<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to________
Commission file number: 0-29752
LEAP WIRELESS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0811062
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10307 PACIFIC CENTER COURT, SAN DIEGO, CA 92121-2779
(Address of Principal Executive Offices) (Zip Code)
(858) 882-6000
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past ninety days. Yes X No
----- -----
The number of shares of registrant's common stock outstanding on July 9,
1999 was 18,232,103.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 31, 1999 AUGUST 31, 1998
(UNAUDITED) (RESTATED)
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 23,527 $ --
Accounts receivable - net 1,523 --
Inventories 1,421 --
Recoverable taxes 3,308 --
Other current assets 1,770 --
--------- ---------
Total current assets 31,549 --
--------- ---------
Property, plant and equipment - net 125,761 --
Investments in unconsolidated wireless operating companies 123,254 97,719
Loans receivable from unconsolidated wireless
operating company -- 27,968
Other loans receivable 7,768 25,227
Intangible assets 66,621 6,838
Deposits and other assets 11,151 --
--------- ---------
Total assets $ 366,104 $ 157,752
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 10,270 $ 5,789
Loans payable to banks 16,657 9,000
Current portion of long-term debt 33,727 --
--------- ---------
Total current liabilities 60,654 14,789
--------- ---------
Long-term debt 152,306 --
Other liabilities 9,207 --
--------- ---------
Total liabilities 222,167 14,789
--------- ---------
Commitments (Note 8)
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, 18,098,984 shares issued
and outstanding 2 --
Additional paid-in capital 288,953 --
Former parent company's investment -- 197,598
Deficit accumulated during the development stage (142,302) (52,283)
Accumulated other comprehensive loss (2,716) (2,352)
--------- ---------
Total stockholders' equity 143,937 142,963
--------- ---------
Total liabilities and stockholders' equity $ 366,104 $ 157,752
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED FOR THE PERIOD
MAY 31, MAY 31, SEPTEMBER 1, 1995
----------------------- ----------------------- (INCEPTION) TO
1999 1998 1999 1998 May 31, 1999
-------- -------- -------- -------- -----------------
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Equity in net loss of unconsolidated
wireless operating companies $(40,657) $ (7,672) $(78,917) $(11,132) $(106,398)
General and administrative expenses (6,216) (3,408) (14,765) (5,577) (40,410)
Interest income 2,522 -- 7,901 -- 8,744
Interest expense (2,326) -- (4,238) -- (4,238)
-------- -------- -------- -------- ---------
Net loss (46,677) (11,080) (90,019) (16,709) (142,302)
Other comprehensive loss:
Cumulative translation adjustment (202) (695) (364) (1,858) (2,716)
-------- -------- -------- -------- ---------
Comprehensive loss $(46,879) $(11,775) $(90,383) $(18,567) $(145,018)
======== ======== ======== ======== =========
Basic and diluted net loss
per common share (Note 2) $ (2.60) $ (0.63) $ (5.06) $ (0.95) $ (8.05)
======== ======== ======== ======== =========
Shares used to calculate
basic and diluted net loss
per common share (Note 2) 17,952 17,648 17,794 17,648 17,677
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE PERIOD
MAY 31, SEPTEMBER 1, 1995
------------------------ (INCEPTION) TO
1999 1998 May 31, 1999
--------- -------- -----------------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Operating activities:
Net loss $ (90,019) $(16,709) $(142,302)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 408 -- 408
Equity in net loss of unconsolidated wireless
operating companies 78,917 11,132 106,398
Interest accrued to loans receivable and payable - net (3,083) -- (3,926)
Changes in assets and liabilities, net of effects from acquisition:
Deposits and other assets (9,452) -- (9,452)
Accounts payable and accrued liabilities 1,151 -- 6,940
Other liabilities (1,712) 2,897 (1,712)
--------- -------- ---------
Net cash used in operating activities (23,790) (2,680) (43,646)
--------- -------- ---------
Investing activities:
Purchase of property, plant and equipment (3,060) -- (3,060)
Investments in unconsolidated wireless
operating companies (78,984) (14,703) (194,428)
Loans to unconsolidated wireless
operating companies (28,625) (11,633) (93,085)
Loan receivable to related party (17,500) -- (17,500)
Repayment of loan receivable from related party 17,500 -- 17,500
Acquisitions, net of cash acquired (26,942) (564) (27,506)
Purchase of wireless telecommunications licenses (689) -- (6,963)
--------- -------- ---------
Net cash used in investing activities (138,300) (26,900) (325,042)
--------- -------- ---------
Financing activities:
Proceeds from loans payable to banks 6,720 -- 15,720
Borrowings under credit agreement 99,721 -- 99,721
Repayment of borrowings under credit agreement (17,500) -- (17,500)
Issuance of common stock 1,408 -- 1,408
Former parent company's investment 95,268 29,580 292,866
--------- -------- ---------
Net cash provided by financing activities 185,617 29,580 392,215
--------- -------- ---------
Net increase in cash and cash equivalents 23,527 -- 23,527
Cash and cash equivalents at beginning of period -- -- --
--------- -------- ---------
Cash and cash equivalents at end of period $ 23,527 $ -- $ 23,527
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE PERIOD
MAY 31, SEPTEMBER 1, 1995
------------------- (INCEPTION) TO
1999 1998 May 31, 1999
-------- ---- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C>
Supplemental disclosure of non-cash investing and financing activities:
Loans to unconsolidated wireless operating
companies converted to equity investment $ 50,196 $ -- $ 50,196
Deferred charge for credit agreement fee due on long-term debt $ 5,300 $ -- $ 5,300
Repurchase of stock purchase warrant $ 5,355 $ -- $ 5,355
Supplemental disclosure of cash used for acquisitions:
Total purchase value $ 43,699 $564 $ 44,263
Note payable issued at present value (15,699) -- (15,699)
Cash acquired (1,058) -- (1,058)
-------- ---- --------
Cash used for acquisitions $ 26,942 $564 $ 27,506
======== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DEFICIT
COMMON FORMER ACCUMULATED ACCUMULATED
STOCK ADDITIONAL PARENT DURING THE OTHER
------------------- PAID-IN COMPANY'S DEVELOPMENT COMPREHENSIVE
SHARES AMOUNT CAPITAL INVESTMENT STAGE INCOME (LOSS) TOTALS
---------- ------ --------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 1, 1995 (inception) -- $ -- $ -- $ -- $ -- $ -- $ --
Transfers from former parent -- -- -- 285 -- -- 285
Net loss -- -- -- -- (396) -- (396)
---------- ---- --------- --------- --------- ------- ---------
Balance at August 31, 1996 -- -- -- 285 (396) -- (111)
Transfer 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
September 1, 1998 to May 31, 1999
(Unaudited): --
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 451,299 -- 1,444 -- -- -- 1,444
Net loss -- -- -- -- (90,019) -- (90,019)
Foreign currency translation adjustment -- -- -- -- -- (364) (364)
---------- ---- --------- --------- --------- ------- ---------
Balance at May 31, 1999 (Unaudited): 18,098,984 $ 2 $ 288,953 $ -- $(142,302) $(2,716) $ 143,937
========== ==== ========= ========= ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
LEAP WIRELESS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. THE COMPANY
The Company
Leap Wireless International, Inc. (the "Company" or "Leap Wireless"), a
Delaware corporation, 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 the
Company's 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 Company's business strategy is to manage, support, operate and
otherwise participate in Code Division Multiple Access ("CDMA") based wireless
telecommunications businesses and ventures in emerging international markets and
in the United States.
The Distribution
In connection with the Distribution, QUALCOMM transferred to the Company
its equity interests in the following domestic and international emerging
wireless telecommunications operating companies: Pegaso Telecomunicaciones, S.A.
de C.V. (Mexico), Metrosvyaz Limited (Russia), Orrengrove Investments Limited
(Russia), Chilesat Telefonia Personal, S.A. (Chile), Chase Telecommunications
Holdings, Inc. (United States), OzPhone Pty. Ltd. (Australia), and certain other
development stage businesses (collectively, the "Leap Wireless Operating
Companies"). The Company and QUALCOMM also agreed that, if certain events occur
within 18 months after the Distribution, QUALCOMM will transfer to the Company
its equity interests and working capital loan related to Telesystems of Ukraine
("TOU"), a wireless telecommunications company in Ukraine. To date, these
conditions have not been satisfied. In connection with the Distribution,
QUALCOMM also transferred to the Company cash and certain indebtedness of the
Leap Wireless Operating Companies owed to QUALCOMM, 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.
In May 1999, QUALCOMM sold its CDMA wireless infrastructure division to
Telefonaktiebolaget LM Ericsson (pbl) ("Ericsson"). As a result, Ericsson and
its subsidiaries will become primary suppliers of network infrastructure
equipment to Leap Wireless and its operating companies. In connection with the
sale, Ericsson assumed most of QUALCOMM's obligations to Leap Wireless and its
operating companies under existing infrastructure supply agreements.
Basis of Presentation
The financial statements have been prepared using the historical basis in
the assets and liabilities and historical results of operations related to the
Company's business, as restated. Certain prior period amounts have been
reclassified to conform to the current period presentation. In the second
quarter of 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.
Restatement
The Company adopted the equity method of accounting for its investment in
Chase Telecommunications Holdings, Inc., a development stage company, in the
third quarter of fiscal 1999.
7
<PAGE> 8
Accordingly, all prior periods presented in these financial statements have been
adjusted retroactively in accordance with generally accepted accounting
principles to give effect to the equity method of accounting. See Note 4.
Interim Financial Statements
The accompanying interim consolidated financial statements have been
prepared by Leap Wireless without audit, in accordance with the instructions to
Form 10-Q and, therefore, do not include all information and footnotes necessary
for a fair presentation of its financial position, results of operations, cash
flows and stockholders' equity in accordance with generally accepted accounting
principles. In the opinion of management, the unaudited financial information
for the interim periods presented reflects all adjustments (which include only
normal, recurring adjustments) necessary for a fair presentation. These
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1998, as amended. Operating results for interim periods are not
necessarily indicative of operating results for an entire fiscal year. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. The cost of these
investments approximates fair value.
Accounts Receivable
The Company records an allowance for uncollectable accounts receivable with
respect to those amounts estimated not to be recoverable.
Inventories
Inventories are 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.
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 buildout of its wireless telecommunications
networks are recovered in cash from customers as service is provided.
Property, plant and equipment
Property, plant and equipment are recorded at acquisition 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 once the assets are placed
in service, ranging from two to ten years. 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.
8
<PAGE> 9
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.
Basic and Diluted Net Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings per Share",
which the Company has adopted to compute the basic and diluted net loss per
common share amount for the three and nine months ended May 31, 1999 and 1998,
respectively.
The basic and diluted net loss per common share for the three and nine
months ended May 31, 1999 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 17,952,373 and 17,794,358, respectively. The weighted average
number of common shares outstanding assumes that the 17,647,685 shares issued at
Distribution were outstanding for the periods prior to Distribution. Stock
options for 5,926,945 common shares, the conversion of QUALCOMM's Trust
Convertible Preferred Securities which are convertible into 2,271,060 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.
Reporting Comprehensive Income (Loss)
Effective September 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive Income". This
statement requires the Company to report in the financial statements, in
addition to net income (loss), comprehensive income (loss) and its components.
Prior period financial statements have been adjusted to conform to the
requirements of FAS 130.
NOTE 3. ACQUISITION OF CHILESAT TELEFONIA PERSONAL, S.A.
On April 19, 1999, a wholly owned subsidiary of Leap Wireless acquired all
of the shares of Chilesat Telefonia Personal, S.A. ("Chilesat") that it did not
already own from Telex-Chile S.A. and its operating affiliate, Chilesat S.A.
(collectively "Telex-Chile"). Chilesat, 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 Chilesat.
Inversiones acquired the remaining 50% of the shares of Chilesat 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 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 Company consolidated the balance sheet of Chilesat as of May 31, 1999
due to its acquisition of the remaining 50% of the shares of Chilesat in April
1999. The Company has adopted a two-month lag for the recognition of the
Company's share of net earnings and losses of Chilesat. As such, the Company
will fully consolidate Chilesat's results of operations commencing July 1, 1999.
9
<PAGE> 10
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):
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-----------------------------
1999 1998
--------- ----------
<S> <C> <C>
Revenues $ 3,670 $ --
========= ==========
Net loss $(109,001) $ (22,229)
========= ==========
Pro forma basic and diluted
net loss per common share $ (6.13) $ (1.26)
========= ==========
</TABLE>
These unaudited pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the acquisition occurred on
the date indicated, or which may result in the future.
NOTE 4. INVESTMENTS AND LOANS TO LEAP WIRELESS OPERATING COMPANIES
The Company and its consolidated subsidiaries have equity interests in
companies that directly or indirectly hold wireless telephone licenses. Its
participation in each company differs and, except for Chilesat, the Company does
not have majority interests in such companies. The Company's ability to withdraw
funds, including dividends, from its participation in such investments is
dependent in many cases on receiving the consent of lenders and the other
participants, over which the Company has no control. The Company and its
consolidated subsidiaries have investments in the Leap Wireless Operating
Companies consisting of the following:
<TABLE>
<CAPTION>
PERCENTAGE OF OWNERSHIP
-----------------------
MAY 31, AUGUST 31,
1999 1998
------- ----------
<S> <C> <C>
EQUITY INVESTEE
Chase Telecommunications Holdings, Inc. (U.S.) 7.2% 7.2%
Chilesat Telefonia Personal, S.A. (Chile) 100% 50%
Pegaso Telecomunicaciones, S.A. de C.V. (Mexico) 33% 49%
Metrosvyaz Limited (Russia) 50% 50%
Orrengrove Investments Limited (Russia) 50% 50%
</TABLE>
10
<PAGE> 11
Condensed financial information for the Leap Wireless Operating Companies
accounted for under the equity method is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31, 1999
-----------------------------------------------------
U.S. MEXICO RUSSIA TOTAL
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Current assets $ 6,020 $ 26,526 $ 39,857 $ 72,403
Non-current assets 79,770 387,379 33,077 500,226
Current liabilities (6,630) (67,448) (8,601) (82,679)
Non-current liabilities (135,583) (96,752) (23,512) (255,847)
--------- --------- -------- ---------
Total stockholders' capital (56,423) 249,705 40,821 234,103
Other stockholders' share of capital (56,423) 167,222 50 110,849
--------- --------- -------- ---------
Company's share of capital -- 82,483 40,771 123,254
Excess cost of investment -- -- -- --
--------- --------- -------- ---------
Equity investments in unconsolidated
wireless operating companies $ -- $ 82,483 $ 40,771 $ 123,254
========= ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1998
-------------------------------------------------------------------
U.S. MEXICO CHILE RUSSIA TOTAL
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Current assets $ 7,776 $ 9,783 $ 24,140 $ 40,876 $ 82,575
Non-current assets 81,215 63,526 100,474 18,328 263,543
Current liabilities (6,070) (57,142) (30,180) (5,742) (99,134)
Non-current liabilities (117,436) -- (61,055) -- (178,491)
--------- -------- --------- -------- ---------
Total stockholders' capital (34,515) 16,167 33,379 53,462 68,493
Other stockholders' share of capital (34,515) 7,455 16,690 1,162 (9,208)
--------- -------- --------- -------- ---------
Company's share of capital -- 8,712 16,689 52,300 77,701
Excess cost of investment -- -- 20,018 -- 20,018
--------- -------- --------- -------- ---------
Equity investments in unconsolidated
wireless operating companies $ -- $ 8,712 $ 36,707 $ 52,300 $ 97,719
========= ======== ========= ======== =========
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, 1999
---------------------------------------------------------------
U.S. MEXICO CHILE RUSSIA TOTAL
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,093 $ 514 $ 2,386 $ 22 $ 4,015
======= ======== ======== ======== ========
Operating expenses (5,335) (20,513) (8,829) (23,197) (57,874)
Other income (expense), net (3,755) (211) (2,566) (523) (7,055)
Foreign currency transaction loss -- 1,243 (2,649) -- (1,406)
------- -------- -------- -------- --------
Net loss (7,997) (18,967) (11,658) (23,698) (62,320)
Other stockholders' share of net loss (3,499) (12,645) (5,829) -- (21,973)
------- -------- -------- -------- --------
Company's share of net loss (4,498) (6,322) (5,829) (23,698) (40,347)
Amortization of excess cost of investment -- -- (310) -- (310)
------- -------- -------- -------- --------
Equity in net loss of unconsolidated
wireless operating companies $(4,498) $ (6,322) $ (6,139) $(23,698) $(40,657)
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31, 1998
-------------------------------------------------------------
U.S. MEXICO CHILE RUSSIA TOTAL
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ -- $ --
======== ======= ======= ======= ========
Operating expenses (1,932) (2,266) (1,223) (1,792) (7,213)
Other income (expense), net (8,463) -- 384 -- (8,079)
Foreign currency transaction loss -- -- (2,337) -- (2,337)
-------- ------- ------- ------- --------
Net loss (10,395) (2,266) (3,176) (1,792) (17,629)
Other stockholders' share of net loss (7,213) (1,156) (1,588) -- (9,957)
-------- ------- ------- ------- --------
Company's share of net loss (3,182) (1,110) (1,588) (1,792) (7,672)
Amortization of excess cost of investment -- -- -- -- --
-------- ------- ------- ------- --------
Equity in net loss of unconsolidated
wireless operating companies $ (3,182) $(1,110) $(1,588) $(1,792) $ (7,672)
======== ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1999
-----------------------------------------------------------------
U.S. MEXICO CHILE RUSSIA TOTAL
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,917 $ 514 $ 3,670 $ 22 $ 6,123
======== ======== ======== ======== =========
Operating expenses (12,686) (45,331) (21,304) (33,095) (112,416)
Other income (expense), net (6,518) 545 (5,864) 706 (11,131)
Foreign currency transaction loss -- (1,231) (4,199) -- (5,430)
-------- -------- -------- -------- ---------
Net loss (17,287) (45,503) (27,697) (32,367) (122,854)
Other stockholders' share of net loss (374) (30,345) (13,848) -- (44,567)
-------- -------- -------- -------- ---------
Company's share of net loss (16,913) (15,158) (13,849) (32,367) (78,287)
Amortization of excess cost of investment -- -- (630) -- (630)
-------- -------- -------- -------- ---------
Equity in net loss of unconsolidated
wireless operating companies $(16,913) $(15,158) $(14,479) $(32,367) $ (78,917)
======== ======== ======== ======== =========
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31, 1998
-------------------------------------------------------------
U.S. MEXICO CHILE RUSSIA TOTAL
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ -- $ --
======== ======= ======= ======= ========
Operating expenses (3,865) (4,700) (2,724) (3,632) (14,921)
Other income (expense), net (18,869) -- 1,991 -- (16,878)
Foreign currency transaction loss -- -- (2,337) -- (2,337)
-------- ------- ------- ------- --------
Net loss (22,734) (4,700) (3,070) (3,632) (34,136)
Other stockholders' share of net loss (19,072) (2,397) (1,535) -- (23,004)
-------- ------- ------- ------- --------
Company's share of net loss (3,662) (2,303) (1,535) (3,632) (11,132)
Amortization of excess cost of investment -- -- -- -- --
-------- ------- ------- ------- --------
Equity in net loss of unconsolidated
wireless operating companies $ (3,662) $(2,303) $(1,535) $(3,632) $(11,132)
======== ======= ======= ======= ========
</TABLE>
As of May 31, 1999, the Leap Wireless Operating Companies had not commenced
significant commercial revenue generating operations.
Chase Telecommunications Holdings, Inc.
In December 1996, the Company purchased $4 million of Class B Common Stock
of Chase Telecommunications Holdings, Inc., a development stage company
("Chase"), representing 7.2% of the outstanding capital stock of Chase. In June
1998, the Company agreed to provide a $25 million working capital facility to
Chase. 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. The Company
and Chase have agreed in principle to increase the maximum principal amount that
may be drawn under the working capital facility to $45 million. At May 31, 1999,
borrowings under the facility totaled $29.0 million, including $2.2 million of
accrued interest. However, because the working capital facility is the only
source of working capital for Chase, the carrying value of the loans under the
facility have been reduced to zero as Leap Wireless has recognized 100% of the
net losses of Chase to the extent of its investment and loans.
In December 1998, the Company agreed to purchase substantially all the
assets of Chase for $6.3 million; a warrant to purchase 1% of the common stock
in a wholly-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
telecommunication licenses, which is subject to approval by the Federal
Communications Commission ("FCC"). The acquisition will not occur unless the FCC
approves the transfer of the licenses.
In March 1999, a subsidiary of Chase launched a flat-rate local area
service which was developed by Leap Wireless. The service was launched under an
agreement that requires Chase's management to control the business until Leap
Wireless' proposed acquisition of Chase receives all necessary governmental
approvals and is complete. As a result of this launch and the satisfaction of
certain contingencies to the parties' obligation under the purchase agreement,
the Company adopted the equity method of accounting for its investment in Chase
in the third quarter of fiscal 1999. Accordingly, all prior periods presented in
these financial statements have been adjusted retroactively in accordance with
generally accepted accounting principles to give effect to the equity method of
accounting. The Company recorded equity losses from this investment of $4.5
million and $16.9 million during the three and nine months ended May 31, 1999,
respectively, and $3.2 million and $3.7 million during the three and nine months
ended May 31, 1998, respectively. Equity losses from this investment totaled $33
million during the period from September 1, 1995 (inception) to May 31, 1999.
13
<PAGE> 14
Chilesat Telefonia Personal, S.A.
On April 19, 1999, a wholly-owned subsidiary of the Company acquired all of
the shares of Chilesat that it did not already own from Telex-Chile. See Note 3.
The Company consolidated the balance sheet of Chilesat on May 31, 1999. The
Company has adopted a two-month lag for the recognition of the Company's share
of net earnings and losses of Chilesat. Accordingly, the Company will begin
fully consolidating Chilesat's results of operations commencing July 1, 1999.
The Company recorded equity losses resulting from this investment of $6.1
million and $14.5 million during the three and nine months ended May 31, 1999,
respectively, and $1.6 million and $1.5 million during the three and nine months
ended May 31, 1998, respectively.
Pegaso Telecomunicaciones, S.A. de C.V.
The Company, through a wholly-owned subsidiary, Leap PCS Mexico, Inc.,
formerly named QUALCOMM PCS Mexico, Inc., had a 49% ownership interest in a
development stage company, Pegaso Telecomunicaciones, S.A. de C.V. ("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 funding and converted its advances and loan, with
accrued interest, into common stock of Pegaso. The Company's total investment in
Pegaso after these transactions was $100 million. On the same date, other
investors also subscribed for and purchased common 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% to 33%. As a result of start-up expenses incurred by Pegaso,
the Company recorded equity losses of $6.3 million and $15.2 million during the
three and nine months ended May 31, 1999, respectively, and $1.1 million and
$2.3 million during the three and nine months ended May 31, 1998, respectively.
See Note 8.
Metrosvyaz Limited
The Company has a 70% interest in QUALCOMM Telecommunications Ltd.
("QUALCOMMTel Cayman"), a Cayman Islands corporation, and QUALCOMMTel Cayman has
a 50% interest in Metrosvyaz Limited ("Metrosvyaz"). The Company has 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 loan facility. Borrowings under the $72.5 million facility are subject to
interest at 13% and are due in August 2007. Interest will be payable
semi-annually beginning August 2000 and, prior to such time, added to the
principal amount outstanding. At May 31, 1999, borrowings under the Company's
loan facility to Metrosvyaz totaled $27.4 million, including $0.8 million of
accrued interest, with a remaining loan commitment of $45.9 million. As a result
of start-up expenses incurred by Metrosvyaz, the Company recorded equity losses
of $5.3 million and $11.5 million during the three and nine months ended May 31,
1999, respectively, and $1.8 million and $3.6 million during the three and nine
months ended May 31, 1998, respectively.
Orrengrove Investments Limited
The Company has a 70% interest in QUALCOMM Telecommunications Ltd.
("QUALCOMMTel Isle of Man"), an Isle of Man corporation, and QUALCOMMTel Isle of
Man holds a 50% investment in Orrengrove Investments Limited ("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").
14
<PAGE> 15
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 indicates that the satellite's operational status
will not be restored. The Transworld Companies have already identified and put
into operation a short-term terrestrial transmission solution by leasing fiber
capacity and are exploring long-term alternatives to the lost satellite
transmission capacity. As a result of these events, Orrengrove and the
Transworld Companies have recognized an impairment loss of approximately $16.9
million in the third quarter ending May 31, 1999 to write-off certain satellite
related assets and to write-down to fair value its license to carry
long-distance traffic. The value of the license was determined to have been
impaired in part due to the current financial conditions in Russia.
As a result of start-up expenses incurred by the Transworld Companies,
write-off of the satellite related assets and impairment of the license, the
Company recorded equity losses of $18.4 million and $20.9 million during the
three and nine months ended May 31, 1999, respectively.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31,
1999
-----------
<S> <C>
Land $ 332
Buildings and infrastructure 113,849
Machinery and equipment 13,033
Other 6,734
---------
133,948
Accumulated depreciation and amortization (8,187)
---------
$ 125,761
=========
</TABLE>
NOTE 6. LOANS PAYABLE TO BANKS
Between July and November 1998, Inversiones borrowed $15.7 million under
notes payable to banks in Chile. In February 1999, Inversiones 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, bear
interest at rates of 8.1% and 8.5% per annum, respectively, and are due to be
repaid in February 2000.
15
<PAGE> 16
NOTE 7. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31,
1999
-----------
<S> <C>
QUALCOMM Credit Agreement $ 93,281
QUALCOMM Deferred Payment Agreement 77,053
Note payable to Telex-Chile at present value 15,699
---------
186,033
Less current portion (33,727)
---------
$ 152,306
=========
</TABLE>
QUALCOMM Credit Agreement
The Company entered into a secured credit facility with QUALCOMM (the
"Credit Agreement") on September 23, 1998. The Credit Agreement consists of two
sub-facilities. The first 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/or the acquisition of telecommunications licenses. The
other 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.
At May 31, 1999, the Company had borrowed $8.6 million under the working
capital sub-facility, including $5.3 million to pay QUALCOMM a 2% facility fee.
At May 31, 1999, the Company had borrowed $82.0 million under the investment
capital sub-facility to make further loans to and investments in the Leap
Wireless Operating Companies.
Amounts borrowed under the Credit Agreement are due September 23, 2006.
QUALCOMM has a security 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 May 31, 1999, the rate of
interest was generally 10.25%. Interest will be payable quarterly beginning
September 30, 2001 and, prior to such time, accrued interest shall be added to
the principal amount outstanding. At May 31, 1999, $2.8 million of capitalized
and accrued interest had been added to the Credit Agreement.
QUALCOMM Deferred Payment Agreement
Chilesat and QUALCOMM are parties to a Deferred Payment Agreement related
to Chilesat's purchase of equipment, software and services from QUALCOMM. The
assets of Chilesat collateralize its obligations under the Deferred Payment
Agreement. The Company has also pledged its shares in Chilesat as guaranty for
Chilesat's obligation to QUALCOMM.
Under the terms of the 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 May 31, 1999, the
rate of interest was generally 9.75%. Accrued interest is added monthly to the
outstanding principal amount of the applicable borrowing until its first due
date, at which time interest is payable with principal. Chilesat is currently in
discussions with QUALCOMM to restructure the terms of the agreement and is
currently delinquent on payments of $10.9 million.
16
<PAGE> 17
NOTE 8. COMMITMENTS
The Company has made commitments to invest additional working capital into
certain of the Leap Wireless Operating Companies. As of May 31, 1999, these
commitments totaled approximately $45.9 million. The Company expects to fund its
commitments with borrowings under the Credit Agreement.
In May 1999, Pegaso entered into a $100 million loan agreement. The Company
has agreed to pay 33% of Pegaso's obligations under this loan agreement in the
event of Pegaso's default.
In April 1999, the Company was the successful bidder at $18.7 million on 36
wireless telecommunications licenses in the U.S. government's re-auction of PCS
spectrum, paying a deposit of $3.7 million on these licenses. The purchase of
the licenses is subject to approval of the FCC.
NOTE 9. STOCKHOLDERS' EQUITY
Stockholder Rights Plan
On September 9, 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, $0.0001 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 $0.01
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 May 31, 1999, no shares of Preferred Stock were
outstanding.
Stock Purchase Warrant
In connection with the Distribution, the Company issued to 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 $3.0 million in cash. The Company also recorded $2.4 million
related to a handset purchase commitment. The Company borrowed $3.0 million
under the Credit Agreement to satisfy the cash obligation. This warrant is
currently exercisable and remains exercisable until September 2008.
17
<PAGE> 18
NOTE 10. SUBSEQUENT EVENT
Adoption of Cricket Communications Stock Option Plan
In June 1999, the Company's wholly-owned subsidiary, Cricket Communications,
Inc. ("Cricket Communications") adopted the Cricket Communications 1999 Stock
Option Plan ("the Cricket Plan") that allows the Cricket Communications Board of
Directors to grant options to selected employees, directors and consultants to
purchase shares of Cricket Communication's common stock. The 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 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.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and the notes thereto included in Item 1 of
this Quarterly Report and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Results of Operations
and Financial Condition included in the Company's 1998 Annual Report on Form
10-K.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's future results could differ materially from those
discussed here. Factors that could cause or contribute to such differences,
including factors relating to joint ventures and other entities in which the
Company has interests, include: the ability to successfully deploy wireless
networks; the ability to raise sufficient funds to finance such deployment; the
ability to control costs relating to constructing, expanding, and operating the
networks; the ability to attract new subscribers and the rate of growth of the
subscriber base; the usage and revenue generated from subscribers; the level of
airtime and equipment prices; the rate of churn of subscribers; the range of
services offered; the ability to effectively manage growth and the intense
competition in the wireless communications industry, as well as conditions
governing the use of network licenses set by various government and regulatory
authorities; developments in current or future litigation; and the other risks
detailed in the Company's Annual Report on Form 10-K under the heading "Factors
That Could Affect Future Performance."
PRESENTATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations reviews the financial position, results of operations, cash flows and
changes in stockholders' equity of the business that was transferred to the
Company by QUALCOMM Incorporated ("QUALCOMM") on September 23, 1998 as if the
Company were a separate entity for all periods discussed. In the second quarter
of 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 operating companies from one
month to two months. The effect of this change on previously reported amounts
was not significant.
In March 1999, a subsidiary of Chase launched a flat-rate local area service
which was developed by Leap Wireless. The service was launched under an
agreement that requires Chase's management to control the business until Leap
Wireless' proposed acquisition of Chase receives all necessary governmental
approvals and is complete. As a result of this launch and the satisfaction of
certain contingencies to the parties' obligation under the purchase agreement,
Leap Wireless adopted the equity method of accounting for its investment in
Chase in the third quarter of fiscal 1999. Accordingly, all prior periods
presented in these financial statements have been adjusted retroactively in
accordance with generally accepted accounting principles to give effect to the
equity method of accounting. The Company has recorded equity losses from this
investment of $4.5 million and $16.9 million during the three and nine months
ended May 31, 1999, respectively, and $3.2 million and $3.7 million during the
three and nine months ended May 31, 1998, respectively. Equity losses from this
investment totaled $33 million during the period from September 1, 1995
(inception) to May 31, 1999.
OVERVIEW
Leap Wireless is a wireless communications carrier that owns, operates and
participates in CDMA telecommunications networks in domestic and international
markets with strong growth potential. Through its operating companies, Leap
Wireless has launched all digital wireless networks in Chile, Mexico, Russia and
the United States. A Leap Wireless subsidiary also owns wireless
telecommunications licenses in Australia, which it has not yet developed. Upon
completion of Leap Wireless' pending U.S. asset acquisitions, Leap Wireless will
have interests in existing and planned telecommunications systems covering
19
<PAGE> 20
176 million potential customers, of which its equity share will be approximately
72 million potential customers. Leap Wireless also was the high bidder for 36
C-Block licenses in mid-sized markets covering an aggregate of 11.2 million
additional potential customers in the federal government's recent re-auction of
broadband PCS spectrum. The completion of Leap Wireless' pending US asset
acquisitions and its acquisition of the 36 C-Block licenses are subject to the
approval of the Federal Communications Commission.
Domestic and international telecommunications markets are expanding rapidly
as countries seek to increase their number of telephone lines as a percentage of
their population, known as teledensity, and to increase competition among
carriers. Increased demand, decreased government regulation, and new spectrum
auctions have created opportunities for new providers to capture market share.
Leap Wireless believes that wireless is the cheapest and fastest way to increase
teledensity in regions not yet connected by copper telephone lines, and that it
possesses the expertise to oversee and manage the entry of new wireless
operating companies into these competitive markets.
Leap Wireless' domestic strategy is to offer consumers a wireless service
plan that provides them with unlimited local calls for a low, flat monthly rate.
Aimed at the mass consumer market, the service is marketed under the name
"Cricket"SM and is identified as the "around the town phone" SM and "comfortable
wireless." SM Leap Wireless' international strategy includes identifying and
investing in growth markets with local partners who provide familiarity with the
market and an ability to facilitate deployment. For each of its ventures in
which it holds a significant position, Leap Wireless is actively involved in the
management of the networks, combining its expertise in international markets
with its wireless technical expertise in CDMA. Leap Wireless is committed to
bringing the benefits of reliable, cost-effective and high-quality voice and
data services to its operating companies' customers.
Leap Wireless and its operating companies are in the early stages of
development and face risks inherent in establishing a new business enterprise.
Leap Wireless' results of operations must be considered in light of the risks,
expenses and difficulties encountered by companies at this stage of development,
particularly companies involved in new and rapidly evolving international
markets and companies experiencing rapid growth.
Start-up wireless telecommunications companies typically require substantial
capital expenditures for the construction of their networks, license fees and
license acquisition costs. These costs are generally capitalized. In addition,
these companies typically incur significant marketing and other expenses as they
begin commercial operations. Accordingly, as Leap Wireless' operating companies
continue to build-out their networks, expand their operations, and amortize
their capitalized costs, their net operating losses and Leap Wireless'
proportionate share of the losses will grow.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED MAY 31, 1999 COMPARED TO THREE MONTHS AND
NINE MONTHS ENDED MAY 31, 1998
Leap Wireless' consolidated net loss during the three and nine month periods
ended May 31, 1999 was $46.7 million and $90.0 million, respectively, compared
to a net loss of $11.1 million and $16.7 million in the corresponding periods of
the prior fiscal year. The increases were primarily the result of substantial
start-up costs associated with Leap Wireless' foreign operating companies and a
$16.9 million impairment loss recorded by Orrengrove Investments Limited as
described below.
Equity in net loss of unconsolidated wireless operating companies during the
three and nine month periods ended May 31, 1999 was $40.7 million and $78.9
million, respectively, compared to $7.7 million and $11.1 million in the
corresponding periods of the prior fiscal year. The significant increases in
Leap Wireless' share in the net loss of its unconsolidated wireless operating
companies relate primarily to increased network development by these companies
and the significant expenditures made in preparing to launch their network
services. The impairment loss recorded by Orrengrove in the third quarter of
fiscal
20
<PAGE> 21
1999 also increased Leap Wireless' share in the net loss of its unconsolidated
wireless operating companies by $16.9 million.
In April 1999, the Transworld Companies, partially owned subsidiaries of
Orrengrove, learned that third party satellite equipment they used to provide
commercial long distance service in the Russian Federation had failed. Leap
Wireless does not expect that this satellite equipment can be repaired. The
Transworld Companies have begun using fiber lines to provide long distance
service as a short-term alternative to the satellite transmission option they
previously used. The Transworld Companies are exploring long-term alternative
transmission sources for their long distance services. As a result of these
events, Orrengrove and its subsidiaries wrote-off their satellite related assets
and reduced to fair value their license to carry long-distance traffic in
Russia. The asset value of the licenses was impaired because of the loss of the
satellite facilities and the current financial conditions in Russia.
General and administrative expenses were $6.2 million and $14.8 million for
the three and nine month periods ended May 31, 1999, respectively, compared to
$3.4 million and $5.6 million in the corresponding periods of the prior fiscal
year. The increase resulted primarily from increased staffing and business
development activity related to Leap Wireless' creation of a wireless operating
business in the United States. Leap Wireless expects that general and
administrative expenses will continue to increase and that the amounts presented
are not representative of general and administrative expenses it will incur in
future periods due to the expected consolidation of Chilesat Telefonia Personal
in the fourth quarter of fiscal 1999 and the pending acquisition and
consolidation of Chase Telecommunications, Inc. Leap Wireless also expects that
it will continue to add managerial personnel as it expands its involvement in
wireless projects in the United States and various other parts of the world.
Interest income for the three and nine month periods ended May 31, 1999 was
$2.5 million and $7.9 million, respectively, primarily from Leap Wireless' loans
to its operating companies. Interest expense was $2.3 million and $4.2 million
for the three and nine month periods ended May 31, 1999, respectively, due to
borrowings from banks and under Leap Wireless' credit agreement with QUALCOMM.
There was no interest income or expense during the corresponding periods of the
prior fiscal year.
In March 1999, Leap Wireless' concept of providing flat-rate local area
service targeted at the mass consumer market was launched. The service, marketed
under the name "Cricket"SM and identified as the "around the town phone" SM and
"comfortable wireless." SM, was introduced in Chattanooga, Tennessee using the
existing infrastructure of a wholly-owned subsidiary of Chase Telecommunications
Holdings, Inc. Cricket SM provides customers with a simple and affordable
wireless communication option by allowing them to make unlimited local calls for
a flat rate. The expansion of Cricket SM service to Nashville, Tennessee is
currently underway. The service was launched under an agreement that requires
Chase's management to control the business until Leap Wireless' proposed
acquisition of Chase's assets receives all necessary governmental approvals and
is complete.
On February 1, 1999, Chase Telecommunications had approximately 4,900
subscribers who were offered the option of converting to the Cricket service.
Approximately one-half chose to convert. Approximately 8,700 subscribers used
the Cricket service provided by Chase Telecommunications as of May 31, 1999.
Metrosvyaz Limited, a Leap Wireless operating company, develops joint
ventures with local Russian telecommunications operators for the formation,
development, financing and operation of wireless telephone services in the
Russian Federation. Petrosvyaz, a Metrosvyaz joint venture, launched commercial
service in St. Petersburg in April 1999. Metrosvyaz expects to launch commercial
operations in several additional Russian cities through additional joint
ventures in the following months.
As of May 31, 1999, Chilesat had approximately 30,600 subscribers, Chase
Telecommunications had approximately 8,700 subscribers, Pegaso had approximately
2,800 subscribers and Metrosvyaz had approximately 270 subscribers.
In May 1999, QUALCOMM sold its CDMA wireless infrastructure division to
Telefonaktiebolaget LM Ericsson (pbl) ("Ericsson"). As a result, Ericsson and
its subsidiaries will become primary suppliers of
21
<PAGE> 22
network infrastructure equipment to Leap Wireless and its operating companies.
In connection with the sale, Ericsson assumed most of QUALCOMM's obligations to
Leap and its operating companies under existing infrastructure supply
agreements.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Leap Wireless expects to have significant future capital requirements over
the next several years in relation to corporate operations and the financing of
current development projects and additional new projects. Leap Wireless' sources
of liquidity as of May 31, 1999 are $23.5 million of cash and cash equivalents
and a $265 million credit agreement with QUALCOMM which contains a $35.2 million
sub-facility to fund working capital and operating expenses of Leap Wireless and
a $229.8 million sub-facility to fund specified portfolio investments by Leap
Wireless. As of May 31, 1999, Leap Wireless had $174.5 million available to it
under this credit agreement, with $26.7 million of such amount available under
the working capital sub-facility and $147.8 million available under the
investment sub-facility. Leap Wireless expects to meet its cash requirements for
existing corporate operations and for further investments in its development
projects through early 2000 from available cash balances and borrowings under
its credit agreement.
Leap Wireless is seeking additional debt or equity to fund its activities
in the year 2000 and beyond. There can be no assurances that additional
financing will be available or, if available, that it will be offered to Leap
Wireless on acceptable terms. If Leap Wireless does not obtain additional
working capital or financing by early 2000, management plans to reduce future
capital needs by reducing or discontinuing the funding of uncommitted
investments. In addition, to the extent necessary, management will consider
other strategic modifications to its operational plans, including reducing
corporate activities and possibly selling all or portions of its interests in
one or more of Leap Wireless' operating companies.
OPERATING ACTIVITIES
In the first nine months of fiscal 1999, Leap Wireless used $23.8 million
in cash for operating activities, compared to $2.7 million for the corresponding
period of the prior fiscal year.
Leap Wireless expects that cash used in operating activities will increase
further as Leap Wireless continues to expand its project development efforts on
existing and new project opportunities. In addition, Leap Wireless expects that
cash used in operating activities will increase substantially in the future as a
result of Leap Wireless' acquisition and consolidation of Chilesat, its pending
acquisition of Chase Telecommunications and other Leap Wireless activities
related to its domestic strategy of providing a flat rate wireless local area
telephone service.
INVESTING ACTIVITIES
Cash used in investing activities was $138.3 million in the first nine
months of fiscal 1999, compared to $26.9 million in the same period of fiscal
1998. Significant investments in the first nine months of fiscal 1999 consisted
of a $60.7 million capital contribution to Pegaso which was made before Leap
Wireless began to operate as an independent company, and loans and advances of
$74.9 million to Leap Wireless' operating companies. Leap Wireless and its
wholly owned subsidiaries expect to continue making significant investments and
loans to the Leap Wireless operating companies and to continue investing in
capital assets, including wireless telecommunications licenses and network
equipment. Investment activity in the corresponding period in fiscal 1998
consisted of loans and start-up expenses advanced to Leap Wireless' operating
companies, primarily in Mexico and Chile.
In March 1999, Leap Wireless submitted a $20 million deposit for bidding in
the federal government re-auction of C, D, E and F block broadband PCS spectrum.
Leap Wireless was the winning bidder for 36
22
<PAGE> 23
licenses of C-Block spectrum with an aggregate bid of $18.7 million, or $1.66
per POP. The licenses cover 36 mid-sized markets with an aggregate of 11.2
million potential customers. The FCC must approve Leap Wireless' purchase of
these licenses. Upon completion of the bidding in May 1999, the FCC returned
$16.3 million of the deposit to Leap Wireless. The $3.7 million retained by the
FCC represents a 20% deposit on the $18.7 million winning bid price.
In April 1999, Leap Wireless announced that it had increased its ownership
interest in Chilesat from 50% to 100%. Leap Wireless' Chilean subsidiary
purchased the remaining 50% of Chilesat 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. Leap is currently
working to re-energize Chilesat by strengthening its management team and
resuming consumer acquisition and marketing efforts that were temporarily
suspended during the acquisition.
Leap Wireless's pending acquisition of C-Block spectrum licenses in North
and South Carolina from AirGate Wireless, L.L.C., its pending acquisition of
substantially all of the assets of Chase Telecommunications and the C-Block
licenses under which Chase Telecommunications operates, and its pending purchase
of the 36 C-Block licenses it won in the federal government's recent spectrum
re-auction are all subject to Federal Communications Commission approval. Leap
Wireless' application to the FCC to acquire the AirGate Wireless licenses has
been opposed on the grounds that Leap Wireless does not qualify as a designated
entity. Businesses must qualify as designated entities to license C-Block or
F-Block spectrum. Leap Wireless has attended public hearings before the FCC and
answered questions concerning the proposed acquisition from AirGate Wireless and
Leap Wireless' status as a designated entity. Leap Wireless believes that it
qualifies as a designated entity and that it meets all FCC requirements to
obtain approval for the proposed acquisitions, however, the FCC has not yet
rendered a decision regarding these matters. If the FCC ultimately determines
that Leap Wireless is not a designated entity, Leap Wireless does not expect to
complete either of the two pending asset acquisitions nor will it be permitted
to complete the purchase of the 36 C-Block spectrum licenses it would otherwise
be entitled to purchase as a result of the federal government's re-auction of
broadband PCS spectrum licenses.
FINANCING ACTIVITIES
Cash provided by financing activities during the first nine months of
fiscal 1999 was $185.6 million, represented primarily by $95.3 million of
funding from QUALCOMM for Leap Wireless operations and investing activities
prior to the distribution of Leap Wireless common stock to QUALCOMM's
stockholders and $88.9 million of net borrowings. Cash provided by financing
activities during the first nine months of fiscal 1998 was $29.6 million,
representing QUALCOMM's funding of Leap Wireless operations and investing
activities in this period.
In March 1999, QUALCOMM agreed to reduce the number of shares exercisable
under its warrant for Leap Wireless common stock from 5,500,000 to 4,500,000
shares. Leap Wireless valued the buy-back of the warrant shares at $5.4 million,
which included $3.0 million in cash and $2.4 million related to a handset
purchase commitment. Leap Wireless borrowed $3.0 million under its credit
agreement to satisfy the cash obligation. Leap Wireless believes that this
amendment to the warrant will strengthen Leap Wireless' position that it is a
designated entity under FCC regulations by reducing QUALCOMM's potential
ownership interest in Leap Wireless.
LIQUIDITY AND SUBSTANTIAL LEVERAGE OF LEAP WIRELESS' OPERATING COMPANIES
Leap Wireless generally expects that its operating companies will be
financed initially with equity contributions and loans from Leap Wireless and
its partners. Leap Wireless also expects that its operating companies will seek
stand-alone third party financing after their initial stages of development. In
some cases, Leap Wireless and its partners may provide additional equity or
loans to operating companies after their initial contributions.
23
<PAGE> 24
Although each of Leap Wireless' operating companies has obtained
substantial equity contributions, they generally are or may become highly
leveraged, which is typical for start-up wireless telecommunications companies.
The ability of these companies to obtain future financings and to meet debt
covenants in connection with the financings will be dependent upon their future
performance, including the generation of revenue and cash flow, and upon
prevailing economic conditions, which are beyond their control. In addition,
Leap Wireless expects that some of its operating companies will be substantially
funded through equipment financing arrangements from vendors. These equipment
financings will be dependent upon meeting planned levels of performance. If the
operating companies fail to meet these performance requirements, the related
equipment financings could be materially restricted or terminated.
Leap Wireless' credit agreement provides it with sufficient liquidity to
contribute the approximately $45.9 million of financing it is contractually
bound to provide to its operating companies as of May 31, 1999. The companies
have business plans, however, which call for substantial additional financing to
build-out and operate their planned networks. These operating companies are
generally seeking new equity and debt from existing investors, equipment vendors
and third parties, and Leap Wireless has been assisting them in their efforts.
At this time, however, capital markets have been constrained because of
uncertain worldwide economic conditions, and development stage companies in
emerging markets find it difficult to raise additional capital. As a result,
Leap Wireless cannot assure that its operating companies will be able to obtain
the required additional financing. Further, if an operating company fails to
gain required new financing, that failure could have a material adverse effect
on that company and, as a result, a material adverse effect on Leap Wireless.
In March 1999, Leap Wireless entered into a substitute loan agreement to
provide $72.5 million of working capital to Metrosvyaz. As previously
contemplated, the amount available to Metrosvyaz under its credit agreement with
QUALCOMM was simultaneously reduced by $72.5 million to $102.5 million, making a
combined total of $175 million available to Metrosvyaz from QUALCOMM and Leap
Wireless. Leap Wireless intends to fund its loan to Metrosvyaz, which is
subordinated to QUALCOMM's loan to Metrosvyaz, through borrowings under Leap
Wireless' $265 million credit agreement with QUALCOMM. Metrosvyaz owed Leap
Wireless $27.4 million under the substitute loan agreement as of May 31, 1999.
Leap Wireless expects that the $175 million available to Metrosvyaz under its
current QUALCOMM credit facility and Leap Wireless credit facility will provide
Metrosvyaz with sufficient liquidity to fund its deployment and operations
through the end of 1999.
In May 1999, Pegaso entered into a $100 million loan agreement. Leap
Wireless has agreed to pay 33% of Pegaso's obligations under this agreement in
the event of Pegaso's default. Leap Wireless expects that the $100 million
facility and approximately $50 million of equity which is committed to be
contributed to Pegaso within the next several months will be sufficient to
finance Pegaso's capital and operating requirements through the end of 1999.
During the third quarter of fiscal 1999, Leap Wireless loaned Chilesat $7.0
million. At May 31, 1999, working capital loans to Chilesat totaled
approximately $23 million. Leap Wireless estimates that, as of May 31, 1999,
Chilesat needed approximately $85 million of additional financing to fund its
activities and to expand its networks and business as currently contemplated
through the end of 1999. As of May 31, 1999, Leap Wireless had approximately $20
million available to loan to Chilesat under its credit agreement with QUALCOMM.
In addition, Leap Wireless is currently in late stage discussions to obtain
additional vendor financing for Chilesat, and Chilesat will seek additional
equity and debt financing to satisfy the balance of its desired financing
through 1999. If Chilesat does not obtain all of the funds it requires to
operate and expand as currently anticipated through the end of 1999, Chilesat
will restrict or terminate its expansion until additional funds are available.
Leap Wireless and Chase Telecommunications are among the parties to a
credit agreement under which Leap Wireless has agreed to provide, at its
discretion, working capital to Chase Telecommunications. The parties have agreed
in principle to increase the maximum principal amount that may be drawn under
the facility to $45 million. At May 31, 1999, principal borrowings under the
working capital facility totaled approximately $26.8 million.
24
<PAGE> 25
YEAR 2000 ISSUE
The Year 2000 issue arises from the fact that most computer software
programs have been written using two digits rather than four to represent a
specific year. Any computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions of
operations including a temporary inability to process transactions, send
invoices or engage in similar normal business activities.
Leap Wireless and each of its operating companies have recently begun their
respective businesses and have designed and built their wireless telephone
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.
Leap Wireless and each of its operating companies are conducting an
inventory to identify its systems that may be subject to Year 2000 problems and
that are critical to its business and operations. At the same time, each of Leap
Wireless' operating companies has been working with its primary
telecommunications systems vendors to confirm that the vendor's products are
Year 2000 ready and, if not, to agree with such vendor on a remediation and test
program to be implemented prior to the Year 2000.
Although Leap Wireless expects that its operating companies' critical
network infrastructure systems will be Year 2000 compliant, Leap Wireless'
operating companies may experience difficulties with systems maintained by third
parties. For example, other telecommunications systems 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 Wireless' operating companies are not currently aware of evidence
that a failure is likely to occur in their service areas. However, Leap
Wireless' operating companies continue to evaluate the risk associated with
third party interfaces and Year 2000 issues.
Leap Wireless continues to actively work with its operating companies to
evaluate risk and the development of any required remediation plans. To date,
Leap Wireless has not incurred any material costs in support of the Year 2000
issue. Leap Wireless estimates that it will spend $500,000 or less in fiscal
year 1999 to review and correct any non-compliance as well as to support the
Leap Wireless operating companies and support material third party
relationships. Leap Wireless has not yet developed contingency plans to handle
Year 2000 failures.
We cannot assure you that Leap Wireless and its operating companies will 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
Wireless operating companies. Such a problem could materially and adversely
affect the business and operations of Leap Wireless and its operating companies.
25
<PAGE> 26
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits:
<TABLE>
<S> <C>
10.9 1998 Stock Option Plan, as amended through April 13, 1999
10.21.2 Novation and Assumption of Payment Obligation Agreement, dated
May 11, 1999, by and among Chilesat Telefonia Personal S.A.,
Inversiones Leap Wireless Chile S.A. and Chilesat S.A.
(In Spanish and accompanied by a translation in English)
27. Financial Data Schedule (Filed with EDGAR filing only.)
27.1 Restated Financial Data Schedule (Year ended August 31, 1998)
(Filed with EDGAR filing only.)
27.2 Restated Financial Data Schedule (Quarter ended November 30, 1998)
(Filed with EDGAR filing only.)
27.3 Restated Financial Data Schedule (Quarter ended February 28, 1999)
(Filed with EDGAR filing only.)
</TABLE>
(b) Reports on Form 8-K.
On May 4, 1999, Leap Wireless filed a Current Report on Form 8-K to report
that it had acquired all of the shares of Chilesat Telefonia Personal that
it did not already own for $28 million in cash and a $22 million
interest-free note payable due in May 2002. The report incorporated by
reference to Leap Wireless' Amendment No. 1 to Annual Report on Form 10-K
for the fiscal year ended August 31, 1998, audited financial statements for
Chilesat at December 31, 1998 and 1997 and for the periods ended December
31, 1998 and 1997. On July 6, 1999, Leap Wireless amended this Current
Report to add Leap Wireless financial statements at February 28, 1999 and
for the periods ended February 28, 1999 and August 31, 1998, each on a pro
forma basis reflecting Leap Wireless acquisition of the shares of Chilesat
that it did not already own.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEAP WIRELESS INTERNATIONAL, INC.
Date: July 15, 1999 By: /s/ HARVEY P. WHITE
-------------------------------------
Harvey P. White
Chief Executive Officer
Date: July 15, 1999 By: /s/ STEPHEN P. DHANENS
-------------------------------------
Stephen P. Dhanens
Corporate Controller
(Chief Accounting Officer)
26
<PAGE> 1
EXHIBIT 10.9
LEAP WIRELESS INTERNATIONAL, INC.
1998 STOCK OPTION PLAN
ADOPTED SEPTEMBER 8, 1998
EFFECTIVE SEPTEMBER 23, 1998
AMENDED APRIL 13, 1999
APPROVED BY STOCKHOLDERS SEPTEMBER 8, 1998
TERMINATION DATE: SEPTEMBER 7, 2008
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which eligible recipients of Options may be given an opportunity to
benefit from increases in value of the Common Stock through the
granting of the following Options: (i) Incentive Stock Options, and
(ii) Nonstatutory Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Options, to
secure and retain the services of new members of this group and to
provide incentives for such persons to exert maximum efforts for the
success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any person that is a "parent" or "subsidiary" of the
Company, as those terms are defined under Rule 405 of Regulation C
promulgated under the Securities Act, or in the case of a Distribution
Option, as defined in the QUALCOMM STOCK PLANS.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(d).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means LEAP WIRELESS INTERNATIONAL, INC., a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting or advisory services and
who is compensated for such services. However, the term "Consultant"
shall not
1
<PAGE> 2
include Directors of the Company who either are not compensated by the
Company for their services as Directors or who are merely paid a fee
by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or
Consultant, is not terminated. The Optionholder's Continuous Service
shall not be deemed to have terminated merely because of a change in
the capacity in which the Optionholder renders service to the Company
or an Affiliate as an Employee, Consultant or Director or a change in
the entity for which the Optionholder renders such service, provided
that there is no termination of the Optionholder's Continuous Service.
For example, an Optionholder's change in status from an Employee to a
Consultant or a Director with no intervening period of time during
which the Optionholder is not an Employee, Director or Consultant will
not constitute a termination of Continuous Service.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the
Exchange Act, as determined for purposes of Section 162(m) of the
Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) DISTRIBUTION OPTION" means an Option granted as a supplement to a
QUALCOMM Option, pursuant to the Employee Benefits Agreement.
(m) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute
"employment" by the Company or an Affiliate.
(n) "EMPLOYEE BENEFITS AGREEMENT" means the Employee Benefits Agreement to
be entered into between QUALCOMM Incorporated and the Company, on
September 23, 1998, as in effect from time to time.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(p) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were
reported) as quoted on
2
<PAGE> 3
such exchange or market (or the exchange or market with the greatest
volume of trading in the Common Stock) on the last market trading day
prior to the day of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair Market
Value shall be determined in good faith by the Board.
(q) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(r) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly)
from the Company or its parent or a subsidiary for services rendered
as a consultant or in any capacity other than as a Director (except
for an amount as to which disclosure would not be required under Item
404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a)
of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation
S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(s) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(t) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(u) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(v) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(w) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding
Option.
(x) "OUTSIDE DIRECTOR" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation"
(within the meaning of Treasury Regulations promulgated under Section
162(m) of the Code), is not a former employee of the Company or an
"affiliated
3
<PAGE> 4
corporation" receiving compensation for prior services (other than
benefits under a tax qualified pension plan), was not an officer of
the Company or an "affiliated corporation" at any time and is not
currently receiving direct or indirect remuneration from the Company
or an "affiliated corporation" for services in any capacity other than
as a Director or (ii) is otherwise considered an "outside director"
for purposes of Section 162(m) of the Code.
(y) "PLAN" means this LEAP WIRELESS INTERNATIONAL, INC. 1998 Stock Option
Plan.
(z) "QUALCOMM INCORPORATED" means QUALCOMM Incorporated, a Delaware
corporation including any successor corporation.
(aa) "QUALCOMM OPTION" means a stock option granted pursuant to one of the
QUALCOMM STOCK PLANS.
(bb) "QUALCOMM STOCK PLANS" means the QUALCOMM Incorporated 1991 Stock
Option Plan, and the QUALCOMM Incorporated 1998 Non-Employee
Directors' Stock Option Plan, as such plans are in effect from time to
time.
(cc) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(dd) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(ee) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company or of any Affiliate.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless and
until the Board delegates administration to a Committee, as provided
in subsection 3(d).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the
Plan shall be granted Options; when and how each Option shall be
granted; what type or combination of types of Option shall be granted;
the provisions of each Option granted (which need not be identical),
including the time or times when a person shall be permitted to
receive stock pursuant to an
4
<PAGE> 5
Option; and the number of shares with respect to which an Option
shall be granted to each such person.
(ii) To construe and interpret the Plan and Options granted under it, and
to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Option
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the
Plan.
(c) In addition to the Plan, the administration of the Plan as it relates
to a Distribution Option shall also be subject to the terms and
conditions of the Employee Benefits Agreement, the QUALCOMM Option
that causes the grant of the specific Distribution Option pursuant to
the Employee Benefits Agreement, and the QUALCOMM STOCK PLANS as
those plans govern the terms of the QUALCOMM Option. The terms of the
QUALCOMM Option and the Employee Benefits Agreement shall control the
provisions of a Distribution Option and modify the provisions of the
Plan where inconsistent, with the exception of the provisions
covering Distribution Options in the event of a Change in Control. In
the event of any conflict between the provisions of the QUALCOMM
Option and the Employee Benefits Agreement, the provisions of the
QUALCOMM Option control.
(d) DELEGATION TO COMMITTEE. The Board may delegate administration of the
Plan to a committee composed of not fewer than two (2) members (the
"Committee"), all of the members of which Committee shall be, in the
discretion of the Board, Non-Employee Directors and/or Outside
Directors. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the
Plan, the powers theretofore possessed by the Board, including the
power to delegate to a subcommittee of two (2) or more Outside
Directors any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board
shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may
be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary,
the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Options to eligible
persons who (1) are not then subject to Section 16 of the Exchange
Act and/or (2) are either (i) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of
5
<PAGE> 6
income resulting from such Option, or (ii) not persons with respect to
whom the Company wishes to comply with Section 162(m) of the Code.
(e) The chief executive officer of the Company, or the Board, in that
party's sole discretion, may determine whether Continuous Service
shall be considered terminated in the case of any leave of absence
approved by that party, including sick leave, military leave or any
other personal leave. The term of each Option may be extended at the
discretion of the party approving the leave of absence (not to extend
beyond ten (10) years from the date of original grant) for the period
of any such approved leave of absence.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be issued
pursuant to Options shall not exceed in the aggregate Eight Million
(8,000,000) shares of Common Stock. Initially Two Million Four Hundred
Fifty-Seven Thousand Five Hundred Ten (2,457,510) shares shall be
available for the grant of Options other than Distribution Options.
Initially Five Million Five Hundred Forty-Two Thousand Four Hundred
Ninety (5,542,490) shares shall be available for the grant of
Distribution Options. The total number of shares of Common Stock
reserved under this Plan and the total number of shares issuable under
Distribution Options shall be reduced by the number of shares of
Common Stock issued pursuant to the exercise of QUALCOMM Options by
persons who would otherwise receive Distribution Options between the
record date and the distribution date as provided in the Employee
Benefits Agreement.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option (other than a
Distribution Option which expires or otherwise terminates on or before
April 13, 1999, which options shall not revert to or again become
available for issuance under the Plan) shall for any reason expire or
otherwise terminate, in whole or in part, without having been
exercised in full, the shares not acquired under such Option shall
revert to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC OPTIONS. Incentive Stock Options may be
granted only to employees of the Company, or its parent or subsidiary
corporations within the meaning of Section 422(b) of the Code, or any
successor provision. Nonstatutory Stock Options may be granted to
Employees, Directors and Consultants.
6
<PAGE> 7
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant and such Option
is not exercisable after the expiration of five (5) years from the
date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no Employee shall be
eligible to be granted in any calendar year Options covering more than
One Million (1,000,000) shares.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions (the substance of the following provisions are
deemed modified to the extent necessary for the grant of Distribution Options
pursuant to the Employee Benefits Agreement and consistent with the terms of the
Employee Benefits Agreement, the QUALCOMM Option and the QUALCOMM STOCK PLANS):
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted (five (5) years in the case of an
Incentive Stock Option granted to a Ten Percent Stockholder).
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the stock subject
to the Option on the date the Option is granted. Notwithstanding the
foregoing, an Incentive Stock Option may be granted with an exercise
price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a)
of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise
price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a)
of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes
and regulations, either (i) in cash at the time the Option is
exercised or (ii) at the discretion of the Board at the time of the
grant of the Option (or subsequently in the case
7
<PAGE> 8
of a Nonstatutory Stock Option) by delivery to the Company of other
Common Stock, according to a deferred payment or other arrangement
(which may include, without limiting the generality of the foregoing,
the use of other Common Stock) with the Optionholder or in any other
form of legal consideration that may be acceptable to the Board;
provided, however, that at any time that the Company is incorporated
in Delaware, payment of the Common Stock's "par value," as defined in
the Delaware General Corporation Law, shall not be made by deferred
payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime
of the Optionholder only by the Optionholder. Notwithstanding the
foregoing provisions of this subsection 6(e), the Optionholder may, by
delivering written notice to the Company, in a form satisfactory to
the Company, designate a third party who, in the event of the death of
the Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in its Option
Agreement. If such Option Agreement does not provide for
transferability, then the Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution
and shall be exercisable during the lifetime of the Optionholder only
by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(f), the Optionholder may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable
in periodic installments which may, but need not, be equal. The Option
may be subject to such other terms and conditions on the time or times
when it may be exercised (which may be based on performance or other
criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g)
are subject to any Option provisions governing the minimum number of
shares as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than due to the Optionholder's
death or Disability), the Optionholder may exercise his or her Option,
but only within such period of time as is determined by the Board, and
only to the extent provided in the Option Agreement and not
inconsistent with the terms
8
<PAGE> 9
of the Plan. In no event shall an Option be exercisable after the
expiration of the term of such Option as set forth in the Option
Agreement. In the case of an Incentive Stock Option, the Board shall
determine such period of time (not to exceed ninety (90) days from the
date of termination) when the Option is granted. If at the date of
termination, the Optionholder is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of such
Option shall revert to and again become available for issuance
pursuant to Options granted under the Plan to the extent provided
under Section 4. If after termination, the Optionholder does not
exercise his or her Option within the time specified in the Option
Agreement, such Option shall terminate, and the shares covered by such
Option, shall revert to and again become available for issuance
pursuant to Options granted under the Plan to the extent provided
under Section 4.
(i) DISABILITY. In the event an Optionholder's Continuous Service
terminates as a result of the Optionholder's Disability, then: (i) the
Option may continue to vest and remain outstanding, if so provided in
the Option Agreement, or (ii) if the Option Agreement does not provide
for such continuation of the Option, then the Optionholder may
exercise his or her Option, but only within twelve (12) months from
the date of such termination (or such shorter period specified in the
Option Agreement), and only to the extent that the Optionholder was
entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set
forth in the Option Agreement). If, at the date of termination, the
Option does not continue under its original terms and the Optionholder
is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and
again become available for issuance pursuant to Options granted under
the Plan. If, after termination, the Option does not continue under
its original terms and the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option
shall terminate, and the shares covered by such Option shall revert to
and again become available for issuance pursuant to Options granted
under the Plan to the extent provided under Section 4.
(ii) DEATH. In the event an Optionholder's Continuous Service terminates as
a result of Optionholder's death or due to the Optionholder's
Disability and such termination due to Disability is followed by the
Optionholder's death, then: (A) the vesting of all unvested shares may
be accelerated as of the date of the death of the Optionholder, if so
provided in the Option Agreement, or (B) if the Option Agreement does
not provide for the acceleration of the vesting of all unvested
shares, then the Option may be exercised, at any time within twelve
(12) months following the date of death, or such shorter period
specified in the Option Agreement (but in no event later than the
expiration of the term of such Option as set forth in the Option
Agreement), by the Optionholder's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only
to the extent the Optionholder was entitled to exercise the Option at
the date of death. If the
9
<PAGE> 10
Option Agreement does not provide for the acceleration of the vesting
of all unvested shares and, at the time of death, the Optionholder was
not entitled to exercise his or her entire Option, the shares covered
by the unexercisable portion of such Option shall revert to and again
become available for issuance pursuant to Options granted under the
Plan to the extent provided under Section 4. If, after death, the
Optionholder's estate or a person who acquired the right to exercise
the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become
available for issuance pursuant to Options granted under the Plan to
the extent provided under Section 4
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates (or as may be provided in
the Option Agreement of a Distribution Option) to exercise the Option
as to any part or all of the shares subject to the Option prior to the
full vesting of the Option. Any unvested shares so purchased may be
subject to an unvested share repurchase option in favor of the Company
or to any other restriction the Board determines to be appropriate.
7. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell
shares of Common Stock upon exercise of the Options; provided,
however, that this undertaking shall not require the Company to
register under the Securities Act the Plan, any Option or any stock
issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of stock under the Plan,
the Company shall be relieved from any liability for failure to issue
and sell stock upon exercise of such Options unless and until such
authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which an Option may first be exercised
or the time during which an Option or any part thereof will vest in
accordance with
10
<PAGE> 11
the Plan, notwithstanding the provisions in the Option stating the
time at which it may first be exercised or the time during which it
will vest.
(b) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Option granted pursuant thereto shall confer
upon any Optionholder or other holder of Options any right to continue
to serve the Company or an Affiliate in the capacity in effect at the
time the Option was granted or shall affect the right of the Company
or an Affiliate to terminate: (i) the employment of an Employee with
or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with
the Company or an Affiliate or (iii) the service of a Director
pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock
with respect to which Incentive Stock Options are exercisable for the
first time by any Optionholder during any calendar year (under all
plans of the Company and its Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such
limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to
give written assurances satisfactory to the Company as to the
Optionholder's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in
financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the
merits and risks of exercising the Option; and (ii) to give written
assurances satisfactory to the Company stating that the Optionholder
is acquiring the stock subject to the Option for the Optionholder's
own account and not with any present intention of selling or otherwise
distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (iii) the
issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective
registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances
under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock
11
<PAGE> 12
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the
stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Option Agreement, the Optionholder may satisfy any tax withholding
obligation (whether imposed on the Company, its Affiliates, QUALCOMM
Incorporated, or the affiliates of QUALCOMM Incorporated) relating to
the exercise or acquisition of stock under an Option by any of the
following means (in addition to the Company's right to withhold from
any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares from the shares of the
Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option; or (iii) delivering
to the Company owned and unencumbered shares of the Common Stock.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend,
dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted
in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities
subject to award to any person pursuant to subsection 5(c), and the
outstanding Options will be appropriately adjusted in the class(es)
and number of securities and price per share of stock subject to such
outstanding Options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be
treated as a transaction "without receipt of consideration" by the
Company.)
(b) CHANGE IN CONTROL.
(i) In the event of: (1) the sale of all or substantially all of the
Company's assets, (2) a merger, consolidation or reorganization of the
Company with or into another corporation or other legal person, other
than a merger, consolidation or reorganization in which more than
fifty percent (50%) of the combined voting power of the
then-outstanding securities of the surviving entity (or if more than
one entity survives the transaction, the controlling entity)
immediately after such a transaction are held in the aggregate by
holders of voting securities of the Company immediately prior to such
transaction, (3) the acquisition by any person (within the meaning of
Section 13(d)(3) or
12
<PAGE> 13
Section 14(d)(2) of the Exchange Act) of beneficial ownership (within
the meaning of Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of securities representing fifty
percent (50%) or more of the combined voting power of the
then-outstanding securities of the Company, or (4) during any period
of two (2) consecutive years, individuals who at the beginning of any
such period constitute the Directors of the Company (the "Incumbent
Directors") cease for any reason to constitute at least a majority
thereof unless the election or the nomination for election by the
Company's stockholders of a Director of the Company first elected
during such period was approved by the vote of at least two-thirds of
the Incumbent Directors, whereupon such Director shall also be
classified as an Incumbent Director (collectively, a "Change in
Control"), then: (A) any surviving corporation shall assume any
Options outstanding under the Plan or shall substitute similar options
for those outstanding under the Plan (including an option to acquire
the same consideration paid to stockholders in the transaction
described in this subsection 10(b)(i)), or (B) such Options shall
continue in full force and effect. In the event any surviving
corporation refuses to assume such Options, or to substitute similar
options for those outstanding under the Plan, then, with respect to
Options held by Optionholders then performing services as Employees,
Directors or Consultants the time at which such Options may first be
exercised in full shall be accelerated and the Options terminated if
not exercised prior to such event, and with respect to Distribution
Options held by persons then providing services as an employee,
director or consultant to QUALCOMM Incorporated, or any of its
affiliates, the time at which such Distribution Options may first be
exercised in full shall be accelerated and the Distribution Options
terminated if not exercised prior to such event, and with respect to
any other Options outstanding under the Plan, such Options shall
terminate if not exercised prior to such event. In the event of a
dissolution or liquidation of the Company, any Options outstanding
under the Plan shall terminate if not exercised prior to such event.
(ii) In addition, with respect to any person who was providing Continuous
Service immediately prior to the consummation of the Change in
Control, any Options (including an option substituted for an Option)
held by such person shall immediately become fully vested and
exercisable (and any repurchase right by the Company with respect to
shares acquired by such person under an Option (or an option
substituted for an Option) shall lapse) if such person's Continuous
Service is Involuntarily Terminated Without Cause or Constructively
Terminated within twenty-four (24) months following the Change in
Control. Notwithstanding the preceding sentence, in the event all of
the following occurs: (A) such contemplated Change in Control would
occur prior to the second anniversary of the adoption of this Plan by
the Board; (B) such potential acceleration of vesting (and
exercisability) would by itself result in a contemplated Change in
Control that would otherwise be eligible to be accounted for as a
"pooling of interests" accounting transaction to become ineligible for
such accounting
13
<PAGE> 14
treatment; and (C) the potential acquirer of the Company desires to
account for such contemplated Change in Control as a "pooling of
interests" transaction, then such acceleration shall not occur.
Additionally, in the event that the restrictions upon acceleration
provided for in the immediately preceding sentence by itself would
result in a contemplated Change in Control to become ineligible to be
accounted for as a "pooling of interests" accounting transaction,
then such restrictions shall be deemed inoperative. Accounting issues
shall be determined by the Company's independent public accountants
applying generally accepted accounting principles.
(iii) "CONSTRUCTIVELY TERMINATED" shall mean the voluntary termination of
employment by Optionholder after any of the following are undertaken
without Optionholder's express written consent: (A) the assignment to
Optionholder of any duties or responsibilities which result in a
material diminution or adverse change of Optionholder's position,
status or circumstances of employment, but does not include a mere
change in title or reporting relationship; (B) reduction by the
Company in Optionholder's base salary; (C) any failure by the Company
to continue in effect any benefit plan or arrangement, including
incentive plans or plans to receive securities of the Company, in
which Optionholder is participating (hereinafter referred to as
"BENEFIT PLANS"), or the taking of any action by the Company which
would adversely affect Optionholder's participation in or reduce
Optionholder's benefits under any Benefit Plans or deprive
Optionholder of any fringe benefit then enjoyed by Optionholder,
provided, however, that Optionholder's termination is not deemed to
be Constructively Terminated if the Company offers a range of benefit
plans and programs which, taken as a whole, are comparable to the
Benefit Plans; (D) a relocation of Optionholder or the Company's
principal business offices to a location more than fifty (50) miles
from the location at which Optionholder performs duties, except for
required travel by Optionholder on the Company's business to an
extent substantially consistent with Optionholder's business travel
obligations; (E) any breach by the Company of any material agreement
between Optionholder and the Company concerning Optionholder's
employment; or (F) any failure by the Company to obtain the
assumption of any material agreement between Optionholder and the
Company concerning Optionholder's employment by any successor or
assign of the Company.
(iv) "INVOLUNTARILY TERMINATED WITHOUT CAUSE" shall mean dismissal or
discharge of Optionholder for any reason other than Cause, death or
Disability.
(v) "CAUSE" shall mean any of the following: (A) an intentional act which
materially injures the Company; (B) an intentional refusal or failure
to follow lawful and reasonable directions of the Board or an
individual to whom Optionholder reports (as appropriate); (C) a
willful and habitual neglect of duties; or (D) a conviction of a
felony involving moral turpitude
14
<PAGE> 15
which is reasonably likely to inflict or has inflicted material injury
on the Company.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective
unless timely approved by the stockholders of the Company to the
extent stockholder approval is necessary to satisfy the requirements
of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including,
but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations
thereunder regarding the exclusion of performance-based compensation
from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees with the maximum benefits
provided or to be provided under the provisions of the Code and the
regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under
it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Optionholder
and (ii) the Optionholder consents in writing.
(e) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however,
that the rights under any Option shall not be impaired by any such
amendment unless (i) the Company requests the consent of the
Optionholder and (ii) the Optionholder consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before
the tenth (10th) anniversary of the date the Plan is adopted by the
Board or approved by the stockholders of the Company, whichever is
earlier. No Options may be granted under the Plan while the Plan is
suspended or after it is terminated.
15
<PAGE> 16
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Option
granted while the Plan is in effect shall not be impaired by
suspension or termination of the Plan, except with the written consent
of the Optionholder.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Option
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
16
<PAGE> 1
EXHIBIT 10.21.2
CONTRATO DE NOVACION Y ASUNCION DE DEUDA
CHILESAT S.A.,
INVERSIONES LEAP WIRELESS CHILE S.A Y
CHILESAT TELEFONIA PERSONAL S.A.
En Santiago de Chile, a 11 de mayo de 1999, ante mi Jose Musalem Saffie,
abogado, Notario Publico, Titular de la Cuadragesima Octava Notaria, con oficio
en calle Huerfanos 770, tercer piso, Santiago comparecen CHILESAT S.A., sociedad
del giro de servicios de telecomunicaciones, RUT numero 88.381.200-K,
representada en este acto por su Gerente General don Ramon Valdivieso Rios,
chileno,
1
<PAGE> 2
casado, abogado, cedula de identidad numero 7.905.450-K, y por su Presidente don
Juan Eduardo Ibanez, chileno, casado, abogado, cedula de identidad numero
6.062.416-K todos con domicilio en calle Rinconada El Salto 202, Huechuraba,
Santiago, en adelante tambien "CHILESAT"; INVERSIONES LEAP WIRELESS CHILE S.A.,
sociedad del giro de su denominacion, RUT numero 96.819.520-4, representada en
este acto por don Luis Octavio Bofill Genzsch, chileno, casado, abogado, cedula
de identidad numero 7.003.699-1, ambos con domicilio en Tenderini 153, comuna y
ciudad de Santiago, en adelante tambien "LEAP"; y CHILESAT TELEFONIA PERSONAL
S.A, sociedad del giro de su denominacion, RUT N(degree) 96.799.250-K,
representada en este acto por su Gerente General don Richard Sutherland
Genskonsky, chileno, casado, ingeniero comercial, cedula de identidad numero
6.902.317-7, ambos con domicilio en calle Rinconada El Salto 202, comuna de
Huechuraba, Santiago, en adelante tambien "CHILESAT PCS", todos los
comparecientes mayores de edad, quienes acreditaron su identidad con las cedulas
antes mencionadas y expresan que:
(i) Chilesat y Leap han sido partes de un contrato suscrito en idioma ingles
celebrado con fecha 12 de Abril de 1999, denominado "Stock Purchase
2
<PAGE> 3
Agreement", (en adelante la "Compraventa de Acciones"), en virtud del cual la
primera transfirio a la segunda la totalidad de su participacion accionaria en
Chilesat PCS;
(ii) de acuerdo a los terminos y condiciones establecidos en la Compraventa de
Acciones, el precio que correspondia a Chilesat por la venta de sus acciones se
pagaria una parte al contado (que de hecho se pago a entera conformidad de
Chilesat) y, el saldo restante, ascendente a 22 millones de Dolares, se pagaria
en pesos moneda nacional de acuerdo al valor del Dolar Observado del dia
inmediatamente anterior al pago, en el plazo de tres anos contados desde la
fecha del cierre de la Compraventa de Acciones, esto es, el 19 de abril del ano
2002, sin intereses;
(iii) Chilesat PCS es deudora de Leap en la suma de 35 millones de Dolares (solo
por concepto de capital, sin considerar los intereses devengados hasta esta
fecha), segun se desprende del Acuerdo de Pago Diferido y del Acuerdo de Credito
Leap;
(iv) Leap ha propuesto a Chilesat que la obligacion de pago del saldo de precio
de la Compraventa de Acciones fuera asumida por Chilesat PCS, en los mismos
terminos y condiciones que existen para Leap, a cambio de una remision parcial
de la deuda indicada en el apartado (iii) precedente;
(v) Chilesat y Chilesat PCS han aceptado irrevocablemente esta formula de pago
propuesta por Leap, pues, ademas de asi establecerlo en la clausula 1.2 c) de la
Compraventa de Acciones y en la clausula 2.2 de este instrumento, otorgaron
junto a Leap, con fecha 19 de abril de 1999, por instrumento privado, un
contrato de novacion y asuncion de obligacion de pago denominado en idioma
ingles "Novation and Assumption of Payment Obligation Agreement", en
3
<PAGE> 4
adelante tambien ("Novation Agreement"). En la seccion 2.6. de la Compraventa de
Acciones se establecio la obligacion de las partes vendedora y compradora, (y la
obligacion de esta ultima de provocar igual accion por parte de Chilesat PCS),
de otorgar una version en espanol del Novation Agreement, por escritura publica,
cuyo contenido debia ser una traduccion fiel del Novation Agreement, con mas los
ajustes que convinieran las mismas partes. Se establecio asimismo que, una vez
otorgada la escritura publica correspondiente, la Novacion pasaria a reemplazar
definitivamente al Novation Agreement.
EN CONSECUENCIA, teniendo presente los considerandos expuestos precedentemente y
las declaraciones que se contienen en el presente instrumento, en el Novation
Agreement y en la Compraventa de Acciones, las partes han convenido en el
siguiente Contrato de Novacion y Asuncion de Deuda, (en adelante "la Novacion").
PRIMERO: DEFINICIONES.
Los terminos definidos en la siguiente lista se entenderan como conceptos
especificos y de uso corriente para la interpretacion y aplicacion de la
Novacion, siempre y cuando vayan en mayuscula o lleven en mayuscula su primera
letra, ya sea que se utilicen en singular o plural, a menos que al usarse uno o
mas de esos conceptos se establezca expresamente otra cosa y sin perjuicio de
otras definiciones contenidas en el texto del presente instrumento:
"Acciones Adicionales de Capital": significa todas las acciones representativas
de capital de Chilesat PCS, sean estas comunes o preferidas, que se emitan, se
vendan, o que se reputen emitidas de conformidad a lo establecido en la
clausula 3.4(b), con posterioridad a esta fecha.
"Acreedor": significa Chilesat S.A. o cualquier otra Persona
4
<PAGE> 5
a quien esta haya cedido sus derechos bajo esta Novacion, en los terminos
previstos en la clausula 7.5 siguiente.
"Acuerdo de Credito Leap": significa el contrato de mutuo suscrito en idioma
ingles con fecha 24 de Junio de 1998, entre Chilesat PCS, Telex-Chile S.A.
("Telex") y Leap, denominado "Loan Agreement", incluyendo las enmiendas,
modificaciones o complementos que pueda sufrir de tiempo en tiempo.
"Acuerdo de Pago Diferido": significa el contrato suscrito en idioma ingles con
fecha 24 de Junio de 1998, entre Chilesat PCS, Telex, Qualcomm, Inc.
("Qualcomm") y Leap Wireless International, Inc. ("Leap Wireless") (este ultimo
en tanto cesionario parcial de Qualcomm del mismo contrato), denominado "Amended
and Restated Deferred Payment Agreement", incluyendo las enmiendas,
modificaciones o complementos que pueda sufrir de tiempo en tiempo.
"Adquisicion": significa la adquisicion de todas las acciones comunes de
Chilesat PCS que eran de propiedad de Telex y Chilesat, realizada por Leap con
fecha 19 de Abril de 1999.
"Autoridad Gubernamental": significa cualquier nacion o gobierno, cualquier
estado, region, provincia, municipalidad u otra subdivision politica de la
misma, o cualquier agencia u organismo de cualquiera de ellas, y en general
cualquier otra entidad que ejerza funciones ejecutivas, legislativas,
judiciales, reglamentarias o administrativas o que pertenezcan a algun gobierno.
"Causal de Incumplimiento": significa cualquiera de las causales especificadas
en la clausula 6.1 de la Novacion, siempre que los requisitos de notificacion,
de transcurso del tiempo, o ambos, o cualquier otra condicion, hayan sido
satisfechos.
"Compraventa de
5
<PAGE> 6
Acciones": tiene el significado indicado en los considerandos.
"Chilesat": significa Chilesat S.A.
"Chilesat PCS" o "Deudor Delegado": significa Chilesat Telefonia Personal S.A.
"Derecho de Compensacion": tiene el significado indicado en la clausula 3.7.
"Dia Habil": significa cualquier dia del ano que no sea un Sabado, un Domingo o
un dia en el cual los bancos comerciales de Nueva York o Santiago estan
autorizados u obligados por ley a cerrar.
"Dolar" o "US$": significa la moneda de curso legal de los Estados Unidos de
America.
"Dolar Observado": significa, en cualquiera fecha de determinacion, (i) el tipo
de cambio vigente para el Dolar publicado en tal fecha por el Banco Central de
Chile, de acuerdo con lo dispuesto en el parrafo 6 del Capitulo I del Titulo 1
del Compendio de Cambios Internacionales, o bien, si el Banco Central dejara de
publicar el valor del Dolar Observado, (ii) el tipo de cambio del Dolar
publicado o anunciado por Citibank en tal fecha, o bien, si Citibank no
publicare o anunciare dicho tipo de cambio, (iii) el tipo de cambio publicado o
anunciado por Bank of America en tal fecha, o bien, si ninguno de tales bancos
anunciare o publicare el valor del Dolar, (iv) el tipo de cambio publicado en
tal fecha por el diario "Wall Street Journal" de Nueva York como tipo de cambio
para cambios internacionales "spot mid-rates", o bien, si no fuera publicado,
(v) el tipo de cambio para tal fecha publicado por el diario "Financial Times"
como tipo de cambio "mid-market foreign exchange spot closing rates", o bien, si
no fuera publicado, (vi) el tipo de cambio promedio de mercado usado para
operaciones de cambios internacionales al dia (spot) efectuadas en tal fecha
entre bancos, cuyos montos de transaccion fuere de un millon de Dolares a lo
6
<PAGE> 7
menos.
"Efecto Sustancial Adverso": significa (a) un cambio sustancial adverso en, o un
efecto sustancial adverso sobre, las operaciones, negocios, activos,
propiedades, condicion (financiera o de otro tipo) o perspectivas del Deudor
Delegado y sus Subsidiarias consideradas en forma consolidada, que resulte en un
empeoramiento sustancial de la capacidad del Deudor Delegado para cumplir sus
obligaciones bajo esta Novacion; o (b) un efecto sustancial adverso en cuanto a
legalidad, validez, efecto vinculante o exigibilidad en contra del Deudor
Delegado, de la Novacion.
"Endeudamiento": significa, respecto de cualquier Persona, (a) Endeudamiento de
tal Persona por dinero recibido en prestamo; (b) todos los leasing financieros
de tal Persona; (c) todas las obligaciones de tal Persona por saldos de precio
de propiedades o servicios (que no sean facturas u otras cuentas por pagar del
giro ordinario del negocio de acuerdo a los terminos usuales de la industria
respectiva).
"Entidad Relacionada": significa, respecto de cualquier Persona, (i) cualquier
otra Persona en la que aquella Persona posea, directa o indirectamente, sea por
via de propiedad accionaria, sea por via contractual o sea por otra via, un
interes economico superior al 25%; y (ii) cualquier otra Persona que, directa o
indirectamente, controle a aquella Persona, sea controlada por aquella Persona,
o que este sujeta al control comun de otra Persona, junto con aquella Persona.
(Tales personas, no obstante, no se consideraran Entidades Relacionadas cuando
(a) la relacion provenga de una administracion fiduciaria comun - trustee - o
(b) de una administracion comun ejercida por un comite con facultades de
administracion o (c) cuando la relacion provenga de la existencia de un plan de
retiro o de
7
<PAGE> 8
planes de beneficios a empleados que fueren comunes o las vinculen). Se reputara
que una Persona "es controlada por" otra Persona, si dicha otra Persona posee,
directa o indirectamente, poder para (i) votar el 25% o mas de los valores con
derecho a voto ordinario o comun para la eleccion de directores o
administradores; o (ii) dirigir o provocar la direccion de la administracion y
politicas de negocios de tal Persona, sea a traves de contratos o de cualquier
otra manera.
"Estados Financieros": significa, respecto de cualquier periodo contable de una
Persona, los estados de ingresos y flujos de caja de dicha Persona para tal
periodo y el balance de esa Persona con cierre a ese periodo contable,
expresando, en cada caso, una comparacion respecto del mismo periodo contable
precedente, todo ello preparado en forma razonablemente detallada y de acuerdo
con los GAAP Chilenos consistentemente aplicados, reflejando fielmente la
condicion financiera de dicha Persona.
"GAAP Chilenos": significa los principios y practicas de contabilidad
generalmente aceptados en Chile que se encuentren vigentes de tiempo en tiempo."
"Gravamen": significa cualquier hipoteca, prenda, caucion, garantia, cargo,
prohibicion, cesion, retencion, restriccion, limitacion, gravamen (legal u
otro), preferencia, prioridad o acuerdo de garantia o preferencia de cualquier
naturaleza, (incluyendo, sin limitacion, cualquier venta condicional o derecho
de retencion, o cualquier leasing financiero que tenga sustancialmente el mismo
efecto economico de los anteriores).
"Leap" o "Deudor Primitivo": significa Inversiones Leap Wireless Chile S.A.
"Leap Wireless": significa Leap Wireless International, Inc., una sociedad
organizada de acuerdo a las
8
<PAGE> 9
leyes del Estado de Delaware, Estados Unidos de America.
"Libor": aplicable a cualquier mes calendario, significa la tasa de interes
anual (aproximada hacia arriba, si es necesario, al un dieciseisavo de 1%
siguiente) correspondiente a la tasa que aparece indicada en la pantalla de la
Pagina 3750 del "Dow Jones Telerate Service" o "Telerate Screen", como la tasa
ofrecida aproximadamente a las 11:00 A.M., hora de Londres, por los bancos
principales del mercado interbancario de Londres para los depositos en Dolares,
en el segundo dia habil de Londres anterior al primer dia de dicho mes
calendario, para una cantidad aproximada al capital adeudado bajo esta Novacion,
cuando ese capital devengue intereses a esa tasa Libor en periodos mensuales. La
tasa Libor asi determinada sera aplicada a todo el capital adeudado bajo esta
Novacion y que estuviere en incumplimiento, durante todo el mes calendario que
corresponda, sin importar los cambios que sufra la tasa Libor durante dicho mes.
"Novacion": tiene el significado indicado en los considerandos.
"Obligacion": tiene el significado expresado en la clausula 2.1
"Pago Restringido": significa (i) cualquier pago de dividendos o distribucion,
sea en dinero efectivo, valores u otros bienes, que se haga con respecto a
acciones de cualquier clase de las acciones de capital del Deudor Delegado; o
(ii) cualquier pago en dinero efectivo, valores u otros bienes que se haga a
cuenta de la compra, rescate, retiro, adquisicion, cancelacion o terminacion de
cualquiera de dichas acciones de capital del Deudor Delegado; o (iii) cualquier
pago que se haga con respecto a opciones u otros derechos a adquirir dichas
acciones de capital del Deudor Delegado.
"Persona": significa
9
<PAGE> 10
las personas naturales o juridicas incluyendo las sociedades de personas,
sociedades de capital, sociedades de hecho, "trusts", "joint ventures",
Autoridad Gubernamental o cualquier otra entidad, cualquiera fuere su
naturaleza.
"Precio Base": tiene el significado expresado en la clausula 3.3(d)
"Requisitos Legales": significan, respecto de cualquier Persona, sus estatutos
sociales, reglamentos internos o cualquier otro documento de organizacion o
administrativo de esa Persona, como tambien cualquier ley, tratado, reglamento,
decreto, ordenanza o sentencia u orden judicial de un arbitro o de un tribunal
competente o de cualquier Autoridad Gubernamental, que sea aplicable o
vinculante para tal Persona o sus bienes, o a los cuales tal Persona o sus
bienes esten sujetos.
"Subsidiaria": significa respecto de cualquier Persona, una entidad en la cual
el 50% de las acciones (o valores representando el mismo interes en el capital)
con derecho ordinario a voto (excluidas las acciones con derecho a voto en razon
de la ocurrencia de determinados eventos) son, en un momento determinado, de
propiedad de, o controladas por, tal Persona, directa o indirectamente, a traves
de uno o mas intermediarios, o ambos.
"Telex": significa Telex-Chile S.A.
SEGUNDO: NOVACION Y ASUNCION DE DEUDA.
2.1. Segun lo dispuesto en la clausula 1.2(c) de la Compraventa de Acciones, el
Deudor Primitivo adeuda al Acreedor la suma de 22 millones de Dolares por
concepto de saldo de precio. Dicha suma se encuentra sujeta a reduccion o
compensacion de acuerdo a las causales de Derecho a Compensacion y se debe pagar
en los terminos y bajo las condiciones pactadas en la Compraventa de Acciones,
(en adelante "la Obligacion").
10
<PAGE> 11
2.2. De acuerdo a lo previsto en la Compraventa de Acciones, Chilesat y Leap
convinieron que la Obligacion seria cedida por esta ultima a Chilesat PCS,
novandola, de modo que esta ultima la asumiria incondicional e irrevocablemente,
relevandose y liberandose de igual manera a Leap, del cumplimiento de la misma.
2.3. Por este acto Leap cede y transfiere a Chilesat PCS la Obligacion, la que
es asumida por esta ultima, cesion y transferencia que es aceptada por Chilesat,
todo lo cual se efectua por las partes con expreso animo de novar, mediante el
cambio o sustitucion del Deudor Primitivo por el Deudor Delegado y bajo los
terminos y condiciones previstos en la Novacion.
2.4. El Deudor Delegado deja expresa constancia que su consentimiento ha sido
dado como contraprestacion y en compensacion a la extincion que, por igual monto
de veintidos millones de Dolares a esta fecha, se produce por este acto de la
obligacion de pago del Deudor Delegado en favor de Leap, considerara en el
Acuerdo de Credito Leap.
2.5. Por su parte, el Acreedor declara que acepta lo expresado por el Deudor
Delegado y lo reconoce como nuevo deudor de la Obligacion, deudor que subroga y
reemplaza plena y definitivamente al Deudor Primitivo en relacion a la
Obligacion, quedando en consecuencia este ultimo liberado en forma incondicional
e irrevocable de toda responsabilidad a este respecto.
2.6. Las partes hacen presente y reconocen que lo expresado en los puntos
anteriores constituye novacion por cambio de deudor y, por lo tanto, declaran
extinguida la
11
<PAGE> 12
Obligacion respecto del Deudor Primitivo. Asimismo, las partes reconocen que en
virtud de la Novacion, todos y cada uno de los terminos y condiciones de la
Obligacion tendran pleno vigor respecto del Deudor Delegado. Finalmente, las
partes dejan expresa constancia que la asuncion irrevocable e incondicional de
la Obligacion por parte del Deudor Delegado constituye un elemento esencial para
el consentimiento del Acreedor a la Compraventa de Acciones.
2.7. En virtud de la Novacion, el Deudor Delegado, como nuevo deudor de la
Obligacion, toma sobre si todas los compromisos contraidos por el Deudor
Primitivo para con el Acreedor en relacion con dicha Obligacion,
comprometiendose a solucionarla en los terminos y condiciones que se expresan
mas adelante.
TERCERO: CONDICIONES DE PAGO.
3.1. Intereses: todas las sumas que deban pagarse de conformidad a la Novacion
seran pagadas sin intereses, excepto los intereses moratorios que puedan ser
aplicables de acuerdo a la clausula 3.6.
3.2. Prepagos Opcionales: el Deudor Delegado podra, en cualquier momento,
prepagar la Obligacion, en su totalidad o en parte.
3.3. Prepagos Obligatorios: el Deudor Delegado estara obligado a prepagar la
Obligacion, en su totalidad o en parte, segun sea el caso, en las siguientes
circunstancias:
a) Si el Deudor Delegado (i) hace un Pago Restringido a Leap, Leap Wireless o
cualquiera de las respectivas Subsidiarias de esas dos entidades; o (ii) hace un
Pago Restringido a una Persona distinta de Leap, Leap Wireless o cualquiera de
las respectivas Subsidiarias de esas dos entidades, sus sucesores o cesionarios,
excepto cuando tales pagos se realizaren con cargo a utilidades o utilidades
retenidas (en este ultimo caso no se estara frente a un Pago Restringido);
previo a efectuar
12
<PAGE> 13
el Pago Restringido, pero en la misma fecha de este ultimo, debera prepagar la
totalidad de la Obligacion.
b) Si el Deudor Delegado paga, recompra o redime cualquier parte del capital
adeudado bajo un Endeudamiento cuyo credito este en poder de Leap, Leap Wireless
o cualquiera de sus respectivas Subsidiarias, o bien, si paga, recompra o
condona cualquier parte del capital adeudado bajo un Endeudamiento que hubiere
estado vigente al 29 de Marzo de 1999 para con Leap y/o Leap Wireless o uno
cualquiera de sus respectivos sucesores o cesionarios, previo a realizar
cualquiera de dichos pagos pero en la misma fecha de este ultimo, debera
prepagar la totalidad de la Obligacion.
c) Si el Deudor Delegado emite Acciones Adicionales de Capital o incurre en
Endeudamiento y recibe ingresos netos (sean en dinero efectivo, valores u otros
bienes, pero excluyendo condonaciones de deudas) en una cantidad total que
exceda los 200 millones de Dolares (considerando todas las emisiones de acciones
de capital y todo el Endeudamiento que se contrate a contar de esta fecha),
debera destinar una cantidad equivalente al 50% de los ingresos netos que
excedan los 200 millones de Dolares, al prepago de la Obligacion, en cada una de
las fechas en que se emitan Acciones Adicionales de Capital o se contrate
Endeudamiento.
d) Si a contar de esta fecha y hasta el 19 de Marzo del ano 2000, ambas fechas
inclusive, el Deudor Delegado o Leap venden acciones de capital (sean ordinarias
o preferentes) de Chilesat PCS a cualquier Persona, por un precio mayor que el
Precio Base (definido y ajustado de conformidad a lo previsto en la clausula
siguiente), el Deudor Delegado debera, en la fecha de tal venta: (i) si la
13
<PAGE> 14
venta ocurre el o antes del 30 de Junio de 1999, destinar al prepago de la
Obligacion una cantidad equivalente al 50% de los ingresos netos que excedan el
Precio Base por accion vendida en dicha operacion, multiplicado por la totalidad
de las acciones que se vendan en dicha operacion; (ii) si la venta ocurre
despues del 30 de Junio de 1999 y hasta el 19 de Marzo del ano 2000, destinar al
prepago de la Obligacion una cantidad equivalente al 25% de los ingresos netos
que excedan el Precio Base por accion vendida en dicha operacion, multiplicado
por la totalidad de las acciones que se vendan en dicha operacion. Para los
efectos de esta letra (d), cualquier venta de acciones de una sociedad
controladora del Deudor Delegado que haya sido establecida entre Leap y dicho
Deudor Delegado y que no tenga otros activos y/o pasivos sustanciales aparte de
las acciones de Chilesat PCS, se considerara como una venta de las acciones
subyacentes de Chilesat PCS (con los ajustes proporcionales respectivos al
Precio Base que reflejen cualquier diferencia entre el numero de acciones
emitidas de dicha sociedad controladora y el numero de acciones emitidas de
Chilesat PCS, vgr. si el Precio Base es de 5 Dolares por accion y Chilesat PCS
tiene 20 millones de acciones emitidas antes de la venta, mientras que la
sociedad controladora tiene 10 millones de acciones emitidas, el Precio Base
aplicable a la sociedad controladora sera de 10 Dolares por accion).
e) No obstante lo dispuesto en esta seccion 3.3., la conversion de la deuda en
capital del Deudor Delegado al amparo de lo regulado en el Acuerdo de Credito
Leap o en el Acuerdo de Pago
14
<PAGE> 15
Diferido, bajo ninguna circunstancia obligara al Deudor Delegado a prepagar la
Obligacion ni afectara el Precio Base.
3.4. Ajuste del Precio Base: (a) a la fecha de la presente Novacion, el Precio
Base para acciones ordinarias es de 5 Dolares por accion y el Precio Base para
acciones preferentes es de 5 dolares mas la suma que el directorio de Chilesat
PCS, de buena fe, estime como el mayor valor de las acciones preferentes sobre
las acciones ordinarias resultante de los derechos, preferencias y privilegios
de tales acciones preferentes. Si con posterioridad a esta fecha el Deudor
Delegado, en cualquier tiempo o de tiempo en tiempo, emite o vende Acciones
Adicionales de Capital (incluyendo Acciones Adicionales de Capital que se
reputen emitidas de acuerdo a la clausula 3.4(b)) por un valor inferior al
Precio Base vigente en el tiempo inmediatamente anterior a dicha emision o
venta, en cada uno de tales casos el Precio Base sera ajustado concurrentemente
con dicha emision o venta a un precio por accion (calculado hasta con seis
decimales si fuera necesario) que sera determinado multiplicando el Precio Base
por una fraccion: (i) cuyo numerador sera (A) el numero de acciones de capital
de Chilesat PCS emitidas hasta el momento inmediato anterior a dicha emision o
venta, mas (B) el numero de acciones de capital de Chilesat PCS que se podrian
comprar a dicho Precio Base, con el valor total recibido por Chilesat PCS como
contraprestacion por el numero total de tales Acciones Adicionales de Capital
emitidas o vendidas, mas (C) el numero de acciones de capital de Chilesat PCS
vendidas a cualquier Persona, distinta de Leap, Leap Wireless o cualquiera de
sus respectivas Entidades Relacionadas; y (ii) cuyo denominador sera el numero
de
15
<PAGE> 16
acciones de capital de Chilesat PCS emitidas inmediatamente despues de tal
emision o venta. En todo caso, para los efectos de esta clausula 3.4, (X)
inmediatamente despues que cualesquiera Acciones Adicionales de Capital se
reputen emitidas de conformidad a la clausula 3.4(b), tales Acciones
Adicionales de Capital se contaran como emitidas, y (Y) las acciones autorizadas
y no emitidas no se reputaran emitidas.
(b) En caso que el Deudor Delegado, en cualquier tiempo o de tiempo en tiempo
despues de esta fecha, declare o pague cualquier dividendo en acciones de
capital (crias) o subdivida las acciones de capital emitidas en un numero mayor
de acciones de capital (por reclasificacion o de cualquier otra manera que no
sea el pago de un dividendo en acciones de capital), se reputara, en cada uno de
tales casos, que se han emitido Acciones Adicionales de Capital en las
siguientes fechas: (i) en el caso de dividendos, inmediatamente despues del
cierre del registro de accionistas que se produzca para los efectos de
determinar que tenedores de cualquier clase de valores tienen derecho a recibir
tal dividendo o (ii) en el caso de subdivisiones, el dia inmediatamente anterior
al dia en que tal decision corporativa se haga efectiva.
(c) Para los efectos de esta clausula 3.4., (i) el precio recibido por la
emision o venta de Acciones Adicionales de Capital, independiente del
tratamiento contable de tal contraprestacion, sera: (A) si consiste en dinero
efectivo, la cantidad neta de dinero efectivo recibida por el Deudor Delegado;
(B) si consiste en bienes distintos del dinero (incluyendo valores), el justo
valor de mercado a la fecha de la emision o venta, segun sea determinado de
buena fe por el directorio del Deudor Delegado, y (C) en el caso que las
16
<PAGE> 17
Acciones Adicionales de Capital sean emitidas o vendidas en conjunto con otras
acciones o valores u otros activos y se reciba un precio unico por dichos
bienes, la porcion del precio recibido, determinada de acuerdo a las letras (A)
y (B) anteriores, que corresponda a las Acciones Adicionales de Capital, segun
sea determinado, de buena fe, por el directorio del Deudor Delegado; y (ii) las
Acciones Adicionales de Capital que se reputen emitidas de acuerdo a la letra
(b) de esta clausula seran consideradas como emitidas por la mera liberalidad.
3.5. Pagos: (a) el Deudor Delegado realizara los pagos que correspondan de
acuerdo a esta Novacion, no mas alla de las 12:00 horas (mediodia de Santiago de
Chile) del dia en que dichos pagos se hagan exigibles, en pesos chilenos, de
acuerdo al valor del Dolar Observado del dia anterior a la fecha del pago y en
fondos disponibles el mismo dia. El pago efectuado en las condiciones descritas
precedentemente se hara al Acreedor, en la direccion indicada en la clausula 7.2
del presente instrumento, o a quien el Acreedor designe por escrito.
(b) Si el plazo para realizar cualquiera de los pagos que corresponda en
conformidad a esta Novacion venciera en un dia distinto a un Dia Habil, tal pago
solo sera exigible al Dia Habil inmediatamente siguiente.
3.6. Intereses Moratorios: el capital adeudado o cualquier otra cantidad
pagaderas de conformidad a esta Novacion, devengaran un interes a contar del
vencimiento pactado, pagadero al solo requerimiento, por cada dia y hasta el dia
del pago efectivo, a una tasa anual equivalente a Libor mas un 5% sobre la base
de un ano de 360 dias, por el numero de dias (incluyendo el primero, pero
excluyendo el ultimo) que transcurren en el periodo en
17
<PAGE> 18
que dicho interes es exigible.
3.7. Derecho de Compensacion: el presente instrumento autoriza al Deudor
Delegado, con toda la extension permitida por la ley, para compensar o imputar
al pago o cumplimiento de cualquiera y/o todas las obligaciones establecidas en
la Novacion, con cualquier cantidad adeudada por Telex o Chilesat, a Chilesat
PCS y/o Leap, en razon de las indemnizaciones o pagos contemplados en la
Compraventa de Acciones. En todo caso, si dicha compensacion o imputacion al
pago es realizada de mala fe, se pagara una indemnizacion al Acreedor o a
cualquiera de sus cesionarios, por un monto equivalente al 50% de la cantidad
compensada de mala fe. La indemnizacion se pagara adicionalmente a cualquier
costo o gasto que deba reembolsarse de conformidad a la clausula 7.4. siguiente.
CUARTO: DECLARACIONES Y GARANTIAS DEL DEUDOR DELEGADO.
El Deudor Delegado declara y garantiza lo que sigue:
4.1. Constitucion y Existencia: el Deudor Delegado (i) es una sociedad
debidamente constituida y validamente existente de conformidad a las leyes de
Chile, y (ii) tiene todas las facultades y la autorizacion para ser propietaria
de sus bienes y desarrollar sus negocios en la forma en que estos son conducidos
actualmente.
4.2. Facultades y Autorizaciones: la ejecucion, entrega y cumplimiento por parte
del Deudor Delegado de esta Novacion se encuentran dentro de sus facultades, han
sido debidamente autorizadas mediante las acciones corporativas necesarias, y
(i) no contravienen los estatutos sociales de Chilesat PCS, (ii) no violan
ninguna ley ni ninguna restriccion contractual vinculante para el Deudor
Delegado o que lo afecte, excluidos los casos donde no resulte razonable esperar
que tal violacion tenga un Efecto Sustancial
18
<PAGE> 19
Adverso, o (iii) no resulta en, ni requiere la creacion de, gravamen alguno,
garantia u otro cargo o limitacion sobre, o respecto de, cualquiera de sus
bienes.
4.3. Aprobaciones: en el mejor conocimiento del Deudor Delegado y despues de
haber consultado con Grasty, Quintana, Majlis y Cia, no se requiere
consentimiento, orden, autorizacion, aprobacion u otra accion, ni notificacion o
solicitud a ninguna Autoridad Gubernamental o entidad regulatoria para (i) la
debida ejecucion, entrega y cumplimiento de la Novacion, o para (ii) la
legalidad, validez, efecto vinculante o exigibilidad de la misma.
4.4. Exigibilidad: esta Novacion constituye una obligacion legal, valida y
vinculante para el Deudor Delegado, exigible en su contra en conformidad a sus
terminos, salvo en cuanto la exigibilidad puede estar limitada por las leyes
aplicables a la quiebra, insolvencia, reorganizacion, reestructuracion,
moratoria de pagos u otras situaciones o leyes similares relativas a, o que
afecten el ejercicio de, los derechos de los acreedores en general y por
principios de equidad.
QUINTO: COMPROMISOS DEL DEUDOR DELEGADO.
5.1. Compromisos de Hacer: en tanto este pendiente de pago cualquier suma bajo
la Novacion, el Deudor Delegado se compromete, a menos que el Acreedor consienta
por escrito en lo contrario, a:
a) Requisitos de Informacion: proporcionar al Acreedor, copias de cada uno de
los siguientes documentos: (i) segun hayan sido preparados de acuerdo al giro
ordinario del negocio (A) Estados Financieros trimestrales de Chilesat PCS y (B)
Estados Financieros anuales auditados de Chilesat PCS y de cada una de sus
Subsidiarias, acompanados, en el caso de la letra (B), de la opinion de un
auditor independiente de una firma de auditores de reconocido
19
<PAGE> 20
prestigio internacional; (ii) a la epoca de la entrega de los Estados
Financieros anuales auditados, (x) un certificado preparado por el gerente de
administracion y finanzas de Chilesat PCS certificando (A) que los Estados
Financieros adjuntos fueron preparados de acuerdo a GAAP Chilenos y representan
fielmente la condicion financiera de esa Persona, y (B) que dicho gerente esta
familiarizado con los terminos de esta Novacion y que no ha ocurrido ninguna
Causal de Incumplimiento de esta Novacion que se mantenga, o bien, si ha
ocurrido una Causal de Incumplimiento y esta se mantiene, una declaracion que
contenga una referencia acerca de la naturaleza de dicha Causal de
Incumplimiento y las medidas que se estan tomando a su respecto, y (y) un
certificado de los auditores de Chilesat PCS que senale que al hacer el examen
necesario para otorgar su certificacion, ellos no han tenido conocimiento de
ninguna Causal de Incumplimiento que haya ocurrido y se mantenga, o bien, si en
la opinion de tales auditores ha ocurrido una Causal de Incumplimiento y esta se
mantiene, una declaracion acerca de la naturaleza de la misma; y (iii)
prontamente despues de haberlos enviado o comunicado, copias de todos los
informes que Chilesat PCS o cualquiera de sus Subsidiarias envien a cualquiera
de sus accionistas o tenedores de valores y de todos los comunicados de prensa
emitidos por Chilesat PCS y cada una de sus Subsidiarias.
b) Seguros: mantener y hacer mantener a cada una de sus Subsidiarias, seguros
con companias de seguros y asociaciones, en las cantidades y cubriendo los
riesgos que el directorio de Chilesat PCS considere, de buena fe, como
comercialmente razonables. El Acreedor consiente en que la continuacion de los
seguros actualmente contratados sera considerada como
20
<PAGE> 21
comercialmente razonable.
c) Registros Contables: conservar y mantener y hacer conservar y mantener a cada
una de sus Subsidiarias, libros y registros de contabilidad acuciosos, de
acuerdo con GAAP Chilenos consistentemente aplicados. El Acreedor podra, previo
requerimiento razonable y con el consentimiento del Deudor Delegado,
consentimiento que no podra ser irrazonablemente denegado, solicitar un
certificado de los auditores de Chilesat PCS que senale que ellos han hecho un
examen razonable necesario para otorgar su certificacion y que ellos no han
tenido conocimiento de ninguna Causal de Incumplimiento que haya ocurrido y se
mantenga, o bien, si en la opinion de tales auditores ha ocurrido una Causal de
Incumplimiento y esta se mantiene, una declaracion acerca de la naturaleza de la
misma. A la recepcion de tal solicitud, el Deudor Delegado podra, a su opcion,
ya sea (i) proporcionar tal certificado relativo al Deudor Delegado o (ii)
permitir a los representantes del Acreedor, que, durante el horario regular de
oficina, inspeccionen y examinen los libros y registros del Deudor Delegado y
discutan sus negocios, finanzas y contabilidad con sus ejecutivos principales.
Si el Deudor Delegado elige proporcionar el certificado descrito en el punto (i)
anterior y los auditores certifican que no ha ocurrido ninguna Causal de
Incumplimiento que no hubiere sido previamente dada a conocer al Acreedor, el
Acreedor pagara todos los costos y gastos asociados a la confeccion de dicho
certificado.
5.2. Compromisos de No Hacer: en tanto este pendiente de pago cualquier suma
bajo la Novacion, el Deudor Delegado se compromete a no realizar, sin el
consentimiento escrito del Acreedor, ninguna transaccion con Entidades
Relacionadas,
21
<PAGE> 22
incluyendo, sin limitacion, la compra, venta, arriendo o permuta de bienes,
prestacion de servicios o el pago de cualquier honorario de administracion,
consultoria u honorarios similares, a menos que tales transacciones se realicen
(i) en el giro ordinario del negocio, y (ii) en terminos equitativos y
razonables que sean comparables a aquellos que se obtienen en transacciones de
mercado con Personas que no sean Entidades Relacionadas.
SEXTO: CAUSALES DE INCUMPLIMIENTO.
6.1.- Causales: la ocurrencia de cualquiera de los siguientes eventos
constituira una Causal de Incumplimiento bajo esta Novacion:
a) Si el Deudor Delegado no pagare la Obligacion cuando esta se haga exigible o
no pagare cualquier otra cantidad que corresponda pagar de acuerdo a esta
Novacion cuando la misma se haga exigible y tal incumplimiento continuara por 5
Dias Habiles, o
b) Si se acreditara que alguna de las declaraciones o garantias dadas por el
Deudor Delegado en conformidad o en conexion con esta Novacion era incorrecta en
lo sustancial a la fecha en que fue hecha, o
c) Si el Deudor Delegado dejara de cumplir u observar (i) cualquier termino,
compromiso o acuerdo contenido en la clausula 5.2, o (ii) cualquier otro
termino, compromiso o acuerdo contenido en esta Novacion que sea de su cargo
cumplir u observar y tal incumplimiento continuara por 10 Dias Habiles despues
que el Deudor Delegado ha sido notificado de dicho incumplimiento por el
Acreedor, o
d) Si el Deudor Delegado (i) solicitara o consintiera en la designacion de un
interventor, liquidador, custodio o sindico de si mismo o de una parte
sustancial o de todos sus bienes; (ii) hiciera cesion general de sus bienes en
beneficio de sus acreedores; (iii) fuera disuelto o liquidado total o
parcialmente; (iv)
22
<PAGE> 23
solicitara su propia quiebra o iniciara voluntariamente cualquier procedimiento
que persiga la liquidacion, reorganizacion o cualquier otra solucion con
respecto a si mismo o a sus deudas, en conformidad a las leyes que regulan
situaciones de quiebra, insolvencia u otras leyes similares vigentes ahora o al
momento de dicha solicitud, o bien, consintiera a cualquiera de dichas
soluciones o a la designacion de, o toma de posesion de sus bienes por,
cualquier funcionario designado judicialmente en un procedimiento iniciado en su
contra, o
e) Si cualquier Persona iniciara un procedimiento solicitando la quiebra del
Deudor Delegado o la designacion de un interventor, liquidador, custodio o de un
sindico de si mismo o de una parte sustancial o de todos sus bienes, o si se
iniciara cualquier procedimiento forzado que persiga la liquidacion,
reorganizacion o cualquier otra solucion con respecto al Deudor Delegado, en
conformidad a las leyes que regulan situaciones de quiebra, insolvencia u otras
leyes similares vigentes ahora o al comienzo de tales procedimientos, si tal o
tales procedimientos no son terminados, abandonados, dejados sin efecto, o las
acciones respectivas desistidas, renunciadas o declaradas improcedentes por
sentencia de termino, dentro del plazo de 90 dias contados desde el inicio de
dichos procedimientos, o
f) Si el Deudor Delegado y sus Subsidiarias vendieran todos o sustancialmente
todos sus bienes o, de cualquier otra manera, dejaran de dedicarse al negocio de
las telecomunicaciones inalambricas.
6.2.- Caducidad de los plazos: ocurrida una Causal de Incumplimiento y si esta
se mantiene, el Acreedor podra, una vez que expire cualquier periodo de gracia
que sea aplicable, ejercer todos los
23
<PAGE> 24
derechos y demandar todas las indemnizaciones que le correspondan en conformidad
a esta Novacion, la ley aplicable, los principios de equidad o de cualquier otra
manera.
SEPTIMO: VARIOS.
7.1. Modificaciones: ninguna modificacion o renuncia a la aplicacion de alguna
de las clausulas de esta Novacion, ni ninguna autorizacion al Deudor Delegado
para apartarse de los terminos de la misma, podra, bajo ninguna circunstancia,
hacerse efectiva, a menos que el Acreedor consienta en ello por escrito y, en
tal caso, tal autorizacion, modificacion o renuncia se hara efectiva solo para
el caso particular y para los propositos especificos para los cuales el
consentimiento del Acreedor fue dado.
7.2. Notificaciones y Comunicaciones: todas las notificaciones y otras
comunicaciones que deban darse en conformidad a esta Novacion, seran por escrito
(incluyendo comunicacion por facsimil o telegrafica), entregadas personalmente o
enviadas por correo expreso, telex, telegrafo o facsimil y dirigidas al Deudor
Delegado o al Acreedor a las direcciones respectivas que se indican mas abajo, o
bien, a la direccion que cualquiera de las partes pueda, mediante notificacion
escrita recibida por la otra parte, haber designado como su direccion para estos
propositos.
Si la notificacion o comunicacion es al Deudor Delegado, debera dirigirse a
Chilesat Telefonia Personal S.A., Rinconada El Salto 202, Huechuraba, Santiago,
Chile, atencion a su Gerente de Administracion y Finanzas, numero de facsimil
(011) (562) 382-5142, con copia a Leap Wireless International, Inc., 10307
Pacific Center Court, San Diego, CA, atencion General Counsel,
24
<PAGE> 25
numero de facsimil (1) (619) 882-6040.
Si la notificacion o comunicacion es al Acreedor, debera dirigirse a Chilesat
S.A., Rinconada El Salto 202, Huechuraba, Santiago, Chile, atencion a su Gerente
General, numero de facsimil (011) (562) 382-5982. Con copia a su Fiscal.
Todas las notificaciones o comunicaciones que se envien por correo expreso,
telex, telegrafo o facsimil, deberan dirigirse en la forma indicada mas arriba y
se entenderan realizadas (i) si se envian por correo expreso, 5 Dias Habiles
despues de la entrega a dicho correo; (ii) si se envian por telex, a la
confirmacion de su recepcion; (iii) si se envian por telegrafo, a la entrega por
la empresa de telegrafos; (iv) si se envian por facsimil, una vez que el mensaje
ha sido transmitido y la recepcion ha sido confirmada telefonicamente por el
remitente.
7.3. Renuncias e Indemnizaciones: el no ejercicio o el retardo en el ejercicio
de cualquiera de los derechos otorgados al Acreedor en conformidad a esta
Novacion, en ningun caso operara como una renuncia del respectivo derecho. De la
misma forma, el ejercicio de alguno o de parte de alguno de dichos derechos, no
hara precluir el ejercicio de los demas o de la totalidad de alguno de los
derechos ejercidos. Las indemnizaciones establecidas en esta Novacion podran
acumularse a cualquier otra indemnizacion establecida por la ley.
7.4. Costos y Gastos: el Deudor Delegado se compromete a pagar al Acreedor, a
su demanda, todos los costos y gastos razonables (incluyendo, sin limitacion,
honorarios razonables de abogados y gastos) en que este ultimo incurra en
conexion con la ejecucion de esta
25
<PAGE> 26
novacion. En todo caso, los gastos de escrituracion y cualquier otro que surja
con motivo de la celebracion de esta Novacion seran de cargo del Acreedor.
7.5. Efecto Vinculante, Cesiones y Ley Aplicable: (a) la presente Novacion es
vinculante y surtira efectos para el Deudor Delegado y el Acreedor y sus
respectivos sucesores y cesionarios. El Deudor Delegado permanecera como
principal obligado en conformidad a esta Novacion, no obstante cualquier cesion
o transferencia de sus activos o cualquier delegacion pretendida de sus
obligaciones bajo la Novacion.
b) El Deudor Delegado y el Acreedor acuerdan, por el presente instrumento, que
el Acreedor estara facultado para vender, ceder y transferir, a traves de ventas
de participacion en sus derechos o de cualquier otra manera, todos o parte de
sus derechos, obligaciones o intereses que emanen de la Novacion, o la Novacion
misma, sin limitacion alguna. El Deudor Delegado, por el presente instrumento,
otorga su autorizacion incondicional al Acreedor para que este lleve a cabo tal
venta, cesion y transferencia y acepta y reconoce que, para tal efecto, solo se
necesitara del acuerdo del Acreedor y de su respectivo cesionario. En todo caso
el Acreedor notificara la cesion al Deudor Delegado por escrito, de acuerdo a lo
previsto en la clausula 7.2. El Deudor Delegado y el Acreedor acuerdan que, en
caso de cesion, los derechos e intereses en y al pago de la Obligacion y el
cumplimiento de las demas obligaciones del Deudor Delegado bajo la Novacion,
seran cedidos en favor de uno o varios cesionarios, para ser compartidos
conjuntamente con Chilesat y otros cesionarios si la cesion es parcial. El
Acreedor puede divulgar los terminos de la Novacion o cualquier informacion
financiera o de otro tipo
26
<PAGE> 27
relacionada con el Deudor Delegado a cualquier cesionario potencial, siempre que
dicho cesionario potencial consienta en no divulgar la Novacion o dicha
informacion a terceros, excepto (i) si se trata de Entidades Relacionadas o
aquellas Personas con las cuales se mantiene una relacion confidencial
(incluyendo entes reguladores, abogados, contadores, auditores); (ii) si se
trata de requerimientos de la ley, de regulaciones administrativas o de
procedimientos legales, pero en tal caso dicho cesionario potencial, en la
medida de lo posible, debera notificar previamente al Acreedor y el Deudor
Delegado de la existencia de la obligacion legal de divulgar la informacion,
(iii) si se trata de cualquier informacion que esta disponible en forma general,
salvo que este disponible en contravencion a la Novacion, o (iv) si el Acreedor
y el Deudor Delegado han otorgado previamente su consentimiento por escrito.
(c) LA PRESENTE NOVACION ESTARA REGIDA Y SERA CONSTRUIDA DE CONFORMIDAD A LAS
LEYES DE LA REPUBLICA DE CHILE, SIN APLICACION DE LOS PRINCIPIOS O NORMAS DE
CONFLICTO DE LEYES.
7.6. Jurisdiccion: las partes acuerdan que cualquier accion legal o
procedimiento de cualquier naturaleza que el Acreedor pretenda iniciar con
respecto a esta Novacion, podra ser iniciado, a eleccion del Acreedor, ante (i)
los tribunales ordinarios de la Republica de Chile con asiento en la comuna y
ciudad de Santiago o (ii) ante un tribunal arbitral. En este ultimo supuesto,
las partes acuerdan que el juez arbitro sea arbitrador y que su designacion sea
efectuada por la Camara de Comercio de Santiago A. G., debiendo recaer dicho
nombramiento entre las personas que figuren en la Lista de Arbitros del Centro
de Arbitrajes y
27
<PAGE> 28
Mediacion de dicha Camara de Comercio. El arbitraje, en tal caso, sera en
equidad y se llevara a cabo conforme a los terminos del Reglamento del Centro de
Arbitrajes de la Camara de Comercio de Santiago A.G., que consta en la escritura
publica de fecha 10 de diciembre de 1992, otorgada en la Notaria de Santiago de
don Sergio Rodriguez Garces y publicada en el Diario Oficial del dia 22 de junio
de 1993, la cual forma parte integrante de esta clausula, declarando las partes
conocerla y aceptarla. El Deudor Delegado acepta y reconoce general e
incondicionalmente, tanto respecto de si mismo como de sus bienes, la
jurisdiccion no exclusiva de dichos tribunales y el sometimiento al
procedimiento arbitral indicado mas arriba, si ello fuera procedente,; pero, en
todo caso, si se ha iniciado por Leap Wireless, Leap, el Deudor Delegado o sus
cesionarios o sucesores, un procedimiento arbitral en relacion a la clausula
sexta de la Compraventa de Acciones, se suspenderan las obligaciones de pago del
Deudor Delegado que emanen de la Novacion, hasta por un monto equivalente al
monto que el actor estime en tal procedimiento arbitral, de buena fe, como el
monto que corresponde deducir de la Obligacion en conformidad al Derecho de
Compensacion establecido en la clausula 3.7 de este instrumento y en la clausula
4.2 de la Compraventa de Acciones. Una vez terminado o resuelto el procedimiento
arbitral referido precedentemente, todas las cantidades adeudadas seran
ajustadas a lo que se determine en el arbitraje, en funcion del Derecho de
Compensacion que se haya aplicado sobre dichas cantidades.
7.7. Suspension de los
28
<PAGE> 29
efectos de la Novacion: si despues del cierre de la Adquisicion, cualquier
Persona, distinta de Leap, Leap Wireless o cualquiera de sus respectivas
Entidades Relacionadas, discutiese la validez de la Adquisicion en cualquier
litigio, arbitraje u otro procedimiento legal, el Deudor Delegado estara
facultado para suspender los pagos adeudados en conformidad a esta Novacion y,
consecuentemente se diferiran las fechas de vencimiento de tales deudas, hasta
que tales procesos terminen por sentencia definitiva o por conciliacion de las
partes. Las partes de esta Novacion acuerdan abstenerse de iniciar cualquier
accion o hacerse parte de acciones iniciadas por terceros que persigan atacar la
validez de la Adquisicion o de esta Novacion y, adicionalmente, acuerdan
cooperar en tales acciones en orden a que los problemas alli discutidos, se
resuelvan en favor de la validez de la Adquisicion y de la Novacion.
7.8. Interpretacion: a) Divisibilidad del Contrato: si alguna de las clausulas
de esta Novacion estuviera prohibida o no pudiera cumplirse en alguna
jurisdiccion, tal clausula se reputara como no escrita, en la extension
requerida para salvar la prohibicion o la imposibilidad de cumplimiento, para
los efectos de dicha jurisdiccion y en ningun caso invalidara las demas
clausulas o prohibira o impedira el cumplimiento de dicha clausula en otra
jurisdiccion.
b) Encabezados: los encabezados utilizados en la presente Novacion constituyen
una mera referencia para la conveniencia de las partes y no son una parte
sustantiva del acuerdo de las partes.
c) Preparacion Conjunta: Para los efectos de interpretacion de esta Novacion, se
entendera que el presente instrumento ha
29
<PAGE> 30
sido preparado conjuntamente por el Acreedor y el Deudor Delegado y cualquier
incertidumbre o ambiguedad no sera interpretada en contra de ninguno de ellos,
sin perjuicio de las demas reglas de interpretacion de los contratos que sean
aplicables a esta transaccion en tanto transaccion otorgada de acuerdo a
condiciones prevalecientes en el mercado.
7.9. Supervivencia de clausulas: todas las clausulas de esta Novacion que se
refieran a indemnizaciones, sobreviviran mas alla de la ejecucion del presente
instrumento y del pago de la Obligacion.
7.10. Domicilio Especial: las partes de la presente Novacion convienen en fijar
domicilio especial en la ciudad de Santiago, para todos los efectos legales de
la misma.
7.11. Personerias: La personeria de don Ramon Valdivieso Rios y de don Juan
Eduardo Ibanez Walker para representar a CHILESAT S.A. consta en el Acta de
Sesion Extraordinaria de Directorio de fecha 29 de Marzo de 1999, reducida a
escritura publica ante el Notario don Rene Benavente Cash con fecha 5 de mayo de
1999, que he tenido a la vista y que no se inserta a peticion de las partes.
La personeria de don Luis Octavio Bofill Genzsch para representar a INVERSIONES
LEAP WIRELESS S.A. consta en el Acta de Sesion Extraordinaria de Directorio de
fecha 1(0) de Octubre de 1998, reducida a escritura publica ante el Notario don
Eduardo Pinto Peralta con fecha 26 de octubre de 1998 , que he tenido a la vista
y que no se inserta a peticion de las partes.
La personeria de don Richard Sutherland Genskonsky para representar a CHILESAT
TELEFONIA PERSONAL S.A. consta en la escritura publica de fecha 7 de diciembre
de 1998 suscrita ante el Notario don Eduardo Pinto Peralta, que he tenido a la
vista y que no se inserta a peticion de
30
<PAGE> 31
las partes. En comprobante y previa lectura, firman los comparecientes el
presente instrumento. Se otorga copia. DOY FE.
/s/ Juan Eduardo Ibanez
- ---------------------------------------------------
REPRESENTATIVE CHILESAT S.A.
/s/ Ramon Valdivieso
- ---------------------------------------------------
REPRESENTATIVE CHILESAT S.A.
/s/ Octavio Bofill
- ---------------------------------------------------
REPRESENTATIVE INVERSIONES LEAP WIRELESS CHILE S.A.
/s/ Richard A. Sutherland
- ---------------------------------------------------
REPRESENTATIVE CHILESAT TELEFONIA PERSONAL S.A.
31
<PAGE> 32
NOVATION
AND
ASSUMPTION OF PAYMENT OBLIGATION AGREEMENT
+++++++++++++++++
CHILESAT S.A.
INVERSIONES LEAP WIRELESS CHILE S.A.
AND
CHILESAT TELEFONIA PERSONAL S.A.
IN SANTIAGO, CHILE, on the eleventh of May of nineteen ninety nine, appear
before me, JOSE MUSALEM SAFFIE, Lawyer and Notary Public, Titular of the of the
Forty Eighth Notary Public's Office of Santiago, with domicile in this city on
Huerfanos number seven hundred and seventy, third floor: CHILESAT S.A. provider
of telecommunications services, Taxpayer Number eighty eight million, three
hundred and eighty one thousand, two hundred dash K, represented here by its
General Manager, Mr. RAMON VALDIVIESO RIOS, Chilean, married, Lawyer, national
identification number seven million nine hundred and five thousand four hundred
and fifty dash K and by its President Mr. JUAN EDUARDO IBANEZ, Chilean, married,
Lawyer, national identification number six million sixty two thousand four
hundred and sixteen dash K, all of them with domicile on Rinconada El Salto
number two hundred and two, Huechuraba, Santiago, hereinafter "CHILESAT";
INVERSIONES LEAP WIRELESS CHILE S.A., company with the line of business
indicated by its name, taxpayer number ninety six million, eight hundred and
nineteen thousand five hundred and twenty dash four, represented here by Mr.
LUIS OCTAVIO BOFILL GENZSCH, Chilean, Married, Lawyer, national identification
card number seven million three thousand six hundred and ninety nine dash one,
both with domicile on Tenderini number one hundred and fifty three, borough and
city of Santiago, hereinafter also called "LEAP"; and CHILESAT TELEFONIA
PERSONAL S.A. company with the line of business indicated by its name, taxpayer
number ninety six million seven hundred and ninety nine thousand two hundred and
fifty dash K, represented here by its General Manager Mr. RICHARD SUTHERLAND
GANSKONSKY, Chilean, married, commercial engineer, national identification card
number six million nine hundred and two thousand three hundred and seventeen
dash seven, both with domicile on Rinconada El Salto number two hundred and two,
borough of Huechuraba, Santiago, hereinafter also called "CHILESAT PCS", all of
those appearing before being of age, and having accredited their identity with
the above mentioned identification cards and manifesting that: /i/ Chilesat and
LEAP have been parties in a contract signed in the English language on April
twelve nineteen ninety nine and called "Stock Purchase Agreement", hereinafter
known as "Purchase and Sale of Shares", under whose terms the first company
transferred to the second all the stock it owned in Chilesat PCS; /ii/ according
to the terms and conditions set forth in the Purchase and Sale of Shares, the
price payable to Chilesat for the sale of its Shares would be paid partly in
cash - and which was in fact paid to Chilesat's entire satisfaction - and the
balance, which amounted to twenty two million dollars, would be paid in pesos,
local currency, according to the Observed Dollar Rate for the day
1
<PAGE> 33
immediately preceding the day of payment, in a period of three years counted
from the day the agreement for the Purchase and Sale of Shares was signed, that
is, April nineteen of the year two thousand and two, accruing no interest; /iii/
Chilesat PCS owes LEAP the amount of thirty five million dollars - merely as
capital, without taking into account the interest accrued until that date - as
can be seen from the Deferred Payment Agreement and the LEAP Loan Agreement;
/iv/ LEAP has suggested to Chilesat that the obligation to pay the balance of
the price of the Purchase and Sale of Shares should be assumed by Chilesat PCS
in the same terms and conditions existing for LEAP, in exchange for a partial
remission of the debt indicated in number /iii/ above; /v/ Chilesat and Chilesat
PCS have irrevocably accepted this payment formula proposed by LEAP, because
aside from being stipulated in Clause one.two c) of the Purchase and Sale of
Shares agreement, and in clause two.two of this instrument, together with LEAP
they signed on April nineteen of nineteen ninety nine, via a private instrument,
a contract for the novation and assumption of indebtedness called in English
"Novation and Assumption of Payment Obligation Agreement", hereinafter known as
"Novation Agreement." Section two.six of the Purchase and Sale of Shares
agreement stipulates the obligation of the buying and selling parties -and the
obligation that the latter has of causing the same action to be followed by
Chilesat PCS -, to sign a Spanish version of the Novation Agreement, via
notarized document containing a true translation of the Novation Agreement, plus
any amendments agreed upon by the parties themselves. It was also stipulated
that once the corresponding notarized document had been granted, the Spanish
language Novation would replace the Novation Agreement definitively.
CONSEQUENTLY, considering the above, and the statements contained in this
instrument, the Novation Agreement and the Purchase and Sale of Shares
agreement, the parties hereto have agreed upon the following Novation and
Assumption of Payment Obligation Agreement, hereinafter referred to as "the
Novation."
FIRST: DEFINITIONS. As used in this Agreement, the terms listed below shall have
the respective meanings set forth below.
"Acquisition" means the acquisition on the date hereof by Leap
Chile or its designee of all of the shares of common stock of the Debtor held by
Telex-Chile and Chilesat S.A.
"Additional Shares of Capital Stock" shall mean all shares of
capital stock (whether common or preferred) of the Debtor issued or sold (or,
pursuant to Section 2.04 (b), deemed to be issued) by the Debtor after the date
hereof.
"Affiliate" means, with respect to any Person, (i) each other
Person of which an economic interest of more than twenty-five percent (25%) is
held by such Person, directly or indirectly, whether by ownership of capital
stock, contract or otherwise and (ii) each other Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person (excluding any trustee under, or any committee with responsibility for
administering, any pension plan or employee benefit plan). A Person shall be
deemed to be "controlled by" another
2
<PAGE> 34
Person if such other Person possesses, directly or indirectly, power (i) to vote
more than twenty-five percent (25%) or more of the securities (on a fully
diluted basis) having ordinary voting power for the election of directors,
managing general partners or managing members or (ii) to direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Base Price" shall have the meaning set forth in Section
2.03(d).
"Business Day" means any day other than a Saturday or a Sunday
or other day on which commercial banks in New York City or Santiago, Chile are
authorized or required by law to close.
"Chilean GAAP" means generally accepted accounting principles
in Chile as in effect from time to time.
"Chilesat S.A." means Chilesat S.A., a corporation organized
under the laws of Chile.
"Debtor" shall have the meaning set forth in the headings
hereto.
"Deferred Payment Agreement" means the Amended and Restated
Deferred Payment Agreement, dated June 24, 1998, among the Debtor, Telex-Chile,
QUALCOMM Incorporated and Leap Wireless (as assignee of Qualcomm Incorporated),
as amended, modified or supplemented from time to time.
"Dollar," "Dollars" and "$" shall mean dollars in lawful
currency of the United States of America.
"Event of Default" means any of the events specified in
Section 5.01, provided that any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
"Financial Statements" means, with respect to any accounting
period for a Person, statements of income and cash flows of said Person for such
period, and balance sheets of said Person as of the end of such period, setting
forth in each case in comparative form figures for the corresponding period in
the preceding fiscal year if such period is less than a full fiscal year or, if
such period is a full fiscal year, corresponding figures from the preceding
annual audit, all prepared in reasonable detail and in accordance with Chilean
GAAP consistently applied and which shall fairly present the financial condition
of such Person.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Holder" shall have the meaning set forth in the headings
hereto.
3
<PAGE> 35
"Indebtedness" means as to any Person, (a) indebtedness of
such Person for borrowed money, (b) all capitalized leases of such Person, (c)
all obligations of such Person for the deferred purchase price of property or
services (other than trade or other accounts payable in the ordinary course of
business in accordance with customary industry terms).
"Leap Chile" means Inversiones Leap Wireless Chile S.A., a
corporation organized under the laws of Chile.
"Leap Credit Agreement" means the Loan Agreement dated June
24, 1998, among the Debtor, Telex-Chile and Leap Chile, as amended, modified or
supplemented from time to time.
"Leap Wireless" means Leap Wireless International, Inc., a
corporation organized under the laws of Delaware.
"Libor" applicable to any calendar month means the rate per
annum (rounded upward, if necessary, to the next higher 1/16 of 1%) equal to the
rate reported on the Telerate Screen, page 3750, as the rate at which deposits
in Dollars are offered by major banks in the London interbank market at
approximately 11:00 a.m. (London time) two London Business Days before the first
day of such calendar month in an amount approximately equal to the aggregate
principal amount of the outstanding principal due under this Agreement and
subject to such Interest and for a one month period. Libor so determined shall
apply to all principal outstanding under this Agreement and in default during
the applicable calendar month regardless of changes in the Libor occurring
during such month.
"Lien" means any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority or other security agreement or
preferential agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, or any
financing lease having substantially the same economic effect as any of the
foregoing).
"Material Adverse Effect" shall mean (a) a material adverse
change in, or a material adverse effect upon, the operations, business, assets,
properties, condition (financial or otherwise) or prospects of the Debtor and
its Subsidiaries taken as a whole that results in a material impairment of the
ability of the Debtor to perform its obligations hereunder; or (b) a material
adverse effect upon the legality, validity, binding effect or enforceability
against the Debtor of this Agreement.
"Observed Exchange Rate" means, at any date of determination,
the rate of exchange of U.S. dollars and Chilean pesos calculated with reference
to the "dolar observado," as published for such date by the Central Bank of
Chile in accordance with paragraph 6 of Chapter I of Title 1 of the Compendium
of Foreign Exchange Rules of the Central Bank of Chile, or if no such rate is
published by the
4
<PAGE> 36
Central Bank or reported in Chile, then published or announced rate of Citibank
(of if Citibank does not publish or announce such rate, the rate published or
announced by Bank of America) or if neither such bank announces or publishes a
rate than to the foreign exchange spot mid-rates for such day reported in The
Wall Street Journal, or, if not so reported, to the mid-market foreign exchange
spot closing rates for such day reported in the Financial Times, or, if not so
reported, to spot foreign exchange mid-market rates for trading among banks in
amounts of US$1,000,000 or more.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association, joint
venture, limited liability company, Governmental Authority or other entity of
whatever nature.
"Requirements of Law" means, as to any Person, the articles of
incorporation, bylaws, estatutos sociales or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Restricted Payment" shall mean (i) any payment of a dividend
or distribution (whether in cash, securities or other property) with respect to
any shares of any class of capital stock of the Debtor, or (ii) any payment
(whether in cash, securities or other property), on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such
shares of capital stock of the Debtor, or (iii) any payment with respect to any
option, warrant or other right to acquire any such shares of capital stock of
the Debtor.
"Stock Purchase Agreement" means the Stock Purchase Agreement,
dated April 12, 1999, among Leap Chile, as Purchaser, and Telex-Chile and
Chilesat S.A., as Sellers.
"Subsidiary" means, as to any Person, an entity of which fifty
percent (50%) of the shares of stock (or similar equity interests) having
ordinary voting power (other than stock having such power only by reason of the
occurrence of a contingency) are at the time owned or controlled, directly or
indirectly, through one or more intermediaries, or both, by such Person.
"Telex-Chile" means Telex-Chile S.A., a corporation organized
under the laws of Chile.
SECOND: NOVATION AND ASSUMPTION OF PAYMENT OBLIGATION
Two.one. As stipulated in Clause One.two /c/ of the Purchase and Sale of Shares
agreement, the Original Debtor owes the Creditor a balance of twenty two million
dollars of the price. This sum is subject to a deduction or compensation
according
5
<PAGE> 37
to the Right to Receive Compensation and must be paid in the terms and under the
conditions stipulated in the Purchase and Sale of Shares, hereinafter "the
Obligation". Two.two. According to what is stipulated in the Purchase and sale
of Shares, Chilesat and LEAP agreed that the obligation would be assigned by the
latter company to Chilesat PCS, substituting it in such a way that the latter
company would assume unconditionally and irrevocably the Obligation, releasing
LEAP of the obligation of fulfilling the same. Two.three. LEAP hereby assigns
and transfers to Chilesat PCS the Obligation, which the latter company assumes.
This assignment and transfer is accepted by Chilesat, all of which is done by
the parties with the express purpose of novating by means of the change or
substitution of the Original Debtor by the Delegated debtor and under the terms
and conditions stipulated in the Novation. Two.four. The Delegated Debtor hereby
expressly puts on record that his consent has been given as a consideration and
in compensation for the liquidation, for the same amount of twenty two million
dollars as of this date, of the Delegated Debtor's obligation to pay LEAP, which
is included in the LEAP Loan Agreement. Two.five. For its part, the Creditor
hereby declares that it accepts what the Delegated Debtor says and acknowledges
him as the new debtor in the Obligation, debtor that subrogates and replaces
fully and definitively the Original Debtor in relation to the Obligation and
consequently the latter is unconditionally and irrevocably freed of any
responsibility to this respect. Two.six. The parties hereto manifest and
acknowledge that what has been said in the previous numerals is a novation
involving the substitution of the debtor and, therefore, they declare the
Original Debtor's Obligation extinguished, Likewise, the parties acknowledge
that as a result of the Novation, each and every one of the terms and conditions
of the Obligation will be fully valid and in force in relation to the Delegated
Debtor. Finally, the parties hereby expressly put on record that the irrevocable
and unconditional assumption of the Obligation by the Delegated Debtor is an
element of the essence for the Creditor's consent to the Purchase and sale of
Shares. Two.seven. By virtue of the Novation, the Delegated Debtor as new debtor
in the Obligation assumes responsibility for all commitments incurred by the
Original Debtor on occasion of that Obligation, undertaking to pay that
obligation in the terms and conditions indicated further on in this document.
THIRD: TERMS OF PAYMENT
SECTION 3.1. Interest. All sums payable hereunder shall be
without interest, except for default interest in accordance with Section 3.6.
SECTION 3.2. Optional Prepayments. The Debtor may at any time
prepay this Agreement in whole or in part.
SECTION 3.3. Mandatory Prepayments. (a) If the Debtor shall
(i) make any Restricted Payment to Leap Chile, Leap Wireless or any of their
respective Subsidiaries or (ii) make any Restricted Payment to a Person other
than Leap Chile, Leap Wireless or any of their respective Subsidiaries,
successors or assigns except out of retained earnings or profits, the Debtor
shall on the date of such Restricted Payment first prepay this Agreement in
full.
6
<PAGE> 38
(b) If the Debtor shall make a payment, repurchase, or
redemption of any principal due under any Indebtedness of the Debtor held by
Leap Chile, Leap Wireless, their respective Subsidiaries or, in the case of
Indebtedness outstanding as of March 29, 1999, to Leap Chile and/or to Leap
Wireless or to any of their respective successors, assigns or transferees, the
Debtor shall on the date of such payment first prepay this Agreement in full.
(c) After the Debtor shall have issued any Additional Shares
of Capital Stock or incurred any Indebtedness and received net proceeds (whether
in cash, securities, other property, but not including forgiveness of
Indebtedness) in an aggregate amount (in combination with all issuances of
capital stock or incurrences of Indebtedness from the date hereof) in excess of
U.S.$200,000,000, the Debtor shall apply on the date of each such issuance or
incurrence an amount equal to 50% of the net proceeds thereof in excess of the
amount of U.S.$200,000,000 toward the prepayment of this Agreement.
(d) If at any time on or before March 19, 2000 the Debtor or
Leap Chile sells capital stock (whether common or preferred) of the Debtor to
any Person for more than the Base Price per share (as defined and adjusted from
time to time as provided in Section 3.4 (the "Base Price")), the Debtor shall,
on the date of such sale, (i) if the sale occurs on or before June 30, 1999,
apply an amount equal to 50% of the excess net proceeds over the Base Price per
share realized in such sale multiplied by the number of shares sold toward the
prepayment of this Agreement and (ii) if the sale occurs after June 30, 1999 and
on or before March 19, 2000, apply an amount equal to 25% of the excess net
proceeds over the Base Price per share realized in such sale multiplied by the
number of shares sold toward the prepayment of this Agreement. Any sale of
shares of a holding company of Debtor established between Leap Chile and Debtor
which does not have material assets and/or liabilities other than the shares of
Debtor shall be treated as a sale of the underlying shares of Debtor (with
appropriate proportional adjustments to the applicable Base Price to reflect any
differences in the number of shares outstanding in such holding company and the
number of shares outstanding in Debtor (e.g. if the applicable Base Price is
$5.00 per share and Debtor has 20 Million shares outstanding before the sale and
the holding company has 10 Million shares outstanding before such sale, the Base
Price applicable to the holding company shall be $10 per share)).
(e) Notwithstanding anything to the contrary in this Section
3.3, the conversion of the loans under the Leap Credit Agreement or the Deferred
Payment Agreement into equity of the Debtor shall not under any circumstances
require the Debtor to prepay this Agreement or affect the Base Price.
SECTION 3.4 Adjustment of Base Price. (a) On the date of this
Agreement, the Base Price for common shares shall be U.S.$5.00 per share and the
Base Price for preferred shares shall be U.S.$5.00 plus such sum as determined
by the board of directors of the Debtor in good faith to be the amount of
7
<PAGE> 39
the increased value of the preferred shares over common shares as a result of
the rights, preferences and privileges of the preferred shares. Thereafter, in
case the Debtor at any time or from time to time after the date hereof shall
issue or sell Additional Shares of Common Stock (including Additional Shares of
Capital Stock deemed to be issued pursuant to Section 3.4 (b)) for a
consideration per share less than the Base Price in effect immediately prior to
such issue or sale, then, and in each such case, such Base Price shall be
adjusted, concurrently with such issue or sale to a price per share (calculated
to the nearest .001 of a cent) determined by multiplying such Base Price by a
fraction
(i) the numerator of which shall be (A) the number of shares
of capital stock of the Debtor outstanding immediately prior to such issue or
sale, plus (B) the number of shares of capital stock of the Debtor which the
aggregate consideration received by the Debtor for the total number of such
Additional Shares of Capital Stock so issued or sold would purchase at such Base
Price, plus (c) the number of shares of capital stock of the Debtor sold to a
Person other than Leap Chile, Leap Wireless or any of their respective
Affiliates, and
(ii) the denominator of which shall be the number of shares of
capital stock of the Debtor outstanding immediately after such issue or sale,
provided that, for purposes of this Section 3.4, (X) immediately after any
Additional Shares of Capital Stock are deemed to have been issued pursuant to
Section 3.4(b), such Additional Shares shall be deemed to be outstanding, and
(Y) treasury shares shall not be deemed to be outstanding.
(b) In case the Debtor at any time or from time to time after
the date hereof shall declare or pay any dividend on its capital stock payable
in capital stock, or shall effect a subdivision of the outstanding shares of its
capital stock into a greater number of shares of capital stock (by
reclassification or otherwise than by payment of a dividend in capital stock),
then, and in each such case, Additional Shares of Capital Stock shall be deemed
to have been issued (i) in the case of any such dividend, immediately after the
close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend, or (ii) in the case of
any such subdivision, at the close of business on the day immediately prior to
the day upon which such corporate action becomes effective.
(c) For the purposes of this Section 3.4,
(i) the consideration for the issue or sale of any Additional
Shares of Capital Stock shall, irrespective of the accounting treatment of such
consideration,
(A) insofar as it consists of cash, be computed at the net
amount of cash received by the Debtor,
(B) insofar as it consists of property (including
securities) other than cash, be computed at the fair market value thereof at the
time of such issue or sale, as determined in good faith by the Board of
Directors of the Debtor, and
8
<PAGE> 40
(C) in case Additional Shares of Capital Stock are issued
or sold together with other stock or securities or other assets for
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (A) and (B) above, allocable to such
Additional Shares of Capital Stock, all as determined in good faith by the Board
of Directors of the Debtor; and
(ii) Additional Shares of Capital Stock deemed to have been
issued pursuant to Section 3.4(b), relating to stock dividends, stock splits,
etc., shall be deemed to have been issued for no consideration.
SECTION 3.5. Payments and Computations. (a) The Debtor shall
make each payment hereunder not later than 12:00 Noon (Santiago time) on the day
when due in the amount of Chilean Pesos (equivalent to the U.S. dollars due
converted at the Observed Exchange Rate on the day before the date of payment)
in same day funds to the Holder at its address referred to in Section 7.2 or to
the account of the Holder designated in writhing by the Holder.
(b) Whenever any payment hereunder shall be stated to be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
SECTION 3.6. Default Interest. Any overdue principal or other
amount payable under this Agreement shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to Libor (as defined below) plus
five percent (5%) on the basis of a year of 360 days for the actual number of
days (including the first day but excluding the last day) occurring in the
period for which such interest is payable.
SECTION 3.7. Right of Set-off. The Debtor is hereby
authorized, to the fullest extent permitted by law, to set off and apply any
amounts payable by Telex-Chile or Chilesat S.A. to the Debtor and/or Leap Chile
on account of the indemnities set forth in the Stock Purchase Agreement against
any and all of the obligations of the Debtor under this Agreement; provided,
however, that if a right of set off is claimed in bad faith, damages shall be
payable to Holder equivalent to fifty percent (50%) of the amount of the set off
that is so asserted. Any such damages shall be in addition to any costs and
expenses payable pursuant to Section 7.4 hereof.
FOURTH: REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of the Debtor. The
Debtor represents and warrants as follows:
9
<PAGE> 41
(a) Corporate Existence. The Debtor (i) is a corporation duly
incorporated and validly existing under the laws of Chile and (ii) has the
corporate power and authority to own its property and carry on its business as
now being conducted.
(b) Corporate Power; Authorization. The execution, delivery
and performance by the Debtor of this Agreement are within its corporate powers,
have been duly authorized by all necessary corporate action, and do not (i)
contravene the Debtor's estatutos sociales, (ii) violate any law or any
contractual restriction binding on or affecting the Debtor, except where such
violation may not reasonably be expected to have a Material Adverse Effect, or
(iii) result in or require the creation of any Lien, security interest or other
charge or encumbrance upon or with respect to any of its properties.
(c) Approvals. To the Debtor's best knowledge following
consultation with Grasty, Quintana, Majlis y Cia, no consent, order,
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority or regulatory body is required for (i) the due
execution, delivery and performance by the Debtor of this Agreement, or (ii) the
legality, validity, binding effect or enforceability hereof.
(d) Enforceability. This Agreement is the legal, valid and
binding obligation of the Debtor, enforceable against the Debtor in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar
laws relating to or affecting the enforcement of creditors' rights generally and
by equitable principles.
FIFTH: COVENANTS OF THE DEBTOR
SECTION 5.1. Affirmative Covenants. So long as any amount
under this Agreement shall remain unpaid, the Debtor shall, unless the Holder
shall otherwise consent in writing:
(a) Reporting Requirements. Furnish to the Holder copies of
each of the following:
(i) as prepared in the ordinary course of business (A)
quarterly Financial Statements of the Debtor and (B) audited annual Financial
Statements of the Debtor and each of its Subsidiaries accompanied, in the case
of (B) by an audit opinion letter by an accounting firm of recognized
international standing;
(ii) at the time of delivery of audited annual Financial
Statements Debtor shall deliver to Holder (x) a certificate from the Chief
Financial Officer of the Debtor certifying (A) that the Financial Statements
attached were prepared in accordance with Chilean GAAP and fairly present the
financial condition of such Person, and (B) that such officer is familiar with
the terms of this
10
<PAGE> 42
Agreement and that no Event of Default has occurred and is continuing under this
Agreement, or if such an Event of Default has occurred and is continuing,
containing a statement as to the nature thereof and the steps being taken with
respect thereto, and (y) a certificate of accountants of the Debtor stating that
in making the examination necessary for their certification they have obtained
no knowledge of any Event of Default which has occurred and is continuing, or
if, in the opinion of such accountants, an Event of Default has occurred and is
continuing, a statement as to the nature thereof; and
(iii) promptly after the sending or filing thereof, copies
of all reports which the Debtor and its Subsidiaries send to any of their
securities holders and any and all press releases issued by the Debtor and each
of its Subsidiaries.
(b) Insurance. Maintain, and cause each Subsidiary to
maintain, insurance with such insurance companies and associations, in such
amounts and covering such risks as may be determined in good faith by the board
of directors of the Debtor to be commercially reasonable. The Holder agrees that
continuing existing insurance coverage shall be commercially reasonable.
(c) Financial Records. Keep and maintain, and cause each of
its Subsidiaries to keep and maintain, accurate books and records of account in
accordance with Chilean GAAP consistently applied. Upon reasonable request and
with the consent of the Debtor, which consent will not be unreasonably withheld,
the Holder may request a certificate of accountants of Debtor stating that they
have made a reasonable examination necessary for their certificate and that they
have obtained no knowledge of an event of default which has occurred and is
continuing or, if in the opinion of such accountants, an event of default has
occurred and is continuing, a statement as to the nature thereof. Upon receipt
of such request, the Debtor, may at its option, either (i) provide such
certificate of the Debtor or (ii) permit the Holder or its representatives
during customary business hours to inspect and examine the Debtor's books and
records and to discuss its affairs, finances and accounts with its principal
officers. If the Debtor elects to provide the certificate as described in
Subparagraph (i) above, and the auditors certify that no event of default has
occurred which has not previously been disclosed to the Holder, the Holder shall
pay all costs and expenses associated with providing such certificate.
SECTION 5.2. Negative Covenants. So long as any amount under
this Agreement shall remain unpaid, the Debtor shall not, without the written
consent of the Holder enter into any transaction, including without limitation,
the purchase, sale, lease or exchange of property, the rendering of any service
or the payment of any management, advisory or similar fees, with any Affiliates,
unless such transaction is (i) in the ordinary course, and (ii) upon fair and
reasonable terms comparable to those obtainable in an arm's-length transaction
with a Person not an Affiliate.
11
<PAGE> 43
SIXTH: EVENTS OF DEFAULT
SECTION 6.1. Events of Default. The occurrence of any of the
following events shall constitute an Event of Default hereunder:
(a) The Debtor shall fail to pay the principal amount of this
Agreement when the same becomes due and payable or shall fail to pay any other
amounts payable under this Agreement when the same become due and payable and
any such failure shall continue for five (5) Business Days; or
(b) A representation or warranty made by the Debtor under or
in connection with this Agreement shall prove to have been incorrect in any
material respect when made; or
(c) The Debtor shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 6.2, or (ii) any other term, covenant
or agreement contained in this Agreement on its part to be performed or observed
and such failure shall continue for ten (10) Business Days after the Debtor has
notice of such failure from Holder; or
(d) The Debtor shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian of itself or of all
or a substantial part of its property, (ii) make a general assignment for the
benefit of its creditors, (iii) be dissolved or liquidated in full or in part,
(iv) commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it; or
(e) Proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Debtor or of all or a substantial part of its
properties, or an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to the Debtor, under any bankruptcy,
insolvency or other similar law now or hereafter in effect shall be commenced
and an order for relief entered or such proceeding shall not be dismissed or
discharged within ninety (90) days after commencement thereof; or
(f) The Debtor and its Subsidiaries shall sell all or
substantially all its assets or property or shall otherwise cease to engage in a
wireless telecommunication business.
SECTION 6.2. Remedies. Upon the occurrence and continuance of
any Event of Default, the Holder may, upon the expiration of any applicable
grace period, exercise all rights and remedies granted to it by this Agreement
or by applicable law, in equity or otherwise.
12
<PAGE> 44
SEVENTH: MISCELLANEOUS
SECTION 7.1. Amendments, Etc. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by the Debtor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Holder and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 7.2. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telegraphic
and facsimile communication) and sent by reliable courier, telegraphed,
facsimiled or delivered, and addressed to the Debtor or the Holder at its
address shown below, or at such other address as such party may, by written
notice received by the other party, have designated as its address for such
purposes.
Debtor: CHILESAT TELEFONIA PERSONAL S.A.
Rinconada El Salto 202
Huechuraba
Santiago
CHILE
Attention: Chief Financial Officer
Fax No. 011-562-382-5142
With copy to:
LEAP WIRELESS INTERNATIONAL, INC.
10307 Pacific Center Court
San Diego, CA
USA
Attention: General Counsel
Fax No. 1-619-882-6040
Holder: CHILESAT S.A.
Rinconada El Salto 202
Huechuraba
Santiago
CHILE
Attention: Gerente General
Fax No. 011-562-382-
With Copy to: General Counsel
All such notices and communications shall, when sent via courier, telexed,
telegraphed or facsimiled, be effective, if sent via courier, five Business Days
after delivery to the courier, if sent by telex, upon confirmation of receipt,
if telegraphed, upon delivery by the telegraph company, or if facsimiled, upon
being telecopied,
13
<PAGE> 45
with receipt telephonically confirmed by sender, respectively, addressed as
aforesaid.
SECTION 7.3. No Waiver; Remedies. No failure on the part of
the Holder to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies provided in this Agreement are cumulative and
not exclusive of any remedies provided by law.
SECTION 7.4. Costs and Expenses. The Debtor agrees to pay the
Holder on demand all reasonable costs and expenses, if any (including, without
limitation, reasonable attorneys' fees and expenses) incurred by the Holder in
connection with the enforcement of this Agreement.
SECTION 7.5. Binding Effect; Assignments; Governing Law.
(a) This Agreement shall be binding upon and inure to the
benefit of the Debtor, the Holder and their respective successors and
assigns.The Debtor shall remain primarily liable under this Agreement
notwithstanding any assignment or transfer of its assets or any purported
delegation of duties under this Agreement.
(b) The Debtor and the Holder hereby agree that the Holder
shall be entitled to sell, transfer or assign, through the sale of participation
interests or otherwise, all or any part of its rights, obligations and interests
that arise under this Agreement, in addition to this Agreement itself, without
any limitation whatsoever. The Debtor hereby grants its unconditional
authorization to the Holder to execute any such assignment, and agrees that it
shall be sufficient that there exist only an agreement between the Holder and
its assignee.The Holder shall notify the Debtor of the assignment in writing,
pursuant to the provisions of Section 7.2. The Debtor and the Holder hereby
agree that in the event of any such assignment, the rights and interests in and
to the Debtor's payment and performance of its obligations under this Agreement
shall be assigned in favor of the one or several assignees, to be shared jointly
with the Holder or such other assignees if the assignment is in part. The Holder
may disclose the Agreement and any financial or other information relating to
Debtor to any potential assignee or participant provided that such potential
assignee or participant agrees not to disclose the Agreement and such
information to other third parties except (i) to its Affiliates and to those
Persons with which a confidential relationship is maintained (including
regulators, legal counsel, accountants, or designated agent(s); (ii) where
required by law, regulation or legal process, provided that to the extent
practicable such potential assignee or participant shall give the Holder and
Debtor prior notice of any such legally required disclosure; (iii).with respect
to any such information that has become generally available other than through
any breach of this Agreement; or (iv) with the prior written consent of the
Holder and the Debtor.
14
<PAGE> 46
(c) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE REPUBLIC OF CHILE WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
SECTION 7.6. Resolution of Disputes; Submission to
Arbitration. The parties hereto hereby agree that any legal action or proceeding
brought by the Holder with respect to this Agreement may be brought, at the
Holder's sole and exclusive option, in the ordinary courts of Chile, sitting in
the Comuna de Santiago, or, in the form of arbitration, before the Camara de
Comercio de Santiago. By execution hereof, the Debtor accepts and consents to,
for itself and with respect to its property, generally and unconditionally, the
non-exclusive jurisdiction of such courts and submission to such arbitral
proceeding and form; provided, however, that upon the commencement and pendency
of an arbitral proceeding pursuant to Article 6 of the Stock Purchase Agreement,
the Debtor's payment obligations hereunder shall be suspended in an amount up to
such amount as shall be contended in good faith in such arbitral proceeding by
the Debtor or Assignor as subject to reduction in accordance with the right of
set-off granted pursuant to Section 2.07 herein and Section 4.2 in the Stock
Purchase Agreement. Subject to the right of set-off, all amounts owing shall be
reinstated upon the resolution or termination of any such arbitral proceeding
commenced pursuant to the Stock Purchase Agreement.
SECTION 7.7. Right of Suspension. If, following the closing of
the Acquisition, the validity of the Acquisition is challenged in any
litigation, arbitration or other legal proceeding, by a party other than Leap
Chile, Leap Wireless or any of their respective Affiliates, then until such
proceeding is finally resolved or settled, the Debtor shall be entitled to
suspend payments under this Agreement, and the due dates of any such payments
shall be deferred accordingly until the date on which such proceeding is finally
resolved or settled. All parties hereto agree not to take any action or position
in any such proceeding contrary to the validity of the Acquisition or this
Agreement and agree to cooperate in any such proceeding in order to resolve the
matters contested therein in favor of the validity of the Acquisition and this
Agreement.
SECTION 7.8. Interpretation. A) Severability. Any provision of
this Agreement which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. B) Headings.
Headings in this Agreement are for convenience of reference only and are not
part of the substance hereof. C) Joint Preparation. This Agreement is to be
deemed to have been prepared jointly by the Debtor and the Holder and any
uncertainty or ambiguity existing herein, if any, shall not be interpreted
against either party, but shall be interpreted according to the application of
the rules of interpretation for arm's length agreements.
15
<PAGE> 47
SECTION 7.9. Survival. All indemnities herein shall survive
the execution and delivery of this Agreement and the repayment of the principal
amount thereof.
SECTION 7.10 Special Domicile: The parties to this Novation
agree to establish as special domicile the city of Santiago for all legal
purposes related to the same.
CHILESAT TELEFONIA PERSONAL S.A.
By: /S/ RICHARD A. SUTHERLAND
Print Name: RICHARD A. SUTHERLAND
Title: GENERAL MANAGER
As Holder: As Assignor:
CHILESAT S.A. INV. LEAP WIRELESS CHILE S.A.
By: /S/ JUAN EDUARDO IBANEZ By: /S/ OCTAVIO BOFILL
Print Name: JUAN EDUARDO IBANEZ Print Name: OCTAVIO BOFILL
Title: PRESIDENT Title: GENERAL MANAGER
By: /S/ RAMON VALDIVIESO
Name: RAMON VALDIVIESO
Title: GENERAL MANAGER
16
<PAGE> 48
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS..................................................1
SECTION 1.01. Defined Terms.............................................................................1
ARTICLE II TERMS OF PAYMENT................................................4
SECTION 2.02. Optional Prepayments......................................................................4
SECTION 2.03. (a) Mandatory Prepayments................................................................4
SECTION 2.04. Adjustment of Base Price..................................................................5
SECTION 2.05. Payments and Computations.................................................................6
SECTION 2.06. Default Interest..........................................................................7
SECTION 2.07.............................................................................................7
Right of Set-off.......................................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES.........................................7
SECTION 3.01. Representations and Warranties of the Debtor..............................................7
ARTICLE IV COVENANTS OF THE DEBTOR............................................8
SECTION 4.01. Affirmative Covenants.....................................................................8
(a) Compliance With Laws, Etc..................................................................8
(a) Transactions With Affiliates..............................................................10
(b) Dividends; Distributions..................................................................10
(c) Prepayments of Certain Indebtedness.......................................................11
(d) Limitation on Modifications...............................................................11
ARTICLE V EVENTS OF DEFAULT..............................................11
SECTION 5.01. Events of Default........................................................................11
SECTION 5.02. Remedies.................................................................................12
ARTICLE VI MISCELLANEOUS................................................12
SECTION 6.01. Amendments, Etc..........................................................................12
SECTION 6.02. Notices, Etc.............................................................................12
SECTION 6.03. No Waiver; Remedies......................................................................13
SECTION 6.04. Costs and Expenses.......................................................................14
SECTION 6.05. Binding Effect; Assignments; Governing Law...............................................14
SECTION 6.06. Severability.............................................................................14
SECTION 6.07. Resolution of Disputes; Submission to Arbitration. .....................................14
SECTION 6.08. Waiver of Immunities.....................................................................15
</TABLE>
17
<PAGE> 49
<TABLE>
<S> <C>
SECTION 6.09. Judgment Currency........................................................................15
SECTION 6.10. Right of Suspension......................................................................15
SECTION 6.11. WAIVERS OF JURY TRIAL....................................................................15
SECTION 6.12. Headings.................................................................................16
SECTION 6.13. .........................................................................................16
SECTION 6.14. Survival.................................................................................16
SECTION 6.15. Effectiveness............................................................................16
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 23,527
<SECURITIES> 0
<RECEIVABLES> 1,523
<ALLOWANCES> 0
<INVENTORY> 1,421
<CURRENT-ASSETS> 31,549
<PP&E> 133,948
<DEPRECIATION> 8,187
<TOTAL-ASSETS> 366,104
<CURRENT-LIABILITIES> 60,654
<BONDS> 161,513
0
0
<COMMON> 2
<OTHER-SE> 143,935
<TOTAL-LIABILITY-AND-EQUITY> 366,104
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 93,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,238
<INCOME-PRETAX> (90,019)
<INCOME-TAX> 0
<INCOME-CONTINUING> (90,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90,019)
<EPS-BASIC> (5.06)
<EPS-DILUTED> (5.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 157,752
<CURRENT-LIABILITIES> 14,789
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 142,963
<TOTAL-LIABILITY-AND-EQUITY> 157,752
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 47,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (46,733)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,733)
<EPS-BASIC> (2.65)
<EPS-DILUTED> (2.65)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 7,496
<SECURITIES> 0
<RECEIVABLES> 42,179
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,779
<PP&E> 2,924
<DEPRECIATION> 124
<TOTAL-ASSETS> 258,785
<CURRENT-LIABILITIES> 29,403
<BONDS> 12,205
0
0
<COMMON> 2
<OTHER-SE> 217,175
<TOTAL-LIABILITY-AND-EQUITY> 258,785
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,051
<INCOME-PRETAX> (20,605)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,605)
<EPS-BASIC> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 6,072
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,416
<PP&E> 2,986
<DEPRECIATION> 253
<TOTAL-ASSETS> 236,688
<CURRENT-LIABILITIES> 20,223
<BONDS> 21,242
0
0
<COMMON> 2
<OTHER-SE> 205,221
<TOTAL-LIABILITY-AND-EQUITY> 236,688
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,809
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,913
<INCOME-PRETAX> (43,343)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,343)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,343)
<EPS-BASIC> (2.45)
<EPS-DILUTED> (2.45)
</TABLE>
