licenses for which we were the highest bidder in
the FCC's 1999 spectrum re-auction, and the transfer of four F-Block licenses to
one of our operating companies, which covers portions of North and South
Carolina, in each case subject to the fulfillment of certain conditions. In
October 1999, the FCC issued to us the 36 re-auctioned licenses.

Each of the conditions imposed by the FCC has been satisfied except for the
condition that we reduce our debt to QUALCOMM to 50% or less of our total
outstanding debt by January 2001 and our continuing obligation, during the
designated entity holding period for our C-Block and F-Block PCS licenses, to
ensure that persons who are or were previously officers or directors of QUALCOMM
do not comprise a majority of our board of directors or a majority of our
officers. We anticipate satisfying the debt reduction condition through
additional financing activities and/or the refinancing of

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our debt to QUALCOMM, but we cannot guarantee that we will be able to reduce our
debt to QUALCOMM to the required level. If we fail to continue to meet any of
the conditions imposed by the FCC or otherwise fail to maintain our
qualification to own C-Block and F-Block licenses, that failure would have a
material adverse effect on our financial condition and business prospects.

Various parties previously challenged our qualification to hold C-Block and
F-Block PCS licenses, which challenges were rejected in the FCC's July 1999
order. One of those parties, a wireless operating company, has requested that
the FCC review its order. In addition, further judicial review of this order is
possible.

We may not prevail in connection with any such appeal and we may not remain
qualified to hold C-Block or F-Block PCS licenses.

WE HAVE ENCOUNTERED RELIABILITY PROBLEMS DURING THE INITIAL DEPLOYMENT OF OUR
NETWORKS

As is typical with newly-constructed networks, several of our operating
companies have experienced reliability problems with respect to their network
infrastructure equipment in their initial year of operation. Leap and its
operating companies are working with equipment suppliers to address these
problems. Chase Telecommunications is in the process of replacing the majority
of its network infrastructure in Chattanooga with equipment from a different
vendor that we believe is better suited to the high usage patterns of the
Cricket(SM) service. Smartcom has replaced certain network components in its
Chilean network and is currently upgrading certain system software components.
Replacing system components requires significant cost and diverts management's
attention from other matters. If the network infrastructure equipment of our
operating companies ultimately fails to perform as expected, that failure could
have a material adverse effect on our financial condition and business.

WE MAY EXPERIENCE DIFFICULTIES IN CONSTRUCTING AND OPERATING OUR
TELECOMMUNICATIONS NETWORKS

Our operating companies will need to construct new telecommunications
networks and expand existing networks. Leap and its operating companies will be
heavily dependent on suppliers and contractors to successfully complete these
complex construction projects. Our operating companies may experience quality
deficiencies, cost overruns and delays on these construction projects, including
deficiencies, overruns and delays not within their control or the control of
their contractors. In addition, the construction of new telecommunications
networks requires the receipt of permits and approvals from numerous
governmental bodies including municipalities and zoning boards. Failure to
receive these approvals in a timely fashion can delay system rollouts and raise
the costs of completing construction projects. PEGASO's launch of commercial
service in Mexico City was delayed several months due to delays in obtaining the
required permits for cell site construction from local authorities.

Leap and its operating companies may not complete construction projects
within budget or on a timely basis. A failure to satisfactorily complete
construction projects could jeopardize spectrum licenses and subscriber
contracts. As a result, a failure of this type could have a negative effect on
Leap and its operating companies.

Even if Leap and its operating companies complete construction in a timely
and cost effective manner, we will also face challenges in managing and
operating our telecommuni-

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cations systems. These challenges include operating and maintaining the
telecommunications operating equipment and managing the sales, advertising,
customer support, billing and collection functions of the business. A failure by
Leap or any of its operating companies in any of these areas could undermine
customer satisfaction, increase customer turnover, reduce revenues and otherwise
negatively affect Leap and its operating companies.

MANY PERSONAL COMMUNICATIONS SERVICE PROVIDERS IN THE U.S. HAVE EXPERIENCED A
HIGH RATE OF CUSTOMER TURNOVER WHICH, IF IT AFFECTS US, MAY INCREASE OUR COSTS

Many providers in the U.S. personal communications services industry have
experienced a high rate of customer turnover as compared to cellular industry
averages. The rate of customer turnover may be the result of several factors,
including limited network coverage, reliability issues such as blocked or
dropped calls, handset problems, inability to roam onto cellular networks,
affordability, customer care concerns and other competitive factors. Our
strategy to address customer turnover may not be successful, or the rate of
customer turnover may be unacceptable. If our competitors choose to provide a
service plan with pricing similar to the Cricket(SM) service, competitive
factors could also cause increased customer turnover. A high rate of customer
turnover could reduce revenues and increase marketing costs in order to attract
the minimum number of replacement customers required to sustain our business
plan which, in turn could have a material adverse effect on the competitive
position and results of operations of Leap and its operating companies.

CALL VOLUME UNDER CRICKET(SM) FLAT PRICE PLANS COULD EXCEED THE CAPACITY OF OUR
WIRELESS NETWORKS

Our Cricket(SM) strategy in the United States is to offer consumers a
service plan that allows them to make virtually unlimited local calls for a low,
flat monthly rate. Our business plans for this strategy assume that Cricket(SM)
customers will use their wireless phones for substantially more minutes per
month than customers who purchase service from other providers under more
traditional plans. We intend to design our U.S. networks to accommodate the
expected high call volume. Although we believe CDMA-based networks will be well
suited to support high call volumes, if wireless use by Cricket(SM) subscribers
exceeds the capacity of our future networks, service quality may suffer, and we
may be forced to raise the price of Cricket(SM) service to reduce volume or
otherwise limit the number of new subscribers. If our planned networks cannot
handle the call volumes they experience, our competitive position and business
prospects in the U.S. are likely to be materially adversely affected.

INTERNATIONAL RISKS COULD ADVERSELY AFFECT OUR BUSINESS

We face many risks from our international activities. Our operating
companies in Mexico and Chile largely depend on the economies in which they
operate and these economies are in various stages of development. Some of these
markets are subject to rapid fluctuations in currency exchange rates, consumer
prices, inflation, employment levels and gross domestic product.

In addition, foreign laws and courts govern many of the agreements of our
operating companies. Other parties may breach or may make it difficult to
enforce these agreements.

12
<PAGE> 13

Further, public awareness of the risks associated with international operations
may increase the volatility of the market price of our common stock.

We will also face country-specific risks. The country-specific risks that
we face include:

Risks Associated With Doing Business in Mexico: Mexico's currency and
financial markets continue to experience volatility. The impact on the Mexican
economy of the economic crisis which began in Asia and then spread to Eastern
Europe and Brazil has affected the ability of Mexican companies to access the
capital markets. The ability of Mexican companies to access the capital markets
may not improve and may deteriorate further in the future. The economy of Mexico
historically also has close ties to fluctuations in the price of oil and
petroleum products. Fluctuations in the prices of these products and continuing
political tensions in Mexico could negatively impact our prospects in Mexico.

Risks Associated With Doing Business in Chile: Our operating company in
Chile depends largely on the economy of that country. Fluctuations in the prices
of natural resources historically affect the economy of Chile. The economic
crisis that began in Asia and spread to Eastern Europe and Brazil has negatively
impacted some commodity prices, which could negatively impact our prospects in
Chile. Although Chilean prices and its currency generally have been stable, this
stability has required continued intervention by the Chilean government.

OUR RESULTS OF OPERATIONS MAY BE HARMED BY FOREIGN CURRENCY FLUCTUATIONS

We are exposed to risk from fluctuations in foreign currency rates, which
could impact our results of operations and financial condition. Although we
report our financial statements in U.S. dollars, our international operating
companies report their results in local currencies. Consequently, fluctuations
in currency exchange rates between the U.S. dollar and the applicable local
currency will affect our results of operations as well as the value of our
ownership interests in our operating companies. We do not currently have a
policy to systematically hedge against foreign currency exchange rate risks.

Generally, our international operating companies generate revenues which
are paid in their local currency. However, many of these operating companies'
major contracts, including financing agreements and contracts with equipment
suppliers, are denominated in U.S. dollars. As a result, a significant change in
the value of the U.S. dollar against the national currency of an operating
company could result in a significant increase in the operating company's
expenses and could have a material adverse effect on the operating company and
on us. For example, our international ventures may be unable to satisfy their
obligations under equipment supply agreements denominated in U.S. dollars in the
event of currency devaluations. In some developing countries, including Chile
and Mexico, significant currency devaluations relative to the U.S. dollar have
occurred and may occur again in the future. In such circumstances, Leap and its
foreign ventures may experience economic loss with respect to the collectability
of payments from their business partners and customers and the recoverability of
their investments.

WE FACE SIGNIFICANT COMPETITION

The wireless telecommunications industry generally is very competitive and
competition is increasing. Unlike many wireless providers, we also intend to
compete directly with landline service providers in the telecommunications
industry. Many competitors have

13
<PAGE> 14

substantially greater resources than Leap and its operating companies. Leap and
its operating companies may not be able to compete successfully.

In the U.S., we will compete directly with other wireless providers and
traditional landline carriers in each of our markets, many of whom have greater
resources than we do and entered the market before us. A few of our competitors
operate wireless telecommunications networks covering most of the United States.
Competitors' earlier entry and broader presence in the U.S. telecommunications
market may have a negative effect on our ability to successfully implement our
strategy. In addition, other wireless providers in the United States could
attempt to implement our domestic strategy of providing unlimited local service
at a low, flat monthly rate if our strategy proves successful. The landline
services with which we will compete are already used by some of our potential
subscribers, and we may not be successful in our efforts to persuade potential
customers to adopt our wireless service in addition to, or in replacement of,
their current landline service.

Although the deployment of advanced telecommunications services is in its
early stages in many developing countries, we believe competition is increasing
as businesses and foreign governments realize the market potential of
telecommunications services. In Mexico, a number of international
telecommunications companies, including Bell Atlantic, AT&T, MCI, Motorola,
Nextel and SBC, as well as local competitors such as Telmex and other Mexican
telecommunications companies, continue to actively engage in developing
telecommunications services in that country. In Chile, existing competitors in
Chile include BellSouth, Telefonica and Entel. Also, the Chilean
telecommunications market historically has been very price competitive. We also
expect the price that our operating companies may charge for their products and
services in some regions will decline over the next few years as competition
increases in their markets. Our competitors in Mexico and Chile have greater
financial resources and more established operations than our operating
companies, PEGASO and Smartcom. Our foreign ventures also compete against
landline carriers, including government-owned telephone companies. In addition,
a number of large telecommunications companies are implementing programs to
deploy telecommunications services in both developing and developed countries.
PEGASO and Smartcom are at an early stage of development and may not be able
compete successfully.

We compete with companies that use other communications technologies,
including paging and digital two-way paging, enhanced specialized mobile radio
and domestic and global mobile satellite service. These technologies may have
advantages over the technology we use and may ultimately be more attractive to
customers. We may compete in the future with companies who offer new
technologies and market other services, including cable television access,
landline telephone service and Internet access, that we do not currently intend
to market. Some of our competitors offer these other services together with
their wireless communications service, which may make their services more
attractive to customers. In addition, we expect that, over time, providers of
wireless communications services will compete more directly with providers of
traditional landline telephone services (as we do), energy companies, utility
companies and cable operators who expand their services to offer communications
services.

14
<PAGE> 15

THE TECHNOLOGIES THAT WE USE MAY BECOME OBSOLETE, WHICH WOULD LIMIT OUR ABILITY
TO COMPETE EFFECTIVELY

We have employed digital wireless communications technology based on CDMA
technology. In addition, we are required under the Separation and Distribution
Agreement with QUALCOMM to use only cdmaOne systems in international operations
through January 2004. Other digital technologies may ultimately prove to have
greater capacity or features and be of higher quality than CDMA. If another
technology becomes the preferred industry standard in any of the countries in
which we operate, we may be at a competitive disadvantage, and competitive
pressures may require us to change our digital technology at substantial cost.
We may not be able to respond to those pressures and implement new technology on
a timely basis, or at an acceptable cost. If CDMA technology becomes obsolete at
some time in the future, and we are unable to effect a cost-effective migration
path, it could materially and adversely affect our financial condition, results
of operations and liquidity. For a more detailed discussion of CDMA technology
see "Business -- CDMA Technology."

IF WIRELESS HANDSETS POSE HEALTH AND SAFETY RISKS, WE MAY BE SUBJECT TO NEW
REGULATIONS, AND THERE MAY BE A DECREASE IN DEMAND FOR OUR SERVICES

Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to various health concerns, including cancer,
and may interfere with various electronic medical devices, including hearing
aids and pacemakers. Concerns over radio frequency emissions may have the effect
of discouraging the use of wireless handsets, which would decrease demand for
our services. In recent years, the FCC has updated the guidelines and methods it
uses for evaluating radio frequency emissions from radio equipment, including
wireless handsets. In addition, interest groups have requested that the FCC
investigate claims that digital technologies pose health concerns and cause
interference with hearing aids and other medical devices. There may also be some
safety risks associated with the use of wireless handsets while driving.
Concerns over these safety risks and the effect of any legislation that may be
adopted in response to these risks could have a material adverse effect on our
ability to market and sell our wireless service.

THE LOSS OF KEY PERSONNEL COULD HARM OUR BUSINESS

We believe our success depends on the contributions of a number of our key
personnel. These key personnel include Harvey P. White, Chairman of the Board
and Chief Executive Officer of Leap, and Susan G. Swenson, President and Chief
Operating Officer of Leap and Chief Executive Officer of our Cricket(SM)
subsidiary. If we lose the services of key personnel, that loss could materially
harm our business. We do not maintain "key person" life insurance on any
employee.

15
<PAGE> 16

OUR STOCK PRICE IS VOLATILE

The stock market in general, and the stock prices of telecommunications
companies and other technology-based companies in particular, have experienced
significant volatility that often has been unrelated to the operating
performance of any specific public companies. The market price of Leap common
stock has fluctuated in the past and is likely to continue to fluctuate in the
future. Factors that may have significant impact on the market price of Leap
common stock include:

- future announcements concerning Leap or its competitors, including the
announcement of joint development efforts;

- changes in the prospects of our business partners or equipment suppliers;

- quality deficiencies in our networks;

- results of technological innovations;

- government regulation, including the FCC's review of our acquisition of
wireless spectrum licenses; and

- changes in recommendations of securities analysts and rumors that may be
circulated about Leap or its competitors.

Our future earnings and stock price may be subject to significant
volatility, particularly on a quarterly basis. Shortfalls in our revenues or
earnings in any given period relative to the levels expected by securities
analysts could immediately, significantly and adversely affect the trading price
of Leap common stock. In the past, following periods of volatility in the market
price of a company's securities, class action litigation has often been
instituted against the subject company. Litigation of this type could result in
substantial costs and a diversion of our management's attention and resources
which could, in turn, have a material adverse effect on us.

WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE

We do not anticipate paying any cash dividends on our common stock in the
foreseeable future. Instead, we intend to retain future earnings to fund our
growth. Accordingly, you will not receive a return on your investment in our
common stock through the payment of dividends in the foreseeable future and may
not realize a return on your investment even if you sell your shares. Any future
payment of dividends to our stockholders will depend on decisions that will be
made by our board of directors and will depend on then existing conditions,
including our financial condition, contractual restrictions, capital
requirements and business prospects.

A DETERMINATION THAT LEAP IS AN INVESTMENT COMPANY COULD ADVERSELY AFFECT OUR
BUSINESS

We expect that our ownership interests in operating companies will include
investments in which we do not own greater than 50% of the entity and that our
interests will vary over time as the ventures raise additional capital and as we
consider participating in new ventures. As a result, we could be subject to the
registration requirements of the Investment Company Act of 1940. The Investment
Company Act of 1940 requires registration of companies that engage primarily in
the business of investing in stock.

16
<PAGE> 17

Because we intend to actively participate in managing the business operations of
our operating companies, we do not believe we are primarily engaged in the
business of investing in stock. We intend to monitor and adjust our interests in
our operating companies to the extent practical to avoid being subject to the
Investment Company Act of 1940. In addition, to clarify our status under the
Investment Company Act of 1940, in September 1998 we filed a request for an
exemptive order from the SEC declaring Leap to be primarily engaged in a
business other than investing in stock. The SEC has not yet ruled on our
application. We cannot assure investors that the requested exemptive order will
be granted. If we must register as an investment company under the Investment
Company Act of 1940, compliance with these regulations will negatively impact
our business.

WE HAVE IMPLEMENTED OR ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD
PREVENT OR DELAY AN ACQUISITION OF LEAP THAT IS BENEFICIAL TO ITS STOCKHOLDERS

Leap's charter and bylaws could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. Our
charter and bylaw provisions could diminish the opportunities for a stockholder
to participate in tender offers. The charter and bylaws may also restrain
volatility in the market price of Leap common stock resulting from takeover
attempts. In addition, our board of directors may issue preferred stock that
could have the effect of delaying or preventing a change in control of Leap. The
issuance of preferred stock could also negatively affect the voting power of
holders of Leap common stock. The provisions of the charter and bylaws may have
the effect of discouraging or preventing an acquisition of Leap or a sale of its
businesses. In addition, Section 203 of the Delaware General Corporation Law
imposes restrictions on mergers and other business combinations between us and
any holder of 15% or more of our common stock.

We have adopted a rights plan which could discourage, delay or prevent an
acquisition of Leap at a premium price. The rights plan provides for preferred
stock purchase rights attached to each share of Leap common stock which will
cause substantial dilution to a person or group acquiring 15% or more of Leap's
stock if the acquisition is not approved by our board of directors. For a more
detailed discussion of the rights plan see "Description of Leap Capital
Stock -- Rights Plan."

The transfer restrictions imposed on the U.S. wireless telecommunications
licenses we own also adversely affects the ability of third parties to acquire
us. Our licenses may only be transferred with prior approval by the FCC. In
addition, we are prohibited from voluntarily assigning or transferring control
of our licenses in the C-Block and F-Block for five years after grant date
except to assignees or transferees that satisfy the financial criteria
established by the FCC for designated entities. Accordingly, the number of
potential transferees of our licenses is limited and any acquisition, merger or
other business combination involving Leap would be subject to regulatory
approval.

We are also subject to restrictive covenants in the documents governing our
indebtedness and the indebtedness of our operating companies which limit our
ability to engage in various transactions which could discourage, delay or
prevent an acquisition of Leap at a premium price. Under these documents, the
occurrence of a change of control transaction, in some cases after notice and
grace periods, would constitute an event of default permitting acceleration of
the indebtedness.

17
<PAGE> 18

YEAR 2000 RELATED SYSTEM FAILURES OR MALFUNCTIONS COULD HARM OUR BUSINESS

Leap and each of its operating companies have conducted an inventory to
identify its systems that may be subject to Year 2000 problems and that are
critical to its business and operations. Each of our operating companies has
been working with its primary telecommunications and business software systems
vendors on Year 2000 readiness issues. They have informed Leap and its operating
companies that their products are Year 2000 ready or, if not ready, have agreed
to a remediation and test program to be implemented before the Year 2000.

Although we expect that our operating companies' critical network
infrastructure systems will be Year 2000 compliant, our operating companies may
experience difficulties with systems maintained by third parties. For example,
other telecommunications systems and public utilities that interconnect with the
operating companies' systems (such as landline, long-distance and power systems)
could malfunction and disrupt their ability to provide wireless service. Our
operating companies are not currently aware of evidence that a failure is likely
to occur in their service areas. However, our operating companies continue to
evaluate the risks associated with third-party interfaces and Year 2000 issues.

Leap and its operating companies may not be able to identify all Year 2000
problems in their systems and third-party systems in advance of the occurrence
of those problems. In addition, we may not be able to remedy any problems that
may occur on a timely basis. A material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities, including
the provision of wireless service by our operating companies. Such a problem
could materially and adversely affect the business and operations of Leap and
its operating companies.

18
<PAGE> 19

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions about
Leap, including, among other things:

- general economic and business conditions, both nationally and in our
international markets;

- our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;

- anticipated trends in our business;

- existing and future regulations affecting our business;

- our acquisition opportunities; and

- other risk factors described in the section entitled "Risk Factors" in
this prospectus.

In addition, we intend that the words "believe," "may," "will," "estimate,"
"continue," "anticipate," "intend," "expect," and similar expressions in this
prospectus, as they relate to Leap, our business or our management, identify
forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.

19
<PAGE> 20

QUALCOMM TRUST CONVERTIBLE PREFERRED SECURITIES

In February 1997, QUALCOMM Financial Trust I completed a private placement
of $660 million of Trust Convertible Preferred Securities. The sole assets of
QUALCOMM Financial Trust I are QUALCOMM 5 3/4% Convertible Subordinated
Debentures due February 24, 2012. The holders of Trust Convertible Preferred
Securities receive required periodic payments from QUALCOMM Financial Trust I.
The payments by QUALCOMM to QUALCOMM Financial Trust I under the payment terms
of the Convertible Subordinated Debentures permit QUALCOMM Financial Trust I to
fulfill its payment obligations regarding the Trust Convertible Preferred
Securities. The terms of a guaranty may obligate QUALCOMM to make payments to
the holders of the Trust Convertible Preferred Securities if QUALCOMM Financial
Trust I fails to make them. Distributions on the Trust Convertible Preferred
Securities are payable until their mandatory redemption on February 24, 2012, at
a redemption price of $50 per preferred security.

Before the distribution of Leap's common stock to QUALCOMM's stockholders,
the Trust Convertible Preferred Securities were convertible only into QUALCOMM
common stock, at the rate of 1.3764 shares of QUALCOMM common stock for each
Trust Convertible Preferred Security (equivalent to a conversion price of
$36.3266 per share of common stock). As a result of and after the distribution
of Leap common stock, each Trust Convertible Preferred Security is convertible
into both QUALCOMM common stock at the rate of 1.3764 shares and Leap common
stock at the rate of 0.17205 shares, for each Trust Convertible Preferred
Security. Leap agreed to issue common stock upon the future conversion of the
Trust Convertible Preferred Securities in consideration for the contribution to
Leap of its operating companies, joint venture interests and other assets,
subject to Leap's right to temporarily suspend the issuance of common stock. See
"Business -- Relationship Between Leap and QUALCOMM -- Conversion Agreement."

The conversion rates and conversion prices of QUALCOMM shares provided in
this section of the prospectus have been adjusted to give effect to QUALCOMM's
two-for-one stock split of its common stock in April 1999. In November 1999,
QUALCOMM's board of directors approved a four-for-one stock split of the
QUALCOMM common stock subject to the approval of QUALCOMM's stockholders. A
special QUALCOMM stockholders meeting is expected to be held on or about
December 20, 1999 to consider this stock split. The conversion rates and
conversion prices of QUALCOMM shares provided in this section do not give effect
to this proposes four-for-one stock split.

USE OF PROCEEDS

The shares of Leap common stock offered by this prospectus will be issued
to holders of Trust Convertible Preferred Securities upon the future conversion
of the Trust Convertible Preferred Securities. Leap will receive no additional
consideration or forgiveness of debt upon conversion of the Trust Convertible
Preferred Securities and the issuance of common stock. Upon the conversion of
the Trust Convertible Preferred Securities, QUALCOMM will receive benefit in the
form of forgiveness of debt. See also "Business -- Relationship Between Leap and
QUALCOMM -- Conversion Agreement."

20
<PAGE> 21

PLAN OF DISTRIBUTION

The shares of Leap common stock offered by this prospectus will be issued
from time to time by Leap to holders of Trust Convertible Preferred Securities
upon exercise of the holders' conversion rights. Under the Conversion Agreement,
QUALCOMM agreed to pay all expenses of Leap, including professional fees,
incurred in connection with the registration of common stock offered by this
prospectus and the additional expenses that will be incurred from time to time
to maintain the registration statement. Leap also expects to incur
administrative expenses in connection with the issuance of common stock upon the
conversion of the Trust Convertible Preferred Securities.

21
<PAGE> 22

PRICE RANGE OF COMMON STOCK

The Leap common stock is listed for trading on the Nasdaq National Market
System under the symbol LWIN. Since September 24, 1998, our common stock has
been quoted on the Nasdaq National Market. The following table provides the high
and low sales price for our common stock during the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED AUGUST 31, 1999
1st Quarter (from September 24, 1998)....................... $ 9.00 $ 2.69
2nd Quarter............................................... 7.88 4.75
3rd Quarter............................................... 25.50 5.88
4th Quarter............................................... 21.75 16.00
FISCAL YEAR ENDED AUGUST 31, 2000
1st Quarter............................................... 94.06 14.56
2nd Quarter (through December 10, 1999)................... $57.75 $47.00
</TABLE>

The number of stockholders of record as of December 10, 1999 was 1,912. On
December 10, 1999, the last reported sale price of our common stock as reported
by the Nasdaq National Market System was $56.00 per share.

DIVIDEND POLICY

As of the date of this prospectus, Leap has never declared or paid any cash
dividends on shares of its common stock. The terms of the credit agreement
prohibit Leap from declaring or paying cash dividends. For a more detailed
discussion see "Business -- Relationship Between Leap and QUALCOMM -- Credit
Agreement." Leap currently intends to retain its earnings for future growth and
does not anticipate paying any cash dividends in the foreseeable future.

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<PAGE> 23

CAPITALIZATION

The following table sets forth, as of August 31, 1999, the capitalization
of Leap:

<TABLE>
<CAPTION>
AS OF
AUGUST 31, 1999
---------------
(IN THOUSANDS)
<S> <C>
Short-term debt(1).......................................... $ 17,225
Long-term debt(2)........................................... 221,812
---------
Stockholders' equity:
Common stock.............................................. 2
Additional paid-in capital................................ 291,189
Accumulated deficit....................................... (216,896)
Accumulated other comprehensive loss...................... (3,395)
---------
Total stockholders' equity............................. 70,900
---------
Total capitalization................................... $ 309,937
=========
</TABLE>

- -------------------------
(1) Leap has loans payable to banks in Chile of $9.0 million and $6.7 million
which, along with capitalized interest and fees of $1.5 million at August
31, 1999, bear interest at rates of 8.1% and 8.5% per annum, respectively,
and are due to be repaid in February 2000.

(2) QUALCOMM provided Leap with a credit agreement providing $35.2 million for
working capital and $229.8 million for investment capital purposes. The
facility bears interest at either a prime or LIBOR rate, plus an applicable
margin. At August 31, 1999, the weighted average effective rate of interest
was 11.35% per annum. Interest will be payable quarterly beginning September
30, 2001 and, prior to that time, accrued interest is added to the principal
amount outstanding.

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<PAGE> 24

DILUTION

As of August 31, 1999, the net tangible book value of Leap's common stock
was $(3.0) million or $(0.17) per share of common stock. Net tangible book value
per share represents Leap's total tangible assets less total liabilities,
divided by 18,370,974, which is the number of shares of common stock outstanding
as of August 31, 1999. Dilution per share represents the difference between the
net tangible book value per share before the issuance of our common stock upon
the conversion of the Trust Convertible Preferred Securities and the net
tangible book value per share after the issuance of our common stock upon the
conversion of the Trust Convertible Preferred Securities. Upon conversion of the
Trust Convertible Preferred Securities, QUALCOMM will receive benefit in the
form of forgiveness of debt, but Leap will receive no benefit or additional
consideration. As a result, after giving effect to the issuance by Leap of
2,270,573 shares offered by this prospectus, Leap's net tangible book value as
of August 31, 1999, would have remained at $(3.0) million in the aggregate but
would have increased to $(0.15) per share of common stock. This represents an
immediate increase in such net tangible book value of $0.02 per share to
existing stockholders. Holders of Trust Convertible Preferred Securities will
receive 0.17205 shares of Leap's common stock per preferred security upon
conversion, the value of which will depend upon the market price of Leap's
common stock on the date of conversion. On November 29, 1999, the closing price
of the Leap common stock was $52.375 per share.

SUBSTANTIAL FUTURE DILUTION FROM LEAP SHARE RESERVES

The computations in the previous paragraph assume no exercise of Leap stock
options or warrants outstanding. The holders of Leap common stock will be
subject to potential substantial dilution due to the significant number of
shares of common stock of Leap currently reserved for issuance. As of November
29, 1999, in addition to the 1,959,052 shares of common stock reserved for
issuance upon the conversion of outstanding Trust Convertible Preferred
Securities, there were 12,133,266 shares of common stock of Leap reserved for
issuance consisting of the following:

- 4,500,000 shares reserved for issuance upon exercise of the warrant
issued to QUALCOMM;

- 3,681,274 shares reserved for issuance to employees, officers, directors
and consultants under Leap's equity incentive plans; and

To the extent we issue shares upon exercise of options, warrants or rights
that are presently outstanding or granted in the future, or reserved for future
issuance under our stock plans, there will be further dilution to new investors.

24
<PAGE> 25

SUMMARY CONSOLIDATED HISTORICAL
AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED AUGUST 31, YEAR ENDED
--------------------------------------------- AUGUST 31,
1996 1997(1) 1998(1) 1999 1999
------- ---------- ---------- --------- ----------
(RESTATED) (RESTATED)
---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Operating revenue............................ $ -- $ -- $ -- $ 3,907 $ 7,577
------- ------- -------- --------- ---------
Operating expenses:
Cost of operating revenues................. -- -- -- (3,810) (5,713)
Selling, general and administrative
expenses................................ (396) (1,361) (23,888) (28,745) (39,311)
Depreciation and amortization.............. -- -- -- (5,824) (15,847)
------- ------- -------- --------- ---------
Total operating expenses................ (396) (1,361) (23,888) (38,379) (60,871)
------- ------- -------- --------- ---------
Operating loss............................... (396) (1,361) (23,888) (34,472) (53,294)
Equity in net loss of unconsolidated wireless
operating companies........................ -- (3,793) (23,118) (100,300) (87,171)
Write-down of investments in unconsolidated
wireless operating companies............... -- -- -- (27,242) (27,242)
Interest income.............................. -- -- 273 2,505 1,257
Interest expense and amortization of discount
and facility fee........................... -- -- -- (10,356) (17,083)
Foreign currency transaction losses.......... -- -- -- (7,211) (11,410)
Gain on sale of wholly owned subsidiary...... -- -- -- 9,097 9,097
Gain on issuance of stock by unconsolidated
wireless operating company................. -- -- -- 3,609 3,609
Other income (expense), net.................. -- -- -- (243) (515)
------- ------- -------- --------- ---------
Net loss................................ $ (396) $(5,154) $(46,733) $(164,613) $(182,752)
======= ======= ======== ========= =========
Basic and diluted net loss per common
share(3)................................... $ (0.02) $ (0.29) $ (2.65) $ (9.19) $ (10.20)
======= ======= ======== ========= =========
Shares used to calculate basic and diluted
net loss per common share(3)............... 17,648 17,648 17,648 17,910 17,910
======= ======= ======== ========= =========
</TABLE>

25
<PAGE> 26

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------
1996 1997(1) 1998(1) 1999
----- ---------- ---------- --------
(RESTATED) (RESTATED)
---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA(2):
Cash (at end of period)................................ $ -- $ -- $ -- $ 26,215
Working capital (deficit).............................. (111) (279) (14,789) 6,587
Total assets........................................... -- 42,267 157,752 335,331
Long-term debt......................................... -- -- -- 221,812
Stockholders' equity (deficit)......................... (111) 41,988 142,963 70,900
</TABLE>

26
<PAGE> 27

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward looking statements that involve
risks and uncertainties. For a discussion of these risks and uncertainties, see
"Rick Factors" and "Forward-Looking Statements."

OVERVIEW

Leap is a wireless communications carrier that deploys, owns, operates and
participates in CDMA telecommunications networks in domestic and international
markets with strong growth potential. Through its operating companies, Leap has
launched all digital wireless networks in Mexico, Chile and the United States.
Upon completion of its pending U.S. asset acquisitions, Leap will have interests
in wireless communications licenses covering approximately 138 million potential
customers in these three countries. Leap's equity share will be approximately 67
million potential customers, although this share may decrease as Leap's
operating companies sell additional equity.

Domestic and international telecommunications markets are expanding
rapidly. Developing countries are seeking to increase their number of telephone
lines as a percentage of their population, known as teledensity, and to increase
competition among carriers. In addition, increased demand, decreased government
regulation, and new spectrum auctions have created domestic and international
opportunities for new providers to capture market share. Leap believes that
wireless is the cheapest and fastest way to increase teledensity and that it
possesses the expertise to oversee and manage the entry of new wireless
operating companies into today's competitive markets.

Leap's domestic strategy is to offer consumers a simple and affordable
wireless service plan that allows them to make all of the local calls they want
for a low, flat monthly rate. Targeted at the mass consumer market, the service
is marketed under the name "Cricket(SM)" and is identified as "the around-town
phone(SM)" and "comfortable wireless(SM)." Cricket(SM) service was introduced in
March 1999 in Chattanooga, Tennessee using the existing infrastructure of Chase
Telecommunications, Inc., a company that Leap has agreed to acquire. The service
was launched under an agreement that requires the management of Chase
Telecommunications to control the business until Leap's proposed acquisition of
Chase Telecommunications receives all necessary governmental approvals and is
completed. The expansion of Cricket(SM) service to Nashville, Tennessee is
currently underway.

Leap plans to introduce Cricket(SM) service to additional markets in the
United States in the future. Leap recently acquired 36 licenses in the federal
government's 1999 reauction of broadband PCS spectrum licenses. Leap has also
entered into agreements to purchase several licenses and is considering the
purchase of additional licenses in the United States.

In July 1999, the FCC issued a Memorandum Opinion and Order that found that
Leap was qualified to acquire and operate C-Block and F-Block PCS spectrum
licenses, subject to several conditions. The order also granted Leap's
application to acquire the 36 reauction licenses and approved the transfer of
four licenses in North Carolina and South Carolina to Leap, subject to the
specified conditions. In October 1999, the FCC issued the 36 reauction licenses
to Leap. Another wireless company has filed an application for review of the
FCC's order. Leap believes, however, that the FCC's order will be affirmed.

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Generally, Leap's international strategy is to invest in growth markets
with partners who provide familiarity with the local market and an ability to
facilitate deployment. For each joint venture in which it holds a significant
position, Leap is actively involved in the management of the venture, combining
its expertise in wireless markets with its technical expertise in CDMA. Leap is
committed to bringing the benefits of reliable, cost-effective and high-quality
voice and data services to its operating companies' customers.

In Mexico, Leap's joint venture operating company, PEGASO, has launched
wireless service in three of Mexico's four largest cities -- Monterrey,
Guadalajara and Tijuana -- as part of a planned nationwide rollout. PEGASO
expects to launch service in Mexico City near the end of calendar 1999. During
the past year, PEGASO signed a roaming agreement with Sprint PCS that will allow
PEGASO's customers to use Sprint PCS's nationwide wireless network in the United
States. Under the agreement, Sprint PCS customers will also be able to utilize
PEGASO's network in Mexico.

Leap's operating company in Chile, which was recently renamed Smartcom S.A,
launched a nationwide wireless network in Chile in September 1998. Smartcom's
system is the first nationwide CDMA network in Latin America. Leap increased its
ownership interest in Smartcom from 50% to 100% in April 1999.

The directors of the Transworld Companies, partially owned subsidiaries of
a company in which Leap has an indirect interest, recently voted to liquidate
the companies. The decision followed the Transworld Companies' loss of leased
satellite transmission capacity and the companies' failure to develop an
acceptable business plan that did not utilize satellite transmission. As a
result of these developments, Leap wrote down its indirect investment in the
Transworld Companies in the fourth quarter of fiscal 1999. In addition, Leap
stopped funding and wrote off its remaining investment in Metrosvyaz.

Leap and its operating companies are in the early stages of development.
Start-up wireless communications companies typically require substantial capital
expenditures for the construction of their networks and license acquisition
costs. In addition, these companies typically incur significant marketing and
other expenses as they begin commercial operations. Accordingly, as Leap's
operating companies continue to build-out their networks, expand their
operations, and amortize their capitalized costs, their net operating losses and
Leap's proportionate share of the losses is expected to grow.

PRESENTATION

Management's Discussion and Analysis of Financial Condition and Results of
Operations reviews the financial condition of the businesses that QUALCOMM
transferred to Leap in September 1998 as if Leap were a separate entity for all
periods discussed. Leap adopted the equity method of accounting for its
investment in Chase Telecommunications Holdings, Inc. in the third quarter of
fiscal 1999. Prior to that, Leap accounted for its investment in Chase
Telecommunications Holdings under the cost method. Accordingly, all prior
periods presented in the accompanying financial statements have been adjusted
retroactively in accordance with generally accepted accounting principles.

In April 1999, Leap increased its ownership interest in Smartcom from 50%
to 100%. As a result of the reporting lag it has adopted for its foreign
operating companies, Leap began fully consolidating Smartcom's results of
operations in June 1999, the beginning of the fourth quarter of fiscal 1999.
Prior to that, Leap accounted for its investment in Smartcom under the equity
method of accounting.

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RESULTS OF OPERATIONS

FISCAL YEAR ENDED AUGUST 31, 1999 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1998

Leap incurred a net loss of $164.6 million in fiscal 1999 compared to a net
loss of $46.7 million in fiscal 1998. The increase resulted primarily from
start-up costs associated with Leap's international operating companies. Leap's
share of these start-up costs, $100.3 million in fiscal 1999, is recorded as
equity in net loss of unconsolidated wireless operating companies. In addition,
in fiscal 1999 Leap recorded a write-down of equity investments of $27.2
million, interest expense and amortization of debt discount and facility fee of
$10.4 million, foreign currency transaction losses of $7.2 million, a gain on
the sale of a wholly owned subsidiary of $9.1 million and a gain on issuance of
stock by an unconsolidated wireless operating company of $3.6 million.

As a direct result of the consolidation of Smartcom in the fourth quarter
of fiscal 1999, Leap recorded $3.9 million of operating revenues, $3.8 million
of cost of operating revenues, $4.5 million of additional selling, general and
administrative expenses, $5.3 million of additional depreciation and
amortization, $2.9 million of additional interest expense, and $7.2 million of
foreign currency transaction losses. Smartcom's full consolidation increased
Leap's net loss in fiscal 1999 by $9.9 million. During the prior fiscal year,
Leap did not report any operating revenues because all of its operating
companies were accounted for under the equity method of accounting. Leap's
operating companies did not generate material revenues in the prior fiscal year.

Leap incurred $28.7 million of selling, general and administrative expenses
in fiscal 1999 compared to $23.9 million in fiscal 1998. The increase resulted
from the consolidation of Smartcom in the fourth quarter of fiscal 1999.
Excluding Smartcom, selling, general and administrative expenses remained
relatively flat, despite increased staffing as a result of Leap becoming a
stand-alone entity.

Leap incurred an operating loss of $34.5 million in fiscal 1999 compared to
an operating loss of $23.9 million in fiscal 1998. The $10.6 million increase
primarily reflects the consolidation of Smartcom in the fourth quarter of fiscal
1999. Leap expects that fiscal 1999 operating revenues, operating expenses and
operating losses are not representative of future results, and believes
operating revenues and expenses will increase in the future. Leap expects
substantial growth in subscribers, operating revenues and operating expenses as
a result of its pending acquisition and consolidation of Chase
Telecommunications, the planned development and launch of Cricket(SM) service in
multiple U.S. markets, and an increase in marketing efforts in Chile. Leap also
expects substantial growth in PEGASO's subscribers, operating revenues and
operating expenses; however, because PEGASO is accounted for under the equity
method, its operating revenues and expenses are not fully consolidated.

Equity in net loss of unconsolidated wireless operating companies was
$100.3 million in fiscal 1999 compared to $23.1 million in fiscal 1998. The
significant increase in Leap's share of the net loss of its unconsolidated
wireless operating companies related primarily to the expenditures they incurred
in launching their network services, including marketing and other expenses, and
the amortization of their capitalized network costs. Smartcom, accounted for
under the equity method until the fourth quarter of fiscal 1999, launched
nationwide service in September 1998. PEGASO launched operations in Tijuana,
Guadalajara and Monterrey in February through September 1999. Chase
Telecommunications launched its traditional mobile service in the U.S. in
September 1998 and

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re-launched service utilizing Leap's Cricket(SM) wireless concept in March 1999.
In addition, Petrosvyaz, a Metrosvyaz joint venture, launched commercial service
in St. Petersburg in April 1999.

Equity in net loss of unconsolidated wireless operating companies included
a $16.9 million asset impairment charge in fiscal 1999. Orrengrove, a company in
which Leap has an indirect ownership interest, recorded the charge when the
satellite that the Transworld Companies relied on to deliver long-distance
service in Russia failed. The Transworld Companies are partially owned
subsidiaries of Orrengrove. As a result of the satellite failure, the Transworld
Companies began using fiber lines to provide long-distance service as a
short-term alternative to the satellite transmission option they previously
used. They also began to explore long-term alternative methods to provide
long-distance services.

Leap also wrote off its remaining $9.6 million investment in Metrosvyaz in
fiscal 1999 as a result of its decision to stop funding loans to Metrosvyaz.
Metrosvyaz, a joint venture attempting to enter the Russian wireless
communications market, had not satisfied certain funding conditions under its
loan agreement with Leap and was in default of that agreement. In addition, Leap
had been prevented from securing full reporting and documentation of
performance, results and expenditures of Metrosvyaz in spite of repeated efforts
to obtain that information. Preliminary results of a special investigation of
Metrosvyaz also disclosed serious irregularities, including unaccounted for
funds and questionable contracts and payments.

Leap expects its share of the equity losses of its unconsolidated wireless
operating companies to decrease in fiscal 2000 as a result of the consolidation
of Smartcom, the expected acquisition of Chase Telecommunications, the
discontinuance of funding to Metrosvyaz and the reduction in its percentage
equity interest in PEGASO from 33.3% to 28.6%. Leap expects the decrease to be
offset in part by increased equity losses from PEGASO's continued build-out in
Mexico.

Interest expense in fiscal 1999 related primarily to borrowings under
Leap's credit agreement with QUALCOMM and the consolidation of $2.9 million of
Smartcom interest expense in the fourth quarter of fiscal 1999. Smartcom's
interest expense related primarily to the financing of its wireless
communications network. Leap expects interest expense to substantially increase
in fiscal 2000 as a result of the consolidation of Smartcom and expected
borrowings to fund the construction of domestic telecommunications networks.
Leap did not incur any interest expense during the prior fiscal year.

Foreign currency transaction losses of $7.2 million in fiscal 1999
reflected unrealized foreign exchange losses recognized by Smartcom on U.S.
dollar denominated loans as a result of changes in the exchange rate between the
U.S. dollar and the Chilean peso during the fourth quarter of fiscal 1999.

Gain on sale of wholly owned subsidiary of $9.1 million in fiscal 1999
resulted from Leap's sale of OzPhone Pty. Ltd., its Australian operating
company. OzPhone held wireless licenses but had not initiated service.

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Gain on issuance of stock by unconsolidated wireless operating company of
$3.6 million in fiscal 1999 effectively reflects a reduction in Leap's share of
PEGASO's accumulated losses as a result of a decrease in Leap's percentage
ownership of PEGASO. In July 1999, several other investors increased their
ownership interest in PEGASO by contributing $50 million of capital as
previously planned.

FISCAL YEAR ENDED AUGUST 31, 1998 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1997

General and administrative expenses were $23.9 million for fiscal 1998,
compared to $1.4 million for fiscal 1997. The increase was due principally to
increases in business development activities relating to projects to create
Leap' operating companies in Mexico and Russia. These development activities
resulted in significantly higher consulting expenses and an increase in
QUALCOMM's corporate overhead allocated to Leap. Leap expects that general and
administrative expenses will increase in the future as a result of ongoing
development efforts on current and new projects.

Equity in net loss of unconsolidated wireless operating companies for
fiscal 1998 was $23.1 million, which represented Leap's wireless share of the
net losses of the wireless operating companies in which it then held an
ownership interest accounted for under the equity method of accounting. These
losses consisted of costs incurred before service launch during the network
build-out and testing phases, such as salary and related benefits, overhead
expenses, professional and consulting fees, and interest on long-term debt.
Through August 31, 1998, there was no depreciation of network equipment and no
amortization of licenses as service had not been launched commercially. Equity
in net loss of unconsolidated wireless operating companies of $3.8 million for
fiscal 1997 primarily reflected Leap's equity share in the net loss of Chase
Telecommunications Holdings, which began network planning and initial build-out
activities earlier in the year.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

Leap expects to require significant capital over the next several years to
fund the development and operation of its operating companies' existing wireless
projects and potential new ventures as well as corporate operations.

Leap's primary sources of liquidity are $29.2 million of cash and cash
equivalents as of October 31, 1999, a $265 million credit agreement with
QUALCOMM, and vendor financing agreements related to the purchase and
installation of new telecommunications equipment. The credit agreement contains
a $35.2 million sub-facility to fund the corporate operating expenses of Leap at
the parent level, and a $229.8 million sub-facility to fund specified
investments of Leap. As of October 31, 1999, Leap had $127.1 million available
to it under the credit agreement, with $24.6 million available under the working
capital sub-facility and $102.5 million available under the investment
sub-facility. Amounts available under the investment sub-facility are allocated
to specific Leap projects and may not be reallocated to other projects without
QUALCOMM's written consent.

As a condition to the FCC's recognition of Leap's qualification to hold
C-Block and F-Block licenses of PCS spectrum, Leap must take steps so that by
January 2001, QUALCOMM holds no more than 50% of Leap's outstanding debt
obligations. Leap

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cannot assure investors that it will be able to reduce its debt to QUALCOMM to
50% or less of its outstanding debt obligations by January 2001.

In the United States, Leap plans to construct wireless networks in numerous
markets. Leap expects to incur substantial expenditures in fiscal 2000 and
beyond to plan and construct these wireless networks. As is typical for start-up
telecommunications networks, Leap also expects the networks to incur operating
expenses significantly in excess of revenues in their early years of operations.

Subsequent to the end of fiscal 1999, our subsidiary, Cricket
Communications, Inc. agreed to purchase $330 million of infrastructure products
and services from Lucent Technologies. Lucent agreed to finance these purchases
plus additional working capital at an interest rate equal to LIBOR plus 3.5% to
4.25% or a bank base rate plus 2.5% to 3.25%, in each case with the specific
rate based on the ratio of total indebtedness to EBITDA (earnings before
interest, taxes, depreciation and amortization). Principal payments are
scheduled to begin after three years with a final maturity after eight years.
Repayment is weighted to the later years of the repayment schedule. The
obligations under the Lucent credit agreement are secured by all of the stock of
Cricket Communications and its subsidiaries, all of their respective assets, the
assets of Cricket Communications Holdings, Inc. and the stock of each special
purpose subsidiary of Leap formed to hold wireless licenses. Lucent has
committed to finance an aggregate of up to $641 million in borrowings by Cricket
Communications subject to various covenants and conditions typical for a loan of
this type. Cricket Communications has committed to purchase $330 million in
equipment and services from Lucent. At the same time, Cricket Communications
also agreed to purchase $330 million of next-generation infrastructure products
which are currently in development and related services from Ericsson. Purchases
from Ericsson will be on substantially similar terms to the Lucent agreement,
including financing. The Ericsson agreement is subject to approval of Ericsson's
board of directors.

Leap expects to fund the cost of developing and operating domestic networks
in fiscal 2000 largely through vendor financing and amounts available under its
credit agreement with QUALCOMM. In addition, Leap expects that it will need to
raise additional capital to fund its planned roll-out of domestic networks and
acquisitions of licenses in fiscal 2000. As a result, Leap is exploring debt and
equity financing alternatives. Leap cannot assure investors that it will be able
to raise additional capital in fiscal 2000 or that additional capital will be
available to it on acceptable terms. If Leap does not obtain additional
financing, management believes it can reduce its capital needs sufficiently to
meet its liquidity requirements through fiscal 2000 by slowing or reducing the
scope of its planned deployments in the United States and by reducing or
deferring additional license acquisitions.

Our subsidiary, Cricket Communications, has entered into a credit facility
with Chase Telecommunications under which Cricket Communications agreed, at its
discretion, to provide working capital loans to Chase Telecommunications. The
maximum principal amount of working capital loans that may be drawn under the
facility is $50 million. Borrowings under the facility bear interest at the
prime rate plus 4.5%. The borrowings are collateralized by substantially all of
the assets of Chase Telecommunications and are subordinated in right of payment
to amounts Chase Telecommunications owes to QUALCOMM under an equipment
financing agreement. As of October 31, 1999, Chase Telecommunications'
borrowings under its working capital facility with Cricket Communications
totaled $40.3 million, including $4.0 million of accrued and capitalized
interest.

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Chase Telecommunications is preparing to launch Cricket(SM) service in
additional markets in Tennessee. Until Leap's pending acquisition of Chase
Telecommunications is completed, a Leap subsidiary plans to purchase the
equipment and services required by Chase Telecommunications under the
subsidiary's existing equipment purchase and financing agreements, and to resell
the equipment and services to Chase Telecommunications on substantially similar
terms, including financing. If Leap does not complete the acquisition of Chase
Telecommunications by approximately October 2000, Leap is required to purchase
from the vendor the note Leap's subsidiary will provide to finance its purchase
of equipment and services for Chase Telecommunications.

Leap's wholly owned subsidiary, Smartcom, expects to incur significant
capital expenses over the next several years. Smartcom plans to upgrade existing
equipment and purchase additional equipment to accommodate expected subscriber
growth and to enhance the quality and reliability of its system. As a relatively
new wireless operating company, Smartcom also expects to incur operating losses
for the next several years.

Leap intends to finance the planned upgrade and expansion and the operation
of Smartcom's network in fiscal 2000 through borrowings under our credit
agreement with QUALCOMM and the proceeds of equipment financing agreements that
Leap expects to negotiate in connection with planned equipment purchases by
Smartcom. Smartcom recently entered into a new equipment purchase agreement with
Ericsson. Smartcom also has engaged an investment banker to assist it in selling
equity and is exploring other capital raising alternatives. Smartcom may not
conclude a sale of equity or other financing transaction or obtain additional
vendor funding. If Smartcom does not obtain additional financing in fiscal 2000,
Leap expects to delay or reduce the scope of Smartcom's planned expansion.

In May 1999, PEGASO entered into a $100 million loan agreement with several
banks with a credit support from QUALCOMM. Leap guaranteed 33% of PEGASO's
obligations under that agreement. In July 1999, several existing investors
contributed $50 million to PEGASO as previously planned. PEGASO expects to fund
a large portion of its development and operating activities in fiscal 2000 with
cash from operations, proceeds of the $50 million investment, and borrowings
under the $100 million loan agreement. In addition, PEGASO is seeking additional
debt and equity financing, including additional vendor financing. Leap has no
further commitment to contribute capital to PEGASO, although several other
existing investors are committed to contribute $50 million by August 2000.

OPERATING ACTIVITIES

Leap used $34.1 million in cash for operating activities in fiscal 1999,
compared to $18.4 million in fiscal 1998. Cash used in operating activities in
fiscal 1999 included $8.5 million attributable to the consolidation of Smartcom
during the fourth quarter. Leap expects that cash used in operating activities
will increase further as it expands its project development efforts. In
addition, Leap expects that cash used in operating activities will increase
substantially in the future as a result of its acquisition and consolidation of
Smartcom, its pending acquisition of Chase Telecommunications, and other Leap
activities related to the launch of its U.S. network.

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INVESTING ACTIVITIES

Cash used in investing activities was $158.3 million in fiscal 1999
compared to $140.7 million in fiscal 1998. Significant investments in fiscal
1999 consisted of $124.5 million of investments in and loans to Leap's operating
companies ($71.4 million made before Leap began to operate as an independent
company), $28.0 million for Leap's acquisition of the remaining shares of
Smartcom, and $18.7 million on U.S. license acquisitions. Cash used in investing
activities was offset by $16.0 million provided from the sale of Leap's OzPhone
subsidiary. In fiscal 2000, Leap and its subsidiaries expect to make significant
investments in capital assets, including network equipment and wireless
communications licenses.

FINANCING ACTIVITIES

Cash provided by financing activities during fiscal 1999 amounted to $216.5
million, representing $95.3 million of funding from QUALCOMM for Leap's
operating and investing activities prior to the distribution of Leap common
stock to QUALCOMM's stockholders in September 1998 and $111.1 million of net
borrowings under the credit agreement with QUALCOMM after the distribution.

CURRENCY FLUCTUATION RISKS

Leap reports its financial statements in U.S. dollars. Leap's international
operating companies report their results in local currencies. Consequently,
fluctuations in currency exchange rates between the U.S. dollar and the
applicable local currency will affect Leap's results of operations as well as
the value of its ownership interests in its operating companies.

Generally, Leap's international operating companies generate revenues which
are paid in their local currency. However, many of these operating companies'
major contracts, including financing agreements and contracts with equipment
suppliers, are denominated in U.S. dollars. As a result, a significant change in
the value of the U.S. dollar against the national currency of an operating
company could result in a significant increase in the operating company's
expenses and could have a material adverse effect on the operating company and
on Leap. In some emerging markets, including Mexico, significant devaluations of
the local currency have occurred and may occur again in the future.

Leap does not currently have a policy to systematically hedge against
foreign currency exchange rate or interest rate risks.

INFLATION

Inflation has had and may continue to have negative effects on the
economies and securities markets of emerging market countries and could have
negative effects on Leap's operating companies and any new start-up project in
those countries, including their ability to obtain financing. 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 successfully mitigate the impact of
inflation on their operations.

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE RISK

Leap's exposure to market risk for changes in interest rates relates
primarily to its variable rate long-term debt obligations. For a description of
Leap's long term debt obligations, see Note 7 to the Consolidated Financial
Statements in, which are included elsewhere in this prospectus. The general
level of U.S. interest rates and/or LIBOR affect the interest expense that Leap
recognizes on its variable rate long-term debt obligations. As of August 31,
1999, the principal amounts of Leap's variable rate long-term debt obligations
amounted to $210.3 million. An increase of 10% in interest rates would increase
Leap's interest expense for fiscal year 2000 by approximately $2.3 million. This
hypothetical amount is only suggestive of the effect of changes in interest
rates on Leap's results of operations in fiscal year 2000.

FOREIGN EXCHANGE MARKET RISK

The long-term debt obligations of Leap's wholly owned Chilean subsidiary,
Smartcom, which are denominated in the U.S. dollar, are subject to the effects
of currency fluctuations and may affect reported earnings and losses. A
significant change in the value of U.S. dollar against the Chilean peso could
result in a significant increase in the consolidated expenses of Leap. As of
August 31, 1999, Smartcom's long-term debt obligations that were denominated in
the U.S. dollar amounted to $101.7 million. Leap's results of operations would
be negatively impacted by approximately $11.9 million for fiscal year 2000 if
the U.S. dollar were to appreciate against the Chilean peso by 10%. This
hypothetical amount is only suggestive of the effect of currency fluctuations on
Leap's results of operations in fiscal year 2000.

HEDGING POLICY

Leap does not currently have a policy to systematically hedge against
foreign currency exchange rate or interest rate risks.

YEAR 2000 ISSUE

The Year 2000 issue arises from the fact that many computer software
programs use 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 a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.

Leap and its operating companies have recently begun their respective
businesses and have designed and built their wireless communications networks
and support systems with the Year 2000 issue in mind. The recent acquisition of
network equipment and software does not guarantee, however, that such equipment
and software will be Year 2000 compliant.

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They have informed Leap and its operating companies that their products are Year
2000 ready or, if not ready, have agreed to a remediation and test program to be
implemented prior to the Year 2000.

Although Leap expects that its operating companies' critical network
infrastructure systems will be Year 2000 compliant, Leap's operating companies
may experience difficulties with systems maintained by third parties. For
example, other telecommunications systems and public utilities that interconnect
with the operating companies' systems (such as landline, long-distance and power
systems) could malfunction and disrupt their ability to provide wireless
service. Leap's operating companies are not currently aware of evidence that a
failure is likely to occur in their service areas. However, Leap's operating
companies continue to evaluate the risks associated with third-party interfaces
and Year 2000 issues.

Leap continues to work at the corporate level and with its operating
companies to evaluate Year 2000 risks and the development of any required
remediation and contingency plans. Leap expects that Year 2000 testing and
preparation will continue during the remainder of 1999. Leap estimates that it
will spend less than $500,000 in calendar year 1999 to review and correct any
non-compliance as well as to support the Leap operating companies and support
material third party relationships.

Leap and its operating companies may not be able to identify all Year 2000
problems in their systems and third-party systems in advance of the occurrence
of those problems. In addition, we may not be able to remedy any problems that
may occur on a timely basis. A material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities, including
the provision of wireless service by the Leap operating companies. Such a
problem could materially and adversely affect the business and operations of
Leap and its operating companies.

Leap expects that its operating companies in the United States, Mexico and
Chile, and their critical equipment vendors, will have personnel available to
assess and remedy any Year 2000 problem that may occur early in the year 2000.

FUTURE ACCOUNTING REQUIREMENTS

In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up
Activities," which Leap will be required to adopt for fiscal year 2000. This SOP
provided guidance on the financial reporting of start-up and organizational
costs. It requires start-up and organizational costs to be expensed as incurred.
Leap does not expect that the adoption of SOP No. 98-5 will have a material
impact on its consolidated financial position or results of operations.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("FAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which Leap must adopt for fiscal year 2001. 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. Leap does not expect that the adoption of this new
accounting standard will have a material impact on its consolidated financial
position or results of operations.

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BUSINESS

INTRODUCTION

Upon completion of its pending asset acquisitions, Leap and its operating
companies will own wireless communications licenses covering approximately 138
million potential customers or "POPs" in the United States, Mexico and Chile.
Leap's equity share of this pool of potential customers will be approximately 67
million potential customers, although this share may decrease in the future as
Leap's operating companies sell additional equity.

In the international arena, Leap plans to focus its efforts in growth
markets where Leap's ability to provide value added services will increase the
likelihood of launching successful wireless ventures. When making new
investments in growth markets, Leap generally expects to seek investment
partners that provide familiarity with local markets, financial and technical
resources, an ability to facilitate development in a particular market, or other
attributes that can contribute to a successful network-building enterprise. Leap
expects to be actively involved in each joint venture operation in which it
holds a significant position.

PEGASO Telecomunicaciones, S.A. de C. V., of which Leap owns a 28.6%
ownership interest, is deploying the first 100% digital wireless communications
network in Mexico. PEGASO holds licenses to provide nationwide wireless service
in Mexico and plans to build one of the largest wireless communications networks
in Latin America. PEGASO has already launched operations in three of Mexico's
four largest cities: Tijuana, Guadalajara and Monterrey. The company expects to
launch service in Mexico City, the

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country's largest city, near the end of 1999. After that launch, PEGASO plans to
roll-out its network in additional metropolitan areas as well as tourist
destinations and major border cities.

Leap's operating company in Chile, which was recently renamed Smartcom
S.A., operates a nationwide wireless system in Chile. Smartcom launched its
system in Chile in September 1998. Leap purchased the 50% of Smartcom that it
did not already own from its former joint venture partner in April 1999. Over
the last several months, Leap has strengthened Smartcom's management team and
expanded Smartcom's marketing and customer acquisition efforts.

As of August 31, 1999, Leap's operating companies had almost 60,000
domestic and international subscribers -- 42,000 in Chile, 12,400 in the United
States and 5,500 in Mexico, primarily from its first market in Tijuana. Leap's
proportionate share of the total subscriber base was approximately 44,500, based
on its 100% ownership of Smartcom, 28.6% ownership of PEGASO, and its 7.2% stake
in Chase Telecommunications, Inc.

Leap, a Delaware corporation, was formed in June 1998 as a subsidiary of
QUALCOMM Incorporated, a provider of digital wireless communications products,
technologies and services. In September 1998, QUALCOMM contributed several of
its wireless communications businesses and ventures to Leap and distributed all
of Leap's outstanding shares of common stock to QUALCOMM's stockholders as a
taxable dividend.

CORPORATE STRATEGY

Leap's strategy is to provide management and project expertise to, and to
selectively invest in, joint ventures and other collaborative efforts to provide
wireless communications services in markets with significant growth potential.
Leap believes its wireless communications experience and the technical and
commercial expertise of Leap and its contractors will benefit Leap and the
entities in which it invests. Leap also expects 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 intends to focus its efforts on its current projects and on a limited
number of additional opportunities that become available in the future, taking
into account its management and capital resources. In the international arena,
Leap plans to focus its efforts in growth markets where Leap's ability to
provide value added services will increase the likelihood of launching
successful wireless ventures.

When making new international investments, Leap generally expects to seek
investment partners that provide familiarity with local markets, financial and
technical resources, an ability to facilitate development in a particular
market, or other attributes that can contribute to a successful network-building
enterprise. Leap seeks to ensure that its strategic alliances will enable Leap
to better prepare and equip its operating companies for successful development.

Although Leap may not hold a majority ownership in many of the joint
ventures in which it elects to participate due to a variety of reasons, Leap
expects to exercise, to varying degrees, significant management influence and
oversight over the businesses in which it invests. Leap believes its experience
and business relationships enable it to add value to its operating companies and
increase their performance and likelihood of success.

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LEAP OPERATING COMPANIES

Leap's businesses and operating companies are described below.

CRICKET

General. Leap's domestic strategy is to offer consumers a simple and
affordable wireless service plan that allows them to make all of the local calls
they want for a low, flat monthly rate. The service, targeted at the mass
consumer market, is advertised as the "around-town phone(SM)" and "comfortable
wireless(SM)" and is marketed under the name "Cricket(SM)." This strategy is
different from the existing model used by most current wireless operators in the
United States, who generally offer consumers a "bundle" or maximum amount of
minutes of use for a fixed price with additional charges imposed for minutes of
use above the set maximum.

The Cricket(SM) service concept was introduced in Chattanooga, Tennessee in
March 1999 using the existing infrastructure of Chase Telecommunications, Inc.,
a company that Leap has agreed to acquire. The service was launched under an
agreement that requires the management of Chase Telecommunications to control
the business until Leap's proposed acquisition of Chase Telecommunications
receives all necessary governmental approvals and is completed. Leap currently
owns 7.2% of Chase Telecommunications Holdings, Inc., the parent corporation to
Chase Telecommunications, Inc.

Since September 1998, Leap has acquired or agreed to acquire wireless
communication licenses covering approximately 24 million potential customers in
the United States. Leap is also considering additional domestic spectrum
acquisitions. Over the next several years, Leap expects to launch Cricket(SM)
service in numerous markets in which it has acquired licenses or has agreed to
acquire licenses. These markets include cities such as Albuquerque, Boise,
Charlotte, Dayton, Greensboro, Knoxville, Little Rock, Memphis, Salt Lake City,
Spokane, Tucson, Tulsa and Wichita. The expansion of Cricket(SM) service to
Nashville, Tennessee is currently underway and Leap expects that Chase
Telecommunications will introduce the Cricket(SM) service concept there in early
2000.

Market Opportunity. Wireless penetration was approximately 25% in the
United States at the end of 1998. Wireless companies have generally focused
their U.S. marketing on highly mobile customers, including business users, who
are likely to generate the highest revenues. Customers are typically offered
multiple service plans with prices based on the customer's minutes of use during
the billing period. The numerous plans offered by wireless companies have tended
to confuse many potential customers. Market research indicates that many people
are interested in a wireless product but are concerned about the cost and
complexity of wireless pricing plans.

The Cricket service model focuses on the mass consumer market rather than
on highly mobile business customers. The Cricket model does not provide roaming
outside of the local service area and thus is not likely to be selected by
highly mobile customers. Cricket's fixed price, unlimited local service,
however, is designed to appeal to the mass consumer market in which customers
are most likely to use their wireless phone in the areas where they live and
work and have a limited need to use their wireless phones outside of their local
calling area. Cricket's fixed price service plan is also designed to overcome
consumer concerns about pricing.

Capital Requirements and Projected Investments. Leap will require
substantial capital to develop and operate wireless networks in the numerous
markets in which it plans to

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operate Cricket service in the United States. The amount of financing that Leap
will require for these efforts will vary depending on the number of these
networks that are developed (including any markets covered by future Leap
spectrum acquisitions) and the speed at which Leap constructs and launches these
networks. In fiscal 2000, Leap expects to finance these development and
operation costs largely through vendor financing and amounts available under its
credit agreement with QUALCOMM. Leap expects, however, that it will also need to
raise additional capital to fund its planned roll-out of domestic networks and
acquisitions of spectrum in fiscal 2000. As a result, Leap is currently
exploring debt and equity financing alternatives.

Regulatory Environment. Leap's business plan anticipates and depends on its
acquisition and operation of C-Block and F-Block spectrum in the United States.
Although C-Block and F-Block licenses are generally more available and are less
expensive to obtain than licenses in other spectrum blocks, a licensee may hold
these licenses only if it qualifies as a "designated entity" under FCC rules.

In July 1999, the FCC issued an opinion and order that found that Leap was
qualified to acquire C-Block and F-Block spectrum. The order also approved
Leap's acquisition of the 36 C-Block licenses that Leap won in the FCC's 1999
spectrum reauction, and approved the transfer to Leap of four F-Block licenses
covering portions of North and South Carolina, in each case subject to the
fulfillment of certain conditions. In October 1999, the FCC issued the 36
reauction licenses to Leap.

Each of the conditions imposed by the FCC has been satisfied except for the
condition that Leap reduce its debt to QUALCOMM to 50% or less of its
outstanding debt by January 2001 and except for Leap's continuing obligation,
during the designated entity holding period for its C-Block and F-Block spectrum
licenses, to ensure that persons who are or were previously officers or
directors of QUALCOMM do not comprise a majority of Leap's board of directors or
a majority of its officers. Leap anticipates satisfying the debt reduction
condition through additional financing activities, but Leap cannot guarantee
that it will be able to reduce its debt to QUALCOMM to the required level. If
Leap fails in the future to meet any of the conditions imposed by the FCC or
otherwise fails to maintain its qualification to own C-Block and F-Block
licenses, that failure would have a material adverse effect on Leap's financial
condition and business prospects.

Various parties previously challenged Leap's qualification to hold C-Block
and F-Block licenses, which challenges were rejected in the FCC's July 1999
order. One of those parties, a wireless operating company, has requested that
the FCC review its order. In addition, further judicial review of this order is
possible. Leap cannot assure investors that it will prevail in connection with
any such appeal or that it will remain qualified to hold C-Block or F-Block
spectrum licenses.

Competition. The U.S. telecommunications industry is characterized by
intense competition. Leap's planned service will compete with some or all of the
services offered by the historic landline operators. Leap will compete directly
with other wireless providers in each of its markets, many of whom have greater
resources than Leap and entered the market before Leap. A few of Leap's
competitors operate wireless communications networks covering most of the United
States. Competitors' earlier entry and broader presence in the U.S.
telecommunications market may have a negative effect on Leap's ability to
successfully implement its strategy. In addition, other wireless providers could
attempt to implement Leap's strategy of providing local service at a flat-rate.
Providers

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who offered such a service in Leap's market areas would directly compete against
Leap in its market niche. Also, some competitors will likely market other
services, including cable television access, landline telephone service and
Internet access, that Leap does not currently intend to market. Leap also
expects to compete with new entrants to the U.S. wireless market as well as
other telecommunications technologies, including paging, enhanced specialized
mobile radio and global satellite networks.

CHASE TELECOMMUNICATIONS

General. Through a subsidiary, Chase Telecommunications Holdings, Inc. owns
spectrum licenses covering approximately 6.6 million POPs in a region that
includes approximately 98% of Tennessee. Leap currently owns 7.2% of Chase
Telecommunications Holdings and, in December 1998, Leap agreed to purchase
substantially all the assets of Chase Telecommunications Holdings, including its
spectrum licenses and all of the stock of its operating company, Chase
Telecommunications, Inc. Because the pending acquisition involves the transfer
of licenses, it is subject to approval by the FCC. Leap filed an application for
approval of the license transfers with the FCC in September 1999. One party has
lodged a formal challenge to the license transfers, and FCC approval remains
uncertain.

Chase Telecommunications began offering wireless service in Chattanooga in
October 1998. In March 1999, Chase Telecommunications re-launched its service,
offering the Cricket(SM) concept in Chattanooga, Tennessee under an agreement
that requires the management of Chase Telecommunications to control the business
until Leap's proposed acquisition receives all necessary governmental approvals
and is completed.

Chase Telecommunications has begun efforts to expand the Cricket(SM)
service to other markets in Tennessee and currently expects to launch service in
Nashville early in 2000.

Market Opportunity. Nashville, Memphis, Knoxville and Chattanooga account
for approximately 4.8 million of the 6.6 million POPs covered by the Chase
Telecommunications Holdings' licenses. The state of Tennessee is situated in the
growing Southeast with a diverse economic base including manufacturing,
services, retail and wholesale trade, transportation, finance and agriculture.
Tennessee's personal income per capita grew 16.2% in real terms between 1990 and
1997 compared to 10.0% for the United States as a whole.

Strategic Partners. Chase Telecommunications was founded by Tony Chase, the
chairman and CEO of Faith Broadcasting Corporation which operates radio
communications licenses in several major markets in Texas. Leap expects to
continue to maintain and benefit from its relationship with Mr. Chase after the
licenses are transferred.

Leap's Rights and Interests. Leap does not have a right to representation
on the board of Chase Telecommunications Holdings or the board of Chase
Telecommunications, although it participates in the management and operation of
Chase Telecommunications under the terms of the management agreement described
above. If the FCC does not approve the transfer of the Chase Telecommunications
Holdings' licenses, Leap has the right to continue in its role as manager until
December 2005.

Capital Requirement and Project Investments. Until the completion of Leap's
pending acquisition, Chase Telecommunications plans to finance the construction
and operation of its networks in Tennessee through borrowings from Leap and its
subsidiaries. Our subsidiary, Cricket Communications, has entered into a credit
facility with Chase Telecommunications under which Cricket Communications
agreed, at its discretion, to

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provide working capital loans to Chase Telecommunications. The maximum principal
amount of working capital loans that may be drawn under the facility is $50
million. Borrowings under the facility bear interest at the prime rate plus
4.5%. The borrowings are collateralized by substantially all of the assets of
Chase Telecommunications and are subordinated in right of payment to amounts
Chase Telecommunications owes to QUALCOMM under an equipment financing
agreement. As of August 31, 1999, Chase Telecommunications' borrowings under its
working capital facility with Cricket Communications totaled $36.1 million,
including $3.3 million of accrued and capitalized interest. In addition, until
the completion of Leap's pending acquisition, a Leap subsidiary plans to
purchase equipment and services required by Chase Telecommunications under the
subsidiary's existing equipment purchase and financing agreements, and to resell
the equipment and services to Chase Telecommunications on substantially similar
terms, including financing.

Competition. Chase Telecommunications faces and expects to face competition
in its markets from current and potential market entrants including, among
others, Sprint Spectrum, Power Telecom, AT&T, Bell South and Alltel. Leap
believes that these competitors currently are or will soon begin operating
networks in the territories served or to be served by Chase Telecommunications.
Additionally, FCC rules allow licensees to partition or disaggregate their
spectrum. If other licensees create partitioned or disaggregated licenses, this
could increase the number of competitors and the types of competition in Chase
Telecommunications' markets.

PEGASO

General. Leap currently owns 28.6% of PEGASO, a joint venture formed to
construct and operate a wireless communications network in Mexico. In October
1998, a wholly owned subsidiary of PEGASO acquired nationwide PCS licenses in
Mexico for approximately U.S. $234 million (based on exchange rates in effect on
the dates the license payments were made). In 1999, PEGASO launched operations
in three of Mexico's four largest cities: Tijuana in February, Guadalajara in
August and Monterrey in September. In addition, PEGASO expects to launch service
in Mexico City, the country's largest city, near the end of 1999. PEGASO plans
to construct and operate wireless communications systems in additional
metropolitan areas as well as tourist destinations and major border cities,
subject to the availability of additional capital.

In bidding for its licenses, PEGASO agreed to provide coverage to
municipalities containing at least 20% of the total population of most of the
licensed regions by October 2001 and to provide coverage to municipalities
containing at least 50% of the total population of most of the licensed regions
by October 2003. Leap cannot assure investors that PEGASO can complete these
construction projects for the amount budgeted or on a timely basis.

PEGASO has signed a roaming agreement with Sprint PCS that will enable
PEGASO customers to use Sprint PCS's nationwide wireless network in the U.S. and
will allow Sprint PCS customers to roam on PEGASO's network in Mexico.

Market Opportunity. In early 1998, the Mexican government auctioned
additional wireless communications licenses in each of the nine regions of
Mexico to allow additional competition in the mobile wireless market. PEGASO
acquired nationwide PCS licenses in these auctions. Mexico's population of
approximately 99 million people is approximately 70% urban with approximately
50% living in Mexico City, Monterrey and Guadalajara. In

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1998, Mexico's teledensity was approximately 10.4% and its cellular penetration
was approximately 3.5%.

Strategic Partners. In addition to Leap, Corporativo del Valle de Mexico,
S.A. de C.V., an affiliate of Grupo Televisa, and Pegaso Comunicaciones y
Servicios, S.A. de C.V. have interests in PEGASO. Grupo Televisa is the largest
media company in the Spanish-speaking world and is a major participant in the
international entertainment business. Pegaso Comunicaciones y Servicios is
96%-owned by Alejandro Burillo Azcarraga, a member of the Leap board of
directors, and is affiliated with Grupo Pegaso, a private investment group with
investments in various industries including cable television, communications,
retail electronics, real estate, sports and entertainment. Leap management
believes that the strong financing resources of Corporativo del Valle de Mexico
and Pegaso Comunicaciones y Servicios, as well as their political access in
Mexico, provide PEGASO critical resources and relationships for assisting the
network build-out and in marketing and distributing PEGASO's wireless services.
Citicorp, the Latin America Infrastructure Fund and Nissho Iwai have also
invested in PEGASO.

Leap's Rights and Interests. Leap, through a wholly owned subsidiary,
currently owns a 28.6% interest in PEGASO and has invested $100 million of the
$350 million of capital that has been contributed by the members of the joint
venture. Leap expects that its ownership interest in PEGASO will be reduced in
the future. Several existing investors, other than Leap, are committed to
contribute an additional $50 million of financing by August 2000 and PEGASO is
currently seeking additional debt and equity financing.

Leap has agreed to provide operator services to PEGASO and in turn has
subcontracted those services to a subsidiary of 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. PEGASO has already raised
or obtained commitments for substantial amounts of capital. To date, the members
of the joint venture have contributed $350 million of equity, and members other
than Leap have committed an additional $50 million of equity contributions. In
addition, QUALCOMM and another equipment vendor have agreed to provide
approximately $580 million of secured equipment financing to the venture, a
portion of which has already been advanced to the company. In May 1999, a PEGASO
subsidiary also entered into a $100 million working capital facility with an
equipment vendor and several banks. To complete the build-out, launch and
operation of its planned networks, however, PEGASO will need to obtain
substantial additional capital.

PEGASO expects to fund a large portion of its development and operating
activities in fiscal 2000 with cash from operations, proceeds of the recent $50
million investment, and borrowings under the $100 million working capital
facility. In addition, PEGASO is seeking additional debt and equity financing,
including additional vendor financing.

Regulatory Environment. The Mexican Comision Federal de Telecomunicaciones
auctioned four new PCS licenses in the 1.9GHz band and four new wireless local
loop or WLL licenses in the 3.4GHz band beginning in November 1997. PEGASO
successfully purchased nationwide PCS licenses in the auctions. Mexico's Federal
Telecom Law provides the underlying basis for telecommunications competition in
Mexico. The Federal Telecom Law is designed to provide a pro-competitive
regulatory environment in the Mexican wireless services market.

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Telmex, the government telecommunications operator, is required by Mexico's
Federal Telecom Law to interconnect competing cellular operators to the landline
public switch telephone network. Interconnect agreements are supervised and
approved by the Secretaria de Comunicaciones y Transportes, also known as the
SCT, the government ministry responsible for regulating the telecommunications
sector and licensing new competitors. While cellular tariffs are no longer
regulated in Mexico, the rates must still be registered with the SCT. Mexico
currently restricts foreign voting ownership of telecommunications networks and
services to 49%.

Competition. Following the Mexican government's recent wireless auctions,
there is one existing nationwide wireless operator, Telmex, which operates
through its subsidiaries Telcel and Dipsa; one carrier, Iusacell, with a large
mixed band footprint (four 800 MHz licenses and two 1900 MHz licenses); and
PEGASO, which holds a nationwide PCS license. In addition, Unefon has been
granted nationwide licenses, but cannot launch service until December 1999. The
Mexican government's right to issue licenses to Unefon is being challenged
because the government granted Unefon additional time to pay required license
fees after Unefon failed to comply with the payment schedule originally
established in connection with the auction. In addition, there are several
regional wireless carriers who offer wireless service in one or more of Mexico's
nine regions but who do not have a broad national presence.

SMARTCOM

General. In 1997, Smartcom, a wholly owned indirect subsidiary of Leap,
acquired a nationwide license to offer PCS services in Chile. Smartcom's
nationwide system began operation in September 1998 and had approximately 42,000
subscribers on August 31, 1999. In April 1999, Leap increased its ownership of
Smartcom from 50% to 100% when Leap's Chilean subsidiary purchased 50% of
Smartcom from Telex-Chile, a Chilean telecommunications company, and an
affiliate of Telex-Chile, for $28 million and a $22 million interest-free note
payable in three years. Smartcom markets its services under the name "SMARTCOM
PCS(SM)."

Smartcom has experienced reliability problems with respect to its network
infrastructure equipment. Leap and Smartcom are working with equipment vendors
to address these problems. A new switch has been installed in Santiago, Chile
which Leap and the vendor are optimistic will significantly improve the network.
However, Leap cannot assure you that this problem has been resolved. Smartcom is
upgrading existing equipment and purchasing additional equipment which it
expects to resolve the problems, enhance the quality and reliability of its
system and accommodate expected subscriber growth. Based upon its experience
with other operating company infrastructure configurations, Leap believes but
cannot guarantee that the upgrade and expansion will correct the reliability
problems that Smartcom has experienced.

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 21.1%. Current wireless penetration in Chile is approximately
6.5%.

Capital Requirements and Projected Investments. As discussed above,
Smartcom is in the process of upgrading existing equipment and purchasing
additional equipment to

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enhance the reliability of its system and to accommodate expected subscriber
growth. Leap intends to finance the planned upgrade and expansion and the
operation of Smartcom's network in fiscal 2000, through borrowings under Leap's
credit agreement with QUALCOMM, the proceeds of equipment financing agreements
that Leap expects to negotiate in connection with planned equipment purchases by
Smartcom, and capital from additional financing transactions. Smartcom and
Ericsson have entered into a new equipment financing agreement, and Smartcom has
engaged an investment banker to assist it in selling equity. Smartcom is also
exploring other capital raising alternatives. Leap cannot assure investors that
Smartcom will obtain additional vendor funding or conclude a sale of equity or
other financing transaction in fiscal 2000. If Smartcom does not obtain
additional financing in fiscal 2000, Leap expects to delay or reduce the scope
of Smartcom's planned expansion.

Regulatory Environment. The Subsecretaria Telecomunicaciones regulates the
basic telecommunications network in Chile. In April 1997, Subsecretaria
Telecomunicaciones awarded three licenses for PCS (1900MHz) mobile operations in
Chile -- one to Smartcom and two to affiliates of Entel Cellular. In addition,
three major cellular operators, including Entel Cellular, were previously
licensed by the government and are operating in Chile. The regulatory
environment in Chile is considered to be stable, reliable and friendly to
foreign investment.

Competition. In addition to Smartcom, there are three major operators of
wireless services in Chile, each of which effectively provides nationwide
service. CTC/Startel operates a nationwide cellular system. Bell South operates
in central Chile, but has acquired the cellular license for the regions outside
of Santiago from Entel Cellular. Bell South has an existing roaming agreement
with Entel Cellular that will allow it to effectively provide nationwide
coverage while it builds out its own nationwide network. In addition to these
cellular services, Entel launched a commercial PCS service using GSM technology
in March 1998. A second PCS license, also controlled by Entel, has not been
built out or put into operation.

OTHER BUSINESSES

Through a subsidiary, Leap owns a 35% interest in Orrengrove Investments
Limited, which in turn owns a 60% interest in three related companies referred
to as the Transworld Companies. The Transworld Companies have been seeking to
establish a domestic long-distance business in Russia. In December 1998, they
launched limited long-distance service between Moscow and Perm, a region of
three million people west of Moscow. The third party satellite that the
companies used to provide long distance service failed in April 1999. As a
result of the failure, the Transworld Companies began using fiber lines to
provide long distance services on a short-term basis and they began to explore
long-term alternatives to the satellite transmission equipment they previously
used. The directors of the Transworld Companies voted to liquidate the companies
after reviewing a series of alternative business plans that did not meet their
minimum financial performance criteria. As a result, Leap wrote down its
investment in Orrengrove to the proceeds Leap expects to receive in connection
with the pending liquidations.

Through another subsidiary, Leap also owns a 35% interest in Metrosvyaz
Limited, a company that is attempting to establish joint ventures in Russia to
construct and operate networks providing wireless local loop service. Metrosvyaz
was funding its activities through vendor financing from an equipment supplier
and a working capital facility from

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Leap. As described in greater detail in "Legal Proceedings," Leap has ceased
funding loans to Metrosvyaz and, as a result, has written-off its remaining
investment in Metrosvyaz.

In August 1999, Leap sold its subsidiary, OzPhone Pty. Limited, for $16.0
million. Leap had invested approximately $6.9 million in OzPhone prior to the
sale. Leap concluded that it could achieve greater stockholder return through
this sale than it could through years of continued investment in and development
of OzPhone. Although OzPhone owned spectrum licenses, it had not yet introduced
service.

RELATIONSHIP BETWEEN LEAP AND QUALCOMM

To transfer the business of Leap from QUALCOMM to Leap, QUALCOMM and Leap
entered into various agreements that are described below. The agreements have
been amended from time to time, including recent changes required by the FCC as
a condition to allowing Leap to acquire specific wireless operating licenses. In
May 1999, QUALCOMM sold its network infrastructure division to Ericsson. In
connection with that sale, QUALCOMM transferred to Ericsson its rights to sell
network infrastructure equipment to Leap and its operating companies.

QUALCOMM's relationship as a lender to Leap and its operating companies
gives QUALCOMM significant influence over Leap. Leap's relationships with
QUALCOMM may also create conflicts of interest between Leap and QUALCOMM.

SEPARATION AND DISTRIBUTION AGREEMENT

Immediately before the distribution of Leap common stock to QUALCOMM's
stockholders, QUALCOMM and Leap entered into the Separation and Distribution
Agreement. The Separation and Distribution Agreement governed the principal
transactions required to effect the separation of the companies and the
distribution, and other agreements governing the relationship between the
parties.

To effect the separation of the companies, QUALCOMM transferred some of its
businesses and ventures to Leap. QUALCOMM also contributed to Leap the
following:

- $10 million in cash;

- QUALCOMM's right to receive payment of approximately $113 million of debt
from the operating companies;

- QUALCOMM's rights under specific agreements relating to the business and
ventures of Leap; and

- other assets.

QUALCOMM's performance as an equipment vendor is not a condition of payment
to Leap under the notes and other debt transferred. Leap did not receive any
intellectual property in connection with the separation of the companies, and
QUALCOMM retained all rights not expressly transferred regarding any and all
agreements with Leap's operating companies.

In connection with the transfer of assets and rights by QUALCOMM, Leap
issued a warrant to QUALCOMM to purchase 5,500,000 shares of Leap common stock
for $6.11 per share. In March 1999, in exchange for consideration valued at $5.4
million,

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QUALCOMM agreed to amend the warrant to reduce the number of shares which may be
acquired upon exercise of the warrant to 4,500,000. The warrant is currently
exercisable and remains exercisable until 2008. QUALCOMM has agreed that it will
not exercise the warrant in a manner that would cause QUALCOMM and its officers
and directors to collectively hold more than 15% of Leap's outstanding common
stock.

In the Separation and Distribution Agreement, Leap also assumed some
liabilities of QUALCOMM, including: (1) funding obligations to Leap's operating
companies totaling approximately $75 million; (2) QUALCOMM's rights and
obligations to manage Leap's operating companies; and (3) $2 million of accrued
liabilities regarding Leap's employees.

The Separation and Distribution Agreement provides for (1) releases of
claims of each party against the other; (2) the allocation of potential
liabilities; and (3) indemnification rights between the parties.

The Separation and Distribution Agreement also provides that, in
international markets, Leap will deploy, and will cause its affiliates to
deploy, only systems using cdmaOne until January 1, 2004. CdmaOne is the
original standard for fixed or mobile wireless communications systems based on
or derived from QUALCOMM's CDMA technology and successor standards that QUALCOMM
has adopted. The Telecommunications Industry Association and other recognized
international standards bodies have adopted cdmaOne as an industry standard.
Leap also agreed that, in international markets, it would invest only in
companies using cdmaOne systems until January 1, 2004.

Under the Separation and Distribution Agreement, Leap also granted QUALCOMM
a non-exclusive, royalty-free license to any patent rights developed by Leap or
its affiliates. In addition, under the Separation and Distribution Agreement,
Leap granted QUALCOMM a right of first refusal for a period of three years with
respect to proposed transfers by Leap of its investments and joint venture
interests. Leap further agreed to take an active role in the management of
companies in which it holds stock or joint venture interests. The parties also
generally agreed that, for a period of three years following the spin-off of
Leap, neither party would solicit or hire employees of the other.

CREDIT AGREEMENT

Immediately before the distribution of Leap common stock to QUALCOMM's
stockholders, Leap entered into a credit agreement with QUALCOMM. The credit
agreement consists of two sub-facilities. Leap may use the working capital
sub-facility to borrow up to $35.2 million from QUALCOMM. Leap may only use the
proceeds from the working capital sub-facility to meet its normal working
capital and operating expenses. These normal expenses include salaries and
overhead, but exclude strategic investments, substantial acquisitions of capital
equipment and the acquisition of telecommunications licenses. The investment
capital sub-facility enables Leap to borrow up to $229.8 million from QUALCOMM.
Leap may only use the proceeds from the investment capital sub-facility to make
identified portfolio investments. Amounts available under the investment
sub-facility are allocated to specific Leap projects and may not be reallocated
to other projects without QUALCOMM's written consent. As one of the conditions
to the FCC's recognition of Leap as a designated entity qualified to hold
C-Block and F-Block licenses of PCS spectrum, Leap must take steps so that by
January 2001, QUALCOMM holds no more than 50% of Leap's outstanding debt
obligations.

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Amounts borrowed under the credit agreement are due and payable in
September 2006, unless the maturity of the loans is accelerated pursuant to the
provisions of the credit agreement. The credit agreement required a 2%
origination fee. QUALCOMM has a security interest in substantially all of the
assets of Leap, other than the stock of special purpose subsidiaries formed to
hold wireless spectrum licenses, for so long as any amounts are outstanding
under the credit agreement. Amounts borrowed under the credit agreement bear
interest at a variable rate equal to prime rate plus 4.5% per annum or LIBOR
plus 5.25% per annum. Interest is payable quarterly beginning September 30,
2001. Before this time, accrued interest is added to the principal amount
outstanding. If QUALCOMM assigns more than 10% of the total funding commitments
to other lenders, Leap must pay a commitment fee of 0.5% to the lenders on
unused balances under the credit agreement.

The credit agreement contains operating covenants, including restrictions
on the ability of Leap to incur debt, merge, consolidate or transfer
substantially all of its assets, create, incur or permit the existence of liens
or pay dividends. Under the credit agreement, Leap agreed that it will not
permit the quotient obtained by dividing its total debt by total capitalization
to exceed the following level during the indicated period:

<TABLE>
<CAPTION>
PERIOD LEVEL
------ -----
<S> <C>
Through February 23, 2002................................... 70%
After February 23, 2002..................................... 50%
</TABLE>

The terms total debt and total capitalization are each defined in the
credit agreement.

Leap was in compliance with the financial covenant as of November 30, 1999.
In addition, the credit agreement limits Leap's use of borrowed funds, restricts
Leap's joint venture and stock ownership, and imposes other restrictions on the
operation of Leap's business. Further, if Leap sells some of its assets, it must
prepay the credit agreement with a percentage of the proceeds.

MASTER AGREEMENT REGARDING EQUIPMENT ACQUISITION

The Master Agreement Regarding Equipment Acquisition contains the
obligations of Leap regarding the purchase and sale of terrestrial-based cdmaOne
infrastructure and subscriber equipment. As a result of QUALCOMM's sale of its
network infrastructure division to Ericsson, Leap owes some purchase obligations
to Ericsson with respect to network equipment and to QUALCOMM with respect to
subscriber equipment. Under the Master Agreement Regarding Equipment
Acquisition, Leap generally agreed that:

- For five years, it will purchase at least 50% of its requirements for
infrastructure equipment from Ericsson and 50% of its requirements for
subscriber equipment from QUALCOMM.

- For each initial investment by Leap made before October 2002 in a
wireless telecommunication entity operating in the United States, Leap
will require the U.S. operator to enter into an equipment requirements
agreement with QUALCOMM and Ericsson. The equipment requirements
agreement will require the U.S. operator to purchase at least 50% of its
requirements for infrastructure equipment from Ericsson and 50% of its
requirements for subscriber equipment from QUALCOMM, in each case for a
five year period.

- For each investment by Leap in a U.S. operator of wireless communications
made after October 2002, Leap will attempt to require the U.S. operator
to provide

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<PAGE> 49

Ericsson and QUALCOMM with an opportunity to bid on its requirements for
infrastructure equipment and subscriber equipment, respectively. Leap
also will encourage the U.S. operator to acquire equipment from Ericsson
and QUALCOMM.

Leap and the U.S. operating companies in which it invests must comply with
these requirements only if QUALCOMM or Ericsson, as applicable, offers
competitive equipment on competitive terms, and its bid to sell equipment and
related services is less than or equal to the lowest competing bid that Leap or
its operating company would accept; provided, however, until QUALCOMM has
received contracts from Leap and the companies in which it invests for at least
$250 million of subscriber equipment for use in the United States, Leap and the
U.S. operating companies in which it initially invests before 2002 must comply
with these requirements if QUALCOMM's bid is 110% or less than the lowest
competing bid Leap or such other company would accept.

Until the earlier of (1) October 2002 and (2) the date on which Leap
receives an aggregate of $60 million of financing from parties other than
QUALCOMM, Leap must require each wireless telecommunication entity operating
outside the United States in which Leap initially invests to enter into an
equipment requirements agreement with QUALCOMM and Ericsson. The equipment
requirements agreement will provide that the foreign operator of wireless
communications will purchase at least 50% of its requirements for infrastructure
equipment from Ericsson and 50% of its requirements for subscriber equipment
from QUALCOMM, in each case for a five year period. The equipment requirements
agreement will also require the foreign operator to notify QUALCOMM if its bid
is not competitive, to explain how QUALCOMM must modify its bid to make it
competitive, and to give QUALCOMM the opportunity to submit a modified bid. If
Leap makes an initial investment in a wireless communications company operating
outside of the United States after the date described above, Leap will seek to
provide QUALCOMM and Ericsson with an opportunity to bid on the foreign
operator's infrastructure and subscriber equipment. Leap will also encourage the
foreign operator to acquire its equipment from QUALCOMM and Ericsson. The
obligations of all the foreign operators will depend on QUALCOMM and Ericsson
offering competitive equipment on competitive terms, including price.

All the obligations of Leap and its operating companies regarding equipment
purchases under the Master Agreement Regarding Equipment Acquisition will expire
in September 2007.

If Leap or one of its operating companies attempts to acquire equipment on
a "bundled" basis, then Ericsson and QUALCOMM are entitled, in some cases, to
respond separately to each portion of the proposed bundled acquisition. If Leap
or its operating companies do not attempt to acquire the equipment on a
competitive basis from multiple vendors, but instead decides to negotiate
exclusively with Ericsson or QUALCOMM, then Ericsson or QUALCOMM, as applicable,
will offer and sell the equipment to Leap on a "most favored pricing" basis.

EMPLOYEE BENEFITS AGREEMENT

The Employee Benefits Agreement between QUALCOMM and Leap governs the
employee benefit obligations of Leap for employees assigned to Leap. Under the
Employee Benefits Agreement, Leap assumed and agreed to pay all liabilities
relating to former employees of QUALCOMM employed by Leap. The Employee Benefits
Agreement also

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<PAGE> 50

required Leap to adopt a 401(k) plan similar to QUALCOMM's plan. In addition,
Leap granted Distribution Options to purchase shares of Leap common stock to
holders of options to purchase shares of QUALCOMM common stock.

TAX AGREEMENT

The Tax Agreement between QUALCOMM and Leap generally requires QUALCOMM to
pay all federal, state, local and foreign taxes relating to the businesses
conducted by QUALCOMM or its subsidiaries for any taxable period, excluding: (1)
taxes relating to Leap and its U.S. subsidiaries after the distribution of Leap;
(2) taxes relating to Leap's non-U.S. subsidiaries or any predecessor or
successor for all periods before and after the distribution of Leap (other than
regarding restructuring transactions incident to the distribution of Leap common
stock); and (3) taxes arising out of actions taken by, or in respect of, Leap or
any of its subsidiaries that cause negative tax consequences to QUALCOMM, Leap
or their respective subsidiaries regarding the distribution of Leap common stock
or the related transactions.

The Tax Agreement further provides for cooperation regarding tax matters,
the exchange of information and retention of records that may affect the tax
liability of either party.

CONVERSION AGREEMENT

Under the Conversion Agreement, Leap agreed to issue up to 2,271,060 shares
of Leap common stock to the holders of the Trust Convertible Preferred
Securities of QUALCOMM Financial Trust I, a wholly owned statutory business
Trust of QUALCOMM, upon the conversion of their securities. Leap also agreed to
reserve and keep available Leap common stock for issuance and delivery upon that
conversion. Leap also filed and must keep effective a registration statement
covering the shares of Leap common stock issuable upon conversion of the Trust
Convertible Preferred Securities. If Leap determines that any event requires
changes to the registration statement so that the registration statement and the
prospectus contained therein do not contain a material misstatement or omission,
or if the continued effectiveness of the registration statement would require
Leap to disclose a material financing, acquisition or other material corporate
transaction or development (and Leap's board of directors has determined that
such disclosure is not in the best interests of Leap and its stockholders), then
Leap may suspend the issuance of Leap common stock issuable upon conversion of
the Trust Convertible Preferred Securities until Leap has prepared and filed,
and the SEC has declared effective, a post-effective amendment to the
registration statement which contains the required disclosures.

Leap anticipates that all of the shares reserved for issuance under the
Conversion Agreement will be issued. Upon conversion of the Trust Convertible
Preferred Securities, QUALCOMM will receive a benefit in the form of forgiveness
of debt, but Leap will receive no benefit or other consideration. QUALCOMM has
the right to redeem its Trust Convertible Preferred Securities beginning on
March 4, 2000. We believe it is likely that QUALCOMM will seek to redeem these
securities at that time or shortly thereafter. Given the recent trading prices
of QUALCOMM and Leap stock, it is likely that the holders will convert the Trust
Convertible Preferred Securities and we will issue all 1,959,053 shares which
remain reserved for issuance.

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<PAGE> 51

DEFERRED PAYMENT AGREEMENT OF SMARTCOM

Leap's Chilean subsidiary, Smartcom, entered into a Deferred Payment
Agreement with QUALCOMM related to Smartcom's purchase of equipment, software
and services from QUALCOMM. The assets of Smartcom collateralize its obligations
under the Deferred Payment Agreement. A Leap subsidiary has also pledged its
shares in Smartcom as collateral for its guaranty of Smartcom's obligations to
QUALCOMM under the agreement. The Deferred Payment Agreement requires Smartcom
to meet certain financial and operating covenants, including a debt to equity
ratio and restrictions on Smartcom's ability to pay dividends and to distribute
assets. As a result, substantially all the net assets of Smartcom are restricted
from distribution to Leap. Under the terms of the agreement, QUALCOMM agreed to
defer collection of amounts up to a maximum of $84.5 million. The agreement was
amended in October 1999 to capitalize interest payments as part of Smartcom's
capital restructuring. As of that date, the deferred payment balance was
approximately $90.7 million and the capitalized interest commitment was $14.6
million. The deferred payments bear interest at either a prime or LIBOR rate,
plus an applicable margin. At November 30, 1999, the weighted average effective
rate of interest was 12.6%. Accrued interest may be added to the outstanding
principal amount of the applicable borrowing until October 2001.

COMPETITION

The wireless communications industry is very competitive and competition is
increasing. Many competitors have substantially greater resources than Leap and
its operating companies. Leap cannot assure investors that Leap or its operating
companies will compete successfully.

Although the deployment of advanced telecommunications services is in its
early stages in many developing countries, Leap believes competition is
increasing as businesses and foreign governments realize the market potential of
telecommunications services. Leap's operating companies currently face
competition from existing wireless communications providers. In addition, a
number of large telecommunications companies are implementing programs to deploy
telecommunications services in both developing and developed countries. Leap's
operating companies also compete against landline carriers, including
government-owned telephone companies. In addition, Leap's operating companies
may face competition with technologies and services introduced in the future.
Although Leap's operating companies intend to use relatively new technologies,
newer technologies may make their technologies obsolete. Leap also expects the
price that its operating companies charge for their products and services in
some regions will decline over the next few years as competition increases in
their markets.

In the United States, Leap will compete directly with other wireless
providers in each of its markets, many of whom have greater resources than Leap
and entered the market before Leap. A few of Leap's competitors operate wireless
communications networks covering most of the United States. Competitors' earlier
entry and broader presence in the U.S. telecommunications market may have a
negative effect on Leap's ability to successfully implement its strategy. In
addition, other wireless providers could attempt to implement Leap's strategy of
providing local service at a flat-rate. Providers who offered such a service in
Leap's market areas would directly compete against Leap in its market niche.
Also, it is likely that some competitors will market other services, including
cable television access, landline telephone service and Internet access, that
Leap does not

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<PAGE> 52

currently intend to market. Leap also expects to compete with new entrants to
the U.S. wireless market as well as other telecommunications technologies,
including paging, enhanced specialized mobile radio and global satellite
networks.

In addition, Leap 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.

INDUSTRY BACKGROUND

Domestic and international telecommunications markets are expanding
rapidly. Developing countries are seeking to increase their number of telephone
lines as a percentage of their population (known as teledensity) and to increase
competition among carriers. In addition, increased demand, decreased government
regulation, and new spectrum auctions have created domestic and international
opportunities for new providers to capture market share. Leap believes that
wireless is the cheapest and fastest way to increase teledensity and that it
possesses the expertise to oversee and manage the entry of new wireless
operating companies into today's competitive markets.

Wireless communications service is currently available using either analog
or digital technology. Although analog technology is more widely deployed than
digital technology, its use is growing more slowly and analog technology has
significant limitations. Digital wireless communications 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, allow
digitally based systems to offer new and advanced services including greater
call privacy and security, fraud protection, consistently higher voice quality,
and integrated voice and paging. Digital systems also provide enhanced wireless
data transmission allowing for higher speed and more reliable wireless e-mail
and internet use.

The primary digital technologies available for wireless fixed and mobile
applications are Code Division Multiple Access, known as CDMA, and Time Division
Multiple Access, known as TDMA. TDMA includes several variants, including
Digital Advanced Mobile Phone System also known as D-AMPS which is deployed
primarily in North and South America, and Global System for Mobile
Communication, known as GSM, which is widely deployed in Europe, where the
technology was developed, and in many other markets around the world.

Leap is currently committed to owning and participating in networks that
utilize CDMA technology. Leap believes that CDMA technology is the best platform
to meet current network requirements as well as the best platform for third
generation, or "3G," based services. CDMA technology currently provides from
three to five 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. As a result, CDMA networks
can provide high capacity using less spectrum and fewer cell site towers. This
reduces both initial capital expenditures as well as ongoing operational and
maintenance costs. CDMA is also the only wireless technology that effectively
supports both fixed voice and data services along with full mobility services
from the same platform, providing companies that utilize CDMA technology
flexibility in structuring their service offerings and in responding to changing
market demands. In addition, "1XRTT," the first

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phase of third generation CDMA technology, is expected to provide more than
double the voice capacity of existing CDMA systems and to deliver high speed
data to users.

GOVERNMENT REGULATION

The construction, operation, sale and interconnection arrangements of
wireless communications 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 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 Leap. In addition, the regulatory framework and
authorities in the countries where Leap 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 fines or otherwise could have a material
adverse effect on Leap.

The construction, operation, sale and interconnection arrangements of
wireless communications 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.
This 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.
Leap cannot assure investors that the FCC, Congress, the courts or state
agencies having jurisdiction over the business of any of Leap's United States
operating companies will not adopt or change regulations or take other actions
that would adversely affect Leap's financial condition or results of operations.
Many of the FCC's rules relating to the businesses of Leap's U.S. 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. Leap cannot assure investors that the licenses of Leap's U.S.
operating companies will be renewed or not be revoked.

EMPLOYEES

On November 29, 1999, Leap employed approximately 85 full time employees,
including the employees of its subsidiary Cricket Communications, Inc. In
addition, Leap's subsidiary Smartcom employed approximately 590 employees on
that date.

FACILITIES

Leap has leased approximately 50,000 square feet of office space in San
Diego, California, U.S.A. Leap currently leases this building for sales,
marketing, product development and administrative purposes. Leap does not own
any real property.

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<PAGE> 54

Smartcom has leased approximately 50,000 square feet of office space in
Santiago, Chile, excluding a lease which is expiring in the near future and will
not be renewed. Smartcom uses this space for sales, marketing, customer service,
operations and administrative purposes, as well as for its primary
telecommunications switching equipment. In addition, Smartcom owns or leases
space at three sites in Temuco, Antafagasta and Punta Arena, Chile aggregating
approximately 10,000 square feet for additional switching equipment. Smartcom
also maintains numerous small sites throughout Chile for radio transmission
equipment that supports its telecommunications network. Most of these radio
transmission sites are leased.

LEGAL PROCEEDINGS

Leap recently announced that it had stopped funding loans to Metrosvyaz and
had written-off its remaining $9.6 million investment in Metrosvyaz. Metrosvyaz
had not satisfied certain conditions required for funding and was in default
under its loan agreement with Leap. In addition, Leap had been prevented from
securing full reporting and documentation of performance, results and
expenditures of Metrosvyaz in spite of repeated efforts to obtain that
information. Preliminary results of a special investigation of Metrosvyaz also
disclosed serious irregularities, including unaccounted for funds and
questionable contracts and payments. On September 29, 1999, Leap issued a demand
for arbitration seeking a full accounting and damages from Metrosvyaz and one of
its directors with respect to these matters. It is too early to evaluate the
likely outcome of the arbitration or any adversarial proceedings that may arise
out of these matters.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information concerning the directors and
executive officers of Leap as of November 29, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harvey P. White..................... 65 Chairman of the Board, Chief
Executive Officer and a Director
Thomas J. Bernard................... 67 Vice Chairman,
President--International Business
Division and Director
Susan G. Swenson.................... 51 President, Chief Operating Officer
and Director of Leap and Chief
Executive Officer of Cricket
Communications
William R. Hinchliff................ 49 Senior Vice President, International
Operations
James E. Hoffmann................... 49 Senior Vice President, General
Counsel and Secretary
Daniel O. Pegg...................... 53 Senior Vice President, Public
Affairs
Leonard C. Stephens................. 42 Senior Vice President, Human
Resources
Tom Willardson...................... 49 Senior Vice President, Finance and
Treasurer
Alejandro Burillo Azcarraga......... 47 Director
Robert C. Dynes..................... 57 Director
Scot B. Jarvis...................... 39 Director
John J. Moores...................... 55 Director
Michael B. Targoff.................. 55 Director
Jeffrey P. Williams................. 48 Director
</TABLE>

Additional information concerning the directors and executive officers is
set forth below:

Harvey P. White has served as Chairman of the Board, Chief Executive
Officer and a Director of Leap since its formation in June 1998 and also served
as President of Leap from June 1998 to July 1999. He is one of the founders of
QUALCOMM, and served as Vice Chairman of the Board of QUALCOMM from June 1998 to
September 1998. From May 1992 until June 1998 he served as President of QUALCOMM
and from February 1994 to August 1995 as Chief Operating Officer of QUALCOMM.
Prior to May 1992, he was Executive Vice President and Chief Operating Officer,
and was also a Director of QUALCOMM since it began operations in July 1985 until
he resigned in September 1998 when Leap became an independent, publicly-traded
company. From March 1978 to June 1985, Mr. White was an officer of LINKABIT
(M/A-COM LINKABIT after August 1980), where he was successively Chief Financial
Officer, Vice President, Senior Vice President and Executive Vice President. Mr.
White became Chief Operating Officer of LINKABIT in July 1979 and a Director of
LINKABIT in December 1979. Mr. White is currently a Director of Verance, Inc., a
privately-held multimedia technology start-up company, Applied Micro Circuits
Corporation, a supplier of high-bandwidth silicon connectivity and Cibernet
Corp., a company that provides financial settlement services to
telecommunications companies. He holds a B.A. in Economics from Marshall
University.

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<PAGE> 56

Thomas J. Bernard has served as a Director of Leap since its formation in
June 1998. He is also the Vice Chairman and President-International Business
Division of Leap. From June 1998 to July 1999, he served as Executive Vice
President of Leap. Prior to joining Leap, Mr. 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 Products division
of QUALCOMM. He had retired in April 1994, but returned to QUALCOMM in August
1995 as Executive Consultant and became Senior Vice President, Marketing, in
December 1995. Mr. Bernard first joined QUALCOMM in September 1986. He served as
Vice President and General Manager for the OmniTRACS division and in September
1992 was promoted to Senior Vice President of QUALCOMM. Prior to joining
QUALCOMM, Mr. Bernard was Executive Vice President and General Manager, M/A-COM
LINKABIT, Telecommunications Division, Western Operations. Mr. Bernard also
serves as a Director of AirFiber Inc., a privately-held company that markets
high-speed open-air optical communication systems; Advanced Remote
Communications Solutions, Inc., a provider of remote information technology
solutions; and JNI Corporation, a leading developer and manufacturer of fibre
channel technology products.

Susan G. Swenson joined Leap as President and as a Director in July 1999.
She was also appointed as Chief Operating Officer in October 1999. From March
1994 until July 1999, she served as President and Chief Executive Officer of
Cellular One, a joint venture between AirTouch and AT&T Wireless that provided
wireless telecommunications services to regions covering approximately 10
million potential subscribers. From 1979 to 1994, Ms. Swenson held various
operating positions with Pacific Telesis Group, including Vice President and
General Manager of Pacific Bell's San Francisco Bay Area operating unit for one
year and President and Chief Operating Officer of PacTel Cellular for two and
one-half years. Ms. Swenson also serves as a Director of Wells Fargo & Company,
General Magic, Inc., Working Assets Funding Service and Palm Computing, Inc., a
subsidiary of 3Com Corporation. Ms. Swenson holds a B.A. from San Diego State
University.

William R. Hinchliff joined Leap in August 1999 and was appointed Senior
Vice President, International Operations in October 1999. Prior to joining Leap,
Mr. Hinchliff was President of Nextel del Peru from July 1998 to August 1999,
where he was in charge of all aspects of start-up, launch and ongoing operations
of the Nextel property in Peru. From May 1994 to June 1998 Mr. Hinchliff held
several management positions with Motorola Network Management Group, where he
was most recently involved with business operations for Motorola's satellite
ventures division and was general director of both Cedetel and Norcel, two
Motorola joint ventures in Mexico. Mr. Hinchliff holds a B.S. from Stetson
University and an M.B.A. from the University of Miami.

James E. Hoffmann has served as Senior Vice President, General Counsel and
Secretary of Leap since its formation in June 1998. Mr. Hoffmann also served as
a Director of Leap from September 1998 to July 1999. Prior to joining Leap, he
served as Vice President, Legal Counsel of QUALCOMM from June 1998 to September
1998. From February 1995 until June 1998, he served as Vice President of
QUALCOMM and Division Counsel for the Infrastructure Products Division, having
joined QUALCOMM as Senior Legal Counsel in June 1993. Prior to joining QUALCOMM,
Mr. Hoffmann was a Partner in the law firm of Gray, Cary, Ames & Frye, where he
practiced transactional corporate law. He holds a B.S. from the United States
Naval Academy, an M.B.A. from Golden Gate University and a J.D. from University
of California, Hastings College of the Law.

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<PAGE> 57

Daniel O. Pegg, Leap's Senior Vice President, Public Affairs, served as
Senior Vice President, Public Affairs of QUALCOMM from March 1997 to September
1998. Prior to joining QUALCOMM, Mr. Pegg was President and Chief Executive
Officer of the San Diego Economic Development Corporation for 14 years. Mr. Pegg
served on the Board of Directors of Gensia Pharmaceuticals from 1986 to 1996.
Mr. Pegg holds a B.A. from California State University at Los Angeles.

Leonard C. Stephens, Leap's Senior Vice President, Human Resources, served
as Vice President, Human Resources Operations for QUALCOMM from December 1995 to
September 1998. Prior to joining QUALCOMM, Mr. Stephens was employed by Pfizer
Inc., where he served in a number of human resources positions over a 14 year
career. He holds a B.A. in Political Science from Howard University.

Tom Willardson joined QUALCOMM in July 1998 to serve as Senior Vice
President, Finance and Treasurer of Leap. 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 has served
as a Director of Cost Plus, Inc. since March 1991. He holds an M.B.A. from the
University of Southern California and a B.S. in Finance from Brigham Young
University.

Alejandro Burillo Azcarraga has served as a Director of Leap since
September 1998. He has more than 30 years experience working for Grupo Televisa
(Televisa). Mr. Burillo presently serves as Vice-Chairman of the Board of
Directors of Televisa, a position to which he was appointed in 1991. In
addition, he served as President of International Affairs of Televisa from 1997
to 1999, and prior to that time served as 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 Director of Grupo Desc, an
NYSE-listed company and one of Mexico's main industrial groups.

Robert C. Dynes was appointed as a Director of Leap in July 1999. He has
served as the Chancellor of the University of California, San Diego since 1996
and as a Professor of Physics at UCSD since 1991. He was Senior Vice
Chancellor -- Academic Affairs from 1995 to 1996. Prior to 1991, Chancellor
Dynes held numerous research science positions at AT&T Bell Laboratories. He
holds a B.Sc. in Mathematics and Physics from the University of Western Ontario
and a M.Sc. and Ph.D. in Physics from McMaster University in Hamilton, Ontario.
Chancellor Dynes is a member of the National Academy of Sciences and a Fellow of
the American Academy of Arts and Sciences, the Canadian Institute of Advanced
Research and the American Physical Society. He serves on numerous scientific and
educational boards and committees.

Scot B. Jarvis has served as a Director of Leap since September 1998. He is
a cofounder and managing member of Cedar Grove Partners, LLC, a privately-owned
company formed to make investments in telecommunications ventures. From 1994 to
1996, Mr. Jarvis was a Vice President of Operations for Eagle River, Inc., a
telecommunications investment company owned by Craig O. McCaw. While at Eagle
River, Mr. Jarvis was the cofounder and acting President of Nextlink
Communications, Inc., now a publicly-traded competitive local exchange company
(CLEC) controlled by Mr. McCaw. Mr. Jarvis was also responsible for certain
operations and was a Director of NEXTEL Communications, a

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nationwide provider of specialized mobile radio service. From 1985 to 1994, Mr.
Jarvis held a number of executive positions at McCaw Cellular Communications
which was sold to AT&T in August 1994. His responsibilities included
Acquisitions and Development, International Development, and he operated two
separate Cellular One Districts in California from 1990 to 1993. Mr. Jarvis also
serves as a Director of Wireless Facilities, Inc., Point.com and Metawave
Communications Corp. Mr. Jarvis has a Bachelor's degree in Business
Administration from the University of Washington.

John J. Moores was appointed as a Director of Leap in June 1999. Since
December 1994, Mr. Moores has served as owner and Chairman of the Board of the
San Diego Padres Baseball Club, L.P., and since September 1991 as Chairman of
the Board of JMI Services, Inc., a private investment company. In 1980, Mr.
Moores founded BMC Software, Inc. and served as its President and Chief
Executive Officer from 1980 to 1986 and as Chairman of its Board of Directors
from 1980 to 1992. Mr. Moores also serves as a Director of Bindview Development
Corporation, NEON Systems, Inc., Peregrine Systems, Inc. and several
privately-held corporations. Mr. Moores holds a B.S. in Economics and a J.D.
from the University of Houston.

Michael B. Targoff has served as a Director of Leap since September 1998.
He is founder and CEO of Michael B. Targoff and Co., a company that seeks
controlling investments in telecommunications and related industry companies.
From its formation in January 1996 through January 1998, Mr. Targoff was
President and Chief Operating Officer of Loral Space & Communications Limited.
Prior to that time, 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. 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 is also a
Director of Foremost Corporation of America. Mr. Targoff attended Brown
University where he received a B.A. in 1966. He earned a J.D. in 1969 from
Columbia University School of Law and was a Hamilton Fisk Scholar and Editor of
the Columbia Journal of Law and Social Problems.

Jeffrey P. Williams has served as a Director of Leap since September 1998.
He has been a Managing Partner at Greenhill & Co., LLC, an investment banking
firm, since 1998. From September 1996 to January 1998, Mr. Williams was
Executive Vice President, Strategic Development and Global Markets for
McGraw-Hill Companies, and from 1984 through 1996 he was an investment banker
with Morgan Stanley and Co. in their Telecommunications and Media Group. Mr.
Williams has a Bachelor of Architecture from the University of Cincinnati and an
M.B.A. with distinction from Harvard University Graduate School of Business
Administration.

CLASSIFIED BOARD OF DIRECTORS

Leap's Charter 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 in 2002, 2000 and 2001, respectively. Messrs.
Moores and Targoff and Ms. Swenson are Class I directors, Messrs. Bernard,
Burillo and Dynes are Class II directors, and Messrs. Jarvis, White and Williams
are Class III directors. At each annual meeting of the stockholders of

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<PAGE> 59

Leap, 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. For a more detailed discussion
see "Description of Leap Capital Stock."

COMMITTEES OF THE BOARD OF DIRECTORS

Leap's board of directors held four regularly scheduled meetings and three
special (telephonic) meetings during fiscal 1999. During the past fiscal year,
each incumbent Director attended at least 75% of the aggregate of the total
number of meetings of the board and the total number of meetings of committees
of the board on which he or she served.

The board has established an audit committee and a compensation committee.
Leap does not have a Nominating Committee or any other committee.

The audit committee consists of Messrs. Targoff and Williams. The audit
committee makes recommendations concerning the engagement of independent public
accountants; reviews the scope of the audit examination, including fees and
staffing; reviews the independence of the auditors; reviews and approves
non-audit services provided by the auditors; reviews findings and
recommendations of auditors and management's response; reviews the internal
audit and control function; and reviews compliance with Leap's ethical business
practices policy. The audit committee held four meetings during fiscal 1999.

The compensation committee consists of Messrs. Burillo and Targoff. The
compensation committee reviews management compensation programs, approves
compensation changes for senior executive officers, reviews compensation changes
for senior management and other employees and administers stock plan awards. The
compensation committee held one meeting during fiscal 1999.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Burillo and Targoff are the current members of Leap's compensation
committee. Messrs. Jarvis and Williams also served as members of the
compensation committee until June 1999.

Prior to the spin-off of Leap from QUALCOMM, Messrs. Jarvis and Williams
worked with QUALCOMM to develop the Cricket(SM) unlimited local calling strategy
that Leap has adopted and refined for use in domestic wireless markets. Messrs.
Jarvis and Williams are also directors of Cricket Communications Holdings, Inc.,
a subsidiary of Leap that owns the company that is implementing the
"Cricket(SM)" strategy. In June 1999, Cricket Communications Holdings granted
Messrs. Jarvis and Williams options to purchase 795,000 and 410,000 shares,
respectively, of its common stock, exercisable at $1.00 per share. Messrs.
Jarvis and Williams have exercised these options in full and as a result they
own approximately 1.5% and 0.8%, respectively, of the outstanding common stock
of Cricket Communications Holdings.

Mr. Jarvis fully exercised his Cricket Communications Holdings stock
options in July 1999. Upon exercise, Mr. Jarvis paid $346,334 in cash and issued
to Cricket Communications Holdings a promissory note for the remaining balance
of $448,666. The promissory note is secured by 498,666 shares of Cricket
Communications Holdings common promissory note is secured by 498,666 shares of
Cricket Communications

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<PAGE> 60

Holdings common stock. The note accrues interest at a rate of 9% per annum,
compounded annually, on the outstanding balance of the loan. The loan matures on
August 31, 2000.

Mr. Williams fully exercised his Cricket Communications Holdings, Inc.
stock options in July 1999 and paid to Holdings the exercise price totalling
$410,000 in cash.

As previously disclosed, in late September 1998, Leap provided a $17.5
million loan to Pegaso Comunicaciones y Servicios, S.A. de C.V., a Mexican
company 96%-owned by Alejandro Burillo Azcarraga, a Director and a member of the
board's compensation committee. The purposes of this loan were to facilitate
investment by Pegaso Comunicaciones in PEGASO, a joint venture in which Leap has
an interest, and to ensure that the investors in PEGASO made all capital
contributions to PEGASO that were required for the acquisition of certain
Mexican telecommunications licenses on September 30, 1998. This loan was paid in
full, as scheduled, in two payments of $7.5 million and $10 million made in
October 1998 and December 1998, respectively. Leap earned interest at the rate
of 13% per annum on the loan to Pegaso Comunicaciones.

In April 1999, Leap entered into an agreement with PEGASO to provide it
with network management and operations services for five years, subject to
earlier termination in accordance with the terms of the agreement. Leap
generally subcontracted these services to a subsidiary of an international
telecommunications company. From the September 23, 1998 spin-off of Leap until
April 1999, Leap also provided management and operations services to PEGASO
through a subsidiary of the international telecommunications company. In fiscal
1999, PEGASO paid Leap $28.2 million for services plus related expenses under
these arrangements. Mr. Burillo, a Director and member of Leap's compensation
committee, and his affiliates own an interest of approximately 19% in PEGASO.
Leap owns an interest of approximately 28.6% in PEGASO.

COMPENSATION OF DIRECTORS

Directors of Leap do not receive any compensation for their services as
director except that each non-employee director receives an option to purchase
20,000 shares of Leap common stock when he or she first serves as a non-employee
director and an option to purchase 10,000 additional shares of Leap common stock
at the time of each subsequent annual meeting that occurs while he or she
continues to serve as a non-employee director.

The exercise price for each option is the fair market value of Leap common
stock on the date the option is granted. Each option becomes exercisable over
five years according to the following schedule: as long as the optionee
continues to serve as a non-employee director, employee or consultant to Leap,
20% of the shares subject to the option first become exercisable on each of the
first five anniversaries of the date of grant. Each option has a term of 10
years, provided that the options terminate 30 days after the optionee ceases to
be a non-employee director, employee or consultant to Leap. Special exercise and
termination rules apply if the optionee's relationship with Leap is terminated
as a result of retirement at age 70 after at least nine years of service on the
board, permanent and total disability, or death.

Leap also reimburses directors for their travel expenses incurred in
connection with attendance at board and board committee meetings.

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<PAGE> 61

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth certain compensation information with
respect to Leap's Chief Executive Officer and four most highly-paid executive
officers during fiscal 1999. Leap first hired employees on September 23, 1998.
Prior to that date, all of Leap's officers named in the table below were
employees of QUALCOMM. As a result, the information set forth in the following
tables reflects compensation earned by Leap's officers named in the table below
for services they rendered to Leap during fiscal year 1999 and to QUALCOMM
during its fiscal years 1997 and 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
--------------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITIONS AT LEAP YEAR SALARY(2) BONUS COMPENSATION(3) OPTIONS(4) COMPENSATION(6)
------------------ ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White................ 1999 $488,464 $305,000 $ 0 497,000 $273,222
Chairman of the Board and 1998 477,853 320,000 0 75,000 108,902
Chief Executive Officer 1997 395,713 250,000 0 0 37,011
Thomas J. Bernard.............. 1999 280,924 150,000 0 180,000 46,351
Vice Chairman, President of 1998 287,509 120,000 0 0 34,545
International Business 1997 245,142 65,000 0 0 6,086
Division and Director
James E. Hoffmann.............. 1999 224,117 80,000 0 83,000 5,219
Senior Vice President, 1998 178,930 60,000 0 4,000 13,899
General Counsel, and
Secretary 1997 149,283 50,000 0 3,000 10,048
Leonard C. Stephens............ 1999 197,270 80,000 0 76,000 13,464
Senior Vice President, 1998 176,930 55,000 104,947 6,000 2,258
Human Resources 1997 146,828 45,000 42,268 3,000 1,816
Daniel O. Pegg................. 1999 204,504 70,000 0 52,500 32,726
Senior Vice President, 1998 209,868 68,000 0 0 41,745
Public Affairs 1997 111,174(5) 55,000 0 50,000 3,463
</TABLE>

- -------------------------
(1) As permitted by rules established by the SEC, 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) The 1999 salary amounts reflect compensation paid to Leap's officers named
in the table above for the 1999 fiscal year after the September 23, 1998
spin-off from QUALCOMM, representing approximately eleven months of fiscal
1999.

(3) In December 1995, Leonard C. Stephens joined QUALCOMM as Vice President of
Human Resources. QUALCOMM made payments related to his relocation as shown
above and in fiscal 1998 also reimbursed Mr. Stephens $50,705 for income
taxes arising from the relocation payment.

(4) In connection with the spin-off of Leap by QUALCOMM in September 1998, Leap
was contractually obligated to issue options to purchase Leap common stock
to the holders of outstanding options to purchase QUALCOMM common stock,
referred to herein as "Distribution Options." This grant arrangement was
made to preserve the value of the outstanding QUALCOMM options at the time
of the spin-off. Distribution Options granted to Leap's officers named in
the table above were 91,000 shares to Mr. White; 15,000 shares to Mr.
Bernard; 8,000 shares to Mr. Hoffmann; 6,000 shares to Mr. Stephens; and
12,500 shares to Mr. Pegg.

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<PAGE> 62

(5) 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.

(6) Includes matching 401(k) contributions, executive benefits payments,
executive retirement stock matching and financial planning services as
follows:

<TABLE>
<CAPTION>
MATCHING EXECUTIVE EXECUTIVE FINANCIAL TOTAL
401(K) BENEFITS RETIREMENT PLANNING OTHER
NAME YEAR CONTRIBUTIONS PAYMENTS CONTRIBUTIONS(1) SERVICES COMPENSATION
---- ---- ------------- --------- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White....... 1999 $ 4,615 $ 1,850 $47,077 $16,640 $273,222(2)
1998 2,313 2,520 48,919 38,070 108,902(3)
1997 2,145 2,520 32,346 0 37,011
Thomas J. Bernard..... 1999 3,269 14,596 17,870 10,616 46,351
1998 2,659 4,270 26,532 1,084 34,545
1997 1,816 4,270 0 0 6,086
James E. Hoffmann..... 1999 2,032 3,187 0 0 5,219
1998 2,659 0 8,916 2,324 13,899
1997 2,145 0 7,903 0 10,048
Leonard C. Stephens... 1999 4,182 7,042 0 2,240 13,464
1998 2,258 0 0 0 2,258
1997 1,816 0 0 0 1,816
Daniel O. Pegg........ 1999 3,269 10,796 17,559 1,102 32,726
1998 14,048 4,475 9,174 14,048 41,745
1997 0 0 3,463 0 3,463
</TABLE>

- -------------------------
(1) Leap has a voluntary retirement plan that allows eligible executives to
defer up to 100% of their income on a pre-tax basis. The participants
receive a 50% company stock match on a maximum deferral of 15% of income in
1998 and 20% of income thereafter, payable only upon eligible retirement.
Participants become fully vested in the stock benefit at age 65, with
partial vesting beginning after the participant reaches the age of 61 and
has at least three years of employment with Leap or has participated in the
plan for more than ten years. The employee contributions and the stock
benefit are unsecured and subject to the general creditors of Leap. At
November 29, 1999, 4,702 shares were vested on behalf of Harvey P. White,
1,266 shares were vested on behalf of Thomas J. Bernard and 1,644 shares
were vested on behalf of Daniel O. Pegg.

(2) Also includes $203,040, the dollar value of the benefits of premiums paid
for a split-dollar life insurance policy (unrelated to term life insurance
coverage) reflecting the present value of the economic benefit of the
premiums paid by Leap during fiscal 1999.

(3) Also includes $17,080, the dollar value of the benefit of premiums paid for
the split-dollar life insurance policy reflecting the present value of the
economic benefit of the premiums paid by QUALCOMM during its 1998 fiscal
year.

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<PAGE> 63

The following table shows specified information with respect to options to
purchase Leap common stock granted to Leap's officers named in the Summary
Compensation Table above during Leap's fiscal 1999:

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES % OF TOTAL AT ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS GRANTED STOCK PRICE APPRECIATION FOR
OPTIONS TO COMPANY OPTION TERM(4)
GRANTED EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME (#)(3) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- --------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White............. 36,000(1) 2.01% $ 2.59 07/05/03 $ 111,318.38 $ 162,268.92
15,000(1) 0.84 2.42 01/26/05 55,680.59 87,247.93
21,250(1) 1.19 4.06 07/11/06 53,616.05 114,782.83
18,750(1) 1.05 5.59 11/13/07 26,976.20 96,806.56
256,000(2) 14.33 3.03 10/08/08 487,820.98 1,236,234.15
150,000(2) 8.39 19.25 06/22/09 1,815,304.56 4,599,975.94
Thomas J. Bernard........... 7,500(1) 0.42 3.56 01/04/06 21,448.01 40,862.59
7,500(1) 0.42 4.06 07/11/06 18,923.31 40,511.59
75,000(2) 4.20 3.03 10/08/08 142,916.30 362,177.97
90,000(2) 5.04 19.25 06/22/09 1,089,182.74 2,759,985.56
James E. Hoffmann........... 4,000(1) 0.22 2.08 06/10/03 14,332.88 19,885.15
1,250(1) 0.07 2.43 10/06/04 4,513.65 6,961.42
1,000(1) 0.06 3.44 12/07/05 2,955.75 5,502.66
750(1) 0.04 3.49 12/12/06 2,422.52 4,769.83
1,000(1) 0.06 5.75 12/04/07 1,298.49 5,062.14
45,000(2) 2.52 3.03 10/08/08 85,749.78 217,306.78
30,000(2) 1.68 19.25 06/22/09 363,060.91 919,995.19
Leonard C. Stephens......... 3,750(1) 0.21 3.44 12/07/05 11,084.07 20,634.97
750(1) 0.04 3.49 12/12/06 2,422.52 4,769.83
1,500(1) 0.08 5.75 12/04/07 1,947.73 7,593.22
40,000(2) 2.24 3.03 10/08/08 76,222.03 193,161.59
30,000(2) 1.68 19.25 06/22/09 363,060.91 919,995.19
Daniel O. Pegg.............. 12,500(1) 0.70 5.28 03/06/07 18,948.87 59,852.65
30,000(2) 1.68 3.03 10/08/08 57,166.52 144,871.19
10,000(2) 0.56 19.25 06/22/09 121,020.30 306,665.06
</TABLE>

- -------------------------
(1) This Distribution Option was granted in connection with the spin-off of Leap
from QUALCOMM. In connection with the spin-off transaction, Leap was
contractually obligated to issue options to purchase Leap common stock to
the holders of outstanding options to purchase QUALCOMM common stock. This
arrangement was made to preserve the value of the outstanding QUALCOMM
options at the time of the spin-off. At the spin-off, the exercise price of
each outstanding QUALCOMM option was allocated proportionally between each
outstanding QUALCOMM option and the corresponding Distribution Option
granted by Leap.

(2) This option was granted after the spin-off distribution pursuant to Leap's
1998 Stock Option Plan.

(3) Options granted by Leap to executive officers in its fiscal year ending
August 31, 1999 become exercisable in equal installments on the first
through fifth anniversaries of the date of grant.

(4) Calculated on the assumption that the market value of the underlying common
stock increases at the stated values, compounded annually. Options granted
under Leap's 1998 Stock Option Plan generally have a maximum term of ten
years. The total

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<PAGE> 64

appreciation of the options over their ten year terms at 5% and 10% is 63%
and 158%, respectively.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

The following table sets forth certain information with respect to the
exercise of options to purchase Leap common stock during the fiscal year ended
August 31, 1999, and the unexercised options held and the value thereof at that
date, for each of Leap's officers named in the Summary Compensation Table above.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White.............. 61,500 $304,528 0 435,500 $ 0 $4,053,430
Thomas J. Bernard............ 6,000 10,500 1,500 172,500 19,980 1,178,400
James E. Hoffmann............ 0 0 5,650 77,500 84,482 677,144
Daniel O. Pegg............... 0 0 5,000 47,500 60,500 521,250
Leonard C. Stephens.......... 2,100 28,167 0 73,900 0 625,572
</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 $17.38 on the last trading
day of the fiscal year as reported on the Nasdaq National Market.

EMPLOYMENT AGREEMENT

Leap and Ms. Swenson entered into an employment offer letter dated June 11,
1999 which provides that Ms. Swenson will serve as President of Leap. Ms.
Swenson currently serves as President, Chief Operating Officer and Director of
Leap and Chief Executive Officer of Cricket Communications. Under the letter,
Ms. Swenson is entitled to an annual salary of $400,000 and, beginning with
fiscal 1999, an annual bonus of up to 60% of her base salary. In connection with
the letter, Ms. Swenson received an option under Leap's option plan to acquire
250,000 shares of Leap common stock at a price of $19.00 per share. The option
vests at the rate of 20% per year upon each anniversary of the grant date. Under
the letter, Ms. Swenson also received an option to purchase 350,000 shares of
Cricket Communications Holdings, Inc. common stock at a price of $2.00 per
share, which will become fully vested after five years from the grant date.
Under the letter, Ms. Swenson is eligible to participate in Leap's executive
retirement plan and is also entitled to comprehensive benefits. The letter
includes a special termination provision that requires Leap to pay to Ms.
Swenson 12 months base pay if her employment is terminated for other than gross
misconduct or gross neglect of duty within 12 months of her date of hire. If Ms.
Swenson is terminated for other than gross misconduct or gross neglect of duty
within 13 to 24 months of her date of hire, Leap is required to make payment to
Ms. Swenson equal to nine months of her base pay.

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<PAGE> 65

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The businesses to be conducted by Leap have in the past engaged in
transactions with QUALCOMM and its businesses. QUALCOMM has a significant
relationship with Leap as a result of the agreements entered into by QUALCOMM
and Leap in connection with the distribution of Leap common stock in September
1998, and due to QUALCOMM's warrant to purchase 4,500,000 shares of Leap.
QUALCOMM's relationships as equipment vendor to Leap and its operating companies
and as lender under the credit facility will give QUALCOMM significant influence
over Leap and may create conflicts of interest with Leap. In addition, QUALCOMM
is not restricted from competing with Leap or its operating companies or
pursuing directly wireless telecommunications businesses or interests which
would also be attractive to Leap. For a more detailed discussion see
"Business -- Relationship Between Leap and QUALCOMM."

Leap has engaged in transactions with members of its board of directors
described in "Management -- Compensation Committee Interlocks and Insider
Participation."

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<PAGE> 66

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth the beneficial ownership of Leap common
stock as of November 29, 1999, by (i) all those known by Leap to be beneficial
owners of more than 5% of its common stock; (ii) each director of Leap; (iii)
each executive officer named in the Summary Compensation Table; and (iv) all
directors and officers of Leap as a group.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
------------------------
NUMBER PERCENT
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS OF SHARES(2) OF TOTAL
------------------------------------------------- ------------ --------
<S> <C> <C>
QUALCOMM Incorporated(3)................................. 4,500,000 19.2%
FMR Corp.(4)............................................. 1,601,130 8.4
Harvey P. White(5)(6).................................... 519,795 2.7
Thomas J. Bernard(6)(7).................................. 33,826 *
James E. Hoffmann(6)(8).................................. 26,474 *
Daniel O. Pegg(6)(9)..................................... 17,415 *
Leonard C. Stephens(6)................................... 14,074 *
Alejandro Burillo Azcarraga(10).......................... 6,000 *
Robert C. Dynes.......................................... 0 *
John J. Moores........................................... 0 *
Scot B. Jarvis(10)(11)................................... 6,700 *
Michael B. Targoff(10)................................... 6,000 *
Jeffrey P. Williams(10).................................. 6,000 *
All Officers and Directors as a group (14 persons)....... 643,206 3.4
</TABLE>

- -------------------------
* Less than one percent.

(1) This table is based upon information supplied by officers, directors and
principal stockholders of Leap and by Schedules 13D and 13G filed with the
SEC. Unless otherwise indicated in the footnotes to this table and subject
to marital property laws where applicable, each of the stockholders named
in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned and has a business address of Leap
Wireless International, Inc., 10307 Pacific Center Court, San Diego,
California 92121. Applicable percentages are based on 18,952,315 shares of
Leap common stock outstanding, adjusted as required by rules promulgated by
the SEC.

(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 the right to purchase shares of Leap common stock for
approximately $6.11 per share, or an aggregate purchase price of
approximately $27.5 million, under a warrant. The warrant is fully
exercisable and expires in September 2008. On a fully diluted basis, as of
November 29, 1999, QUALCOMM would own approximately 14.4% of the Leap
common stock upon exercise of the warrant. QUALCOMM's business address is
5775 Morehouse Dr., San Diego, California 92121.

(4) Based solely on Schedules 13G filed by FMR Corp., Fidelity International
Limited and related entities with the SEC on November 19, 1999, 1,406,500
shares of Leap common stock are beneficially owned by Fidelity Management &
Research Company

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<PAGE> 67

(Fidelity), a wholly-owned subsidiary of FMR Corp., 5,100 shares of common
stock are beneficially owned by Fidelity Management Trust Company, a
wholly-owned subsidiary of FMR Corp., and 189,530 shares of Leap common
stock are beneficially owned by Fidelity International Limited, formerly a
majority-owned subsidiary of Fidelity. FMR Corp.'s business address is 82
Devonshire Street, Boston, Massachusetts 02109.

(5) Includes 2,500 shares held in a foundation of which Mr. White disclaims
beneficial ownership. Also includes 359,148 shares held in family trusts,
7,500 shares held in a family limited partnership, 250 shares held in a
charitable remainder trust, 61,500 shares held in a family trust for the
benefit of grandchildren and 27,947 shares held in trusts for the benefit
of relatives.

(6) Includes shares issuable upon exercise of options exercisable within 60
days of November 29, 1999 as follows: Mr. Bernard, 22,750 shares (including
4,750 shares subject to options held by Mr. Bernard's wife); Mr. Hoffmann,
15,700 shares; Mr. Pegg, 11,000 shares; Mr. Stephens, 9,200 shares; and Mr.
White, 60,950 shares.

(7) Includes 60 shares held by Mr. Bernard's spouse.

(8) Includes 2,500 shares held in a custodial account for the benefit of Mr.
Hoffmann's spouse and 8,274 shares held in a family trust.

(9) Includes 5,000 shares held by a family trust, 525 shares held in a
custodial account for the benefit of Mr. Pegg's spouse and 25 shares held
for the benefit of Mr. Pegg's minor son.

(10) Includes 6,000 shares issuable upon exercise of options exercisable within
60 days of November 29, 1999.

(11) Includes 50 shares held in an IRA account and 150 shares held for the
benefit of Mr. Jarvis' children.

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DESCRIPTION OF LEAP CAPITAL STOCK

Under the charter, the total number of shares of all classes of stock that
Leap has authority to issue is 85,000,000, consisting of 10,000,000 shares of
preferred stock and 75,000,000 shares of common stock.

COMMON STOCK

As of November 29, 1999, Leap had 18,952,315 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. The holders of our shares of
common stock possess all voting power, except as otherwise required by law or
provided in any resolution adopted by the board of directors of Leap regarding
any series of preferred stock. Subject to any preferential or other rights of
any outstanding series of Leap preferred stock that may be designated by the
board of directors of Leap, 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
Leap from available funds and upon liquidation will be entitled to receive pro
rata all assets of Leap available for distribution to the holders. The terms of
our credit agreement with QUALCOMM prohibit us from declaring or paying cash
dividends. For a more detailed discussion see "Dividend Policy" and
"Business -- Relationship Between Leap and QUALCOMM -- Credit Agreement."

PREFERRED STOCK

The board of directors of Leap is authorized to issue shares of preferred
stock, in one or more series, and to determine, regarding any series, the terms
and rights of the series, including the following: (1) the designation of the
series; (2) the rate and time of, and conditions and preferences regarding,
dividends, and whether the dividends are cumulative; (3) the voting rights, if
any, of shares of the series; (4) the price, timing and conditions regarding the
redemption of shares of the series and whether a sinking fund should be
established for the series; (5) the rights and preferences of shares of the
series in the event of voluntary or involuntary dissolution, liquidation or
winding up of the affairs of Leap; and (6) the right, if any, to convert or
exchange shares of the series into or for stock or securities of any other
series or class.

Leap believes that the availability of the preferred stock will provide
Leap with increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. Having
authorized shares available for issuance will allow Leap to issue shares of
preferred stock without the expense and delay of a special stockholders'
meeting. The authorized shares of preferred stock, as well as shares of Leap
common stock, will be available for issuance without further action by Leap's
stockholders, unless action is required by applicable law or the rules of any
stock exchange on which Leap's securities may be listed or unless Leap is
restricted by the preferred stock.

On September 9, 1998, the board of directors adopted a Rights Plan. For a
more detailed discussion see "Description of Rights Agreement." In connection
with the Rights Plan, the board of directors of Leap declared a dividend of one
preferred stock purchase right for each outstanding share of common stock of
Leap. Each preferred stock purchase right will entitle the registered holder
after the preferred stock purchase rights become exercisable and until September
10, 2008 (or the earlier redemption, exchange or

68
<PAGE> 69

termination of the preferred stock purchase rights), to purchase from Leap one
one-thousandth ( 1/1000) of a share of Series A preferred stock, par value
$.0001 per share, at a price of $90.00 per one one-thousandth ( 1/1000) of a
share of Series A preferred stock, subject to anti-dilution adjustments. Each
share of Series A preferred stock purchasable upon exercise of the preferred
stock purchase 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 Leap,
the holders of the Series A preferred stock 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 share of Series A preferred stock 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 share of Series A preferred
stock will be entitled to receive 1,000 times the amount received per share of
common stock. Shares of Series A preferred stock will not be redeemable. Leap
has reserved for issuance 75,000 shares of Series A preferred stock issuable
upon exercise of the preferred stock purchase rights.

WARRANTS

In connection with the distribution of Leap, Leap issued a warrant to
purchase 5,500,000 shares of Leap common stock to QUALCOMM at an exercise price
of approximately $6.11 per share. In March 1999, in exchange for consideration
valued at $5.4 million, QUALCOMM agreed to amend the warrant to reduce the
number of shares which may be acquired upon exercise to 4,500,000. The warrant
is exercisable at any time prior to September 23, 2008. Upon exercise in full of
this warrant, QUALCOMM would hold approximately 14% of the outstanding Leap
common stock, assuming exercise of all outstanding options and convertible
securities.

The warrant issued to QUALCOMM includes three types of registration rights
which require Leap to register the shares of Leap common stock issuable upon
exercise of the warrant. First, the warrant provides for a one-time "demand"
registration right which permits QUALCOMM to require Leap to register a minimum
of $5 million of Leap common stock issuable upon exercise of the warrant.
Second, the warrant provides for "piggy-back" registration rights which require
Leap to notify QUALCOMM of its intention to register shares of Leap common stock
with the SEC and, upon request, to include QUALCOMM's shares issuable upon
exercise of the warrant in the registration. If QUALCOMM exercises its
piggy-back or demand registration rights and the offering is underwritten, the
shares to be registered may be reduced by the underwriters based on market
conditions. However, after Leap's first firm commitment underwritten public
offering of common stock, the shares to be registered may be reduced to no less
than 30% of the shares requested to be registered. The registration rights in
the warrant may be assigned by QUALCOMM with any transfer of the warrant. Third,
the warrant provides for "Form S-3" registration rights which generally permit
QUALCOMM to require Leap to register a minimum of $5 million of shares issuable
upon exercise of the warrant if Form S-3, a short-form registration statement,
is available for the proposed registration.

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<PAGE> 70

LEAP COMMON STOCK RESERVED FOR ISSUANCE

Future sales of substantial amounts of Leap common stock in the public
market could adversely affect the trading price of the Leap common stock. As of
November 29, 1999, Leap had 18,952,315 shares of common stock outstanding, the
large majority of which were freely tradable without restriction or further
registration under the Securities Act. Also, as of November 29, 1999, in
addition to the 1,959,052 shares of common stock reserved for issuance upon
conversion of outstanding Trust Convertible Preferred Securities, 12,133,266
shares of common stock were reserved for issuance as follows: 4,500,000 shares
reserved for issuance upon exercise of a warrant held by QUALCOMM; 3,681,274
shares reserved for issuance to employees, officers, directors and consultants
under Leap equity incentive plans; and 3,951,992 reserved for issuance upon
exercise of options granted to holders of QUALCOMM options in connection with
the spin-off of Leap to holders of options for QUALCOMM common stock (including
Leap employees who were former employees of QUALCOMM).

NO PREEMPTIVE RIGHTS

No holder of any stock of Leap has any preemptive right to subscribe for
any securities of Leap 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 CHARTER PROVISIONS

Leap must comply with the provisions of Section 203 of the Delaware General
Corporation Law, 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 at the time of the business
combination (or within three years prior, did own) 15% or more of the
corporation's voting stock.

Leap's charter also requires that any required or permitted action by
stockholders of Leap 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 Leap may be called only by a majority of the
authorized number of directors, the Chairman of the Board or the President of
Leap. The charter also provides for a classified board of directors consisting
of three classes of directors. In addition, the charter provides that the
authorized number of directors may be changed only by resolution of the board of
directors. Leap'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. Leap's charter and bylaws also require that the holders
of at least 66 2/3% of the voting stock of Leap must approve any amendment to
either the charter or bylaws affecting certain provisions. These provisions may
have the effect of deterring hostile takeovers or delaying changes in control or
management of Leap.

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DESCRIPTION OF RIGHTS AGREEMENT

On September 9, 1998, the board of directors of Leap adopted a Rights Plan.
The following description of the 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 Leap and Harris Trust Company of California, a form
of which is filed as an exhibit to Leap's registration statement on Form S-1, of
which this prospectus is a part.

In connection with the Rights Plan, the board of directors of Leap declared
a dividend of one preferred share purchase right for each outstanding share of
our common stock outstanding at the close of business on September 11, 1998.
Each preferred stock purchase right will entitle the registered holder after the
preferred stock purchase rights become exercisable and until September 10, 2008
(or the earlier redemption, exchange or termination of the preferred stock
purchase rights), to purchase from Leap one one-thousandth ( 1/1000) of a share
of Series A preferred stock, par value $.0001 per share, at a price of $90.00
per one one-thousandth ( 1/1000) of a share of Series A preferred stock, subject
to anti-dilution adjustments. Until the earlier to occur of (1) 10 days
following a public announcement that a person or group of affiliated or
associated persons (other than an Existing Holder (as defined below)) has
acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding Leap common stock (an "Acquiring Person") or (2) 10 business
days (or a later date as may be determined by action of the board of directors
before 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 our outstanding
common stock (the earlier of (1) and (2) being called the "preferred stock
purchase rights distribution date"), the preferred stock purchase rights will be
evidenced, regarding any of the common stock certificates outstanding as of the
record date, by the common stock certificate. "Existing Holder" means QUALCOMM,
together with its affiliates and associates (but excluding individual officers,
directors and employees of QUALCOMM) unless and until the Existing Holder has
acquired beneficial ownership of one or more additional shares of common stock.
The preferred stock purchase rights will be transferred with and only with our
common stock until the preferred stock purchase rights distribution date or
earlier redemption or expiration of the preferred stock purchase rights. As soon
as practicable following the preferred stock purchase rights distribution date,
separate certificates evidencing the preferred stock purchase rights will be
mailed to holders of record of our outstanding common stock as of the close of
business on the preferred stock purchase rights distribution date and such
separate certificates of preferred stock purchase rights alone will evidence the
preferred stock purchase rights. The preferred stock purchase rights will at no
time have any voting rights.

Each share of Series A preferred stock purchasable upon exercise of the
preferred stock purchase 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 Leap, the holders of the Series A preferred stock 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 share of Series A preferred stock
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

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<PAGE> 72

outstanding shares of Leap common stock are exchanged, each share of Series A
preferred stock will be entitled to receive 1,000 times the amount received per
share of common stock. Shares of Series A preferred stock will not be
redeemable. These preferred stock purchase rights are protected by customary
anti-dilution provisions. Because of the nature of the Series A preferred
stock's dividend, liquidation and voting rights, the value of one one-thousandth
of a share of Series A preferred stock purchasable upon exercise of each
preferred stock purchase right should approximate the value of one share of
common stock.

If a person or group becomes an Acquiring Person or if Leap were the
surviving corporation in a merger with an Acquiring Person or any affiliate or
associate of an and the outstanding shares of Leap common stock were not changed
or exchanged, each holder of a preferred stock purchase right, other than
preferred stock purchase rights that are or were acquired or beneficially owned
by the Acquiring Person (which preferred stock purchase 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 preferred stock purchase right. If, after a person or
group has become an Acquiring Person, Leap were acquired in a merger or other
business combination transaction or more than 50% of its assets or earning power
were sold, proper provision will be made so that each holder of a preferred
stock purchase right will thereafter have the right to receive, upon the
exercise at the then current purchase price of the preferred stock purchase
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 preferred stock purchase right.

At any time after a person or group becomes an Acquiring Person and before
the earlier of one of the events described in the last sentence in the previous
paragraph or the acquisition by the Acquiring Person of 50% or more of the then
outstanding shares of Leap common stock, the board of directors may cause Leap
to exchange the preferred stock purchase rights (other than preferred stock
purchase 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
preferred stock purchase 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 preferred stock purchase right (subject to adjustment).

The preferred stock purchase rights may be redeemed in whole, but not in
part, at a price of $.01 per preferred stock purchase right by the board of
directors at any time before the time that an Acquiring Person the entity or
group. The redemption of the preferred stock purchase rights may be made
effective at this time, on the basis and with the conditions as the board of
directors in its sole discretion may establish. Immediately upon any redemption
of the preferred stock purchase rights, the right to exercise the preferred
stock purchase rights will terminate and the only right of the holders of
preferred stock purchase rights will be to receive the redemption price of a
preferred stock purchase right.

The preferred stock purchase rights will expire on September 10, 2008
(unless earlier redeemed, exchanged or cancelled). Harris Trust Company of
California is the Rights Agent.

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<PAGE> 73

The purchase price payable, and the number of one one-thousandths of a
share of Series A preferred stock or other securities or property issuable, upon
exercise of the preferred stock purchase rights are subject to adjustment from
time to time to prevent dilution (1) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Series A preferred stock,
(2) upon the grant to holders of the Series A preferred stock of rights or
warrants to subscribe for or purchase shares of Series A preferred stock or
convertible securities at less than the current market price of the Series A
preferred stock or (3) upon the distribution to holders of the Series A
preferred stock of evidences of debt, 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 paid or, in case regular periodic cash
dividends have not been paid, at a rate not in excess of 50% of the average net
income per share of Leap for the four quarters ended immediately before the
payment of such dividend, or dividends payable in shares of Series A preferred
stock (which dividends will be subject to the adjustment described in clause (1)
above)) or of subscription rights or warrants (other than those referred to
above).

Until a preferred stock purchase right is exercised, the holder will have
no rights as a stockholder of Leap 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 Leap for so long as the preferred stock purchase rights are then
redeemable, and after the preferred stock purchase rights are no longer
redeemable, Leap may amend or supplement the Rights Agreement in any manner that
does not negatively affect the interests of the holder of the preferred stock
purchase rights.

One preferred stock purchase right was distributed to stockholders of Leap
for each share of Leap common stock owned of record by them on September 11,
1998. As long as the preferred stock purchase rights are attached to the shares
of common stock, Leap will issue one preferred stock purchase right with each
new share of common stock (including, without limitation, the shares of Leap
common stock that will be distributed in the distribution of Leap) so that all
shares will have attached preferred stock purchase rights. Leap agrees that,
from and after the preferred stock purchase rights distribution date, Leap will
reserve 75,000 shares of Series A preferred stock initially for issuance upon
exercise of the preferred stock purchase rights.

The preferred stock purchase rights may have some anti-takeover affects.
The rights are designed to assure that all of Leap's stockholders receive fair
and equal treatment in the event of any proposed takeover of Leap and to guard
against partial tender offers, open market accumulations and other abusive
tactics to gain control of Leap without paying all stockholders a control
premium. The preferred stock purchase rights will cause substantial dilution to
a person or group (other than an Existing Holder) that acquires 15% or more of
Leap's stock on terms not approved by Leap's board of directors. The preferred
stock purchase rights should not interfere with any merger or other business
combination approved by the board of directors at any time before the first date
that a person or group has become an Acquiring Person.

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<PAGE> 74

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

Officers and directors of Leap are covered by the provisions of the DGCL,
the charter, the bylaws, individual indemnification agreements with Leap and
insurance policies which serve to limit, and, in some instances, to indemnify
them against, liabilities which they may incur in such capacities. None of such
provisions would have retroactive effect for periods before the distribution of
Leap, and Leap 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 significant 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 charter limits the
liability of directors to Leap 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 Leap will not be personally
liable for monetary damages for breach of a director's fiduciary duty as
director, except for liability: (1) for any breach of the director's duty of
loyalty to Leap or its stockholders; (2) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (3) for
unlawful payments of dividends or unlawful share repurchases or redemptions as
provided in Section 174 of the DGCL; or (4) for any transaction from which the
director derived an improper personal benefit.

Indemnification and Insurance. As a Delaware corporation, Leap 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 Leap'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 Leap, 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 Leap's directors and officers
to the full extent provided by Delaware corporate law. In addition, Leap has
entered 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.

Leap has purchased and intends to maintain insurance on behalf of any
person who is or was a director or officer of Leap, or is or was a director or
officer of Leap serving at the request of Leap 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 Leap would have the power or obligation to indemnify him against
such liability under the provisions of the bylaws.

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SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of common stock in the public market
could negatively affect market prices prevailing from time to time. As of
November 29, 1999, Leap had outstanding 18,952,315 shares of common stock,
substantially all of which are freely tradeable without further registration
under the Securities Act of 1933. In addition, approximately 14,092,318 shares
of common stock were reserved for issuance in connection with currently
outstanding warrants, options and convertible securities. For a more detailed
discussion see "Description of Leap Capital Stock."

EXPERTS

The consolidated financial statements as of August 31, 1999 and 1998 and
for each of the three years in the period ended August 31, 1999 of Leap Wireless
International, Inc., included in this prospectus have been so included in
reliance on the report (which contains an explanatory paragraph relating to the
Company's adoption of the equity method of accounting for its investment in
Chase Telecommunications Holdings, Inc. as discussed in Note 2 to the
consolidated financial statements) 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, 1998 and 1997 and for the year
ended December 31, 1998, for the period from March 3, 1997 (inception) to
December 31, 1997 and for the period from March 3, 1997 (inception) to December
31, 1998 of Smartcom S.A. included in this prospectus have been so included in
reliance on the report (which contains an explanatory paragraph relating to
Smartcom S.A.'s negative working capital, lack of compliance with certain
financial conditions of the credit agreement and the revised credit agreement as
discussed in Note 8 and 14 to the financial statements) of Price Waterhouse,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The consolidated financial statements as of December 31, 1998 and for the
period from July 28, 1998 (inception) to December 31, 1998 of Orrengrove
Investments Ltd. included in this prospectus have been so included in reliance
on the report (which contains an explanatory paragraph relating to the Board of
Directors of three of the Orrengrove Investments Ltd.'s subsidiaries voting to
liquidate as discussed in Note 1 to the consolidated financial statements) 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, 1998 and for the period from
June 24, 1998 (date of incorporation) to December 31, 1998 of Pegaso
Telecomunicaiones, S.A. de C.V. included in this prospectus have been so
included in reliance on the report (which contains an explanatory paragraph
relating to the Company being in a development stage as discussed in Note 1 to
the consolidated financial statements) of PricewaterhouseCoopers, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

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LEGAL MATTERS

Certain legal matters regarding the issuance of the Leap common stock have
been passed upon for Leap by Latham & Watkins, San Diego, California.

WHERE TO FIND ADDITIONAL INFORMATION

Leap files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy materials Leap has filed
with the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its public reference room. Leap's SEC filings
also are available to the public on the SEC's Internet site at
http://www.sec.gov. In addition, you may obtain a copy of Leap's SEC filings at
no cost by writing or telephoning Leap's General Counsel at:

Leap Wireless International, Inc.
10307 Pacific Center Court
San Diego, CA 92121
(858) 882-6000

Leap has filed with the SEC a "shelf" registration statement on Form S-1
under the Securities Act of 1933, relating to the securities that may be offered
by this prospectus. This prospectus is a part of that registration statement,
but does not contain all of the information in the registration statement. For
more detail concerning Leap and any securities offered by this prospectus, you
may examine the registration statement and the exhibits filed with it at the
locations listed in the first paragraph under this heading.

You should only rely on the information provided or incorporated by
reference in this prospectus or in the applicable supplement to this prospectus.
Readers should not assume that the information in this prospectus and the
applicable supplement is accurate as of any date other than the date on the
front cover of the document.

Leap 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 the independent public accounting firm.

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LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEAP WIRELESS INTERNATIONAL, INC.
Pro Forma Financial Information............................. F-3
Unaudited Pro Forma Statement of Operations for the year
ended August 31, 1999.................................. F-4
Notes to the Pro Forma Financial Information
(unaudited)............................................ F-5
LEAP WIRELESS INTERNATIONAL, INC.
Consolidated Financial Statements:
Report of Independent Accountants......................... F-7
Consolidated Balance Sheets at August 31, 1999 and 1998
(restated)............................................. F-8
Consolidated Statements of Operations and Comprehensive
Loss for the fiscal years ended August 31, 1999, 1998
(restated) and 1997 (restated)......................... F-9
Consolidated Statements of Cash Flows for the fiscal years
ended August 31, 1999, 1998 (restated) and 1997
(restated)............................................. F-10
Consolidated Statements of Stockholder's Equity for each
of the fiscal years in the period from September 1,
1996 to August 31, 1999................................ F-11
Notes to Consolidated Financial Statements................ F-12
SMARTCOM S.A. (COMPANY IN THE DEVELOPMENT STAGE)
Financial Statements:
Report of Independent Accountants......................... F-37
Balance Sheet at March 31, 1999 (unaudited), December 31,
1998 and 1997.......................................... F-38
Statement of Income and Comprehensive Income for the three
months ended March 31, 1999 (unaudited) and March 31,
1998 (unaudited), for the year ended December 31, 1998
and for the periods from inception (March 3, 1997) to
December 31, 1997, to March 31, 1999 (unaudited) and to
December 31, 1998...................................... F-39
Statement of Cash Flows for the three months ended March
31, 1999 (unaudited) and March 31, 1998 (unaudited),
for the year ended December 31, 1998 and for the
periods from inception (March 3, 1997) to December 31,
1997, to March 31, 1999 (unaudited) and to December 31,
1998................................................... F-40
Statement of Shareholders' Equity for the period from
inception (March 3, 1997) to December 31, 1998 and for
the period from January 1, 1999 to March 31, 1999
(unaudited)............................................ F-42
Notes to the Financial Statements......................... F-43
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES (A DEVELOPMENT
STAGE COMPANY)
Consolidated Financial Statements:
Report of Independent Accountants......................... F-60
Consolidated Balance Sheet at December 31, 1998........... F-61
Consolidated Statement of Operations for the period from
July 27, 1998 (inception) to December 31, 1998......... F-62
Consolidated Statement of Cash Flows for the period from
July 27, 1998 (inception) to December 31, 1998......... F-63
Consolidated Statement of Stockholders' Deficit for the
period from July 27, 1998 (inception) to December 31,
1998................................................... F-64
Notes to the Consolidated Financial Statements............ F-65
</TABLE>

F-1
<PAGE> 78

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PEGASO TELECOMUNICACIONES, S.A. DE C.V. (DEVELOPMENT STAGE
ENTERPRISE)
Consolidated Financial Statements:
Report of Independent Accountants......................... F-73
Consolidated Balance Sheet at December 31, 1998........... F-74
Consolidated Statement of Income for the period from June
24, 1998 (date of incorporation) to December 31,
1998................................................... F-75
Consolidated Statement of Cash Flows for the period from
June 24, 1998 (date of incorporation) to December 31,
1998................................................... F-76
Statement of Stockholders' Equity for the period from June
24, 1998 (date of incorporation) to December 31,
1998................................................... F-77
Notes to the Consolidated Financial Statements............ F-78
</TABLE>

F-2
<PAGE> 79

LEAP WIRELESS INTERNATIONAL, INC.

PRO FORMA FINANCIAL INFORMATION

The Pro Forma Financial Information is based on the historical consolidated
financial statements of Leap Wireless International, Inc. and its subsidiaries
("Leap" or the "Company") for the year ended August 31, 1999, adjusted to give
effect to the Company's acquisition on April 19, 1999 of 50% of the shares of
Chilesat Telefonia Personal S.A., renamed SMARTCOM PCS ("SMARTCOM"), that it did
not already own. As a result, the Company now owns 100% of the outstanding
shares of SMARTCOM. The Unaudited Pro Forma Statement of Operations for the year
ended August 31, 1999 gives effect to the acquisition of the remaining 50%
interest in SMARTCOM as if it had occurred as of September 1, 1998. The
acquisition and related adjustments are described in the accompanying notes.

The Pro Forma Financial Information is based upon available information and
certain assumptions that management believes are reasonable. The Pro Forma
Financial Information is provided for illustrative purposes only and does not
purport to represent the Company's results of operations that actually would
have occurred had the acquisition of the additional interest in SMARTCOM been
effected at the beginning of the period presented. The Pro Forma Financial
Information and accompanying notes should be read in conjunction with the
historical financial statements of the Company and SMARTCOM.

F-3
<PAGE> 80

LEAP WIRELESS INTERNATIONAL, INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1999
-------------------------------------------------------
LEAP LEAP
CONSOLIDATED SMARTCOM PRO FORMA CONSOLIDATED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Operating revenues....................... $ 3,907 $ 3,670 $ -- $ 7,577
--------- -------- ------- ---------
Operating expenses:
Cost of operating revenues............... (3,810) (2,843) 940(1) (5,713)
Selling, general & administrative
expenses............................... (28,745) (10,566) -- (39,311)
Depreciation and amortization............ (5,824) (7,895) (2,128)(1) (15,847)
--------- -------- ------- ---------
Total operating expenses............ (38,379) (21,304) (1,188) (60,871)
--------- -------- ------- ---------
Net operating loss..................... (34,472) (17,634) (1,188) (53,294)
Equity in net loss of unconsolidated
wireless operating companies........... (100,300) -- 13,129(2) (87,171)
Write-down of investments in
unconsolidated wireless operating
companies.............................. (27,242) -- -- (27,242)
Interest income.......................... 2,505 383 (1,631)(3) 1,257
Interest expense and amortization of
discount and facility fee.............. (10,356) (5,997) (730)(3) (17,083)
Foreign currency transaction losses...... (7,211) (4,199) -- (11,410)
Gain on sale of wholly owned
Subsidiary............................. 9,097 -- -- 9,097
Gain on issuance of stock by
unconsolidated wireless operating
company................................ 3,609 -- -- 3,609
Other income (expense) -- net............ (243) (272) -- (515)
--------- -------- ------- ---------
Net loss............................... $(164,613) $(27,719) $ 9,580 $(182,752)
========= ======== ======= =========
Pro forma basic and diluted net loss per
common share........................... $ (9.19) $ (10.20)
========= =========
Shares used to calculate pro forma basic
and diluted net loss per common
share.................................. 17,910 17,910
========= =========
</TABLE>

(1), (2), (3) See Note 2 to Pro Forma Financial Information

See Notes to the Pro Forma Financial Information

F-4
<PAGE> 81

LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO THE PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

On September 23, 1998, QUALCOMM Incorporated ("QUALCOMM") distributed all
of the outstanding common stock of the Company to QUALCOMM's stockholders. The
historical consolidated financial statements of the Company, which have been
used to prepare the Pro Forma Financial Information, reflect a period during
which the Company did not operate as a separate, independent company, and
certain assumptions have been made in preparing such statements. Therefore, such
Pro Forma Financial Information may not reflect the results of operations that
would have been achieved had the Company been a separate, independent company
for all of the period presented.

On April 19, 1999, a wholly owned subsidiary of Leap acquired all of the
shares of SMARTCOM that it did not already own from Telex-Chile S.A. and its
operating affiliate, Chilesat S.A. (collectively "Telex-Chile"). SMARTCOM, a
Chilean corporation that holds a license to offer wireless telephone services,
has deployed and is operating a nationwide wireless telephone system in Chile.
Prior to the acquisition, the Company's wholly owned subsidiary, Inversiones
Leap Wireless Chile S.A. ("Inversiones"), owned 50% of the shares of SMARTCOM.

Inversiones acquired the remaining 50% of the shares of SMARTCOM from
Telex-Chile for $28 million in cash and a $22 million, non-interest bearing note
payable to Telex-Chile due on May 11, 2002. The present value of the $22 million
non-interest bearing note payable to Telex-Chile is approximately $15.7 million.
Therefore, the total estimated fair value of the acquisition was $43.7 million,
of which approximately $41 million has been allocated under the purchase method
of accounting to intangible assets, primarily telecommunications licenses and
rights to telecommunications network systems. The Company obtained $28 million
for the cash payment to Telex-Chile through additional borrowings under its
credit agreement with QUALCOMM.

The Pro Forma Financial Information gives effect to the acquisition of
SMARTCOM as if it were wholly owned and consolidated on September 1, 1998. The
Company has previously accounted for its initial 50% interest in SMARTCOM under
the equity method.

To accommodate the different fiscal periods of the Company and its foreign
operating subsidiaries and investees, including SMARTCOM, the Company has
adopted a two-month lag for the recognition of the Company's share of net
earnings or losses of such investments.

The historical financial statements of SMARTCOM have been converted to U.S.
dollars using the average exchange rate for the statements of operations for the
period presented.

NOTE 2. PRO FORMA ADJUSTMENTS

(1) (a) Additional amortization of $1.2 million for the SMARTCOM
telecommunications licenses (amortized on a straight-line basis over a
28.7 year remaining expected useful life) resulting from the purchase
price allocation and (b) reclassification of amortization of the rights
to telecommunications network systems of $0.9 million (amortized on a
straight-line basis over a 11.5 year

F-5
<PAGE> 82
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO THE PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)

expected useful life) from cost of operating revenues to depreciation
and amortization. Consistent with the application of generally accepted
accounting principles applied to the historical financial statements of
SMARTCOM, amortization of the telecommunications licenses and rights to
telecommunications network systems began in September 1998 when
commercial telephone traffic commenced.

(2) Elimination of the Company's share of the net loss of SMARTCOM
previously recognized under the equity method of accounting.

(3) (a) Elimination of $1.6 million of interest income recorded by Leap on
inter-company loans advanced to SMARTCOM, (b) elimination of $2.6
million of interest expense recorded by SMARTCOM on inter-company loans
advanced by Leap to SMARTCOM, (c) $1.9 million of additional interest
expense for the period reflecting $28 million of borrowings by the
Company under its credit agreement with QUALCOMM to fund the cash
portion of the purchase price and (d) recognition as interest expense
$1.5 million of amortization of $6.3 million discount on the $22
million, non-interest bearing three-year note payable to Telex-Chile,
calculated using an imputed interest rate of 11.73% commencing
September 1, 1998.

* * * *

F-6
<PAGE> 83

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Leap Wireless International, Inc.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive loss, of cash
flows and of stockholders' equity present fairly, in all material respects, the
financial position of Leap Wireless International, Inc. and its subsidiaries at
August 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended August 31, 1999 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.

As discussed in Note 2 to the consolidated financial statements, the
Company adopted the equity method of accounting for its investment in Chase
Telecommunications Holdings, Inc. during the year ended August 31, 1999. The
accompanying financial statements have been restated to reflect the adoption of
the equity method retroactive to the initial date of the Company's investment in
Chase Telecommunications Holdings, Inc.

PricewaterhouseCoopers LLP

San Diego, California
October 18, 1999

F-7
<PAGE> 84

LEAP WIRELESS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
AUGUST 31,
-----------------------
1999 1998
--------- ----------
(RESTATED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 26,215 $ --
Accounts receivable, net................................ 2,726 --
Inventories............................................. 5,410 --
Recoverable taxes....................................... 3,907 --
Other current assets.................................... 1,926 --
--------- --------
Total current assets............................... 40,184 --
--------- --------
Property and equipment, net............................. 116,947 --
Investments in and loans receivable from unconsolidated
wireless operating companies.......................... 94,429 150,914
Intangible assets, net.................................. 73,944 6,838
Deposits and other assets............................... 9,827 --
--------- --------
Total assets....................................... $ 335,331 $157,752
========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities................ $ 16,372 $ 5,789
Loans payable to banks.................................. 17,225 9,000
--------- --------
Total current liabilities.......................... 33,597 14,789
--------- --------
Long-term debt.......................................... 221,812 --
Other long-term liabilities............................. 8,504 --
--------- --------
Total liabilities.................................. 263,913 14,789
--------- --------
Commitments and contingencies (Note 12)
Minority interest in consolidated subsidiary............ 518 --
--------- --------
Stockholders' equity:
Preferred stock -- authorized 10,000,000 shares $.0001
par value, no shares issued and outstanding........ -- --
Common stock -- authorized 75,000,000 shares; $.0001
par value, 18,370,974 shares issued and
outstanding........................................ 2 --
Additional paid-in capital............................ 291,189 --
Former parent company's investment.................... -- 197,598
Accumulated deficit................................... (216,896) (52,283)
Accumulated other comprehensive loss.................. (3,395) (2,352)
--------- --------
Total stockholders' equity......................... 70,900 142,963
--------- --------
Total liabilities and stockholders' equity......... $ 335,331 $157,752
========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE> 85

LEAP WIRELESS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating revenues.......................... $ 3,907 $ -- $ --
--------- -------- -------
Operating expenses:
Cost of operating revenues.................. (3,810) -- --
Selling, general and administrative
expenses.................................. (28,745) (23,888) (1,361)
Depreciation and amortization............... (5,824) -- --
--------- -------- -------
Total operating expenses.......... (38,379) (23,888) (1,361)
--------- -------- -------
Operating loss............................ (34,472) (23,888) (1,361)
Equity in net loss of unconsolidated
wireless operating companies.............. (100,300) (23,118) (3,793)
Write-down of investments in unconsolidated
wireless operating companies.............. (27,242) -- --
Interest income............................. 2,505 273 --
Interest expense and amortization of
discount and facility fee................. (10,356) -- --
Foreign currency transaction losses......... (7,211) -- --
Gain on sale of wholly owned subsidiary..... 9,097 -- --
Gain on issuance of stock by unconsolidated
wireless operating company................ 3,609 -- --
Other income (expense), net................. (243) -- --
--------- -------- -------
Net loss.................................. (164,613) (46,733) (5,154)
Other comprehensive income (loss):
Foreign currency translation (losses)
gains.................................. (1,043) (2,412) 60
--------- -------- -------
Comprehensive loss........................ $(165,656) $(49,145) $(5,094)
========= ======== =======
Basic and diluted net loss per common share
(Note 2).................................. $ (9.19) $ (2.65) $ (0.29)
========= ======== =======
Shares used to calculate basic and diluted
net loss per common share (Note 2)........ 17,910 17,648 17,648
========= ======== =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE> 86

LEAP WIRELESS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating activities:
Net loss.................................................... $(164,613) $ (46,733) $ (5,154)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 5,824 -- --
Gain on sale of wholly owned subsidiary................. (9,097) -- --
Gain on issuance of stock by unconsolidated wireless
operating company..................................... (3,609) -- --
Equity in net loss of unconsolidated wireless operating
companies............................................. 100,300 23,118 3,793
Write-down of investments in unconsolidated wireless
operating companies................................... 27,242 -- --
Interest accrued to loans receivable and
payable -- net........................................ 8,251 (273) --
Other................................................... (386) -- --
Changes in assets and liabilities, net of effects from
acquisition:
Accounts receivable, net.............................. (1,203) -- --
Inventories........................................... 1,873 -- --
Recoverable taxes..................................... (599) -- --
Deposits and other assets............................. (5,989) -- --
Accounts payable and accrued liabilities.............. 9,671 5,510 168
Other liabilities..................................... (1,770) -- --
--------- --------- --------
Net cash used in operating activities....................... (34,105) (18,378) (1,193)
--------- --------- --------
Investing activities:
Purchase of property and equipment........................ (3,935) -- --
Investments in and loans to unconsolidated wireless
operating companies..................................... (124,471) (133,904) (46,000)
Loan receivable to related party.......................... (17,500) -- --
Repayment of loan receivable from related party........... 17,500 -- --
Acquisitions, net of cash acquired........................ (26,942) (564) --
Purchase of wireless communications licenses.............. (19,009) (6,274) --
Proceeds from sale of wholly owned subsidiary............. 16,024 -- --
--------- --------- --------
Net cash used in investing activities....................... (158,333) (140,742) (46,000)
--------- --------- --------
Financing activities:
Proceeds from loans payable to banks...................... 6,720 9,000 --
Borrowings under credit agreement......................... 128,584 -- --
Repayment of borrowings under credit agreement............ (17,500) -- --
Issuance of common stock.................................. 2,301 -- --
Exercise of subsidiary stock options...................... 1,103 -- --
Former parent company's investment........................ 95,268 150,120 47,193
--------- --------- --------
Net cash provided by financing activities................... 216,476 159,120 47,193
--------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 2,177 -- --
--------- --------- --------
Net increase in cash and cash equivalents................... 26,215 -- --
Cash and cash equivalents at beginning of year.............. -- -- --
--------- --------- --------
Cash and cash equivalents at end of year.................... $ 26,215 $ -- $ --
========= ========= ========
Supplemental disclosure of non-cash investing and financing
activities:
Loans to unconsolidated wireless operating companies
converted to equity investment.......................... $ 50,196 $ -- $ --
Long-term financing to purchase assets.................... $ 8,791 $ -- $ --
Facility fee due on long-term debt........................ $ 5,300 $ -- $ --
Repurchase of warrant..................................... $ 5,355 $ -- $ --
Supplemental disclosure of cash used for acquisitions:
Total purchase value............................... $ 43,699 $ 564 $ --
Note payable issued, net of discount...................... (15,699) -- --
Cash acquired............................................. (1,058) -- --
--------- --------- --------
Cash used for acquisitions................................ $ 26,942 $ 564 $ --
========= ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE> 87

LEAP WIRELESS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ACCUMULATED
FORMER OTHER
COMMON STOCK ADDITIONAL PARENT COMPREHENSIVE
-------------------- PAID-IN COMPANY'S ACCUMULATED INCOME
SHARES AMOUNT CAPITAL INVESTMENT DEFICIT (LOSS) TOTAL
----------- ------ ---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1996...... -- $-- $ -- $ 285 $ (396) $ -- $ (111)
Transfers from former
parent...................... -- -- -- 47,193 -- -- 47,193
Net loss (restated)........... -- -- -- -- (5,154) -- (5,154)
Foreign currency translation
adjustment.................. -- -- -- -- -- 60 60
----------- -- -------- --------- --------- ------- ---------
Balance at August 31, 1997...... -- -- -- 47,478 (5,550) 60 41,988
Transfers from former
parent...................... -- -- -- 150,120 -- -- 150,120
Net loss (restated)........... -- -- -- -- (46,733) -- (46,733)
Foreign currency translation
adjustment.................. -- -- -- -- -- (2,412) (2,412)
----------- -- -------- --------- --------- ------- ---------
Balance at August 31, 1998...... -- -- -- 197,598 (52,283) (2,352) 142,963
Transfers from former
parent...................... -- -- -- 95,268 -- -- 95,268
Distribution by former
parent...................... 17,647,685 2 292,864 (292,866) -- -- --
Repurchase of warrant......... -- -- (5,355) -- -- -- (5,355)
Issuance of common stock...... 723,289 -- 2,356 -- -- -- 2,356
Effect of subsidiary and
unconsolidated wireless
operating company equity
transactions................ -- -- 1,324 -- -- -- 1,324
Net loss...................... -- -- -- -- (164,613) -- (164,613)
Foreign currency translation
adjustment.................. -- -- -- -- -- (1,043) (1,043)
----------- -- -------- --------- --------- ------- ---------
Balance at August 31, 1999...... $18,370,974 $2 $291,189 $ -- $(216,896) $(3,395) $ 70,900
=========== == ======== ========= ========= ======= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-11
<PAGE> 88

LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY

The Company and Nature of Business

Leap Wireless International, Inc., a Delaware corporation, and its wholly
owned and majority-owned subsidiaries (the "Company" or "Leap") is a wireless
communications carrier that deploys, owns and operates networks in domestic and
international markets. Through its operating companies, Leap has launched
all-digital wireless networks in the United States, Chile and Mexico. The
Company was incorporated on June 24, 1998 as a wholly owned subsidiary of
QUALCOMM Incorporated ("QUALCOMM"). On September 23, 1998 (the "Distribution
Date"), QUALCOMM distributed all of the outstanding shares of common stock of
the Company to QUALCOMM's stockholders as a taxable dividend (the
"Distribution"). In connection with the Distribution, one share of Company
common stock was issued for every four shares of QUALCOMM common stock
outstanding on September 11, 1998. Following the Distribution, the Company and
QUALCOMM operate as independent companies.

The Distribution

QUALCOMM transferred to the Company its equity interests in the following
domestic and international wireless communications operating companies: Chilesat
Telefonia Personal, S.A., recently renamed Smartcom S.A. ("SMARTCOM"), Pegaso
Telecomunicaciones, S.A. de C.V. ("PEGASO"), Chase Telecommunications Holdings,
Inc. ("Chase"), Metrosvyaz Limited ("Metrosvyaz"), Orrengrove Investments
Limited ("Orrengrove"), OzPhone Pty. Ltd. ("OzPhone"), and certain other
development stage businesses which are today operating under the trade name
"Cricket" (collectively, the "Leap Operating Companies"). Metrosvyaz, Orrengrove
and OzPhone have been subsequently written off, written down or sold. See Notes
3 and 4. QUALCOMM also transferred to the Company cash and its right to receive
payment from working capital and other loans QUALCOMM made to the Leap Operating
Companies, as well as certain miscellaneous assets and liabilities. The
aggregate net tangible book value of the assets transferred by QUALCOMM to the
Company in connection with the Distribution was approximately $236 million. The
consolidated financial statements reflect the Company as if it were a separate
entity for all periods presented.

Additional Capital Needs

The Company experienced net losses for the years ended August 31, 1999,
1998 and 1997 of $164.6 million, $46.7 million and $5.2 million, respectively.
Further, the Leap Operating Companies are in the early stages of developing and
deploying their respective telecommunications systems. Such systems require
significant expenditures, a substantial portion of which is incurred before
corresponding revenues are generated. In addition, the Company and its operating
companies are expected to be highly leveraged which will lead to significant
interest expense and principal repayment obligations. The Company therefore
expects to incur significant expenses in advance of generating revenues and, as
a result, to incur substantial additional losses in the near term. There can be
no assurance that the Company or any of the Leap Operating Companies will
achieve or sustain profitability in the future. Furthermore, there can be no
assurance that the Company will generate
F-12
<PAGE> 89
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

sufficient cash flows to meet its debt obligations or successfully refinance any
of its debt at maturity.

The Company's ability to generate revenues will be dependent on a number of
factors, including the future operations and profitability of its operating
companies. The Leap Operating Companies are expected to incur substantial losses
for the next several years. These operating companies will require substantial
additional financing to build-out and operate their planned networks. If the
Leap Operating Companies do not obtain additional financing in fiscal 2000, Leap
expects that the scope of the planned network build-outs will be reduced. If the
Company is unable to obtain additional working capital or financing, the Company
may have to restrict its activities or sell its interests in one or more
operating companies.

There can be no assurance that any of the Leap Operating Companies or any
other companies in which Leap may acquire an interest will be able to obtain the
additional financing they require, 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 Company expects to obtain much of its required near-term financing
through borrowings under its secured credit facility with QUALCOMM (the "Credit
Agreement"). The Credit Agreement bears interest at a variable rate, exposing
the Company to interest rate risk. The Company expects that it will have
borrowed substantially all of the funds available to it under the Credit
Agreement by the end of calendar year 2000. As one of the conditions to the
Federal Communications Commission's ("FCC") recognition of the Company's
qualification to hold C-Block and F-Block licenses of PCS spectrum, however, the
Company must take steps so that by January 2001, QUALCOMM holds no more than 50%
of the Company's debt obligations. There can be no assurance that additional
sources of debt financing will be available to the Company to finance its
operations after the Credit Agreement has been fully drawn or to comply with the
condition imposed by the FCC regarding the Company's debt to QUALCOMM. If Leap
fails to meet any of the conditions imposed by the FCC or otherwise fails to
maintain its qualification to own C-Block and F-Block licenses, that failure
would have a material adverse effect on Leap's financial condition and business
prospects.

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, some of which are subject to rapid fluctuations
in currency exchange rates, consumer prices, inflation, employment levels and
gross domestic product. As a result, the Company and the Leap Operating
Companies are exposed to market risk from these changes, and are subject to
other economic and political risks, which could impact their results of
operations and financial condition.

F-13
<PAGE> 90
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Leap and its
wholly owned and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in the consolidated financial
statements. Investments in entities, which Leap exercises significant influence,
but does not control, are accounted for using the equity method. In fiscal 1999,
to accommodate the different fiscal periods of the Company and its foreign
operating companies, the Company extended the lag for recognition of its share
of net earnings or losses of such foreign companies from one month to two
months. The effect of this change on previously reported amounts was not
significant.

For the fourth quarter of fiscal 1999, the financial statements of SMARTCOM
are included in the consolidated financial statements of the Company as a result
of the Company's acquisition of the remaining 50% of SMARTCOM that it did not
already own. The accounts of SMARTCOM have been consolidated using a two-month
lag.

Financial Statement Preparation

The consolidated financial statements are prepared using generally accepted
accounting principles. These principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates. Certain
prior period amounts have been reclassified to conform to the current period
presentation.

Restatement

The Company adopted the equity method of accounting for its investment in
Chase in the third quarter of fiscal 1999. Prior to that time, Leap accounted
for its investment in Chase under the cost method. Accordingly, all prior
periods presented in these financial statements have been adjusted retroactively
in accordance with generally accepted accounting principles.

Issuance of Stock by Subsidiaries and Equity Investees

The Company recognizes gains and losses on issuance of stock by
subsidiaries and equity investees in its Consolidated Statement of Operations
and Comprehensive Loss, except for those subsidiaries and equity investees that
are in the development stage. For those entities in the development stage, gains
and losses are reflected in "effect of subsidiary and unconsolidated wireless
operating company equity transactions" in the Consolidated Statements of
Stockholders' Equity.

F-14
<PAGE> 91
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Foreign Currency Translation and Transactions

The Company uses the local currency as the functional currency for all of
its international consolidated and unconsolidated operating companies, except
where such operating companies operate in highly inflationary economies. Assets
and liabilities are translated into U.S. Dollars at the exchange rate in effect
at the balance sheet date. Revenues and expense items are translated at the
average rate prevailing during the period. Resulting unrealized gains and losses
are accumulated and reported as other comprehensive income or loss.

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 re-measured 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 re-measurement gains or losses of foreign investees are
recognized in the results of operations.

Mexico ceased to be considered a highly inflationary economy as of January
1, 1999 and, as a result, PEGASO changed its functional currency from the U.S.
Dollar to its local currency on that date.

Cash and cash equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At August 31, 1999, the
Company's cash and cash equivalents consisted of deposits with banks and
investments in money market accounts and mutual funds. The Company has not
experienced any losses on its deposits of cash and cash equivalents.

Fair Value of Financial instruments

The carrying amounts of certain of the Company's financial instruments,
including cash equivalents, accounts receivable, recoverable taxes and accounts
payable approximate fair value due to their short-term maturities. Loans payable
to banks and other long-term debts approximate fair value due to their risk
adjusted market rates of interest.

Accounts Receivable

The Company's trade accounts receivable are derived from revenue earned
from customers located in Chile and are denominated in Chilean pesos. The
Company records an allowance for uncollectable accounts receivable with respect
to those amounts estimated not to be recoverable.

F-15
<PAGE> 92
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Inventories

Inventories consist of handsets and accessories not yet placed into service
and are stated at the lower of cost or market. The Company uses the first-in,
first-out method of determining inventory cost.

Recoverable Taxes

Recoverable taxes relate to value added taxes (VAT) incurred on the supply
of goods and services which, are eventually borne by the final consumer. VAT
payments made by the Company on the build-out of its wireless communications
networks are recovered in cash from customers as services are provided.

Investments in Unconsolidated Wireless Operating Companies

The Company uses the equity method to account for investments in corporate
entities in which it exercises significant influence, but does not control.
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. 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. For those unconsolidated subsidiaries where the Company is the
only contributor of assets, equity in net losses of wireless operating companies
includes 100% of the losses of the equity investee.

Property and equipment

Property and equipment are recorded at cost. Constructed assets are
recorded at cost plus capitalized interest and direct costs incurred during the
construction phase. Depreciation is applied using the straight-line method over
the estimated useful lives of the assets, ranging from two to ten years, once
the assets are placed in service. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the remaining term of the related
lease. Repairs and maintenance costs are expensed as incurred.

Intangible Assets

Intangible assets, primarily telecommunications licenses and rights to
telecommunications network systems, are recorded at cost and amortized over
their estimated useful lives upon commencement of commercial service, which
currently range from ten to twenty-eight years.

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

F-16
<PAGE> 93
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

an asset may not be recoverable. An impairment loss is 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.

Debt Discount and Facility Fees

Debt discount and facility fees are amortized and recognized as interest
expense under the interest method.

Revenue recognition

Operating revenues are recognized as telecommunications services are
rendered and as handsets and other products are delivered to customers.

Stock-based Compensation

The Company measures compensation expense for its employee and outside
directors stock-based compensation using the intrinsic value method.
Compensation charges related to non-employee stock-based compensation are
measured using the fair value method.

Income Taxes

Current income tax benefit (expense) is the amount expected to be
receivable (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.

Reporting Comprehensive Income (Loss)

Effective September 1, 1998, the Company adopted the provisions of
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." This statement
requires the Company to report in its financial statements, in addition to net
income (loss), comprehensive income (loss) and its components, including foreign
currency translation gains (losses). Prior period financial statements have been
adjusted to conform to the requirements of SFAS No. 130.

Basic and Diluted Net Loss Per Common Share

Basic and diluted net loss per common share for the years ended August 31,
1999, 1998 and 1997 was calculated by dividing the net loss for each of the
periods by the weighted average number of common shares outstanding for each of
the periods of 17,910,440, 17,647,685 and 17,647,685, respectively. The weighted
average number of

F-17
<PAGE> 94
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

common shares outstanding assumes that the 17,647,685 shares issued at
Distribution were outstanding for the periods prior to Distribution. Stock
options for 5,939,715 common shares, the conversion of QUALCOMM's Trust
Convertible Preferred Securities which are convertible into 2,270,573 shares of
the Company's common stock, and the exercise of a warrant issued to QUALCOMM for
4,500,000 shares of the Company's common stock have not been considered in
calculating basic and diluted net loss per common share because their effect
would be anti-dilutive. As a result, the Company's basic and diluted net loss
per common share are the same.

Segment Reporting

Effective September 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 adopts
the management approach which designates internal reporting used by management
for making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption of
SFAS No. 131 did not affect results of operations or the financial position of
the Company but did affect the disclosure of segment information.

Future Accounting Requirements

In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-Up
Activities", which the Company will be required to adopt for fiscal year 2000.
This SOP provided guidance on the financial reporting of start-up and
organizational costs. It requires start-up and organizational costs to be
expensed as incurred. The Company does not expect that the adoption of SOP No.
98-5 will have a material impact on its consolidated financial position or
results of operations.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which the Company will be required to adopt
for fiscal year 2001. This statement establishes a new model for accounting for
derivatives and hedging activities. Under SFAS No. 133, all derivatives must be
recognized as assets and liabilities and measured at fair value. The Company
does not expect that the adoption of SFAS No. 133 will have a material impact on
its consolidated financial position or results of operations.

NOTE 3. ACQUISITIONS AND DISPOSALS

SMARTCOM

In April 1999, Leap acquired the remaining 50% of SMARTCOM that it did not
already own from Telex-Chile S.A. and its operating affiliate, Chilesat S.A.
(collectively "Telex-Chile"). In exchange, the Company paid $28 million in cash
and issued a $22 million, non-interest-bearing note payable to Telex-Chile due
in May 2002. The present value of the $22 million non-interest-bearing note
payable to Telex-Chile was $15.7 million upon issuance. Therefore, the total
purchase price was $43.7 million. The

F-18
<PAGE> 95
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company accounted for the transaction as a purchase and allocated the $40.8
million excess investment over the fair value of the net assets acquired to
intangible assets, which include telecommunications licenses and rights to
telecommunications network systems.

The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition had taken place on September 1,
1997 (in thousands, except per share data):

<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
Revenues................................................ $ 7,577 $ --
========= ========
Net loss................................................ $(184,782) $(55,435)
========= ========
Pro forma basic and diluted net loss per common share... $ (10.32) $ (3.14)
========= ========
</TABLE>

These unaudited pro forma amounts are for comparative purposes only and do
not necessarily represent what actual results of operations would have been had
the acquisition occurred on September 1, 1997, nor do they necessarily indicate
results of future operations.

Licenses

In September 1998, the Company agreed to purchase four wireless
communications licenses from AirGate Wireless, L.L.C. ("AirGate") for $19.5
million, paying a deposit of $0.6 million.

In July 1999, the FCC issued a Memorandum Opinion and Order that found the
Company was qualified to hold C-Block and F-Block PCS licenses in the United
States. The order also approved the Company's $18.7 million cash acquisition of
36 wireless communications licenses in the U.S. government's April 1999
reauction of PCS spectrum and approved the transfer of the four licenses from
AirGate to the Company. The FCC order was subject to several conditions,
including the Company taking steps so that by January 2001, QUALCOMM holds no
more than 50% of Leap's outstanding debt obligations.

OzPhone

In June 1998, the Company purchased all the shares of OzPhone, an
Australian company, for $564,000. The entire purchase price was allocated to
goodwill. OzPhone then acquired several wireless communications licenses to
provide mobile and wireless local loop services in Australia. The total cost of
the licenses was $6.3 million. In August 1999, the Company sold all of the
shares of OzPhone for $16.0 million in cash and recorded a gain of $9.1 million.

F-19
<PAGE> 96
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. INVESTMENTS AND LOANS TO WIRELESS OPERATING COMPANIES

The Company has equity interests in companies that directly or indirectly
hold wireless communications licenses. Its participation in each company differs
and, except for SMARTCOM for the fourth quarter of fiscal 1999, the Company does
not have majority interests in such companies. The Company accounts for these
equity interests, except for SMARTCOM, under the equity method. For the fourth
quarter of fiscal 1999, the financial statements of SMARTCOM have been
consolidated. 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 lenders and the other participants, over which the Company has no
control. The Company and its consolidated subsidiaries have investments in
wireless operating companies consisting of the following:

<TABLE>
<CAPTION>
PERCENTAGE OF
OWNERSHIP
AUGUST 31,
-------------
1999 1998
----- ----
<S> <C> <C>
Chase (United States)....................................... 7.2% 7.2%
SMARTCOM (Chile)............................................ 100% 50%
PEGASO (Mexico)............................................. 28.6% 49%
Metrosvyaz (Russia)......................................... 50% 50%
Orrengrove (Russia)......................................... 50% 50%
</TABLE>

Condensed combined financial information for the Leap Operating Companies
accounted for under the equity method is summarized as follows (in thousands):

<TABLE>
<CAPTION>
AUGUST 31,
---------------------
1999 1998
--------- ---------
(RESTATED)
<S> <C> <C>
Current assets........................................... $ 140,899 $ 82,575
Non-current assets....................................... 576,765 263,543
Current liabilities...................................... (112,539) (99,134)
Non-current liabilities.................................. (347,590) (178,491)
--------- ---------
Total stockholders' capital.................... 257,535 68,493
Other stockholders' share of capital..................... 146,059 (9,208)
--------- ---------
Company's share of capital............................... 111,476 77,701
Excess cost of investment................................ -- 20,018
Lag period loans and advances............................ 10,195 53,195
Write-down in investments................................ (27,242) --
--------- ---------
Investments in and loans receivable from unconsolidated
wireless operating companies........................ $ 94,429 $ 150,914
========= =========
</TABLE>

F-20
<PAGE> 97
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------
1999 1998 1997
--------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating revenues.............................. $ 8,233 $ 22 $ --
--------- -------- --------
Operating expenses.............................. (153,062) (20,739) (5,234)
Other income (expense), net..................... (22,471) (18,403) (18,108)
Foreign currency transaction loss............... (1,532) (3,970) --
--------- -------- --------
Net loss...................................... (168,832) (43,090) (23,342)
Other stockholders' share of net loss........... (62,491) (19,402) (19,549)
--------- -------- --------
Company's share of net loss..................... (106,341) (23,688) (3,793)
Amortization of excess cost of investment....... (630) -- --
Elimination of intercompany transactions........ 6,671 570 --
--------- -------- --------
Equity in net loss of unconsolidated wireless
operating companies........................ $(100,300) $(23,118) $ (3,793)
========= ======== ========
</TABLE>

Chase

In December 1996, the Company purchased $4.0 million of Class B Common
Stock of Chase, representing 7.2% of the outstanding capital stock of Chase. The
Company has also provided a working capital facility to Chase and has agreed in
principle to increase the maximum principal that may be drawn to $45.0 million.
Borrowings under the facility are subject to interest at an annual rate of prime
plus 4.5%. Semi-annual principal payments are to be made ratably over a six-year
period commencing June 2000, with accrued interest payable on maturity.
Borrowings are collateralized by substantially all of the assets of Chase and
are subordinated to Chase's equipment vendor loans from QUALCOMM. At August 31,
1999, borrowings under the facility totaled $36.1 million, including $3.3
million of accrued and capitalized interest. However, because the working
capital facility is the only source of working capital for Chase, the carrying
value of its investment and the loans under the facility have been reduced to
zero as Leap has recognized 100% of the net losses of Chase to the extent of its
investment and loans. The Company recorded equity losses from Chase of $20.9
million, $11.8 million and $4.0 million during fiscal 1999, 1998 and 1997,
respectively.

In December 1998, the Company agreed to purchase substantially all the
assets of Chase for: $6.3 million; the assumption of certain liabilities of
Chase (totaling approximately $93.7 million at August 31, 1999); a warrant to
purchase 1% of the common stock of Cricket Communications, Inc., recently
renamed Cricket Communications Holdings, Inc. ("Cricket Communications
Holdings"), a majority-owned subsidiary of the Company, exercisable at $1.0
million; the Company's existing stock ownership and warrants to purchase stock
in Chase; and certain contingent earn-outs. This acquisition involves the
transfer of wireless communications licenses, which is subject to approval by
the FCC. The acquisition will not occur unless the FCC approves the transfer of
the licenses.

F-21
<PAGE> 98
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SMARTCOM

In April 1999, Leap acquired the remaining 50% of SMARTCOM that it did not
already own. As a result of the reporting lag, the Company began fully
consolidating SMARTCOM's results of operations commencing June 1, 1999. Prior to
this time, the Company accounted for its investment in SMARTCOM under the equity
method of accounting. The Company recorded equity (income) losses from SMARTCOM
of $13.1 million, $3.1 million and $(0.2) million during fiscal 1999, 1998 and
1997, respectively.

PEGASO

The Company has a 28.6% interest in PEGASO, a Mexican corporation. During
fiscal 1998, the Company advanced a portion of PEGASO's working capital
requirements and provided a loan of $27.4 million to PEGASO. The purpose of the
loan was to fund a portion of PEGASO's first PCS license payment. Interest on
the loan accrued at a rate of 10% and was added to the principal amount of the
loan outstanding. In September 1998, the Company provided $60.7 million of
additional funding and converted its advances and loan, with accrued interest,
into capital stock of PEGASO. The Company's total investment in PEGASO after
these transactions was $100.0 million. On the same date, other investors also
subscribed for and purchased capital stock of PEGASO such that, after these
transactions, the total par value of the common equity of PEGASO was $300
million. As a result, the Company's ownership interest in PEGASO was diluted
from 49.0% to 33.3%. In July 1999, several of the other investors subscribed for
and purchased an additional $50.0 million of capital stock of PEGASO. As a
result, the Company's ownership interest was diluted from 33.3% to 28.6%. The
Company recorded equity losses from PEGASO of $23.6 million and $2.1 million
during fiscal 1999 and 1998, respectively. In fiscal 1999, the Company
recognized a gain of $4.4 million on the issuance of stock by PEGASO as
described above. Of this amount, $0.8 million was recognized directly to
additional paid-in capital for the change in interest that occurred during
PEGASO's development stage.

Metrosvyaz

The Company has a 35% interest in Metrosvyaz. The Company agreed to provide
a $72.5 million loan facility to Metrosvyaz to support its business plan and
working capital needs. Metrosvyaz also has a $102.5 million equipment loan
facility from QUALCOMM. The Company has pledged its equity interest in
Metrosvyaz as collateral for amounts owed under QUALCOMM's loan facility to
Metrosvyaz, and has subordinated its $72.5 million loan facility to QUALCOMM's
$102.5 million loan facility. Borrowings under the $72.5 million facility are
subject to interest at 13% and are due in August 2007. Interest is payable
semi-annually beginning August 2000 and, prior to such time, added to the
principal amount outstanding. At August 31, 1999, borrowings under the Company's
loan facility to Metrosvyaz totaled $39.5 million, including $2.7 million of
accrued and capitalized interest and $1.1 million of facility fees.

The Company's investment in Metrosvyaz consists of the outstanding loan
facility, less its share of equity losses. The Company recorded equity losses of
$20.0 million from
F-22
<PAGE> 99
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Metrosvyaz in fiscal 1999. In addition, the Company stopped funding Metrosvyaz
and recorded a write-down of $9.6 million, the Company's remaining investment in
Metrosvyaz, in the fourth quarter. The Company recorded equity losses from
Metrosvyaz of $6.1 million during fiscal 1998.

Orrengrove

The Company has a 35% interest in Orrengrove. In August 1998, Orrengrove
acquired a 60% interest in Transworld Telecommunications, Inc., Transworld
Communications Services, Inc., and Transworld Communications (Bermuda), Ltd.
(collectively, the "Transworld Companies").

The Transworld Companies obtained, through a number of agreements, the
rights to utilize the capacity on certain Russian satellites in order to provide
commercial long-distance voice, video and data services to the Russian
Federation. In April 1999, the Transworld Companies were notified by Mercury
Telesat ("Mercury"), provider of the satellite signal transmission capacity,
that the satellite equipment used to provide their long-distance service had
failed. Mercury's prognosis indicated that the satellite's operational status
will not be restored. The Transworld Companies identified and put into operation
a short-term terrestrial transmission solution by leasing fiber capacity and
began exploring long-term alternatives to the lost satellite transmission
capacity. As a result of these events, Orrengrove recognized an impairment loss
of approximately $16.9 million in the third quarter of fiscal 1999 to write off
certain satellite related assets. This loss is included in the Company's equity
in net loss from unconsolidated wireless operating companies.

After reviewing a series of alternative business plans that did not meet
their minimum financial performance criteria, the directors of the Transworld
Companies voted to liquidate those companies and to distribute the net assets to
their stockholders. As a result, the Company recorded a $17.6 million write-down
in the fourth quarter of fiscal 1999, reducing its investment in Orrengrove to
the liquidation proceeds Leap expects to receive. In addition, the Company
recorded equity losses of $22.6 million from Orrengrove during fiscal 1999,
which included the write-off of the satellite related assets and impairment of
the license.

F-23
<PAGE> 100
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
AUGUST 31,
------------------
1999 1998
-------- ------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable, net:
Trade accounts receivable.................................. $ 2,197
Other accounts receivable................................ 1,112
--------
3,309
Allowance for doubtful accounts.......................... (583)
--------
$ 2,726
========
Property and equipment, net:
Land..................................................... $ 310
Buildings and infrastructure............................. 108,958
Machinery and equipment.................................. 12,897
Other.................................................... 6,819
--------
128,984
Accumulated depreciation and amortization................ (12,037)
--------
$116,947
========
Intangible assets, net:
Telecommunications licenses.............................. $ 58,488 $6,274
Rights to telecommunications network systems............. 16,225 --
Goodwill................................................. -- 564
-------- ------
74,713 6,838
Accumulated amortization................................. (769) --
-------- ------
$ 73,944 $6,838
======== ======
Accounts payable and accrued liabilities:
Trade accounts payable................................... $ 1,523 $ --
Accrued payroll and related benefits..................... 4,597 --
Accrued loss on handset purchase commitment.............. 7,035 --
Other accrued liabilities................................ 3,217 5,789
-------- ------
$ 16,372 $5,789
======== ======
</TABLE>

NOTE 6. LOANS PAYABLE TO BANKS

Between July and November 1998, the Company borrowed $15.7 million under
notes payable to banks in Chile. In February 1999, the Company was granted a
one-year extension for the payment of the loans. The renewed loans of $9.0
million and $6.7 million, along with capitalized interest and fees of $1.5
million at August 31, 1999, bear interest at rates of 8.1% and 8.5% per annum,
respectively, and are due to be repaid in February 2000.

F-24
<PAGE> 101
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7. LONG-TERM DEBT

As of August 31, 1999, long-term debt is summarized as follows (in
thousands):

<TABLE>
<S> <C>
Credit Agreement, net of facility fee....................... $120,161
Deferred Payment Agreement.................................. 85,483
Note payable to Telex-Chile, net of discount (See Note 3)... 16,168
--------
$221,812
========
</TABLE>

Credit Agreement

The Company entered into a secured Credit Agreement with QUALCOMM on
September 23, 1998. The Credit Agreement consists of two sub-facilities. The
working capital sub-facility enables the Company to borrow up to $35.2 million
from QUALCOMM. The proceeds from this sub-facility may be used by the Company
solely to meet the normal working capital and operating expenses of the Company,
including salaries and overhead, but excluding, among other things, strategic
capital investments in wireless operators, substantial acquisitions of capital
equipment, and the acquisition of telecommunications licenses. The investment
capital sub-facility enables the Company to borrow up to $229.8 million from
QUALCOMM. The proceeds from this second sub-facility may be used by the Company
solely to make certain identified investments. Under the terms of the Credit
Agreement, if QUALCOMM assigns 10% or more of the total funding commitments to
other lenders, Leap must pay a commitment fee to the lenders on unused balances.

At August 31, 1999, the Company had borrowed $10.6 million under the
working capital sub-facility, including $5.3 million to pay QUALCOMM a 2%
facility fee which is being amortized over the term of the Credit Agreement
($0.6 million of the facility fee was amortized in 1999). At August 31, 1999,
the Company had borrowed $108.8 million under the investment capital
sub-facility to make further loans to and investments in the Leap Operating
Companies.

Amounts borrowed under the Credit Agreement are due September 23, 2006.
QUALCOMM has a collateral interest in substantially all of the assets of the
Company as long as any amounts are outstanding under the Credit Agreement. The
Credit Agreement requires the Company to meet certain financial and operating
covenants. Amounts borrowed under the Credit Agreement bear interest at either a
prime or LIBOR rate, plus an applicable margin. At August 31, 1999, the weighted
average effective rate of interest was 11.35%. Interest will be payable
quarterly beginning after September 2001 and, prior to such time, accrued
interest will be added to the principal amount outstanding. At August 31, 1999,
$5.5 million of capitalized and accrued interest had been added to the Credit
Agreement.

Deferred Payment Agreement

SMARTCOM and QUALCOMM are parties to a Deferred Payment Agreement related
to SMARTCOM's purchase of equipment, software and services from QUALCOMM. The
assets of SMARTCOM collateralize its obligations under the

F-25
<PAGE> 102
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Deferred Payment Agreement. The Company has also pledged its shares in SMARTCOM
as collateral for the Company's guaranty of SMARTCOM's obligation to QUALCOMM.
The Deferred Payment Agreement requires SMARTCOM to meet certain financial and
operating covenants, including a debt to equity ratio and restrictions on
SMARTCOM's ability to pay dividends and to distribute assets. As a result,
substantially all the net assets are restricted from distribution to Leap.
SMARTCOM was in violation of certain covenants at August 31, 1999, however
QUALCOMM and SMARTCOM amended the Deferred Payment Agreement subsequent to the
end of the fiscal year to revise the covenants that were in default and defer
the dates of repayment of the loan.

Under the terms of the amended agreement, QUALCOMM has agreed to defer
collection of amounts up to a maximum of $84.5 million. The deferred payments
bear interest at either a prime or LIBOR rate, plus an applicable margin. At
August 31, 1999, the weighted average effective rate of interest was 8.2%.
Accrued interest may be added to the outstanding principal amount of the
applicable borrowing until October 2001.

Debt Repayment Schedule

The scheduled principal repayments for long-term debt are as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31:
----------------------
<S> <C>
2000........................................................ $ --
2001........................................................ --
2002........................................................ 44,732
2003........................................................ 3,218
2004........................................................ 8,045
Thereafter.................................................. 176,333
--------
$232,328
Less unamortized discount and facility fee.................. (10,516)
--------
Total............................................. $221,812
========
</TABLE>

NOTE 8. OTHER LONG-TERM LIABILITIES

Other long-term liabilities at August 31, 1999 consist primarily of
deferred Chilean customs duties of $8.5 million. Under Chilean law, the payment
of customs duties levied on property and equipment can be deferred over a period
of up to seven years. The balance at August 31, 1999 represents amounts owing
including accrued interest.

F-26
<PAGE> 103
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. INCOME TAXES

The components of the Company's deferred tax assets (liabilities) are
summarized as follows (in thousands):

<TABLE>
<CAPTION>
AUGUST 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
U.S. deferred tax assets:
Net operating loss carryovers.............................. $ 32,498 $ 8,754
Equity losses in unconsolidated company.................. 16,320 6,417
Deferred charges......................................... 3,502 --
Reserves and allowances.................................. 3,402 2,984
-------- --------
55,722 18,155
Foreign deferred tax assets:
Net operating loss carryovers............................ 8,000 --
Reserves and allowances.................................. 1,259 --
-------- --------
9,259 --
-------- --------
Gross deferred tax assets.................................. 64,981 18,155
Foreign deferred tax liabilities:
Intangible assets........................................ (9,136) --
-------- --------
Net deferred tax asset................................... 55,845 18,155
Valuation allowance...................................... (55,845) (18,155)
-------- --------
$ -- $ --
======== ========
</TABLE>

Management has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.

The net operating losses generated prior to the Distribution were retained
by QUALCOMM. At August 31, 1999 the Company had a federal net operating loss
carryover of approximately $86.0 million which will expire in 2019. In addition,
the Company had foreign net operating losses of approximately $52.5 million
which do not expire. Should a substantial change in the Company's ownership
occur as defined under Internal Revenue Code section 382, there will be an
annual limitation on its utilization of net operating loss carryforwards.

F-27
<PAGE> 104
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the income tax provision (benefit) to the amount
computed by applying the statutory federal income tax rate to income before
income tax provision is summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Amounts computed at statutory federal
rate..................................... $(57,615) $(16,357) $(1,804)
Non-deductible losses of investees......... 16,649 2,150 --
State income tax, net of federal
benefit............................... (5,740) (1,428) (229)
Other.................................... 385 (487) --
Increase in valuation allowance.......... 46,321 16,122 2,033
-------- -------- -------
$ -- $ -- $ --
======== ======== =======
</TABLE>

NOTE 10. STOCKHOLDERS' EQUITY

Stockholder Rights Plan

In September 1998, the Company's Board of Directors adopted a Stockholder
Rights Plan (the "Rights Plan"). Pursuant to the Rights Plan, the Board of
Directors declared a dividend, payable on September 16, 1998, of one preferred
purchase right (a "Right") for each share of common stock, $.0001 par value, of
the Company outstanding at the close of business on September 11, 1998. Similar
Rights will generally be issued in respect to common stock subsequently issued.
Each Right entitles the registered holder to purchase from the Company a one
one-thousandth share of Series A Junior Participating Preferred Stock, $.0001
par value per share, at a purchase price of $90 (subject to adjustment). The
Rights are exercisable only if a person or group (an "Acquiring Person"), other
than QUALCOMM with respect to its exercise of the warrant granted to it in
connection with the Distribution, acquires beneficial ownership of 15% or more
of the Company's outstanding shares of common stock. Upon exercise, holders
other than an Acquiring Person, will have the right (subject to termination) to
receive the Company's common stock or other securities having a market value (as
defined) equal to twice the purchase price of the Right. The Rights, which
expire on September 10, 2008, are redeemable in whole, but not in part, at the
Company's option at any time for a price of $.01 per Right.

In conjunction with the distribution of the Rights, the Company's Board of
Directors designated 75,000 shares of Preferred Stock as Series A Junior
Participating Preferred Stock and reserved such shares for issuance upon
exercise of the Rights. At August 31, 1999, no shares of Preferred Stock were
outstanding.

Warrant

In connection with the Distribution, the Company issued QUALCOMM a warrant
to purchase 5,500,000 shares of the Company's common stock. In March 1999,
QUALCOMM agreed to reduce the number of shares to 4,500,000 for consideration of
$5.4 million, which is the estimated fair value of the warrant repurchase as
determined by an option pricing model. This warrant is currently exercisable and
remains exercisable until September 2008.

F-28
<PAGE> 105
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Trust Convertible Preferred Securities

Under the conversion agreement between the Company and QUALCOMM, Leap has
agreed to issue up to 2,271,060 shares of its common stock upon the conversion
of the Trust Convertible Preferred Securities of a wholly owned statutory
business trust of QUALCOMM. After conversion of the Trust Convertible Preferred
Securities, QUALCOMM will have some of its debt reduced, but Leap will receive
no benefit or other consideration. At August 31, 1999, 487 shares of the
Company's common stock had been issued upon conversion.

NOTE 11. BENEFIT PLANS

Employee Savings and Retirement Plan.

In September 1998, the Company adopted a 401(k) plan that allows eligible
employees to contribute up to 15% of their salary, subject to annual limits. The
Company matches a portion of the employee contributions and may, at its
discretion, make additional contributions based upon earnings. The Company's
contribution expense for fiscal 1999 was $133,000.

Stock Option Plans

In September 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan") that allows the Board of Directors to grant options to selected
employees, directors and consultants to the Company to purchase shares of the
Company's common stock. A total of 8,000,000 shares of common stock were
reserved for issuance under the 1998 Plan. The 1998 Plan provides for the grant
of both incentive and non-qualified stock options. Incentive stock options are
exercisable at a price not less than 100% of the fair market value of the common
stock on the date of grant. Non-qualified stock options are exercisable at a
price not less than 85% of the fair market value of the common stock on the date
of grant. Generally, options vest over a five-year period and are exercisable
for up to ten years from the grant date. The Company also adopted the 1998
Non-Employee Directors Stock Option Plan (the "1998 Non-Employee Directors
Plan"), under which options to purchase common stock are granted to non-employee
directors on an annual basis. A total of 500,000 shares of common stock were
reserved for issuance under the 1998 Non-Employee Directors Plan. The options
are exercisable at a price equal to the fair market value of the common stock on
the date of grant, vest over a five-year period and are exercisable for up to
ten years from the grant date.

F-29
<PAGE> 106
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of stock option transactions for the 1998 Plan and the 1998 Non-
Employee Directors Plan follows (number of shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
OPTIONS WEIGHTED
AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Options authorized.................... 8,500
Options granted at Distribution....... (5,542) 5,542 $ 3.73
Options granted after Distribution.... (1,768) 1,768 10.52
Options cancelled..................... 513 (720) 4.03
Options exercised..................... -- (650) 3.11
------ -----
August 31, 1999....................... 1,703 5,940 $ 5.78
====== =====
</TABLE>

The following table summarizes information about stock options outstanding
under the 1998 Plan and the 1998 Non-Employee Directors Plan at August 31, 1999
(number of shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES (IN YEARS) PRICE OF SHARES PRICE
- --------------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 0.78 to $ 3.63 2,707 6.30 $ 2.75 1,240 $2.46
$ 3.67 to $ 5.04 1,799 7.87 4.45 573 4.31
$ 5.06 to $10.38 650 8.38 5.93 112 5.54
$15.63 to $22.00 784 9.83 19.14 -- --
----- -----
5,940 7.47 $ 5.78 1,925 $3.19
===== =====
</TABLE>

In June 1999, Cricket Communications adopted its own 1999 Stock Option Plan
(the "1999 Cricket Plan") that allows the Cricket Communications Holdings Board
of Directors to grant options to selected employees, directors and consultants
to purchase shares of Cricket Communications Holdings common stock. A total of
7,600,000 shares of Cricket Communications Holdings common stock were reserved
for issuance under the 1999 Cricket Plan. The 1999 Cricket Plan provides for the
grant of both incentive and non-qualified stock options. Incentive stock options
are exercisable at a price not less than 100% of the fair market value of the
Cricket Communications Holdings common stock on the date of grant. Non-qualified
stock options are exercisable at a price not less than 85% of the fair market
value of the Cricket Communications Holdings common stock on the date of grant.
Generally, options vest over a five-year period and are exercisable for up to
ten years from the grant date. In June 1999, a total of 1,205,000 options to
purchase Cricket Communications Holdings common stock were granted to two
directors of the Company, exercisable at $1.00 per share with accelerated
vesting provisions. In July 1999, all of these options vested and were fully
exercised. In addition, 795,000 other options granted in June 1999 were
exercised in July 1999. Cricket Communications Holdings

F-30
<PAGE> 107
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

received promissory notes totaling $0.9 million and cash of $1.1 million in
consideration for the issuance of the shares. Immediately thereafter, the
Company owned 96.2% of the outstanding common stock of Cricket Communications
Holdings. As Cricket Communications Holdings is in the development stage, the
effect of the issuance of the shares of $0.6 million has been recorded to
additional paid-in capital. These transactions in fiscal 1999 have been
reflected in minority interest.

A summary of stock option transactions for the 1999 Cricket Plan follows
(number of shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
OPTIONS WEIGHTED
AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES EXERCISE PRICE
--------- --------- --------------
<S> <C> <C> <C>
Options authorized.................... 7,600
Options granted....................... (3,335) 3,335 $1.16
Options cancelled..................... 2 (2) 1.00
Options exercised..................... -- (2,000) 1.00
------ ------
August 31, 1999....................... 4,267 1,333 $1.41
====== ======
</TABLE>

The following table summarizes information about stock options outstanding
under the 1999 Cricket Plan at August 31, 1999 (number of shares in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OF SHARES (IN YEARS) PRICE OF SHARES PRICE
- --------------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$1.00 851 9.81 $1.00 123 $1.00
$2.00 458 9.87 2.00 -- --
$4.00 24 9.93 4.00 -- --
----- ---
1,333 9.83 $1.40 123 $1.00
===== ===
</TABLE>

Employee Stock Purchase Plan

In September 1998, the Company adopted the 1998 Employee Stock Purchase
Plan (the "1998 ESP Plan") for all eligible employees to purchase shares of
common stock at 85% of the lower of the fair market value of such stock on the
first or the last day of each offering period. A total of 200,000 shares of
common stock were reserved for issuance under the 1998 ESP Plan. Employees may
authorize the Company to withhold up to 15% of their compensation during any
offering period, subject to certain limitations. During fiscal 1999, a total of
63,779 shares were issued under the 1998 ESP Plan at $3.83 per share. At August
31, 1999, 136,221 shares were reserved for future issuance.

F-31
<PAGE> 108
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Executive Retirement Plan

In September 1998, the Company adopted a voluntary retirement plan that
allows eligible executives to defer up to 100% of their income on a pre tax
basis. On a quarterly basis, participants receive up to a 10% match of their
income in the form of the Company's common stock based on the then current
market price, to be issued to the participant upon eligible retirement. The
income deferred and the Company match are unsecured and subject to the claims of
general creditors of the Company. The plan authorizes up to 100,000 shares of
common stock to be allocated to participants. During fiscal 1999, 8,718 shares
were allocated under the plan and the Company's matching contribution amounted
to $86,216. At August 31, 1999, 91,282 shares were reserved for future
allocation.

Accounting for Stock-Based Compensation

Pro forma information regarding net income (loss) and net earnings (loss)
per common share is required by SFAS No. 123, "Accounting for Stock-Based
Compensation". This information is required to be determined as if the Company
had accounted for its stock-based awards to employees and non-employee directors
(including shares issued under stock options and the 1998 ESP Plan, collectively
called "options") granted subsequent to September 30, 1995 under the fair value
method of SFAS No. 123. The fair value of options granted in fiscal 1999
reported below has been estimated at the date of grant using the Black-Scholes
option-pricing model using the following weighted average assumptions:

<TABLE>
<CAPTION>
1998 1999 1998
STOCK OPTION PLAN CRICKET PLAN ESP PLAN
----------------- ------------ --------
<S> <C> <C> <C>
Risk-free interest rate............... 5.0% 5.0% 4.5%
Volatility............................ 50.0% 0.0% 55.0%
Dividend yield........................ 0.0% 0.0% 0.0%
Expected life (years)................. 6.0 6.0 0.5
</TABLE>

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different than those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options. The weighted average estimated grant date fair values of
stock options granted in fiscal 1999 under the 1998 Plan, the 1999 Cricket Plan
and the 1998 ESP Plan were $2.37, $0.12 and $2.37 per share, respectively.

F-32
<PAGE> 109
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the
options is assumed to be amortized to expense over the options' vesting period.
The Company's pro forma information for the year ended August 31, 1999 is as
follows (in thousands, except per share data):

<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net loss....................................... $(164,613) $(171,415)
Basic and diluted net loss per common share.... $ (9.19) $ (9.57)
</TABLE>

The Company did not recognize a tax benefit relating to pro forma
compensation expense under SFAS No. 123 for fiscal 1999 as such benefit did not
meet the "more likely than not" criteria for recognition of deferred tax assets.

NOTE 12. COMMITMENTS AND CONTINGENCIES

In May 1999, PEGASO entered into a $100 million loan agreement. The Company
guaranteed 33% of PEGASO's obligations under this loan agreement in the event of
PEGASO's default.

The Company has entered into non-cancelable operating lease agreements to
lease its facilities, certain equipment and rental of sites for towers and
antennas required for the operation of its mobile PCS telephone system in Chile.
Future minimum rental payments required for all non-cancelable operating leases
at August 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31:
---------------------
<S> <C>
2000........................................................ $ 2,060
2001........................................................ 2,050
2002........................................................ 2,049
2003........................................................ 2,056
2004........................................................ 1,860
Thereafter.................................................. 5,840
-------
Total............................................. $15,915
=======
</TABLE>

Rent expense totaled $1.2 million in fiscal 1999. No rent expense was
incurred by the Company prior to the Distribution.

Various claims arising in the course of business, seeking monetary damages
and other relief, are pending. The amount of the liability, if any, from such
claims cannot be determined with certainty; however, in the opinion of
management, the ultimate liability for such claims will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.

NOTE 13. SEGMENT DATA

The Company's current reportable segments are countries in which it
manages, supports, operates and otherwise participates in wireless
communications business ventures. These reportable segments are evaluated
separately because each geographic region

F-33
<PAGE> 110
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

presents different marketing strategies and operational issues, as well as
distinct economic climates and regulatory constraints. The Company's reportable
segments are comprised of Cricket Communications Holdings and Chase in the
United States, and Leap's operating companies in Mexico and Chile.

The accounting policies of the various segments are the same as those
described in Note 2, "Summary of Significant Accounting Policies". The key
operating performance criteria used by Leap includes revenue growth, operating
income (loss), depreciation and amortization, capital expenditures, and
purchases of wireless licenses. Segment assets exclude corporate assets.
Corporate expenses are comprised primarily of general and administrative
expenses, which are separately managed. The segment results of Chile and Mexico
do not include any corporate allocations of general and administrative expenses
from Leap.

Summary information by segment is as follows (in thousands):

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED AUGUST 31,
---------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
UNITED STATES
Revenues..................................... $ 3,337 $ 22 $ --
Operating loss............................... (22,414) (20,017) (4,959)
Depreciation and amortization................ (2,033) (120) (120)
Capital expenditures......................... (6,177) (12,852) (9,971)
Purchase of wireless licenses................ (18,920) -- --
Total assets............................... 109,437 88,991
CHILE
Revenues..................................... 7,444 -- --
Operating loss............................... (27,479) (4,380) (274)
Depreciation and amortization................ (9,409) (60) --
Capital expenditures......................... (26,666) (85,036) (15,058)
Purchase of wireless licenses................ -- -- --
Total assets............................... 186,645 124,614
MEXICO
Revenues..................................... 1,203 -- --
Operating loss............................... (68,847) (5,350) --
Depreciation and amortization................ (2,320) -- --
Capital expenditures......................... (8,315) (822) --
Purchase of wireless licenses................ (175,864) (57,666) --
Total assets............................... 551,098 71,760
</TABLE>

F-34
<PAGE> 111
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A reconciliation of the Company's segment revenues, operating expenses,
depreciation and amortization and total assets to the corresponding consolidated
amounts is as follows:

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED AUGUST 31,
-----------------------------------------
1999 1998 1997
------------ ----------- ----------
<S> <C> <C> <C>
Segment revenues.............................. $ 11,984 $ 22 $ --
Revenues of unconsolidated wireless operating
companies..................................... (8,190) (22) --
Other unallocable revenues.................... 113 -- --
--------- -------- -------
Consolidated revenues....................... $ 3,907 $ -- $ --
========= ======== =======
Segment operating losses...................... $(118,740) $(29,747) $(5,233)
Operating losses of unconsolidated wireless
operating companies......................... 101,528 15,151 5,233
Corporate and eliminations.................... (17,260) (9,292) (1,361)
--------- -------- -------
Consolidated operating loss................. $ (34,472) $(23,888) $(1,361)
========= ======== =======
Segment depreciation and amortization......... $ (13,762) $ (180) $ (120)
Depreciation and amortization of
unconsolidated wireless operating
companies................................... 8,501 180 120
Corporate depreciation and amortization....... (563) -- --
--------- -------- -------
Consolidated depreciation and
amortization............................. $ (5,824) $ -- $ --
========= ======== =======
Segment total assets.......................... $ 847,180 $285,365
Total assets of unconsolidated wireless
operating companies......................... (639,738) (285,365)
Investments in and loans to unconsolidated
wireless operating companies................ 94,429 150,914
Corporate assets.............................. 33,460 6,838
--------- --------
Consolidated total assets................... $ 335,331 $157,752
========= ========
</TABLE>

Revenues and long-lived assets related to operations in the United States
and other foreign countries are as follows:

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED AUGUST 31,
---------------------------------------
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES:
United States................................ $ -- $ -- $ --
Other foreign countries...................... 3,907 -- --
-------- -------- -------
Total consolidated revenues................ $ 3,907 $ -- $ --
======== ======== =======
LONG-LIVED ASSETS:
United States................................ $ 23,599 $ -- $ --
Other foreign countries...................... 264,369 104,557 42,267
-------- -------- -------
Total consolidated long-lived assets....... $287,968 $104,557 $42,267
======== ======== =======
</TABLE>

F-35
<PAGE> 112
LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14. SUBSEQUENT EVENTS

Infrastructure Agreements

In September 1999, a subsidiary of Leap entered into separate
infrastructure equipment purchase agreements with two major telecommunications
suppliers. Under the agreements, each supplier will sell $330 million in
infrastructure equipment to the subsidiary. In connection with the sales of
infrastructure equipment, the suppliers will provide vendor financing that will
be used for equipment, services and operations needed to deploy the subsidiary's
wireless networks in various markets across the United States. One of the
purchase agreements is subject to the approval of the applicable supplier's
board of directors.

* * * *

F-36
<PAGE> 113

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Smartcom S.A.
(Company in the development stage)

In our opinion, the accompanying balance sheets and the related statements
of income and comprehensive income, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Smartcom S.A., formerly named Chilesat Telefonia Personal S.A.,
(Company in the development stage) at December 31, 1998 and 1997, and the
results of its operations and cash flows for year ended December 31, 1998, for
the period from inception (March 3, 1997) to December 31, 1997, and for the
period from inception (March 3, 1997) to December 31, 1998, 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 audits. We conducted our audits 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 audits provide a
reasonable basis for the opinion expressed above.

At December 31, 1998, the Company had negative working capital of US$49.7
million. At that date, US$36.6 million of the current liabilities relate to debt
payable to related parties who have the option to convert such debt into shares
should Smartcom S.A. be unable to meet its obligations. As a result of its
negative working capital, the Company had not complied with certain financial
conditions of the credit agreement described in Note 8. As described in Note 14,
the Company has entered into a Second Amended and Restated Deferred Payment
Agreement which substantially revised the Deferred Payment Agreement covenants,
including covenants that were in default, and deferred the dates of repayment of
the loan, subject to certain conditions.

Price Waterhouse
Santiago, Chile,
February 25, 1999 except as to Note 14(b) which is as of March 16, 1999; Note
14(c) which is as of April 19, 1999; and Note 14(d) which is as of October 12,
1999.

F-37
<PAGE> 114

SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

BALANCE SHEET
EXPRESSED IN THOUSANDS OF US DOLLARS

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, ------------------
1999 1998 1997
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 1,058 $ 942 $24,875
Accounts receivable -- trade.............................. 1,404 1,017 --
Accounts receivable from related company.................. -- -- 10
Other accounts receivable................................. 119 134 133
Recoverable taxes......................................... 3,308 6,480 6,228
Inventories............................................... 1,421 4,419 --
Other current assets...................................... 1,348 779 695
-------- -------- -------
Total current assets.............................. 8,658 13,771 31,941
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 123,061 124,800 40,093
OTHER ASSETS................................................ 641 712 4
-------- -------- -------
Total assets...................................... $132,360 $139,283 $72,038
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Interest payable.......................................... $ 6,962 $ -- $ --
Interest payable to related companies..................... 2,603 6,957 543
Accounts and note payable................................. 27,033 1,804 380
Accounts and notes payable to related companies........... 37,167 52,572 247
Accrued liabilities and withholdings...................... 911 2,160 960
-------- -------- -------
Total current liabilities......................... 74,676 63,493 2,130
-------- -------- -------
LONG-TERM LIABILITIES
Note payable.............................................. 43,326 -- --
Note payable to related company........................... -- 49,807 23,655
Other long-term liabilities............................... 8,491 8,496 4,579
-------- -------- -------
Total long-term liabilities....................... 51,817 58,303 28,234
-------- -------- -------
COMMITMENTS AND CONTINGENCIES............................... -- -- --
SHAREHOLDERS' EQUITY
Preferred stock (8,400,000 shares authorized, issued and
outstanding, with no par value; liquidation preference
up to stated value).................................... 42,000 42,000 42,000
Common stock (8,400,000 shares authorized, issued and
outstanding, with no par value)........................ 1,964 1,964 1,964
Other capital contributions............................... 940 493 --
(Deficit) surplus accumulated during the development
stage.................................................. (33,601) (21,943) 55
Accumulated other comprehensive losses.................... (5,436) (5,027) (2,345)
-------- -------- -------
Total shareholders' equity........................ 5,867 17,487 41,674
-------- -------- -------
Total liabilities and shareholders' equity........ $132,360 $139,283 $72,038
======== ======== =======
</TABLE>

The accompanying Notes 1 to 14 form an integral part of these financial
statements.

F-38
<PAGE> 115

SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

STATEMENT OF INCOME AND COMPREHENSIVE INCOME
EXPRESSED IN THOUSANDS OF US DOLLARS

<TABLE>
<CAPTION>
FOR THE THREE MONTH FOR THE PERIOD FROM THE PERIOD FROM
PERIOD ENDED FOR THE FROM INCEPTION INCEPTION (MARCH 3, 1997) TO
--------------------- YEAR ENDED (MARCH 3, 1997) ----------------------------
MARCH 31, MARCH 31, DECEMBER 31, TO DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1998 1997 1999 1998
--------- --------- ------------ --------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Sales....................... $ 2,386 $ -- $ 1,284 $ -- $ 3,670 $ 1,284
Cost of sales............... (1,273) -- (1,570) -- (2,843) (1,570)
-------- ------- -------- ------- -------- --------
Gross margin............. 1,113 -- (286) -- 827 (286)
Remunerations and other
staff costs.............. (1,408) (735) (3,916) -- (5,324) (3,916)
Sales commissions........... (600) -- (882) -- (1,482) (882)
Marketing expenses.......... (196) (352) (3,619) -- (3,815) (3,619)
General and administrative
expenses.................... (1,204) (81) (2,736) (659) (4,599) (3,395)
Depreciation and
amortization............. (4,148) (14) (3,743) (4) (7,895) (3,747)
-------- ------- -------- ------- -------- --------
Net operating loss....... (6,443) (1,182) (15,182) (663) (22,288) (15,845)
-------- ------- -------- ------- -------- --------
NON-OPERATING RESULTS
Interest income............. 46 623 1,058 2,022 3,126 3,080
Interest expense............ (2,702) (7) (3,295) -- (5,997) (3,295)
Currency exchange losses.... (2,649) (1,242) (4,186) (1,280) (8,115) (5,466)
Other income (expenses)..... 90 (4) (393) (24) (327) (417)
-------- ------- -------- ------- -------- --------
Non-operating (loss)
income................. (5,215) (630) (6,816) 718 (11,313) (6,098)
-------- ------- -------- ------- -------- --------
Net (loss) income........ (11,658) (1,812) (21,998) 55 (33,601) (21,943)
OTHER COMPREHENSIVE INCOME
Currency translation
adjustment............... (409) (1,390) (2,682) (2,345) (5,436) (5,027)
-------- ------- -------- ------- -------- --------
Comprehensive loss.......... $(12,067) $(3,202) $(24,680) $(2,290) $(39,037) $(26,970)
======== ======= ======== ======= ======== ========
</TABLE>

The accompanying Notes 1 to 14 form an integral part of these financial
statements.

F-39
<PAGE> 116

SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

STATEMENT OF CASH FLOWS
EXPRESSED IN THOUSANDS OF US DOLLARS

<TABLE>
<CAPTION>
FOR THE THREE MONTH FOR THE PERIOD FROM THE PERIOD FROM
PERIOD ENDED FOR THE FROM INCEPTION INCEPTION (MARCH 3, 1997) TO
---------------------- YEAR ENDED (MARCH 3, 1997) -----------------------------
MARCH 31, MARCH 31, DECEMBER 31, TO DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1998 1997 1999 1998
--------- --------- ------------ --------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING
ACTIVITIES
Net (loss) income.............. $(11,658) $ (1,812) $(21,998) $ 55 $(33,601) $(21,943)
Adjustments to reconcile to
net cash used in operating
activities:
Depreciation and
amortization............. 4,148 14 3,743 4 7,895 3,747
Use of the network and
signal distribution
services................. 447 -- 493 -- 940 493
Changes in working capital:
Accounts
receivable -- trade...... (387) (880) (1,017) -- (1,404) (1,017)
Accounts receivable from
related companies........ -- -- 10 (10) -- --
Other accounts
receivable............... 15 -- (1) (133) (119) (134)
Recoverable taxes.......... 3,172 1,520 (252) (6,171) (3,251) (6,423)
Inventories................ 3,161 -- -- -- 3,161 --
Other current assets....... (569) (5,269) (118) (695) (1,382) (813)
Accounts and note
payable.................. 3,403 494 1,424 380 5,207 1,804
Accrued interest and
accounts payable to
related
companies................ 972 -- 7,168 511 8,651 7,679
Accrued liabilities and
withholdings............. (1,249) (890) 1,200 957 908 2,157
-------- -------- -------- -------- -------- --------
Cash flow used in
operating
activities............ 1,455 (6,823) (9,348) (5,102) (12,995) (14,450)
-------- -------- -------- -------- -------- --------
CASH FLOW FROM INVESTING
ACTIVITIES
Acquisitions of property,
plant and equipment........ (4,033) (22,349) (37,766) (14,383) (56,182) (52,149)
Other........................ 71 4 (708) (4) (641) (712)
-------- -------- -------- -------- -------- --------
Cash flow used in
investing
activities............ (3,962) (22,345) (38,474) (14,387) (56,823) (52,861)
-------- -------- -------- -------- -------- --------
CASH FLOW FROM FINANCING
ACTIVITIES
Notes payable to related
companies.................. -- 13,207 20,271 -- 20,271 20,271
Capital increase............. -- -- -- 42,000 42,000 42,000
Other long-term
liabilities................ -- 1,377 3,917 4,579 8,496 8,496
-------- -------- -------- -------- -------- --------
Cash flow provided by
financing
activities............ -- 14,584 24,188 46,579 70,767 70,767
-------- -------- -------- -------- -------- --------
Net (decrease) increase in
cash......................... (2,507) (14,584) (23,634) 27,090 949 3,456
Effect of exchange rate changes
on cash...................... 2,623 (52) (299) (2,215) 109 (2,514)
-------- -------- -------- -------- -------- --------
(Decrease) increase in cash and
cash equivalents............. 116 (14,636) (23,933) 24,875 1,058 942
Cash and cash equivalents at
the beginning of the
period....................... 942 24,875 24,875 -- -- --
-------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD........ $ 1,058 $ 10,239 $ 942 $ 24,875 $ 1,058 $ 942
======== ======== ======== ======== ======== ========
</TABLE>

The accompanying Notes 1 to 14 form an integral part of these financial
statements.

F-40
<PAGE> 117

SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

STATEMENT OF CASH FLOWS
EXPRESSED IN THOUSANDS OF US DOLLARS

SUPPLEMENTAL CASH FLOW INFORMATION

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES

The following non-cash transactions occurred during the periods presented:

<TABLE>
<CAPTION>
FOR THE PERIOD FROM THE PERIOD FROM
FOR THE THREE MONTH FOR THE FROM INCEPTION INCEPTION (MARCH 3, 1997) TO
PERIOD ENDED YEAR ENDED (MARCH 3, 1997) -----------------------------
MARCH 31, DECEMBER 31, TO DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1997 1999 1998
------------------- ------------ --------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Long-term financing received
from related company to
purchase fixed assets and
inventories................. $ -- $ 14,745 $ 23,655 $ 38,400 $ 38,400
Short-term financing received
from related company to
purchase fixed assets and
inventories................... -- 42,707 -- 42,707 42,707
Long-term financing to
purchase fixed assets and
inventories................. 1,578 -- -- 1,578 --
Purchase of fixed assets from
party providing financing... (1,415) (53,067) (23,655) (78,137) (76,722)
Purchase of inventories from
party providing financing... (163) (4,385) -- (4,548) (4,385)
------- -------- -------- -------- --------
$ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ========
</TABLE>

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 1 to 14 form an integral part of these financial
statements.

F-41
<PAGE> 118

SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

STATEMENT OF SHAREHOLDERS' EQUITY
EXPRESSED IN THOUSANDS OF US DOLLARS

<TABLE>
<CAPTION>
(DEFICIT)
SURPLUS
ACCUMULATED ACCUMULATED
NUMBER OF NUMBER OF OTHER DURING THE OTHER
PREFERRED COMMON PREFERRED COMMON CAPITAL DEVELOPMENT COMPREHENSIVE
SHARES SHARES STOCK STOCK CONTRIBUTIONS STAGE LOSSES TOTAL
--------- --------- --------- ------ ------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital increase at
inception on March 3,
1997...................... 8,400,000 8,400,000 $ 42,000 $1,964 -- -- -- $ 43,964
Share subscriptions
receivable.................. -- -- (42,000) -- -- -- -- (42,000)
Payment of share
subscriptions
receivable................ -- -- 42,000 -- -- -- -- 42,000
Net income for the period... -- -- -- -- -- $ 55 -- 55
Currency translation
adjustment................ -- -- -- -- -- -- $(2,345) (2,345)
--------- --------- -------- ------ ---- -------- ------- --------
Balance at December 31,
1997...................... 8,400,000 8,400,000 $ 42,000 $1,964 -- $ 55 $(2,345) $ 41,674
========= ========= ======== ====== ==== ======== ======= ========
Balance at January 1,
1998...................... 8,400,000 8,400,000 $ 42,000 $1,964 -- $ 55 $(2,345) $ 41,674
Other contributed capital... -- -- -- -- $493 -- -- 493
Net loss for the period..... -- -- -- -- -- (21,998) -- (21,998)
Currency translation
adjustment................ -- -- -- -- -- -- (2,682) (2,682)
--------- --------- -------- ------ ---- -------- ------- --------
Balance at December 31,
1998...................... 8,400,000 8,400,000 $ 42,000 $1,964 $493 $(21,943) $(5,027) $ 17,487
========= ========= ======== ====== ==== ======== ======= ========
Balance at January 1,
1999...................... 8,400,000 8,400,000 $ 42,000 $1,964 $493 $(21,943) $(5,027) $ 17,487
Other contributed capital
(unaudited)............... -- -- -- -- 447 -- -- 447
Net loss for the period
(unaudited)............... -- -- -- -- -- (11,658) -- (11,658)
Currency translation
adjustment (unaudited).... -- -- -- -- -- -- (409) (409)
--------- --------- -------- ------ ---- -------- ------- --------
Balance at March 31, 1999
(unaudited)............... 8,400,00 8,400,000 $ 42,000 $1,964 $940 $(33,601) $(5,436) $ 5,867
========= ========= ======== ====== ==== ======== ======= ========
</TABLE>

The accompanying Notes 1 to 14 form an integral part of these financial
statements.

F-42
<PAGE> 119

SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998

NOTE 1. THE COMPANY

Smartcom S.A., formerly named Chilesat Telefonia Personal S.A., (the
"Company" or "SMARTCOM") is a joint venture created on March 3, 1997 by
Telex-Chile S.A. and its subsidiary Chilesat S.A. (together "Chilesat") and
Inversiones Leap Wireless Chile S.A. ("Inversiones", formerly Inversiones
Qualcomm S.A.) for the purpose of building and operating a mobile PCS telephone
system (personal communication system) in Chile. Inversiones is a wholly-owned
subsidiary of Leap Wireless International, Inc.

Pursuant to the terms of the Subscription and Shareholders' Agreement
("Shareholders' Agreement"), Chilesat and Inversiones 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.

During 1998, an amendment was made to the Shareholders' Agreement and
Qualcomm Incorporated transferred and assigned its interest in Inversiones to
Leap Wireless International, Inc. All terms and conditions of the shareholders
agreement are now binding on Leap Wireless International Inc.

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.

As one of the non-cash assets contributed, Chilesat 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
SMARTCOM, 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 were required to 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 Fourth to Tenth regions and by December 23, 1998 for the
remainder of the country. The Company completed construction of its mobile PCS
telephone system infrastructure by the required dates. The Company 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.

F-43
<PAGE> 120
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

Under the terms of the Shareholders' Agreement, the Company will purchase
from Qualcomm Incorporated all network hardware and software marketed by
Qualcomm Incorporated and at least 50% of all mobile and fixed handsets
purchased by the Company for a period expiring in September 2000. Similarly,
until the later of five years following the formation of the joint venture or
the date on which Inversiones ceases to hold preferred shares representing more
than 24% of the capital stock of the Company, the Shareholders agree to cause
the Company to use only IS95 CDMA technology.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) General

SMARTCOM is a development stage company as defined in accordance with
Statement of Financial Accounting Standards No. 7 due to the fact that the
Company has not yet generated significant revenues from commercial operations.
As indicated in Note 1, the Company has completed the construction of its mobile
PCS telephone system infrastructure and testing of the installations between
Chile's Fourth and Tenth regions with friendly users commenced in July, 1998.
The mobile PCS telephone system began operations in September, 1998. The
infrastructure necessary to cover the remainder of Chile was operational in
December 1998.

The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States ("US GAAP"). The preparation
of financial statements in accordance with US 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 year ended
December 31, 1998 with comparative amounts for the period from the date of
formation of the joint venture on March 3, 1997 through December 31, 1997. The
unaudited financial statements for three months ended March 31, 1999 are
presented.

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 March 31, 1999,
December 31, 1998 and 1997 of Ch$484.08, Ch$472.41 and Ch$439.18 per US$1,
respectively. 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 Accumulated other
comprehensive losses in the Company's equity.

F-44
<PAGE> 121
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(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) Revenue recognition

Revenue has been accrued at year end for the portion of fixed charge
services earned to date. The Company also recognizes revenues for traffic in
excess of the amounts attributable to the fixed charge contracts in the month
such revenues are billed. The effects of the unbilled revenues at period end not
recognized are not significant.

(f) Uncollectable accounts

The Company records an allowance for uncollectable accounts receivable with
respect to those amounts estimated not to be recoverable.

(g) Inventory

Inventory is comprised of handsets and accessories not yet placed into
service which are stated at the lower of historical cost, determined under a
first-in, first-out unit flow assumption, or market.

(h) 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. Depreciation with respect to the infrastructure of the mobile PCS
telephone system was applied beginning in September 1998.

(i) Advertising

It is the Company's policy to record the cost of advertising as it is
incurred. For the year ended December 31, 1998, the Company recorded
US$3,619,000 (US$338,000 in 1997) as advertising expense. For the three months
ended March 31, 1999 (unaudited), the Company recorded US$197,000 as advertising
expense.

F-45
<PAGE> 122
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(j) 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
evidence, it is more likely than not that some portion or all of the deferred
income tax assets will not be realized.

(k) 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.

(l) Network use and signal distribution services

It is the Company's policy to systematically recognize expense for the use
of the network and signal distribution services provided by a related party as
per an independent valuation on a straight-line basis over the remaining life of
the contract as other capital contributions (Note 11c).

(m) 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 are summarized as follows:

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, -------------------
1999 1998 1997
----------- ------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash and bank deposits........................... $ 586 $452 $ 899
Time deposits.................................... -- 490 10,195
Securities purchased under agreements to
resell......................................... -- -- 13,736
Other............................................ 472 -- 45
------ ---- -------
$1,058 $942 $24,875
====== ==== =======
</TABLE>

F-46
<PAGE> 123
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(n) Recent accounting pronouncements

Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting
for Derivative Instruments and Hedging Activities, is effective for fiscal years
beginning after June 15, 1999. This standard establishes accounting and
reporting standards for derivatives instruments, and for hedging activities. It
requires that an entity recognize all derivatives on the balance sheet at fair
value. Generally, changes in the fair value of derivatives must be recognized in
income when they occur, the only exception being derivatives that qualify as
hedges in accordance with the Standards. If a derivative qualifies as a hedge, a
company can elect to use "hedge accounting" to eliminate or reduce the
income-statement volatility that would arise from reporting changes in a
derivative's fair value in income. The type of accounting to be applied varies
depending on the nature of the exposure that is being hedged. In some cases,
income-statement volatility is avoided by an entity's recording changes in the
fair value of the derivative directly in shareholders' equity. In other cases,
changes in the fair value of the derivative continue to be reported in earnings
as they occur, but the impact is counterbalanced by the entity adjusting the
carrying value of the asset or liability that is being hedged. This standard is
not expected to have an effect on the reporting of the Company for the three
months ended March 31, 1999 (unaudited), the year ended December 31, 1998 and
period ended December 31, 1997 as it did not hold derivative instruments during
such periods. The effects of FAS 133 in future periods will depend upon whether
the Company enters into transactions in such periods involving derivative
instruments.

NOTE 3. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

At December 31, 1998 and March 31, 1999 (unaudited), the Company held no
securities purchased under agreements to resell. Securities purchased under
agreements to resell at December 31, 1997 are summarized as follows:

<TABLE>
<CAPTION>
FINANCIAL INSTITUTION UNDERLYING FINANCIAL INSTRUMENT AMOUNT 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, 1998 relate to value added taxes (VAT) of
US$6,480,000 (US$6,228,000 in 1997), incurred on the purchases of property,
plant and equipment required for the Company's mobile PCS telephone system and
goods and

F-47
<PAGE> 124
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

services. Recoverable taxes at March 31, 1999 (unaudited) were US$3,308,000. VAT
relating to the purchases of capital goods may be recovered in cash by the
Company in accordance with Chilean law. Other VAT is recovered by offset against
VAT raised on services rendered.

NOTE 5. INVENTORY

Inventory is summarized as follows:

<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Handsets..................................... $ 749 $3,137
Accessories.................................. 672 1,282
------ ------
$1,421 $4,419
====== ======
</TABLE>

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows:

<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
MARCH 31, -------------------
1999 1998 1997
----------- -------- -------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 332 $ 340 $ 140
Buildings and infrastructure................. 113,849 114,926 39,771
Machinery and equipment...................... 13,033 10,138 88
Other........................................ 3,637 3,100 98
Less: Accumulated depreciation............... (7,790) (3,704) (4)
-------- -------- -------
Total net.......................... $123,061 $124,800 $40,093
======== ======== =======
</TABLE>

Estimated useful lives of assets are:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Machinery and equipment................................ 10
Other.................................................. 5 - 10
</TABLE>

For the year ended December 31, 1998, the Company capitalized US$4,830,000
(US$1,508,000 in 1997) of interest as part of the cost of construction of the
mobile PCS Telephone System. The was no interest capitalized for the three month
period ended March 31, 1999.

F-48
<PAGE> 125
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

NOTE 7. ACCRUED LIABILITIES AND WITHHOLDINGS

Accrued liabilities and withholdings are summarized as follows:

<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31,
MARCH 31, --------------
1999 1998 1997
----------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Construction in progress.......................... $ -- $1,365 $597
Advertising and marketing expenses................ 167 321 278
Employee vacations................................ 152 203 33
Other............................................. 592 271 52
---- ------ ----
Total................................... $911 $2,160 $960
==== ====== ====
</TABLE>

NOTE 8. RELATED COMPANY TRANSACTIONS

a) Balances with related companies and Qualcomm Incorporated

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, -------------------
COMPANY RELATIONSHIP 1999 1998 1997
------- ------------ --------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accounts receivable from related company:
Chilesat Servicios Empresariales S.A......... Affiliate $ -- $ -- $ 10
======== ======== ========
Interest payable to related companies:
Qualcomm Incorporated(1)..................... -- $ -- $ (5,326) $ (543)
Leap Wireless International, Inc............. Affiliate (1,042) (528) --
Inversiones Leap Wireless Chile S.A.......... Shareholder (1,561) (1,103) --
-------- -------- --------
$ (2,603) $ (6,957) $ (543)
======== ======== ========
Accounts and notes payable to related
companies:
Chilesat Servicios Empresariales S.A......... Affiliate (170) $ (134) $ --
Chilesat S.A................................. Shareholder (1,869) (733) (196)
Qualcomm Incorporated(1)..................... -- -- (16,555) --
Leap Wireless International, Inc............. Affiliate (14,745) (14,745) --
Inversiones Leap Wireless Chile S.A.......... Shareholder (20,271) (20,271) --
Telex-Chile S.A.............................. Shareholder (35) (29) (12)
Telsys S.A................................... Affiliate (77) (105) (39)
-------- -------- --------
$(37,167) $(52,572) $ (247)
======== ======== ========
Note payable to related company -- long-term:
Qualcomm Incorporated(1)..................... -- $ -- $(49,807) $(23,655)
=========== ======== ======== ========
</TABLE>

- -------------------------
(1) Qualcomm Incorporated ceased to be an affiliate on September 23, 1998.

F-49
<PAGE> 126
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

b) Related company transactions

<TABLE>
<CAPTION>
FOR THE
THREE MONTH AMOUNT OF
PERIOD ENDED TRANSACTIONS
MARCH 31, -----------------
COMPANY RELATIONSHIP TRANSACTION 1999 1998 1997
------- ------------ ----------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Chilesat Servicios Affiliate Reimbursement of costs $ -- $ -- $ 47
Empresariales S.A. incurred on their
behalf
Reimbursement of costs 42 130 --
incurred in connection
with construction
Chilesat S.A. Shareholder Reimbursement of costs 646 586 589
incurred in connection
with construction
Rental of office space 533 171 30
Leap Wireless Affiliate Financing of purchases -- 14,745 --
International, Inc. from Qualcomm Inc.
Accrued interest on note 514 528 --
payable
Inversiones Leap Shareholder Financing -- 20,271 --
Wireless
Chile S.A. Accrued interest on note 458 1,103 --
payable
Telex-Chile S.A. Shareholder Reimbursement of costs 9 29 49
incurred in connection
with construction
Telsys S.A. Affiliate Computer services 15 965 39
</TABLE>

c) Transactions with Qualcomm Incorporated

<TABLE>
<S> <C> <C> <C> <C> <C>
Qualcomm Incorporated(1) Purchase of equipment $ -- $57,452 $23,655
and inventory
Financing of purchases -- 42,707 23,655
Accrued interest on note -- 4,783 543
payable
</TABLE>

- -------------------------
(1) Qualcomm Incorporated ceased to be an affiliate on September 23, 1998.

d) Notes payable to Qualcomm Incorporated and related companies

As a means of financing the purchase of infrastructure equipment from
Qualcomm Incorporated, the Company entered into a Deferred Payment Agreement
whereby Qualcomm Incorporated defers collection for the equipment subject to the
terms and conditions set forth in the Agreement. The assets of the Company
collateralize the obligation. The shares of the Company have also been pledged
by Telex-Chile and Chilesat in guaranty of the note payable to Qualcomm
Incorporated.

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

F-50
<PAGE> 127
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

US$59.5 million. The original Deferred Payment Agreement was amended on June 24,
1998 to allow for an additional commitment of US$14.7 million of principal as a
means of financing of goods and services relating to the PCS system and US$25.0
million of principal as a means of financing the acquisition of subscriber
equipment. The rest of the terms and conditions outlined in the original
Deferred Payment Agreement remain unchanged. Loans bear interest based either
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.

Principal and interest on the US$14.7 million is due in full on January 31,
1999. In addition, a conversion right, discussed below, was added to the
agreement relating to this amount. This commitment was subsequently transferred
by Qualcomm Incorporated, as allowed by the Deferred Payment Agreement, to Leap
Wireless International, Inc.

In addition, a Working Capital Loan agreement was entered into on June 24,
1998 with Inversiones for US$20.3 million of principal for the purpose of
financing the final phase of construction, working capital requirements and
operating expenses during the start-up and early operation phase of the PCS
system. Principal and accrued interest is due in full on January 31, 1999 (Note
14). Interest rates and other terms and conditions of this agreement match those
of the Deferred Payment Agreement, including the conversion right described
below.

In the event that the Company fails to pay the outstanding principal
balance plus any accrued interest thereon, or Chilesat fails to contribute to
the Company an aggregate amount of not less than fifty percent of the aggregate
outstanding balance of the additional commitment and the Working Capital Loan on
or before January 31, 1999 pursuant to a capital call by the Company, then, at
any time after January 31, 1999 and on or before July 31, 1999, at Leap Wireless
International, Inc.'s sole option in the case of the additional commitment and
Inversiones' sole option in the case of the Working Capital Loan, the
outstanding balance shall be convertible into shares of the Company's common
stock (Note 14). This option expires in the event that the outstanding balance
is paid in full prior to the conversion date.

F-51
<PAGE> 128
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

The notes payable at December 31, 1998 are comprised of LIBOR loans and
bear interest at LIBOR + 3%. The scheduled principal repayments are as follows:

<TABLE>
<CAPTION>
DEFERRED PAYMENT ADDITIONAL WORKING CAPITAL
AGREEMENT COMMITMENT LOAN 1998
---------------- ---------- --------------- --------
<S> <C> <C> <C> <C>
1999......................... $16,555 $14,745 $20,271 $ 51,571
2000......................... 18,361 18,361
2001......................... 16,646 -- -- 16,646
2002......................... 14,199 -- -- 14,199
2003......................... 601 -- -- 601
------- ------- ------- --------
Total...................... $66,362 $14,745 $20,271 $101,378
======= ======= ======= ========
</TABLE>

At March 31, 1999 (unaudited), the scheduled repayments for the deferred
payment agreement increased by US$1,578,000. There was no change in the
additional commitment and working capital loan.

The terms of the financing arrangements with Qualcomm Incorporated,
Inversiones and Leap Wireless International, Inc. 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.

F-52
<PAGE> 129
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(xii) Maintain funded debt to total capitalization greater than 0.65,
0.71 and 0.75 in annual periods 1, 2 and 3 and thereafter, respectively.

(xiii) Permit Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") to be less than US$1.

(xiv) Permit funded debt to EBITDA to exceed 23.91, 4.74, 3.32 and 2.4
in annual periods 2, 3, 4 and 5, respectively.

(xv) Permit EBITDA to interest expense to be less than 0.47, 2.38,
3.00 and 3.00 in annual periods 2, 3, 4 and 5, respectively.

(xvi) Incur capital expenditures greater than US$116 million until the
Company has more than 50,000 subscribers, at which time the threshold
increases.

The Company is not in compliance with some of these covenants (Note
14).

NOTE 9. OTHER LONG-TERM LIABILITIES

This balance is mainly comprised of deferred customs duties of US$8.4
million at December 31, 1998 (US$4.6 million at December 31, 1997).

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, 1998 represents amounts owing at maturity including accrued
interest. The scheduled repayments are as follows:

<TABLE>
<S> <C>
2000........................................................ $1,337
2001........................................................ 1,081
2002........................................................ 1,555
2003........................................................ 1,266
2004 and thereafter......................................... 3,206
------
Total..................................................... 8,445
Other....................................................... 51
------
Total other long-term liabilities......................... $8,496
======
</TABLE>

At March 31, 1999 (unaudited), the deferred customs duties and other
long-term liabilities were US$8,454,000 and US$37,000, respectively.

NOTE 10. INCOME TAXES

The Company has not made a provision for current income taxes payable as it
incurred tax losses for the year ended December 31, 1998.

At December 31, 1998, income tax loss carryforwards of approximately
US$24.3 million (US$5.2 million at December 31, 1997), were available to apply
against

F-53
<PAGE> 130
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

income tax liabilities in future years. Under Chilean law, such income tax loss
carryforwards never expire.

At March 31, 1999 (unaudited), income tax loss carryforwards were
approximately US$35.1 million.

Deferred income taxes are summarized as follows:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
AS OF MARCH 31, ------------------
1999 1998 1997
--------------- -------- ------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Provisions................................... $ 132 $ 71 $ --
Tax loss carryforwards....................... 5,259 3,649 785
Allowance for income tax loss
carryforwards.............................. (5,391) (3,720) (655)
------- ------- -----
Deferred income tax assets................. -- -- 130
------- ------- -----
Liabilities:
Other........................................ -- -- (130)
------- ------- -----
Deferred income tax liabilities............ -- -- (130)
------- ------- -----
Net deferred income taxes.................. $ -- $ -- $ --
======= ======= =====
</TABLE>

Because the Company has only recently begun commercial operations and has
no history of generating taxable income against which tax loss carryforwards
would be applied, an allowance was recorded at December 31, 1998 with respect to
those tax loss carryforwards which, based on the weight of available evidence,
are not likely to be realized.

NOTE 11. 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. Inversiones 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,

F-54
<PAGE> 131
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

1998 and 1997 in its statutory financial statements, it is prohibited from
declaring and paying dividends until such time that it generates sufficient
retained earnings.

Pursuant to the terms of the Shareholders' Agreement, Inversiones 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, the PCS license
and certain net assets. Inversiones 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$1.5 million 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. An independent valuation of the contract
for the right to use a part of Chilesat's network and signal distribution
services was undertaken and the appraised valued is being systematically
recognized as capital contributions on a straight-line basis over the remaining
life of the contract commencing on September 20, 1998, the date operations
began. Other capital contributions in 1998 amounted to US$493,000 (none in
1997).

At the Extraordinary Meeting held on June 24, 1998, the shareholders agreed
to an increase in the Company's capital from Ch$26.638 million (US$56.4 million)
divided into 8,400,000 Series A preferred shares and 8,400,000 Series B common
shares, to Ch$44.498 million (US$94.2 million) divided into 8,400,000 Series A
preferred shares and 16,000,000 Series B common shares, with no par value, which
will be offered to existing shareholders in proportion to their shareholdings,
and which must be totally subscribed and paid within a period of three years
from the date of the meeting.

Should Telex-Chile S.A. and Chilesat S.A. not subscribe their proportion of
the new issue, they will cede their subscription rights to Inversiones.

At their Extraordinary meeting held on December 30, 1998, the shareholders
agreed to increase the company's capital by the equivalent in Chilean pesos of
US$254 million by the issue of 32,987,013 Series B common shares to be
subscribed and paid, within a maximum period of three years, at a price
equivalent to US$7.70 per share on the date of payment. On agreeing to issue the
shares, the Board of Directors must set the price for their subscription and
payment at an amount equivalent to the US$7.70 per share mentioned previously
plus a restatement of 10% per annum, or 5% per quarter, for the period elapsed
between this date and the date of payment. The excess over the US$7.70 per share
is to be credited to the "Share Premium Account".

(d) Call and put options

As part of an amendment to the Shareholders' Agreement, Chilesat and
Inversiones, each have an option to require the issuance by the Company of
shares of common stock at

F-55
<PAGE> 132
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

the Exercise Price to be subscribed by Chilesat and Inversiones in proportion to
their holdings in the capital stock of the Company. This option may be exercised
for common stock with an aggregate value at the Exercise Price of up to US$35
million. The Exercise Price shall be determined as of the exercise date and
shall be the sum of (i) $5.00 per share plus (ii) 10% per annum plus an
increasing premium on the original $5.00 price thereof equal to 5% additional
for each quarter after the calendar quarter ending June 30, 1997. The option
expires upon the exercise of the conversion rights (Note 8c).

If either Chilesat or Inversiones do not subscribe the shares of stock to
which it is entitled as a result of the exercise of the capital call option, it
shall be subject to dilution. Such shares of common stock as are not exercised
by Chilesat or Inversiones shall be subject to subscription at the Exercise
Price by the other party (or such third party investor as a party may propose),
subject to the non-subscribing party's written consent, which may not be
unreasonably withheld and which may not be withheld with the purpose of
preventing the capital increase.

If Chilesat answers such capital call by making a cash capital contribution
to the Company of not less than fifty percent of the balance due on the
convertible loans on or before January 31, 1999, Inversiones will make its
portion of the capital call by converting fifty percent of the balance due on
the convertible loans into capital equity of the Company at the same price as
paid by Chilesat for equity in the capital call.

Inversiones has 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 12. FAIR VALUE

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at December 31, 1998 and 1997, when the
estimate of such value is practicable:

- Cash and cash equivalents, recoverable taxes and accrued liabilities and
withholdings have been stated at carrying value which is equivalent to
fair value.

- The fair values of the note payable to related company and other
long-term liabilities were based on interest rates currently available to
the Company for debt with similar terms and remaining maturities. The
carrying value of the note payable to related company approximates fair
value because the terms of the loan agreement require that the stated
rate of interest be periodically adjusted to the market rate.

F-56
<PAGE> 133
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

The estimated fair value of the Company's financial instruments are
summarized as follows:

<TABLE>
<CAPTION>
AT MARCH 31, 1999 AT DECEMBER 31, 1998 AT DECEMBER 31, 1997
--------------------- --------------------- ---------------------
CARRYING CARRYING CARRYING
AMOUNTS FAIR VALUE AMOUNTS FAIR VALUE AMOUNTS FAIR VALUE
-------- ---------- -------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.... $ 1,058 $ 1,058 $ 942 $ 942 $24,875 $24,875
Recoverable taxes.......... 3,308 3,308 6,480 6,480 6,228 6,228
------- ------- ------- ------- ------- -------
Total................. $ 4,366 $ 4,366 $ 7,422 $ 7,422 $31,103 $31,103
======= ======= ======= ======= ======= =======
Liabilities:
Accrued liabilities and
withholdings............. $ 911 $ 911 $ 2,160 $ 2,160 $ 960 $ 960
Note payable............... 43,326 43,326 -- -- -- --
Note payable to related
company.................. -- -- 49,807 49,807 23,655 23,655
Other long-term
liabilities.............. 8,491 6,121 8,496 6,013 4,579 3,117
------- ------- ------- ------- ------- -------
Total................. $52,728 $50,358 $60,463 $57,980 $29,194 $27,732
======= ======= ======= ======= ======= =======
</TABLE>

NOTE 13. COMMITMENTS AND CONTINGENCIES

(a) Operating leases

At December 31, 1998, 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, 1998:

<TABLE>
<S> <C>
1999................................................... $1,068
2000................................................... 1,066
2001................................................... 1,082
2002................................................... 1,063
2003................................................... 1,040
2004 to 2008........................................... 3,457
2009................................................... 526
------
Total................................................ $9,302
======
</TABLE>

Rental expense for the year ended December 31, 1998 was US$602,000
(US$91,000 in 1997). Rental expense for the three months ended March 31, 1999
(unaudited) was US$267,000.

F-57
<PAGE> 134
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

(b) Security for debt

The Company has pledged it PCS license as security against the notes
payable to Qualcomm Incorporated.

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.

NOTE 14. SUBSEQUENT EVENTS

(a) On February 15, 1999, Inversiones communicated to the Company that it
had incurred an Event of Default as a result of its failure to repay a US$20.3
million short-term Working Capital Loan plus interest accrued thereon granted on
June 24, 1998 (Note 8) and noncompliance with certain loan covenants. At the
time of granting the loan, Inversiones subscribed to a capital increase and
reserved its right to capitalize the loan, an option that, in addition to other
potential actions to obtain repayment, is still open.

Similarly, on February 15, 1999, Leap Wireless International, Inc. informed
both the Company and Telex-Chile S.A. that the former has incurred an Event of
Default with respect to the Deferred Payment Agreement, as a result of which the
amount of US$14.7 million plus interest accrued thereon is due and payable.
Telex-Chile S.A. is guarantor of 50% of this amount. As in the previous case,
the creditor has an option to capitalize this debt or to pursue payment through
other means.

(b) Subsequently on March 2, 1999, Leap Wireless International, Inc. and
Inversiones indicated their withdrawal of the above-mentioned communications
reserving the right to notify the defaults again in the future. On March 16,
1999, Leap Wireless International, Inc. and Inversiones communicated defaults on
the short-term Working Capital Loan of US$20.3 million plus interest accrued
thereon and the Deferred Payment Agreement of US$14.7 million plus interest
accrued thereon on the same terms as expressed above.

(c) On April 12, 1999, an agreement was entered into between the
shareholders whereby Chilesat sold its ownership interest in the Company to
Inversiones for US$28 million in cash and US$22 million, three year,
non-interest bearing debt. On April 19, 1999, the Company agreed to pay
Inversiones' obligation to Chilesat S.A. and, in return, the Company was
relieved of the obligation to pay certain amounts to Inversiones.

(d) On October 12, 1999, the Company entered into a Second Amended and
Restated Deferred Payment Agreement with Qualcomm Incorporated. The new
agreement substantially revised the Deferred Payment Agreement covenants,
including covenants that were in default, and deferred the dates of repayment of
the loan, subject to certain conditions.

(e) (Unaudited) On October 29, 1999, the Company amended the System
Equipment Purchase Agreement to provide for the purchase of additional
infrastructure

F-58
<PAGE> 135
SMARTCOM S.A.
(COMPANY IN THE DEVELOPMENT STAGE)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998

equipment. The agreement, which originally provided for the purchase of
equipment from Qualcomm Incorporated, was assigned by Qualcomm Incorporated to a
subsidiary of Telefonaktiebolaget LM Ericsson (publ) ("Ericsson") in connection
with Qualcomm Incorporated's sale of its infrastructure division to Ericsson.

* * * *

F-59
<PAGE> 136

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Orrengrove Investments Ltd.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of operations, of cash flows and of stockholders' deficit
present fairly, in all material respects, the financial position of Orrengrove
Investments Ltd. and its subsidiaries (the Company) (a development stage
company) at December 31, 1998, and the results of their operations and their
cash flows for the period from July 27, 1998 (inception) to December 31, 1998,
in conformity with generally accepted accounting principles in 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 in 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.

As discussed in Note 1 to the consolidated financial statements, the Board
of Directors of three of the Company's subsidiaries voted in September 1999 to
liquidate. The planned liquidation commenced in October 1999. The accompanying
consolidated financial statements do not include any adjustments to give effect
to the planned liquidation as the decision to liquidate the subsidiaries was
made subsequent to the period presented herein.

PricewaterhouseCoopers LLP

McLean, Virginia
April 30, 1999, except for Note 1, as to which the date is October 15, 1999

F-60
<PAGE> 137

ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $35,659
Other current assets...................................... 202
-------
Total current assets.............................. 35,861
Property and equipment, net................................. 5,279
Intangible assets, net...................................... 14,402
Other assets................................................ 8
-------
Total assets...................................... $55,550
-------

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities.................. $ 5,389
-------
Total current liabilities......................... 5,389
Note payable to related party............................... 54,758
-------
Total liabilities................................. 60,147
-------
Commitments and contingencies (Note 8)
Minority interest........................................... 679
-------
Stockholders' deficit:
Common stock, no par value per share; authorized, issued
and outstanding 1,000 shares........................... 2
Deficit accumulated during the development stage.......... (5,278)
-------
Total stockholders' deficit....................... (5,276)
-------
Total liabilities and stockholders' deficit....... $55,550
=======
</TABLE>

See accompanying notes to consolidated financial statements.

F-61
<PAGE> 138

ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JULY 27, 1998
(INCEPTION) TO
DECEMBER 31,
1998
--------------
<S> <C>
Loss on investment in joint venture......................... $ (670)
General and administrative expenses......................... (3,624)
Interest expense............................................ (2,958)
Interest income............................................. 791
-------
Loss before minority interest............................. (6,461)
Minority interest........................................... (1,183)
-------
Net loss.................................................. $(5,278)
=======
</TABLE>

See accompanying notes to consolidated financial statements.

F-62
<PAGE> 139

ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
JULY 27, 1998
(INCEPTION) TO
DECEMBER 31,
1998
--------------
<S> <C>
Development activities:
Net loss.................................................... $(5,278)
Adjustments to reconcile net loss to net cash used in
development activities:
Depreciation and amortization.......................... 1,145
Minority interest...................................... (1,183)
Loss on investment in joint venture.................... 670
Changes in assets and liabilities:
Increase in current and other assets................. (228)
Decrease in accounts payable and accrued
liabilities......................................... (2,483)
Increase in accrued interest -- note payable to
related party....................................... 2,958
-------
Net cash used in development activities..................... (4,399)
-------
Investing activities:
Purchases of property and equipment....................... (2,741)
Acquisition of Transworld Companies, net of cash
acquired............................................... 5,997
-------
Net cash provided by investing activities................... 3,256
-------
Financing activities:
Issuance of note payable to related party................. 36,800
Issuance of common stock.................................. 2
-------
Net cash provided by financing activities................... 36,802
-------
Net increase in cash and cash equivalents................... 35,659
Cash and cash equivalents, beginning of period.............. --
-------
Cash and cash equivalents, end of period.................... $35,659
=======
Supplemental disclosure of non-cash investing and financing
activities:
Note payable to related party issued in connection with
acquisition of Transworld Companies.................... $15,000
=======
</TABLE>

See accompanying notes to consolidated financial statements

F-63
<PAGE> 140

ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE
--------------- DEVELOPMENT
SHARES AMOUNT STAGE TOTALS
------ ------ ------------- -------
<S> <C> <C> <C> <C>
Balance at July 27, 1998 (inception).... -- $-- $ -- $ --
Issuance of common stock for cash....... 1,000 2 2
Net loss.............................. (5,278) (5,278)
----- --- ------- -------
Balance at December 31, 1998............ 1,000 $ 2 $(5,278) $(5,276)
===== === ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-64
<PAGE> 141

ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS

1. THE COMPANY

Orrengrove Investments Ltd. ("Orrengrove"), was incorporated in the
Republic of Cyprus on July 27, 1998 as a wholly owned subsidiary of QUALCOMM
Telecommunications Ltd. ("QUALCOMMTel"), an Isle of Man company. In August 1998,
Orrengrove acquired a 60% interest in Transworld Telecommunications, Inc.,
Transworld Communications Services, Inc. and Transworld Communications
(Bermuda), Ltd. (collectively the "Transworld Companies"). The Transworld
Companies were created to build and operate a modern long distance
telecommunications business that provides domestic long distance, backhaul, and
broadband services such as high speed internet access to the Commonwealth of
Independent States ("CIS"), formerly known as the Soviet Union. In October 1998,
QUALCOMMTel, a majority owned subsidiary of Leap Wireless International, Inc.
("Leap") entered into an agreement with Teletal Limited ("Teletal"), a company
affiliated with ITAR-TASS, the Russian government's prime news agency and a
party with certain rights granted to it by the Russian government to assist in
the privatization and expansion of telecommunications in Russia. QUALCOMMTel
transferred to Teletal a 50% ownership in Orrengrove under the terms of the
agreement to the joint venture in exchange for Teletal's commitment to assist in
the development of the Transworld Companies long distance telecommunications
business.

PLANNED LIQUIDATION OF THE TRANSWORLD COMPANIES

In April 1999, the Company was notified by Mercury Telesat ("Mercury"),
provider of the satellite signal transmission capacity, that there was an
operational failure of all transponders on the Loutch II satellite. Mercury's
prognosis indicated that the transponders' operational status would not be
restored.

In June 1999, as a result of the failure of the transponders, Orrengrove
and the Transworld Companies determined and recognized an impairment loss of
approximately $19.9 million to write-off certain satellite related assets and
write-down to fair value the book value of certain other satellite related
assets and the license to carry long-distance traffic. In September 1999, after
reviewing a series of alternative business plans that did not meet a minimum
financial performance criteria, the directors of the Transworld Companies voted
to liquidate those companies and to distribute the net assets to their
stockholders. In October 1999, the Company entered into a Memorandum of
Agreement to facilitate the liquidation of the Transworld Companies. In
accordance with the terms of the agreement, the Company transferred all of its
shares of Transworld Communications Services, Inc. ("TWS") plus $3.3 million to
Teletal in exchange for: (i) TWS's assumption of certain rights, obligations and
claims of the remaining Transworld Companies, (ii) the assignment by TWS of
certain contractual obligations to the remaining Transworld Companies and (iii)
the cancellation of shares of the Company held by Teletal. The Company's share
of the remaining net assets of Transworld Telecommunications, Inc. and
Transworld Communications (Bermuda), Ltd. upon final distribution is expected to
total approximately $11.1 million, all of which will be used to pay the note
payable to related party and the Company will have no remaining net assets

F-65
<PAGE> 142
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

or operations. The liquidation of the subsidiaries is expected to be
substantially completed by December 1999.

As a result of the failure of the transponders, management intends to
assign or terminate the agreement with Mercury (see Note 8) and, due to
Mercury's lack of performance, does not believe that the Company will be
required to pay any of the remaining $1.7 million commitment.

The Company's consolidated financial statements for the period presented
herein do not give effect to the planned liquidation as the decision to
liquidate the subsidiaries was made subsequent to the period presented.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Company is a development stage enterprise, which has incurred operating
losses and negative cash flows from operations since inception. The Company's
consolidated financial statements reflect the financial position, results of
operations, cash flows and changes in stockholders' deficit of Orrengrove and
its majority-owned subsidiaries prepared in accordance with generally accepted
accounting principles in the United States of America. The ownership of the
other interest holder is reflected as minority interest. All significant
inter-company accounts and transactions have been eliminated. The financial
statements of the Company have been presented for the period since its inception
on July 27, 1998.

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 expenses during the reporting period.
Actual results could differ from those estimates.

INVESTMENT IN JOINT VENTURE

The Company has a 50% equity investment in Tass Loutch Telecom (TLT), 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. 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 TLT, limited to the extent of the
Company's investment in, advances to and financial guarantees for TLT. The
Company is the only contributor of assets, and therefore loss on investment in
joint venture included in the statement of operations includes 100% of the
losses of TLT. To date, TLT has incurred recurring losses which have reduced the
Company's investment in TLT to zero.

F-66
<PAGE> 143
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE 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, generally
ranging from five to ten years for telecommunications equipment and three 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.

INTANGIBLE ASSETS

Intangible assets, resulting primarily from the acquisition of the
Transworld Companies (see Note 3), comprising of telecommunications licenses of
$8.0 million and rights to satellite signal transmission capacity of $7.3
million are being amortized on a straight-line basis over their estimated
remaining useful lives ranging from three to five years. The telecommunications
licenses began amortizing upon commencement of service. For the period ended
December 31, 1998, amortization expense of $1.0 million was recorded on the
rights to satellite capacity.

LONG-LIVED ASSETS

INCOME TAXES

The Company accounts for income taxes in accordance with the liability
method. Deferred income taxes are recognized for tax consequences in future
years for differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end, based on enacted laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce net deferred tax assets to the amount expected to be
realized. The provision for income taxes consists of the current tax provision
and the change during the period in deferred tax assets and liabilities.

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

F-67
<PAGE> 144
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

and has no significant foreign currency monetary assets and liabilities at
December 31, 1998. Gains and losses resulting from the Company's foreign
currency transactions are included in the consolidated statement of operations,
and to date have been minimal.

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1998, the carrying amount of the Company's cash and cash
equivalents, accounts payable, and notes payable approximate fair value due to
the short-term maturities of these balances.

RECENT ACCOUNTING PRONOUNCEMENTS

As of December 31, 1998, Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income, has been adopted by the
Company. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income (loss) and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. "Comprehensive
income (loss)" 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 non-owner sources. It includes all changes in equity during a
period (including net income (loss)) 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 loss and comprehensive loss.

In addition, during 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities was issued. This statement establishes a new
model for accounting for derivatives and hedging activities. Under SFAS No. 133,
all derivatives must be recognized as assets and liabilities and measured at
fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect that the adoption of
SFAS No. 133 will have a material impact on its consolidated financial position
or results of operations.

3. ACQUISITION OF THE TRANSWORLD COMPANIES

On August 4, 1998, the Company acquired a 60% common ownership interest in
the Transworld Companies for an aggregate purchase price of $51.8 million,
consisting of a $36.8 million cash payment to the Transworld Companies and the
conversion to equity of a $15.0 million short-term loan payable to Leap, which
was previously issued by the former parent of the Transworld Companies. The
acquisition was recorded under the purchase method of accounting, and
accordingly, the results of operations of the Transworld Companies are included
in the consolidated financial statements since the date of acquisition. The sum
of the fair values of the identifiable assets acquired, which include

F-68
<PAGE> 145
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

telecommunications licenses and rights to satellite signal transmission
capacity, less liabilities assumed, exceeded the cost of the acquisition. The
fair values of those identifiable assets acquired were reduced by a
proportionate part of the excess to determine their assigned values.

The purchase price has been allocated to the assets acquired and the
liabilities assumed based upon the fair values on the date of acquisition as
follows (in thousands):

<TABLE>
<S> <C>
Current assets............................................ $36,841
Property and equipment.................................... 2,697
Intangible assets......................................... 15,388
Other assets.............................................. 611
Accounts payable and other expenses....................... (7,872)
Minority interest......................................... (1,862)
-------
Purchase price allocation................................. 45,803
Net cash received from acquisition........................ 5,997
-------
Cash and note paid for acquisition........................ $51,800
=======
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Telecommunications equipment.............................. $1,448
Construction-in-progress.................................. 3,524
Leasehold improvements.................................... 81
Furniture, fixtures and office equipment.................. 385
------
5,438
Accumulated depreciation.................................. (159)
------
$5,279
======
</TABLE>

The Company's telecommunications equipment and construction-in-progress are
primarily maintained in a foreign country. Construction in progress consists of
earth stations, not yet completed and operational as of December 31, 1998.

F-69
<PAGE> 146
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Accounts payable and other................................ $ 299
Consulting fee-related party (Note 6)..................... 2,500
Consulting fee-third party................................ 2,590
------
$5,389
======
</TABLE>

6. RELATED PARTY TRANSACTIONS

NOTE RECEIVABLE FROM A RELATED PARTY

Since inception, the Company has advanced certain amounts to another
investor in TLT for the investor's share of TLT's expenses in exchange for a
note receivable. The Company has advanced approximately $0.4 million to the
related party through December 31, 1998. The note receivable was written off
prior to December 31, 1998 since the related party was unable to fund its share
of the losses in the joint venture.

PAYABLE TO RELATED PARTY

The Company was required to pay a consulting fee, bonus, and severance
totaling $2.5 million to the majority shareholder of the former parent of the
Transworld Companies. The $2.5 million was paid in March 1999.

NOTE PAYABLE TO RELATED PARTY

On July 29, 1998, the Company entered into a $51.8 million collateralized
Promissory Note agreement with Leap, for the purpose of purchasing the
Transworld Companies. Terms of the Promissory Note provide for repayment of
principal and accrued interest by paying Leap the greater of 1) 70% of the cash
or other assets received by the Company from any sources, including the
Transworld Companies, 2) 70% of the cash or other assets available for
distribution to the Company's stockholders or 3) in the event of a final
distribution from the Transworld Companies, 100% of the cash or other assets
available for distribution to the Company's stockholders until principal and
accrued interest is paid in full. Interest accrues quarterly in arrears at the
rate of 13%, per annum, with any unpaid interest being added to the outstanding
principal. For the period ended December 31, 1998, interest of $3.0 million has
been accrued, but not paid. This amount is included in note payable to related
party on the consolidated balance sheet as of December 31, 1998. The Promissory
Note provides for certain restrictions related to dividends, redemptions and
merger, and is collateralized by substantially all the assets of the Company.

F-70
<PAGE> 147
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES

The Company has not recorded provisions for income taxes for the period
from July 27, 1998 (inception) to December 31, 1998 due to net operating losses
during the period.

The following is a reconciliation from the statutory Cyprus income tax rate
to the Company's effective rate of income tax expense for the period ended:

<TABLE>
<CAPTION>
PERIOD FROM
JULY 27, 1998
(INCEPTION ) TO
DECEMBER 31,
1998
---------------
<S> <C>
Cyprus tax at statutory rate............................ 25%
Minority interest....................................... (4)
Net change in valuation allowance....................... (24)
Effect of foreign operations............................ 3
---
Effective tax rate...................................... --%
===
</TABLE>

The tax effect of temporary differences which gives rise to significant
portions of the deferred tax assets as of December 31, 1998, are as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Net operating loss carryforwards.......................... $ 2,968
Net capitalized start-up costs............................ 717
-------
3,685
Less: valuation allowance................................. (3,685)
-------
$ --
=======
</TABLE>

Realization of net deferred tax assets is dependent on the Company's
ability to generate taxable income, which is uncertain. Accordingly, a full
valuation allowance was recorded against these assets as of December 31, 1998.

As of December 31, 1998, the Company had net operating loss carryforwards
of approximately $8.5 million for income tax purposes that begin to expire in
various years between 2003 and 2017.

There may be limitations on the annual utilization amount of these net
operating losses as a result of certain changes in ownership that have occurred
since the Company's inception.

F-71
<PAGE> 148
ORRENGROVE INVESTMENTS LTD. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES

TRANSPONDER AGREEMENTS

The Company obtained, through a number of agreements, the rights to utilize
certain Russian Loutch I and Loutch II program satellite signal transmission
capacity for up to 20 years.

The Company has an agreement with Commercial Company Mercury Ltd.
("Mercury"), the commercial subsidiary of a Russian satellite provider, for the
sole and exclusive use of two transponders on each of the first two Loutch II
satellites. At December 31, 1998, approximately $5.3 million had been paid to
Mercury to modify the transponders on the first Loutch II satellite for
commercial use. A remaining commitment of approximately $1.7 million due under
this contract is contingent upon Mercury completing certain milestones related
to the launch of the second satellite.

CONSTRUCTION-IN-PROGRESS

The Company has ordered the construction of six earth stations, plus
certain upgrades and spares, under an agreement with a third party. The
agreement established a price guarantee until September 1999 at approximately
$1.0 million per earth station. In accordance with this agreement, approximately
$3.5 million has been paid to December 31, 1998.

LEASE COMMITMENTS

The Company leases certain office space in the United States and
internationally under non-cancelable operating lease agreements. Rent expense
for the period July 27, 1998 (inception) to December 31, 1998 was approximately
$200,000. Future minimum lease payments under all non-cancelable operating lease
arrangements as of December 31, 1998 are as follows:

<TABLE>
<S> <C>
1999....................................................... $ 404,000
2000....................................................... 414,000
2001....................................................... 327,000
2002....................................................... 1,000
2003....................................................... --
----------
Total............................................ $1,146,000
==========
</TABLE>

LEGAL MATTERS

The Company is party to various legal actions and administrative
proceedings arising in the normal course of business. In the opinion of the
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.

* * * *

F-72
<PAGE> 149

REPORT OF INDEPENDENT ACCOUNTANTS

Mexico City, February 15, 1999

To the Board of Directors and Shareholders of
Pegaso Telecomunicaciones, S. A. de C. V.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Pegaso
Telecomunicaciones, S. A. de C. V. and its subsidiaries at December 31, 1998 and
the results of their operations, their cash flows and the changes in their
stockholders' equity for the period from June 24, 1998 (date of incorporation)
to December 31, 1998, in conformity with accounting principles generally
accepted in 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 auditing standards generally accepted in
the United Sates 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.

As stated in Note 1 to the consolidated financial statements, Pegaso
Telecomunicaciones, S. A. de C. V. was incorporated on June 24, 1998, and at the
date of issuance of this report, was in the development stage.

PricewaterhouseCoopers

Guillermo Pineda M.

F-73
<PAGE> 150

PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
THOUSANDS OF U.S. DOLLARS

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 30,313
Recoverable value added tax................................. 9,531
Other accounts receivable................................... 344
Prepaid advertising......................................... 6,256
Other current assets........................................ 219
--------
Total current assets........................................ 46,663
PROPERTY, FURNITURE AND TELECOMMUNICATIONS
EQUIPMENT -- Net.......................................... 132,296
PUBLIC TELECOMMUNICATIONS NETWORK CONCESSION................ 233,530
--------
Total assets................................................ $412,489
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade payables.............................................. $113,209
Notes payable to affiliated company......................... 5,941
Other accounts payable and accrued expenses................. 5,256
Income tax payable.......................................... 321
--------
Total current liabilities................................... 124,727
LONG-TERM BANK LOANS........................................ 19,090
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital stock............................................... 300,000
Accumulated deficit incurred in development stage........... (31,328)
--------
268,672
========
Total liabilities and stockholders' equity.................. $412,489
========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-74
<PAGE> 151

PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD
FROM JUNE 24 (DATE OF INCORPORATION)
TO DECEMBER 31, 1998
THOUSANDS OF U.S. DOLLARS

<TABLE>
<S> <C>
General and administrative expenses......................... $(30,168)
Interest income............................................. 1,194
Other income................................................ 441
Foreign exchange loss on remeasurement of financial
statements................................................ (2,474)
--------
Loss before income tax...................................... (31,007)
Current income tax.......................................... (321)
--------
Loss for the period......................................... $(31,328)
========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-75
<PAGE> 152

PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 24 (DATE OF INCORPORATION)
TO DECEMBER 31, 1998
THOUSANDS OF U.S. DOLLARS

<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the period......................................... $ (31,328)
Adjustment to reconcile loss to net cash used in operating
activities:
Not affecting resources:
Depreciation and amortization............................... 78
Foreign exchange loss on remeasurement of financial
statements................................................ 2,474
Recoverable value added tax................................. (9,443)
Other accounts receivable................................... (341)
Prepaid advertising......................................... (67)
Other current assets........................................ (217)
Other accounts payable and accrued expenses................. 5,432
Income tax payable.......................................... 321
---------
Total adjustments................................. (1,763)
---------
Net cash used in operating activities....................... (33,091)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, furniture and telecommunications
equipment................................................. (77)
Public telecommunications network concession................ (233,530)
---------
Net cash used in investing activities....................... (233,607)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital stock issued........................................ 300,000
---------
Net cash provided by financing activities................... 300,000
---------
Effect of exchange rate change on cash...................... (2,989)
---------
Cash and cash equivalents at end of period.................. $ 30,313
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid........................................... $ --
Interest paid (net of amount capitalized)................... 14
Prepaid advertising contracted with notes payable........... 5,941
Property, furniture and telecommunications equipment
acquired through financing................................ 132,297
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-76
<PAGE> 153

PEGASO TELECOMUNICACIONES, S. A. DE C. V.
(DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF STOCKHOLDERS' EQUITY FOR THE
PERIOD FROM JUNE 24 (DATE OF INCORPORATION)
TO DECEMBER 31, 1998
THOUSANDS OF U.S. DOLLARS

<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT INCURRED
CAPITAL IN DEVELOPMENT
STOCK STAGE TOTAL
-------- ---------------- --------
<S> <C> <C> <C>
Issuance of stock at inception on June 24,
1998.................................... $ 11 $ 11
Additional capital stock issued on June 30
and September 28, 1998.................... 299,989 299,989
Loss for the period....................... $(31,328) (31,328)
-------- -------- --------
Balances at December 31, 1998............. $300,000 $(31,328) $268,672
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-77
<PAGE> 154

PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

NOTE 1. OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES:

Pegaso Telecomunicaciones, S. A. de C. V. (Telecomunicaciones) (a
development stage enterprise), a Mexican holding company, was incorporated on
June 24, 1998, for a duration of 99 years. At December 31, 1998, the
stockholders and their participation in Telecomunicaciones were as follows:

<TABLE>
<CAPTION>
STOCKHOLDER PARTICIPATION (%)
----------- -----------------
<S> <C>
Mexican stockholders:
Corporativo del Valle de Mexico, S. A. de C. V.............. 10.00
Pegaso Comunicaciones y Servicios, S. A. de C. V............ 9.66
Alejandro Burillo Azcarraga................................. 5.34
Foreign stockholders:
Qualcomm PCS Mexico, Inc.................................... 33.33
International Equity Investments, Inc....................... 18.33
LAIF X, Ltd................................................. 16.67
NI Media Equity, LLC........................................ 6.67
------
100.00
======
</TABLE>

Up to September 23, 1998, Qualcomm PCS Mexico, Inc. was a wholly owned
subsidiary of Qualcomm Incorporated (Qualcomm). On that date, as a consequence
of Qualcomm's spin-off of Leap Wireless International (Leap Wireless), Qualcomm
transferred the Qualcomm PCS Mexico, Inc. shares to Leap Wireless.

At December 31, 1998, Telecomunicaciones and its subsidiaries
(collectively, the "Company") held 100% of the capital stock of the following
Mexican subsidiaries:

<TABLE>
<CAPTION>
COMPANY BUSINESS
------- --------
<S> <C>
Pegaso PCS, S. A. de C. V. (PCS) Scheduled to provide telephone
services to the general public.
Pegaso Recursos Humanos, S. A. de C. Provides administrative services to
V. (Recursos Humanos) affiliated companies.
Pegaso Comunicaciones y Sistemas, S. Holds the concessions and the
A. de C. V. (Comunicaciones y telecommunications equipment for
Sistemas) telephone services to be provided by
PCS.
</TABLE>

The Company is engaged in providing nationwide telephone services in
Mexico, for which Comunicaciones y Sistemas holds the concessions granted by the
Ministry of Communications (Secretaria de Comunicaciones y Transportes) (SCT) on
October 7, 1998. At the date of issuance of these consolidated financial
statements, the Company was in the development stage.

Activities during the development stage are primarily developing the
telecommunication network and in organizing the administrative structure to
provide telephone services.

F-78
<PAGE> 155
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

The concession includes the rights to install, operate and exploit a
nationwide public telecommunications network for a period of up to 20 years,
with an option for the Company to extend the concession at the end of the
20-year period. See Note 5.

The Company's development from the date of incorporation has been financed
by capital contributions made by the stockholders and through two lines of
credit with a limit of $590,000. See Note 6. These lines of credit are
collateralized by all Company properties, rights and assets. The recoverability
of the Company's investment is dependent upon future events, including, but not
limited to, the stability of the Mexican economic environment, obtaining
adequate financing for the Company's development program and the achievement of
a level of operating revenues that is sufficient to support the Company's cost
structure.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accompanying consolidated financial statements include to the
adjustment and remeasurement of the Mexican peso consolidated financial
statements prepared in conformity with accounting principles generally accepted
in Mexico. Such financial statements constitute a suitable basis for adjustment
and remeasurement into US Dollars and for purposes of expressing them in
conformity with accounting principles generally accepted in the United States of
America.

Following are the significant accounting policies, as adjusted:

a. Consolidation:

The accompanying financial statements include the accounts of
Telecomunicaciones and its wholly-owned subsidiaries prepared in accordance with
generally accepted accounting principles in the United States of America. All
significant intercompany balances and transactions have been eliminated in
consolidation.

b. Cash Equivalents:

Cash equivalents are recorded at cost, which approximates market value, and
include all investments purchased with original maturities of three months or
less.

c. Property, Furniture and Telecommunications Equipment:

Property, furniture and telecommunications equipment are recorded at cost.

Depreciation is calculated by the straight-line method, based on the
estimated useful lives of said items, ranging from three to ten years. See Note
4.

Leasehold improvements are capitalized at cost and the corresponding
amortization is calculated by the straight-line method, based on the lease
period.

F-79
<PAGE> 156
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

d. Public Telecommunications Network Concession:

The public telecommunications network concession includes the cost of the
radio-electric frequency band concession, and is recorded at cost.

e. Income Taxes:

Current income tax is the amount of income tax expected to be payable for
the current period. A deferred tax asset 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 carryforwards. A valuation allowance is established for
deferred tax assets not expected to be realized.

f. Employee Benefits:

Seniority premiums, to which employees are entitled upon termination of
employment after fifteen years of service, are recognized as expenses of the
years in which the services are rendered. Because the Company is in the
development stage, this effect is not significant, and therefore no liability
has been recognized.

Severance obligations to personnel for dismissal or death are charged to
income in the period incurred.

g. Translation:

For the purposes of translating its Mexican peso financial statements to
U.S. dollars in accordance with Statement of Financial Accounting Standard No.
52, the Company considers its functional currency to be the U.S. dollar, since
substantially all its costs and all its financing are incurred in U.S. dollars.
Monetary assets and liabilities 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 are translated at historical rates. The resulting remeasurement gains or
losses are included in the statement of income.

As of January 1, 1999, Mexico is no longer considered a hyperinflationary
economy. The Company is currently evaluating the functional currency and a
possible change from the U.S. dollar to local currency (the Mexican peso).

h. Capitalized Interest Cost:

Property, furniture and telecommunications equipment, as well as the public
telecommunications network concession, include the capitalization of the
interest costs related to their acquisition.

F-80
<PAGE> 157
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

i. Advertising Costs:

Television advertising time purchased in advance is expensed when the
advertising time is used. All other advertising costs are expensed as incurred.

j. Long-lived Assets:

The Company assesses potential impairments of its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future net undiscounted cash flows, grouped at the
lowest identifiable level where the cash flows are independent of cash flows
generated by other groups, is less than the carrying amount of the asset. No
such impairment losses have been recorded by the Company.

k. Estimates:

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. Actual results could differ from those estimates.

l. New Accounting Requirements:

The Company adopted the provision of Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities", issued by the Accounting Standards
Executive Committee of the American Institute of Certified Public Accountants
(AcSEC). In accordance with this pronouncement, all start-up activities and
organization costs incurred in 1998 were expensed and are included within
general and administrative expenses in the consolidated statement of income.

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS 130) issued by the
Financial Accounting Standards Board (FASB). SFAS 130 establishes new rules for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. For the period ended December 31,
1998, the Company has not generated components of other comprehensive income.

The AcSEC issued the Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" (SOP 98-1) in March
1998. The statement is effective for fiscal periods beginning after December 15,
1998, with earlier application encouraged. SOP 98-1 provides authoritative
guidance for the capitalization of external direct costs of materials and
services, payroll costs for employees

F-81
<PAGE> 158
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

devoting time to software projects, and interest costs. The Company does not
expect the adoption of SOP 98-1 to significantly impact the financial
statements.

On June 15, 1998, the FASB issued SFAS No 133, "Accounting for Derivative
Instruments and Hedging Activities", (SFAS 133). This statement establishes a
new model for accounting for derivatives and hedging activities and supercedes
and amends a number of existing standards. SFAS 133 is effective for fiscal
years beginning after June 15, 2000, but earlier application is permitted as of
the beginning of any fiscal quarter subsequent to June 15, 1998. Upon the
statement's initial application, all derivatives are required to be recognized
in the balance sheet as either assets or liabilities, and measured at fair
value. In addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS 133. The Company is not currently
involved in derivative or hedging activities. As a result, management does not
believe that the adoption of this statement will significantly impact the
financial statements of the Company.

NOTE 3. TRANSACTIONS AND BALANCES WITH AFFILIATED COMPANIES AND OTHER RELATED
PARTIES:

Following is a summary of the main transactions and balances with
affiliated companies and other related parties for the period ended December 31,
1998:

<TABLE>
<CAPTION>
TRANSACTIONS FOR
THE PERIOD ENDED BALANCE AT
DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Equipment purchases from Qualcomm............. $80,100(1)
Interest on advances from stockholders........ 1,697
Professional fees charged by stockholders..... 586
Advertising services from Grupo Televisa, S.
A........................................... 6,256 $5,941(2)
Rent payments to stockholders................. 40
</TABLE>

- -------------------------
(1) Qualcomm ceased being an affiliated company on September 23, 1998 (see Note
1).

(2) This amount is reflected as notes payable to affiliated company in the
consolidated balance sheet. Equal principal amounts are payable on a
quarterly basis up to September 15, 1999. These notes are non-interest
bearing.

F-82
<PAGE> 159
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

NOTE 4. PROPERTY, FURNITURE AND TELECOMMUNICATIONS EQUIPMENT:

<TABLE>
<CAPTION>
ANNUAL
DEPRECIATION RATE
(%)
-----------------
<S> <C> <C>
Furniture and equipment................................ $ 630 10
Computer equipment..................................... 156 30
Transportation equipment............................... 248 25
Leasehold improvements................................. 969 30
--------
2,003
Accumulated depreciation and amortization.............. (78)
--------
1,925
Land................................................... 85
Telecommunications equipment in the process of
installation......................................... 104,874
Construction in progress............................... 2,234
Advance payments to Alcatel Indetel Industria de
Telecomunicaciones, S. A. de C. V. (Alcatel)......... 11,478
Advance payments to Qualcomm........................... 9,023
Advance payments to other suppliers.................... 2,677
--------
$132,296
========
</TABLE>

Telecommunications equipment in the process of installation includes $3,114
of capitalized interest.

NOTE 5. PUBLIC TELECOMMUNICATIONS NETWORK CONCESSION:

On October 7, 1998, the Company obtained the concession to frequency bands
of the radio-electric spectrum to provide nationwide wireless fixed and mobile
access telecommunications services. The cost of the concession shown in the
consolidated balance sheet includes $1,278 of capitalized interest.

Concessions include the rights to provide the following:

- Fixed or mobile wireless telephone service.

- Transmission or reception of signals, images, voice, sounds or
information of any nature through the network, and additional services
authorized by the SCT.

- Access to data networks, videos, audio and videoconferences.

The concession agreements contain the following financial covenants:

a. The minimum capital stock must be $120,000.

b. The ratio of total liabilities to stockholders' equity should not exceed
2.78 during the first five years of operations.
F-83
<PAGE> 160
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

At December 31, 1998, these covenants were satisfactorily complied with.

NOTE 6. FINANCING CONTRACTS:

The Company has entered into certain agreements for the acquisition of
telecommunications equipment, services, and installation consultancy. These
commitments will be covered through the financing contracts which are summarized
on the next page.

<TABLE>
<CAPTION>
EQUIPMENT SUPPLIER FINANCING AGENT MAXIMUM AMOUNT
------------------ --------------- --------------
<S> <C> <C>
Qualcomm Qualcomm managed by
ABN AMRO Bank N.V. $310,000(1)
Alcatel Syndicated loan managed
by Citibank International, Plc 280,000(2)
--------
$590,000
========
</TABLE>

- -------------------------
(1) This line of credit is to be utilized as follows:

<TABLE>
<CAPTION>
CREDIT TERM MAXIMUM AMOUNT
------ ---- --------------
<S> <C> <C>
Credit 1 From the date of authorization to
December 31, 2000 $200,000
Credit 2 From January 1, 2001 to
December 31, 2002 90,000
Additional credit From the date of authorization to
December 31, 2002 20,000
--------
$310,000
========
</TABLE>

Advances under credits 1 and 2 are composed of "A" and "B" tranches.
Tranche "A", which is for the financing of equipment purchases, is being
provided by the Export Import Bank of the United States (EXIM Bank) and is
subject to interest at the LIBOR plus 1.5 points. Tranche "B" is for the
financing of customs duties (excluding value added taxes) and transportation
costs and is subject to interest at the LIBOR plus 4.5 points. Interest is to be
paid at various intervals ranging from monthly to biannually, depending upon
which credit and tranche the amount has been disbursed from. At December 31,
1998, no advances have been made under this line of credit.

The short term trade payables balance shown in the consolidated balance
sheet includes liabilities of $72,521 and $32,868 payable to Qualcomm and
Qualcomm Wireless Services (Mexico), S. A. de C. V., respectively. These
dollar-denominated amounts are expected to be paid through advances on the
line-of-credit facilities.

F-84
<PAGE> 161
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

(2) This line of credit is to be utilized as follows:

<TABLE>
<CAPTION>
CREDIT TERM MAXIMUM AMOUNT
------ ---- --------------
<S> <C> <C>
Credit 1 From the date of authorization to
December 31, 2000 $170,000
Credit 2 From January 1, 2001 to
December 31, 2002 100,000
Additional Credit From the date of authorization to
December 31, 2000 10,000
--------
$280,000
========
</TABLE>

These loans are subject to interest at the Eurodollar rate (5.2 % at
December 31, 1998) plus 4.5 points, adjusted monthly. The interest is to be paid
on a quarterly basis. At December 31,1998, $19,090 was outstanding under this
line of credit (Credit 1) and is included in long-term bank loans. This amount
will be paid as follows:

<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ -------
<S> <C>
2002.................................................. $ 3,818
2003.................................................. 5,727
2004.................................................. 9,545
-------
$19,090
=======
</TABLE>

Principal payments of "A" and "B" tranches of credit managed by ABM AMRO
Bank N. V. will be negotiated in good faith and must be agreed upon by both the
parties prior to disbursement. Principal payment for other lines of credit will
be made on the dates and in the proportions shown below:

<TABLE>
<CAPTION>
PORTION PAYABLE ON DECEMBER 31,
YEAR IN WHICH THE --------------------------------------------
DISBURSEMENT WAS MADE 2002 2003 2004 2005 2006 2007
--------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1998 and 1999....................... 20% 30% 50%
2000................................ 20% 30% 50%
2001................................ 20% 30% 50%
2002................................ 20% 30% 50%
</TABLE>

In order to collateralize the obligations derived from the financing
contracts, the Company has pledged all properties, rights and assets, as
described in Note 1.

The lines of credit establish the following main obligations and
restrictions for the Company:

a. Disbursements from the lines of credit should be utilized only for the
acquisition of telecommunication equipment from Qualcomm and Alcatel.

b. The capital stock should be increased by two contributions of $50,000
each, by July 31, 1999 and on August 30, 2000, respectively.
F-85
<PAGE> 162
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

c. Neither dividend payments nor capital distributions should be made
during the loan periods.

NOTE 7. STOCKHOLDERS' EQUITY:

Telecomunicaciones was incorporated on June 24, 1998, with a contribution
of $11 for the subscription of 100,000 common shares, each with a par value of
one Mexican peso.

On June 30, 1998, the Company exchanged the original 100,000 common shares
for 1,000 shares with no par value. On the same date, the Company received from
its stockholders $1 in exchange for the issuance of an additional 200 common
shares.

On September 28, 1998, the Company received $299,988 in exchange for the
issuance of 7,499,388 Series "A", Class II shares, 7,199,412 Series "B", Class
II shares, and 15,300,000 Series "N" Class II shares.

At December 31, 1998, the authorized capital stock is 30,000,000
no-par-value shares, all of which are issued and outstanding, as follows:

<TABLE>
<CAPTION>
NUMBER OF
SHARES DESCRIPTION AMOUNT
- --------- ----------- --------
<C> <S> <C>
Class I (fixed minimum portion):
612 Series A $ 6
588 Series B 6
Class II (variable portion):
7,499,388 Series A 74,994
7,199,412 Series B 71,994
15,300,000 Series N 153,000
- ---------- --------
30,000,000 $300,000
========== ========
</TABLE>

Series "N", Class "II" shares have limited voting rights.

In the event of a capital stock reduction, the portion of capital stock
exceeding contributions made is subject to income tax, payable by the Company,
equivalent to 53.85% of such excess.

NOTE 8. INCOME TAX, ASSET TAX AND EMPLOYEES' STATUTORY PROFIT SHARING:

For the period ended December 31, 1998, Telecomunicaciones generated a net
tax loss of $4,976 and two of its subsidiaries a net tax loss of $8,394. The
other subsidiary, Recursos Humanos, had taxable income of $944 and as a result,
the Company has recognized a current tax provision of $321 in the consolidated
financial statements. The Company has obtained authorization from the Treasury
Ministry (Secretaria de Hacienda y Credito Publico) (SHCP) to determine its
income tax and asset tax on a consolidated basis starting in 1999.

F-86
<PAGE> 163
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

The tax loss carryforwards of $13,370 can be inflation indexed by applying
the Mexican National Consumer Price Index from the date on which losses arise
through the date of their utilization. Such restated tax loss carryforwards can
be offset against future taxable profits, and expire in the year 2008.

The tax effect of temporary differences that give rise to deferred tax
assets and liabilities are as follows:

<TABLE>
<S> <C>
Interest and consultancy fees capitalized................... $(4,978)
Preoperating expenses....................................... 13,706
Tax loss carryforwards...................................... 13,370
-------
$22,098
=======
</TABLE>

The statutory income tax rate for 1998 was 34%. The following items
represent the principal differences between income taxes computed at the
statutory tax rate and the Company's provision for income taxes for the period
ended December 31, 1998:

<TABLE>
<S> <C>
Tax at statutory rate....................................... (34%)
Foreign exchange loss on remeasurement of financial
statements.................................................. 3%
Permanent items, including inflationary effects............. 7%
Interest and consultancy fees capitalized................... (5%)
Preoperating expenses....................................... 15%
Valuation allowance......................................... 15%
---
Effective income tax rate................................... 1%
===
</TABLE>

Asset tax is determined by applying the rate of 1.8% to the net amount of
certain assets and liabilities, and is payable only when asset tax exceeds
income tax due. For the period ended December 31, 1998, the Company was not
subject to the payment of asset tax.

For the period ended at December 31, 1998, the Company was not subject to
the payment of employees' statutory profit sharing.

F-87
<PAGE> 164
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

NOTE 9. COMMITMENTS:

As of December 31,1998, the Company is leasing offices and other spaces
related to its activity, under operating agreements expiring through 2003.
Future minimum lease payments under such leases amount to approximately $8,158,
as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1999................................................... $2,490
2000................................................... 1,743
2001................................................... 1,429
2002................................................... 1,407
2003................................................... 1,089
------
$8,158
======
</TABLE>

Lease payments for the period ended December 31,1998 recorded in the
Statement of Income amounted to $824.

NOTE 10. FINANCIAL INSTRUMENTS:

The fair value of the Company's cash and cash equivalents, recoverable
taxes, other accounts receivable, trade payables, income taxes and other
accounts payable and accrued expenses approximate the carrying value due to the
short-maturity of these instruments.

The estimated fair value and carrying value of other financial instruments
at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- -------
<S> <C> <C>
Notes payable to affiliated company.................. $ 5,941 $ 5,823
Long-term bank loans................................. 19,090 19,090
</TABLE>

NOTE 11. SUBSEQUENT EVENTS (UNAUDITED):

a. On May 27, 1999, the shareholders contracted a bridge loan for a total
amount of $115,000 with a group of syndicated lenders. This bridge loan is
granted by Qualcomm as the lead lender, Citibank N. A. as administrative agent
for the lenders, Societe Generale as syndication agent and ABN AMRO Bank N. V.
as documentation agent. This loan is subject to interest at the Eurodollar rate
plus 6% or a base rate plus 5%, provided that in each case, the applicable
margin shall increase by 0.5% on each interest adjustment date. As of September
30, 1999, $34,601 is outstanding on such loans. The final maturity date of the
bridge loan is November 28, 2000; however, the Company anticipates repayment of
this loan prior to maturity.

b. On May 27, 1999, an irrevocable administration and guarantee trust was
constituted by Leap Wireless International, Inc. and Alejandro Burillo Azcarraga
as

F-88
<PAGE> 165
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

trustors, Qualcomm as beneficiary, and Banco INVEX, S. A. Institucion de Banca
Multiple (INVEX) as trustee. The agreement establishes that INVEX may exercise
the option for the treasury shares issued to guarantee the payment of
obligations arising from the bridge loan agreement for $115,000.

c. On May 27, 1999, the Company and Qualcomm entered into a stock option
agreement. As a condition to execute the bridge loan agreement and to issue the
guaranty mentioned in point a. above, the Company granted Qualcomm, subject to
certain conditions, an option to subscribe and purchase up to 353,585 limited
voting series "N" treasury shares of the Company's capital stock with no par
value, which represent 1.2% of the aggregate capital stock. Qualcomm may receive
that number of limited voting "N" treasury shares under the stock option
agreement such that taking into account interest paid on the loans, other than
interest accruing as a result of an event of default, the total internal rate of
return on the average outstanding balance of the loans will not be less than
20%. The said option shall have customary antidilution protection for stock
dividends, stock splits, stock combinations, mergers and other similar events,
but not for issuance below any particular price per share. The option will have
an exercise price of US$.01 per share and an expiration date of 10 years from
date of issuance. The option shall be exercisable at any time after the option
determination date, subject to Qualcomm's due diligence review of the terms of
such securities.

d. On June 18, 1999, Telecomunicaciones as trustor, established an
irrevocable administration and guarantee trust with Citibank Mexico, S. A. de C.
V., Grupo Financiero Citibank as representative of the beneficiaries of the
guarantees and as agent of the guarantees, as well as with INVEX as trustee. The
purpose of the trust agreement is to guarantee payment of obligations arising
from the financing agreements signed with Qualcomm and Alcatel.
Telecomunicaciones has transferred to the trust its shares in its subsidiaries
Comunicaciones and Sistemas, PCS and Recursos Humanos.

F-89
<PAGE> 166
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
(DEVELOPMENT STAGE ENTERPRISE)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)

e. On July 27 and 30, 1999, the stockholders decided to increase the
capital stock by $50,000 through the issuance of 5,000,000 common shares with no
par value. After this increment, the authorized capital stock is represented by
35,000,000 no-par-value shares, all of which are issued and outstanding, as
follows:

<TABLE>
<CAPTION>
NUMBER OF
SHARES DESCRIPTION AMOUNT
- ---------- ----------- --------
<C> <S> <C>
Class I (fixed minimum portion):
612 Series A $ 6
588 Series B 6

Class II (variable portion):
7,499,388 Series A 74,994
7,199,412 Series B 71,994
20,300,000 Series N 203,000
- ---------- --------
35,000,000 $350,000
========== ========
</TABLE>

Considering this increment, the stockholders and their participation in
Telecomunicaciones are as follows:

<TABLE>
<CAPTION>
STOCKHOLDER PARTICIPATION(%)
----------- ----------------
<S> <C>
Mexican stockholders:
Corporativo del Valle de Mexico, S. A. de C. V.......... 17.14
Pegaso Comunicaciones y Servicios, S. A. de C. V........ 8.28
Alejandro Burillo Azcarraga............................. 7.44
Carmela Azcarraga Milmo................................. 2.86

Foreign stockholders:
Leap Wireless International, Inc........................ 28.57
International Equity Investments, Inc................... 15.71
LAIF X, Ltd............................................. 14.29
NI Media Equity, LLC.................................... 5.71
------
100.00
======
</TABLE>

f. The Company launched telecommunications operations in the city of
Tijuana, B. C. in February, Guadalajara, Jal. in August, Monterrey in September
and limited testing in Mexico City in August 1999. As a result, the Company
ceased being considered a development stage enterprise.

* * * *

F-90
<PAGE> 167

- ------------------------------------------------------
- ------------------------------------------------------

WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE A STATEMENT THAT DIFFERS FROM WHAT IS
IN THIS PROSPECTUS. IF ANY PERSON DOES MAKE A STATEMENT THAT DIFFERS FROM WHAT
IS IN THIS PROSPECTUS, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL, NOR IS IT SEEKING AN OFFER TO BUY, THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS
COMPLETE AND ACCURATE AS OF ITS DATE, BUT THE INFORMATION MAY CHANGE AFTER THAT
DATE.

-------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 2
Risk Factors.............................. 7
Forward-Looking Statements................ 19
QUALCOMM Trust Convertible Preferred
Securities.............................. 20
Use of Proceeds........................... 20
Plan of Distribution...................... 21
Price Range of Common Stock............... 22
Dividend Policy........................... 22
Capitalization............................ 23
Dilution.................................. 24
Summary Consolidated Historical and Pro
Forma Financial Data.................... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 27
Business.................................. 37
Management................................ 55
Certain Relationships and Related
Transactions............................ 65
Security Ownership of Certain Beneficial
Owners.................................. 66
Description of Leap Capital Stock......... 68
Description of Rights Agreement........... 71
Liability and Indemnification of Directors
and Officers............................ 74
Shares Eligible for Future Sale........... 75
Experts................................... 75
Legal Matters............................. 76
Where to Find Additional Information...... 76
Index to Financial Statements............. F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,271,060 SHARES
LEAP WIRELESS
INTERNATIONAL, INC.
COMMON STOCK
-------------------------

PROSPECTUS
-------------------------

December 13, 1999

- ------------------------------------------------------
- ------------------------------------------------------