<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
LEAP WIRELESS INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
LEAP WIRELESS LOGO
10307 Pacific Center Court
San Diego, California 92121
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 28, 2000
To the Stockholders of Leap Wireless International, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Leap
Wireless International, Inc., a Delaware corporation (the "Company"), will be
held at the Torrey Pines Hilton, 10950 N. Torrey Pines Road, La Jolla,
California 92037, on Thursday, September 28, 2000 at 3:00 p.m. local time, for
the following purposes:
1. To vote upon a proposal to amend Leap's Amended and Restated Certificate
of Incorporation to increase the number of authorized shares of Leap's
Common Stock from 75,000,000 to 300,000,000.
2. To vote upon a proposal to approve the adoption of Leap's 2000 Stock
Option Plan.
3. To transact such other business as may properly come before the Special
Meeting or any continuation, adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on August 10, 2000
as the record date for the determination of stockholders entitled to notice of
and to vote at this Special Meeting and at any continuation, adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ HARVEY P. WHITE
Harvey P. White
Chairman of the Board and
Chief Executive Officer
San Diego, California
August , 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN
YOUR NAME FROM THE RECORD HOLDER.
<PAGE> 3
PRELIMINARY MATERIALS
[LEAP WIRELESS LOGO]
10307 Pacific Center Court
San Diego, California 92121
------------------------
PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by the Board of Directors (the "Board") of
Leap Wireless International, Inc., a Delaware corporation ("Leap"), for use at a
Special Meeting of Stockholders to be held Thursday, September 28, 2000, at 3:00
p.m. local time (the "Special Meeting"), or at any continuation, adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Special Meeting. The Special Meeting will be held at the Torrey Pines
Hilton, 10950 N. Torrey Pines Road, La Jolla, California 92037. The approximate
date on which this proxy statement and the accompanying proxy card are first to
be sent to stockholders is August , 2000.
SOLICITATION
Leap will bear the cost of soliciting proxies for the upcoming Special
Meeting. Leap will ask banks, brokerage houses, fiduciaries and custodians
holding stock in their names for others to send proxy materials to and obtain
proxies from the beneficial owners of such stock, and Leap will reimburse them
for their reasonable expenses in doing so. In addition to soliciting proxies by
mail, Leap and its directors, officers and regular employees may also solicit
proxies personally, by telephone or by other appropriate means. No additional
compensation will be paid to directors, officers or other regular employees for
such services. Leap has also retained D.F. King & Co., Inc., a professional
proxy solicitation firm, to assist in the solicitation of proxies at an
estimated cost of $8,500, plus certain out-of-pocket expenses.
VOTING RIGHTS AND OUTSTANDING SHARES
Stockholders of record at the close of business on August 10, 2000 (the
"Record Date") are entitled to receive notice of and to vote at the Special
Meeting. At the close of business on the Record Date, Leap had outstanding and
entitled to vote [ ] shares of Common Stock.
Stockholders of record on such date will be entitled to one vote on all
matters to be voted upon for each share of Common Stock held.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be considered shares entitled
to vote in the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
(i.e., shares held by a broker or nominee that are represented at the meeting
but which the broker or nominee is not empowered to vote on a particular
proposal) are counted towards a quorum but are not counted for any purpose in
determining whether a matter has been approved.
<PAGE> 4
REVOCABILITY OF PROXIES
Any stockholder giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of Leap at Leap's principal executive offices, 10307 Pacific
Center Court, San Diego, California 92121, a written notice of revocation or a
duly executed proxy bearing a later date. A stockholder of record at the close
of business on the Record Date may vote in person if present at the meeting,
whether or not he or she has previously given a proxy. Attendance at the meeting
will not, by itself, revoke a proxy.
PROPOSAL 1
AMENDMENT TO LEAP'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board believes the current capital structure does not provide
sufficient flexibility for the potential future needs of Leap. Therefore, the
Board has unanimously approved an amendment to Leap's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Leap's common stock, par value $.0001 per share ("Common Stock"), from
75,000,000 to 300,000,000. The stockholders are being asked to approve this
proposed amendment. If the amendment is adopted, it will become effective upon
the filing of a Certificate of Amendment of Leap's Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware.
As of August 1, 2000, 26,743,136 shares of Common Stock were issued and
outstanding and 16,121,042 shares of Common Stock were reserved for issuance as
follows: 4,500,000 shares reserved for issuance upon exercise of a warrant held
by QUALCOMM Incorporated ("Qualcomm"); 5,214,017 shares of Common Stock reserved
for issuance to employees, officers, directors and consultants under Leap equity
incentive plans; 3,174,043 shares of Common Stock reserved for issuance upon
exercise of options granted in connection with the spin-off of Leap to holders
of options for Qualcomm common stock (including our employees who were former
employees of Qualcomm); 403,128 shares issuable upon consummation of our pending
acquisitions of a wireless license in Denver and three wireless licenses in
Albany, Columbus and Macon, Georgia, which acquisitions are subject to FCC
approval and other conditions; and 2,829,854 shares issuable upon exercise of
warrants issued in connection with Leap's February 2000 units offering.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
PURPOSE AND EFFECT OF THE AMENDMENT
The Board believes that the proposed increase in authorized Common Stock is
desirable so that, as the need may arise, Leap will have the flexibility to
issue shares of Common Stock without additional expense or delay, in connection
with possible future stock dividends or stock splits, equity financings, future
opportunities for expanding Leap's business through investments or acquisitions,
management incentive and employee benefit plans and for other general corporate
purposes. The Board has not taken any action to use the additional authorized
shares for any such purposes.
If the proposed amendment is adopted, the aggregate number of authorized
shares of Common Stock will be increased from 75,000,000 to 300,000,000 shares.
If the amendment is adopted, based on the balance of authorized shares as of
August 1, 2000, 273,256,864 shares will be available for future issuance by the
Board without any stockholder approval. Authorized but unissued shares of Leap's
Common Stock may be issued at such times, for such purposes and for such
consideration as the Board may determine to be appropriate without further
authority from Leap's stockholders, except as otherwise required by applicable
law or stock exchange regulations. If the amendment is not approved, the number
of authorized shares will remain the same and management will have limited
flexibility to meet the potential future needs of Leap.
The increase in authorized Common Stock will not have any immediate effect
on the rights of existing stockholders. The additional shares of Common Stock to
be authorized by adoption of the amendment would have rights identical to the
currently outstanding shares of Common Stock. However, the Board will have the
authority to issue authorized Common Stock without requiring future stockholder
approval of such issuances,
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except as may be required by applicable law or stock exchange regulations. To
the extent that additional authorized shares are issued in the future, they will
decrease the existing stockholders' percentage equity ownership and, depending
upon the price at which they are issued, could be dilutive to existing
stockholders. The holders of Common Stock have no preemptive rights.
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of Leap without further action by the
stockholders. Shares of authorized and unissued Common Stock could be issued
(within the limits imposed by applicable law) in one or more transactions which
would make a change in control of Leap more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of Leap. Leap has previously
adopted certain measures that may have the effect of helping to resist an
unsolicited takeover attempt.
REQUIRED VOTE
The approval of the adoption of the amendment to Leap's Amended and
Restated Certificate of Incorporation requires the affirmative vote of a
majority of the outstanding shares of Leap's Common Stock. Abstentions and
broker non-votes are not affirmative votes and, therefore, will have the same
effect as a vote against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
LEAP'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL 2
PROPOSAL TO APPROVE THE ADOPTION OF LEAP'S 2000 STOCK OPTION PLAN
On August 4, 2000, the Board of Directors approved the adoption of Leap's
2000 Stock Option Plan (the "2000 Plan"). A total of 2,250,000 shares of Common
Stock would be reserved for issuance under the 2000 Plan. No shares of Leap's
Common Stock have been issued pursuant to the 2000 Plan. There are approximately
295 employees currently eligible to participate in the 2000 Plan, in the
discretion of the Board of Directors. Leap expects to hire approximately 700 new
employees during the balance of the calendar year 2000 and approximately 800 new
employees in calendar year 2001. These employees will be essential to Leap's
goal of having a total of 35 markets operational by the end of 2001. This more
than five-fold projected increase in the workforce makes the options which will
become available under the 2000 Plan essential to Leap's expected growth and
retention of key employees.
The 2000 Plan is being implemented to succeed Leap's 1998 Stock Option Plan
(the "1998 Plan") and the 1999 Cricket Communications Holdings, Inc. Stock
Option Plan (the "Cricket Plan") (which was assumed by Leap as part of a merger
of a wholly owned subsidiary of Leap into and with Cricket Communications
Holdings, Inc. in June 2000), which have only 1,349,001 shares and 784,964
shares, respectively, of Leap's Common Stock remaining available for grant as of
June 30, 2000. The 2000 Plan does not replace the 1998 Plan or the Cricket Plan.
Because options to purchase most of the authorized shares under the 1998 Plan
and the Cricket Plan have been granted, the 2000 Plan will operate to authorize
and reserve additional shares of Common Stock for the grant of options on
substantially the same terms as under the 1998 Plan.
The 2000 Plan provides for grants of stock options to selected officers,
directors and employees of and consultants to Leap and its affiliates. The 2000
Plan is designed to promote the success of Leap's business by more closely
aligning the interests of management and Leap's shareholders through the
provision of equity-based incentives to those individuals who are or will be
responsible for such success.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
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GENERAL
The 2000 Plan provides for the grant of both incentive and non-qualified
stock options. Incentive stock options granted under the 2000 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Non-qualified stock
options granted under the 2000 Plan are not intended to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and non-qualified stock options.
PURPOSE
The 2000 Plan was adopted to provide a means by which selected officers,
directors and employees of and consultants to Leap and its affiliates could be
given an opportunity to purchase stock in Leap, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for such
persons to exert maximum efforts for the success of Leap. Leap and its
subsidiaries currently have approximately 295 full time employees, although as
noted above, Leap expects to hire approximately 1,500 additional employees in
2000 - 2001.
ADMINISTRATION
The 2000 Plan is administered by the Board of Directors. The Board has the
power to construe and interpret the 2000 Plan and, subject to the provisions of
the 2000 Plan, to determine the persons to whom and the dates on which options
will be granted, the number of shares to be subject to each option, the time or
times during the term of each option within which all or a portion of such
option may be exercised, the exercise price, the type of consideration to be
paid upon exercise of an option and other terms of the option. The Board of
Directors is authorized to delegate administration of the 2000 Plan to a
committee composed of not fewer than two members of the Board. The Board has
delegated administration of the 2000 Plan to the Compensation Committee of the
Board. As used herein with respect to the 2000 Plan, the "Board" refers to the
Compensation Committee as well as to the Board of Directors itself.
STOCK SUBJECT TO THE 2000 PLAN
The total number of shares of Common Stock that may be issued upon exercise
of options granted or to be granted under the 2000 Plan may not exceed
2,250,000, subject to adjustment as described below. As of August 4, 2000, no
options have been granted under the 2000 Plan. If options granted under the 2000
Plan expire or otherwise terminate without being exercised, the Common Stock not
purchased pursuant to such options again becomes available for issuance under
the 2000 Plan.
ELIGIBILITY
Incentive stock options may be granted only to selected employees
(including corporate officers) of Leap and its affiliates. Non-qualified stock
options may be granted to selected employees (including corporate officers),
directors and consultants.
Leap currently has 9 executive officers who would be considered for grants
under the 2000 Plan. Other employees, directors and consultants of Leap and its
subsidiaries also will be eligible to receive stock option grants under the 2000
Plan. Leap and its subsidiaries currently have approximately 295 full time
employees. Leap expects to hire approximately 700 new employees during the
balance of the calendar year 2000 and approximately 800 new employees in
calendar year 2001. These employees will be essential to Leap's goal of having a
total of 35 markets operational by the end of 2001. This more than five-fold
projected increase in the workforce makes the options which will become
available under the 2000 Plan essential to Leap's expected growth and retention
of key employees.
No incentive stock options may be granted under the 2000 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of Leap or any affiliate of Leap,
unless the option exercise price is at least 110% of the fair market value of
the
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stock subject to the option on the date of grant, and the term of the option
does not exceed 5 years from the date of grant. No employee shall be eligible to
receive in any calendar year option grants covering more than 1,000,000 shares
of Common Stock, subject to adjustment as described below. The aggregate fair
market value, determined at the time of grant, of the shares of Common Stock
with respect to which incentive stock options granted under the 2000 Plan are
exercisable for the first time by an optionee during any calendar year (under
all such plans of Leap and its affiliates) may not exceed $100,000.
OPTIONS GRANTED UNDER THE OPTION PLAN
As of August 4, 2000, Leap had not made any grants of options under the
2000 Plan. Employees of Leap, including employee Directors and executive
officers of Leap, will be eligible to receive grants of options under the 2000
Plan in the future. Non-employee Directors of Leap do not participate in the
2000 Plan.
Participation in the 2000 Plan is at the discretion of the Compensation
Committee. Accordingly, future participation by Executive Officers and other
employees of Leap under the 2000 Plan is not determinable.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 2000 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 2000 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of non-qualified stock options may not be less than 85% of
the fair market value of the stock subject to the option on the date of the
option grant. The exercise price of options granted under the 2000 Plan must be
paid either: (i) in cash at the time the option is exercised, or (ii) at the
discretion of the Board, and (a) by delivery of other Common Stock of Leap, (b)
pursuant to a deferred payment arrangement or (c) in any other form of legal
consideration acceptable to the Board.
Option Repricing Prohibited. Notwithstanding any provision in the 2000 Plan
to the contrary, no option may be amended to reduce the exercise price of such
option, and no option may be granted in exchange for the cancellation or
surrender of an option with a greater exercise price, other than in connection
with the adjustment, assumption or substitution of any option as a result of a
transaction deemed a "Change in Control" (as defined below under the heading
"Effect of Certain Corporate Events") where the excess of the fair market value
of the shares subject to the option over the aggregate exercise price of such
shares immediately after the adjustment, assumption or substitution is not more
than the excess of the aggregate fair market value of the shares subject to the
option over the aggregate exercise price of such shares immediately before such
adjustment, assumption or substitution.
Option Exercise. Options granted under the 2000 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Options granted
under the 2000 Plan generally are subject to vesting over a 5-year period, with
a specified percentage of each option vesting on various annual anniversary
dates of the option's date of grant, provided that the optionee has continuously
provided services to Leap or an affiliate of Leap from such date of grant until
the applicable vesting date. The Board has the power to accelerate the time
during which an option may be exercised. In addition, options granted under the
2000 Plan may permit exercise prior to vesting, but in such event the optionee
may be required to enter into an early exercise stock purchase agreement that
allows Leap to repurchase shares not yet vested at their exercise price should
the optionee leave the employ or cease to be a consultant of Leap before
vesting.
Term. The maximum term of options under the 2000 Plan is ten years, except
that in certain cases (see "Eligibility") the maximum term is five years. The
2000 Plan provides for earlier termination of an option due to the optionee's
cessation of service. Options under the 2000 Plan generally terminate thirty
(30) days after the optionee ceases to provide services to Leap or any affiliate
of Leap. However, in the event the optionee's continuous service terminates due
to the optionee's permanent and total disability as defined in Section 22(e)(3)
of the Code, then the option may continue under its original terms if so
provided in the option
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agreement. If the optionee's continuous service terminates due to the death of
the optionee or due to the optionee's permanent and total disability and such
termination due to disability is followed by the death of the optionee, then the
vesting of all unvested shares may be accelerated as of the date of death of the
optionee if so provided in the option agreement. The Board has discretion to
suspend and/or extend the vesting and/or term of options granted to persons on
leaves of absence. Individual options by their terms may provide for exercise
within a longer period of time following termination of employment or the
consulting relationship.
Restrictions on Transfer. Incentive stock options granted under the 2000
Plan may not be transferred except by will or by the laws of descent and
distribution, and may be exercised during the lifetime of the person to whom the
option is granted only by such person. The 2000 Plan provides that non-qualified
stock options shall be transferable by the optionee only upon such terms and
conditions as set forth in the option agreement as the Board shall determine in
its discretion. In addition, shares subject to repurchase by Leap under an early
exercise stock purchase agreement may be subject to restrictions on transfer
which the Board deems appropriate.
EFFECT OF CERTAIN CORPORATE EVENTS
If any change is made in the stock subject to the 2000 Plan or subject to
any option granted under the 2000 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration of Leap), the 2000 Plan and options outstanding
thereunder will be appropriately adjusted as to the type(s) and the maximum
number of securities subject to such plan, the maximum number of securities
which may be granted to an employee in a particular calendar year and the
type(s), number of securities and price per share of stock subject to such
outstanding options.
In the event of a merger or consolidation in which Leap is not the
surviving corporation or a reverse merger in which Leap is the surviving
corporation but the shares of Leap's Common Stock outstanding prior to the
merger are converted into other property (each a "Change in Control"), then to
the extent permitted by law, any surviving corporation will be required to
either assume options outstanding under the 2000 Plan or substitute similar
options for those outstanding under such plan, or such outstanding options will
continue in full force and effect. In the event that any surviving corporation
refuses to assume or continue options outstanding under the 2000 Plan, or to
substitute similar options, then (1) with respect to options held by persons
then performing services as employees, directors or consultants for Leap or any
affiliate of Leap, the time during which such options may be exercised will be
accelerated and (2) any options outstanding under the 2000 Plan will terminate
if not exercised prior to such event. In the event of a dissolution or
liquidation of Leap, any options outstanding under the 2000 Plan will terminate
if not exercised prior to such event.
In addition, the 2000 Plan provides that options held by any person who is
terminated for any reason other than cause within twenty-four (24) months
following a Change in Control will accelerate and immediately become fully
vested and exercisable, except if such contemplated Change in Control would
occur prior to the second anniversary of the adoption of the 2000 Plan by the
Board and such potential acceleration would by itself prohibit Leap from
entering into a "pooling of interests" accounting transaction.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2000 Plan at any time. Unless sooner
terminated, the 2000 Plan will terminate in August 2010.
The Board may also amend the 2000 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the shareholders of
Leap within twelve (12) months before or after its adoption by the Board if the
amendment would: (i) increase the number of shares reserved for options under
the 2000 Plan; (ii) modify the requirements as to eligibility for participation
(to the extent such modification requires shareholder approval in order for the
2000 Plan to satisfy Section 422 of the Code); or (iii) modify the 2000 Plan in
any other way if such modification requires shareholder approval in order for
the 2000 Plan to
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satisfy the requirements of Section 422 of the Code or to comply with the
requirements of Rule 16b-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
FEDERAL INCOME TAX INFORMATION
The income tax consequences of the 2000 Plan under current federal law are
summarized below. The discussion is intended to provide only general
information. State and local income tax consequences are not discussed.
Incentive Stock Options. There generally are no federal income tax
consequences to the optionee by reason of the grant or exercise of an incentive
stock option. However, the exercise of an incentive stock option may increase
the optionee's alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss upon sale or other
taxable disposition of such stock will be capital gain or loss. Generally, if
the optionee disposes of the stock before the expiration of either of these
holding periods (a "disqualifying disposition"), at the time of disposition, the
optionee will realize taxable ordinary income equal to the lesser of (a) the
excess of the stock's fair market value on the date of exercise over the
exercise price, or (b) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain, if any, upon the disqualifying disposition
may be eligible for capital gain treatment if the required capital gain holding
period is met. Different rules may apply to optionees who are subject to Section
16 of the Exchange Act or who acquire stock subject to certain repurchase
options.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, Leap will generally be entitled (subject to the
requirement of reasonableness, Code Section 162(m) and the satisfaction of a tax
reporting obligation) to a corresponding business expense deduction in the tax
year in which the disqualifying disposition occurs.
Non-Qualified Stock Options. There are no federal income tax consequences
to the optionee or Leap by reason of the grant of a non-qualified stock option.
Upon exercise of a non-qualified stock option, the optionee will recognize
taxable ordinary income equal to the excess of the stock's fair market value on
the date of exercise over the aggregate option exercise price paid. Generally,
with respect to employees, Leap is required to withhold taxes in an amount based
on the ordinary income recognized. Subject to the requirement of reasonableness,
Code Section 162(m) and the satisfaction of a tax-reporting obligation, Leap
generally will be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
Restricted Stock Acquired Upon Exercise of Unvested Options. Generally, on
the purchase of "restricted stock" pursuant to the "early exercise" of a
non-qualified stock option, the optionee will not have taxable income, nor will
Leap be entitled to a deduction, unless the optionee makes a valid election
under Section 83(b) of the Code within thirty (30) days. However, when
restrictions on shares of restricted stock lapse, such that the shares are no
longer subject to a substantial risk of forfeiture or are transferable, the
optionee generally will recognize ordinary income, and Leap will be entitled to
a corresponding deduction, for an amount equal to the difference between the
fair market value of the shares at the date such restrictions lapse over the
purchase price for the restricted stock. If the optionee makes a valid election
under Section 83(b) with respect to restricted stock, the optionee generally
will recognize ordinary income at the date of issuance of the restricted stock
in an amount equal to the difference, if any, between the fair market value of
the shares at that date over the purchase price for the restricted stock, and
Leap will be entitled to a deduction for the same amount.
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Potential Limitation on Company Deductions. Code Section 162(m) generally
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds
$1,000,000 for a covered employee. It is possible that compensation attributable
to stock options, when combined with all other types of compensation received by
a covered employee from Leap, may cause this limitation to be exceeded in any
particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with applicable Treasury regulations issued under Section 162(m),
compensation attributable to stock options generally will qualify as
performance-based compensation, provided that: either (a) (i) the 2000 Plan
contains a per-employee limitation on the number of shares for which options may
be granted during a specified period, (ii) the per-employee limitation is
approved by the stockholders, (iii) the option is granted by a compensation
committee comprised solely of "outside directors" (as defined in Section 162(m))
and (iv) the exercise price of the option is no less than the fair market value
of the stock on the date of grant; or (b) the option is granted by a
compensation committee comprised solely of "outside directors" and is granted
(or exercisable) only upon the achievement (as certified in writing by the
Compensation Committee) of an objective performance goal established by the
compensation committee while the outcome is substantially uncertain and approved
by the stockholders.
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the 2000 Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the 2000 Plan who are residents of or are
employed in a country other than the United States may be subject to taxation in
accordance with the tax laws of that particular country in addition to or in
lieu of United States federal income taxes.
REQUIRED VOTE
The approval of the adoption of the 2000 Plan requires the affirmative vote
of a majority of the shares of Leap's Common Stock represented and voting at the
Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE ADOPTION OF
THE 2000 STOCK OPTION PLAN.
8
<PAGE> 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of August 1, 2000, with
respect to the beneficial ownership of Leap's Common Stock by: (i) each
stockholder known to Leap to be the beneficial owner of more than 5% of Leap's
Common Stock; (ii) each director; (iii) each of the five most highly compensated
executive officers; and (iv) all current executive officers and directors as a
group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
SHARES(2) TOTAL
--------- ----------
<S> <C> <C>
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS
QUALCOMM Incorporated(3).................................... 4,500,000 14.4%
Harvey P. White(4)(5)(10)................................... 601,676 2.2
Thomas J. Bernard(5)(6)(10)................................. 88,732 *
James E. Hoffmann(5)(7)(10)................................. 31,571 *
Daniel O. Pegg(5)(8)........................................ 23,316 *
Leonard C. Stephens(5)(10).................................. 46,124 *
Scot B. Jarvis(5)(9)........................................ 297,392 1.1
Alejandro Burillo Azcarraga(5).............................. 12,000 *
Jeffrey P. Williams(5)...................................... 161,215 *
Robert C. Dynes(5).......................................... 6,000 *
John J. Moores(5)........................................... 6,000 *
Michael B. Targoff(5)....................................... 58,500 *
Anthony R. Chase(5)(11)..................................... 205,056 *
All Officers and Directors as a group (16 persons).......... 1,712,887 6.4%
</TABLE>
---------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders of Leap and by Schedules 13D and 13G filed with the
Commission. Unless otherwise indicated in the footnotes to this table and
subject to marital property laws where applicable, each of the stockholders
named in this table has sole voting and investment power with respect to
the shares indicated as beneficially owned and has a business address of
Leap Wireless International, Inc., 10307 Pacific Center Court, San Diego,
California 92121. Applicable percentages are based on 26,743,136 shares of
Leap Common Stock outstanding, adjusted as required by rules promulgated by
the Commission.
(2) In addition to shares held in the individual's sole name, this column
includes shares held by the spouse and other members of the named person's
immediate household who share that household with the named person, and
shares held in family trusts.
(3) Consists entirely of the right to purchase shares of Leap Common Stock for
approximately $6.11 per share, or an aggregate purchase price of
approximately $27.5 million, under a warrant. The warrant is fully
exercisable and expires in September 2008. On a fully diluted basis, as of
August 1, 2000, Qualcomm would own approximately 10.5% of Leap Common Stock
upon exercise of the warrant. This table does not include warrants to
purchase approximately 771,450 shares of Common Stock at an exercise price
of $96.80 per share which Qualcomm purchased in our February 2000 units
offering. Such warrants are not exercisable until February 23, 2001.
Qualcomm's business address is 5775 Morehouse Dr., San Diego, California
92121.
(4) Includes 2,500 shares held in a foundation of which Mr. White disclaims
beneficial ownership. Also includes 357,429 shares held in family trusts,
7,500 shares held in a family limited partnership, 250 shares held in a
charitable remainder trust, 78,765 shares held in a family trust for the
benefit of grandchildren and 60,032 shares held in trusts for the benefit
of relatives.
(5) Includes shares issuable upon exercise of options exercisable within 60
days of August 1, 2000 as follows: Mr. Bernard, 43,150 shares (including
5,650 shares subject to options held by Mr. Bernard's spouse); Mr. Burillo,
6,000 shares; Mr. Chase, 1,890 shares; Mr. Dynes, 6,000 shares; Mr.
Hoffmann,
9
<PAGE> 12
21,700 shares; Mr. Jarvis, 8,000 shares; Mr. Moores, 6,000 shares; Mr. Pegg,
18,020 shares; Mr. Stephens, 15,200 shares; Mr. Targoff, 6,000 shares; Mr.
White, 95,200 shares; and Mr. Williams, 12,000 shares.
(6) Includes 60 shares held by Mr. Bernard's spouse.
(7) Includes 2,500 shares held in a custodial account for the benefit of Mr.
Hoffmann's spouse and 16,215 shares held in a family trust.
(8) Includes 5,000 shares held by a family trust, 525 shares held in a
custodial account for the benefit of Mr. Pegg's spouse and 25 shares held
for the benefit of Mr. Pegg's minor son.
(9) Includes 50 shares held in an IRA account and 150 shares held for the
benefit of Mr. Jarvis' children.
(10) Includes shares subject to vesting 20% per year over a five-year period
commencing September 24, 1999 as follows: Mr. White, 47,250 shares; Mr.
Bernard, 23,625 shares; Mr. Hoffmann, 7,560 shares; and Mr. Stephens,
18,900 shares.
(11) Includes 202,566 shares issuable upon exercise of a warrant held by Chase
Telecommunications Holdings, Inc., a company through which Mr. Chase, by
virtue of his position as an officer and director, has the shared power to
vote and direct the disposition of such shares. Mr. Chase holds a 41.25%
ownership interest in Chase Telecommunications Holdings, Inc. and disclaims
beneficial ownership of all but 83,558 of the 202,566 shares issuable upon
exercise of the warrant.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information with
respect to Leap's Chief Executive Officer and other four most highly-paid
executive officers during Leap's most-recently completed fiscal year ended
August 31, 1999 (the "Named Executive Officers"). Leap first hired employees on
September 23, 1998. Prior to that date, all of Leap's Named Executive Officers
were employees of QUALCOMM. As a result, the information set forth in the
following tables reflects compensation earned by the Named Executive Officers
for services they rendered to Leap during fiscal 1999 and to QUALCOMM during its
fiscal years 1997 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM
---------------------------------------------- COMPENSATION
OTHER SECURITIES
NAME AND PRINCIPAL POSITIONS ANNUAL UNDERLYING ALL OTHER
AT LEAP YEAR SALARY(2) BONUS COMPENSATION(3) OPTIONS(4) COMPENSATION(6)
---------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White................ 1999 $488,464 $305,000 $ 0 497,000 $273,222
Chairman of the Board and 1998 $477,853 $320,000 $ 0 75,000 $108,902
Chief Executive Officer 1997 $395,713 $250,000 $ 0 0 $ 37,011
Thomas J. Bernard.............. 1999 $280,924 $150,000 $ 0 180,000 $ 46,351
Vice Chairman, President of 1998 $287,509 $120,000 $ 0 0 $ 34,545
International Business 1997 $245,142 $ 65,000 $ 0 0 $ 6,086
Division and Director
James E. Hoffmann.............. 1999 $224,117 $ 80,000 $ 0 83,000 $ 5,219
Senior Vice President, 1998 $178,930 $ 60,000 $ 0 4,000 $ 13,899
General Counsel, 1997 $149,283 $ 50,000 $ 0 3,000 $ 10,048
and Secretary
Leonard C. Stephens............ 1999 $197,270 $ 80,000 $ 0 76,000 $ 13,464
Senior Vice President, 1998 $176,930 $ 55,000 $104,947 6,000 $ 2,258
Human Resources 1997 $146,828 $ 45,000 $ 42,268 3,000 $ 1,816
Daniel O. Pegg................. 1999 $204,504 $ 70,000 $ 0 52,500 $ 32,726
Senior Vice President, 1998 $209,868 $ 68,000 $ 0 0 $ 41,745
Public Affairs 1997 $111,174(5) $ 55,000 $ 0 50,000 $ 3,463
</TABLE>
---------------
(1) As permitted by rules established by the Commission, no amounts are shown
with respect to certain "perquisites" where such amounts do not exceed the
lesser of either $50,000 or 10% of the total of annual salary and bonus.
10
<PAGE> 13
(2) The 1999 salary amounts reflect compensation paid to the Named Executive
Officers by Leap after the September 23, 1998 spin-off from QUALCOMM,
representing approximately eleven months of fiscal 1999.
(3) In December 1995, Leonard C. Stephens joined QUALCOMM as Vice President of
Human Resources. QUALCOMM made payments related to his relocation as shown
above and in fiscal 1998 also reimbursed Mr. Stephens $50,705 for income
taxes arising from the relocation payment.
(4) In connection with the spin-off of Leap by QUALCOMM in September 1998, Leap
was contractually obligated to issue options to purchase Leap Common Stock
to the holders of outstanding options to purchase QUALCOMM common stock (the
"Distribution Options"). This arrangement was made to preserve the value of
the outstanding QUALCOMM options at the time of the spin-off. Distribution
Options granted to the Named Executive Officers were 91,000 shares to Mr.
White; 15,000 shares to Mr. Bernard; 8,000 shares to Mr. Hoffmann; 6,000
shares to Mr. Stephens; and 12,500 shares to Mr. Pegg.
(5) Mr. Pegg joined QUALCOMM in March 1997. If he had been employed by QUALCOMM
during the entire 1997 fiscal year at the same annual base salary rate, his
salary for fiscal 1997 would have been $212,000.
(6) Includes matching 401(k) contributions, executive benefits payments,
executive retirement stock matching and financial planning services as
follows:
<TABLE>
<CAPTION>
MATCHING EXECUTIVE EXECUTIVE FINANCIAL TOTAL
401(k) BENEFITS RETIREMENT PLANNING OTHER
NAME YEAR CONTRIBUTIONS PAYMENTS CONTRIBUTIONS(1) SERVICES COMPENSATION
---- ---- ------------- --------- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White....... 1999 $ 4,615 $ 1,850 $47,077 $16,640 $273,222(2)
1998 $ 2,313 $ 2,520 $48,919 $38,070 $108,902(3)
1997 $ 2,145 $ 2,520 $32,346 $ 0 $ 37,011
Thomas J. Bernard..... 1999 $ 3,269 $14,596 $17,870 $10,616 $ 46,351
1998 $ 2,659 $ 4,270 $26,532 $ 1,084 $ 34,545
1997 $ 1,816 $ 4,270 $ 0 $ 0 $ 6,086
James E. Hoffmann..... 1999 $ 2,032 $ 3,187 $ 0 $ 0 $ 5,219
1998 $ 2,659 $ 0 $ 8,916 $ 2,324 $ 13,899
1997 $ 2,145 $ 0 $ 7,903 $ 0 $ 10,048
Leonard C. Stephens... 1999 $ 4,182 $ 7,042 $ 0 $ 2,240 $ 13,464
1998 $ 2,258 $ 0 $ 0 $ 0 $ 2,258
1997 $ 1,816 $ 0 $ 0 $ 0 $ 1,816
Daniel O. Pegg........ 1999 $ 3,269 $10,796 $17,559 $ 1,102 $ 32,726
1998 $14,048 $ 4,475 $ 9,174 $14,048 $ 41,745
1997 $ 0 $ 0 $ 3,463 $ 0 $ 3,463
</TABLE>
---------------
(1) Leap has a voluntary retirement plan that allows eligible executives to
defer up to 100% of their income on a pre-tax basis. The participants
receive a 50% company stock match on a maximum deferral of 15% of income
payable only upon eligible retirement. Participants become fully vested in
the stock benefit at age 65, with partial vesting beginning after the
participant reaches the age of 61 and has at least three years of employment
with Leap or has participated in the plan for more than ten years. The
employee contributions and the stock benefit are unsecured and subject to
the general creditors of Leap. At June 30, 2000, 5,247 shares were vested on
behalf of Harvey P. White, 1,754 shares were vested on behalf of Thomas J.
Bernard, 1,929 shares have been issued but have not yet vested on behalf of
Daniel O. Pegg, 300 shares have been issued but have not vested on behalf of
James E. Hoffmann and 279 shares have been issued but have not vested on
behalf of Leonard C. Stephens.
(2) Also includes $203,040, the dollar value of the benefits of premiums paid
for a split-dollar life insurance policy (unrelated to term life insurance
coverage) (the "Split-Dollar Insurance") reflecting the present value of the
economic benefit of the premiums paid by Leap during fiscal 1999.
11
<PAGE> 14
(3) Also includes $17,080, the dollar value of the benefit of premiums paid for
the Split-Dollar Insurance reflecting the present value of the economic
benefit of the premiums paid by QUALCOMM during its 1998 fiscal year.
The following table shows specified information with respect to options to
purchase Common Stock of Leap granted to the Named Executive Officers during
Leap's fiscal 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE
SECURITIES OPTIONS GRANTED AT ASSUMED ANNUAL RATES OF
UNDERLYING TO STOCK PRICE APPRECIATION FOR
OPTIONS COMPANY OPTION TERM(4)
GRANTED EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME (#)(3) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- --------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White........ 36,000(1) 2.01% $ 2.59 07/05/03 $ 111,318.38 $ 162,268.92
15,000(1) 0.84% $ 2.42 01/26/05 $ 55,680.59 $ 87,247.93
21,250(1) 1.19% $ 4.06 07/11/06 $ 53,616.05 $ 114,782.83
18,750(1) 1.05% $ 5.59 11/13/07 $ 26,976.20 $ 96,806.56
256,000(2) 14.33% $ 3.03 10/08/08 $ 487,820.98 $1,236,234.15
150,000(2) 8.39% $19.25 06/22/09 $1,815,304.56 $4,599,975.94
Thomas J. Bernard...... 7,500(1) 0.42% $ 3.56 01/04/06 $ 21,448.01 $ 40,862.59
7,500(1) 0.42% $ 4.06 07/11/06 $ 18,923.31 $ 40,511.59
75,000(2) 4.20% $ 3.03 10/08/08 $ 142,916.30 $ 362,177.97
90,000(2) 5.04% $19.25 06/22/09 $1,089,182.74 $2,759,985.56
James E. Hoffmann...... 4,000(1) 0.22% $ 2.08 06/10/03 $ 14,332.88 $ 19,885.15
1,250(1) 0.07% $ 2.43 10/06/04 $ 4,513.65 $ 6,961.42
1,000(1) 0.06% $ 3.44 12/07/05 $ 2,955.75 $ 5,502.66
750(1) 0.04% $ 3.49 12/12/06 $ 2,422.52 $ 4,769.83
1,000(1) 0.06% $ 5.75 12/04/07 $ 1,298.49 $ 5,062.14
45,000(2) 2.52% $ 3.03 10/08/08 $ 85,749.78 $ 217,306.78
30,000(2) 1.68% $19.25 06/22/09 $ 363,060.91 $ 919,995.19
Leonard C. Stephens.... 3,750(1) 0.21% $ 3.44 12/07/05 $ 11,084.07 $ 20,634.97
750(1) 0.04% $ 3.49 12/12/06 $ 2,422.52 $ 4,769.83
1,500(1) 0.08% $ 5.75 12/04/07 $ 1,947.73 $ 7,593.22
40,000(2) 2.24% $ 3.03 10/08/08 $ 76,222.03 $ 193,161.59
30,000(2) 1.68% $19.25 06/22/09 $ 363,060.91 $ 919,995.19
Daniel O. Pegg......... 12,500(1) 0.70% $ 5.28 03/06/07 $ 18,948.87 $ 59,852.65
30,000(2) 1.68% $ 3.03 10/08/08 $ 57,166.52 $ 144,871.19
10,000(2) 0.56% $19.25 06/22/09 $ 121,020.30 $ 306,665.06
</TABLE>
---------------
(1) This Distribution Option was granted in connection with the spin-off of Leap
from QUALCOMM. In connection with the spin-off transaction, Leap was
contractually obligated to issue options to purchase Leap Common Stock to
the holders of outstanding options to purchase QUALCOMM common stock. This
arrangement was made to preserve the value of the outstanding QUALCOMM
options at the time of the spin-off. At the spin-off, the exercise price of
each outstanding QUALCOMM option was allocated proportionally between each
outstanding QUALCOMM option and the corresponding Distribution Option
granted by Leap.
(2) This option was granted after the spin-off distribution pursuant to Leap's
1998 Stock Option Plan.
(3) Options granted by Leap to executive officers in its fiscal year ending
August 31, 1999 become exercisable in equal installments on the first
through fifth anniversaries of the date of grant.
12
<PAGE> 15
(4) Calculated on the assumption that the market value of the underlying Common
Stock increases at the stated values, compounded annually. Options granted
under Leap's 1998 Stock Option Plan generally have a maximum term of ten
years. The total appreciation of the options over their ten year terms at 5%
and 10% is 63% and 158%, respectively.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information with respect to the
exercise of options to purchase Common Stock of Leap during the fiscal year
ended August 31, 1999, and the unexercised options held and the value thereof at
that date, for each of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END
SHARES VALUE (#) ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harvey P. White................... 61,500 $304,528 0 435,500 $ 0 $4,053,430
Thomas J. Bernard................. 6,000 $ 10,500 1,500 172,500 $19,980 $1,178,400
James E. Hoffmann................. 0 $ 0 5,650 77,500 $84,482 $ 677,144
Daniel O. Pegg.................... 0 $ 0 5,000 47,500 $60,500 $ 521,250
Leonard C. Stephens............... 2,100 $ 28,167 0 73,900 $ 0 $ 625,572
</TABLE>
---------------
(1) Represents the closing price per share of the underlying shares on the last
day of the fiscal year less the option exercise price multiplied by the
number of shares. The closing value per share was $17.38 on the last trading
day of the fiscal year as reported on the Nasdaq National Market.
EMPLOYMENT AGREEMENT
Leap and Susan G. Swenson entered into an employment offer letter dated
June 11, 1999 which provides that Ms. Swenson will serve as President of Leap.
Ms. Swenson currently serves as President, Chief Operating Officer and Director
of Leap and President and Chief Executive Officer of Cricket Communications.
Under the letter, Ms. Swenson is entitled to an annual salary of $400,000 and,
beginning with fiscal 1999, an annual bonus of up to 60% of her base salary. In
connection with the letter, Ms. Swenson received an option under Leap's option
plan to acquire 250,000 shares of Leap's Common Stock at a price of $19.00 per
share. The option vests at the rate of 20% per year upon each anniversary of the
grant date. Under the letter, Ms. Swenson also received an option to purchase
350,000 shares of Cricket Communications Holdings, Inc. common stock at a price
of $2.00 per share, that will become fully vested after five years from the
grant date. In connection with the merger of Cricket Communications Holdings
into a wholly-owned subsidiary of Leap in June 2000, Ms. Swenson's outstanding
options to purchase shares of Cricket Communications Holdings common stock were
converted into options to purchase 70,875 shares of Leap's Common Stock at a
price of $6.35 per share. Under the letter, Ms. Swenson is eligible to
participate in Leap's executive retirement plan and is also entitled to
comprehensive benefits. The letter includes a special termination provision that
requires Leap to pay to Ms. Swenson 12 months base pay if her employment is
terminated for other than gross misconduct or gross neglect of duty within 12
months of her date of hire. If Ms. Swenson is terminated for other than gross
misconduct or gross neglect of duty within 13 to 24 months of her date of hire,
Leap is required to make payment to Ms. Swenson equal to nine months of her base
pay.
COMPENSATION OF DIRECTORS
Directors of Leap do not receive any compensation for their services as
director except that each non-employee director receives an option to purchase
20,000 shares of Leap Common Stock when he or she first serves as a non-employee
director and an option to purchase 10,000 additional shares of Leap Common Stock
13
<PAGE> 16
at the time of each subsequent annual meeting that occurs while he or she
continues to serve as a non-employee director.
The exercise price for each option is the fair market value of Leap's
Common Stock on the date the option is granted. Each option becomes exercisable
over five years according to the following schedule: as long as the optionee
continues to serve as a non-employee director, employee or consultant to Leap,
20% of the shares subject to the option first become exercisable on each of the
first five anniversaries of the date of grant. Each option has a term of 10
years, provided that the options terminate 30 days after the optionee ceases to
be a non-employee director, employee or consultant to Leap. Special exercise and
termination rules apply if the optionee's relationship with Leap is terminated
as a result of retirement at age 70 after at least nine years of service on the
Board, permanent and total disability, or death.
Leap also reimburses directors for their travel expenses incurred in
connection with attendance at Board and Board committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Burillo, Jarvis and Moores are the current members of Leap's
Compensation Committee. Messrs. Targoff and Williams also served as members of
the Compensation Committee until June 1999.
Prior to the spin-off of Leap from Qualcomm, Messrs. Jarvis and Williams
worked with Qualcomm to develop the "Cricket(R)" unlimited local calling
strategy that Leap has adopted and refined for use in domestic wireless markets.
Messrs. Jarvis and Williams are also directors of Cricket Communications
Holdings, Inc., a subsidiary of Leap that is implementing the Cricket strategy.
In June 1999, Cricket Communications Holdings granted Messrs. Jarvis and
Williams options to purchase 795,000 and 410,000 shares, respectively, of its
common stock, exercisable at $1.00 per share. Messrs. Jarvis and Williams
exercised these options in full and as a result they owned approximately 1.5%
and 0.8%, respectively, of the outstanding common stock of Cricket
Communications Holdings.
Mr. Jarvis fully exercised his Cricket Communications Holdings stock
options in July 1999. Upon exercise, Mr. Jarvis paid $346,334 in cash and issued
to Cricket Communications Holdings a promissory note for the remaining balance
of $448,666. The promissory note is secured by 498,666 shares of Cricket
Communications Holdings common stock. The note accrues interest at a rate of 9%
per annum, compounded annually, on the outstanding balance of the loan. The loan
matures on August 31, 2000.
Mr. Williams fully exercised his Cricket Communications Holdings stock
options in July 1999 and paid to Cricket Communications Holdings the exercise
price of $410,000 in cash.
In December 1999, Mr. Jarvis and Mr. Williams and Michael B. Targoff, also
a director of Leap, purchased 121,483, 63,700 and 166,667 shares of Cricket
Communications Holdings, respectively, at a price of $6.00 per share. The shares
were acquired in exchange for issuance of secured demand promissory notes issued
to Cricket Communications Holdings by Messrs. Jarvis, Williams and Targoff on
the amounts of $728,898, $382,200 and $1,000,002, respectively. The promissory
notes have been paid in full and were secured by the shares and accrued interest
at the rate of 10% per annum.
In connection with the merger of Cricket Communications Holdings into a
wholly-owned subsidiary of Leap in June 2000, each issued and outstanding share
of Cricket Communications Holdings not held by Leap was converted into the right
to receive 0.315 of a fully paid and nonassessable share of Leap's Common Stock.
As previously disclosed, in late September 1998, Leap provided a $17.5
million loan to Pegaso Comunicaciones y Servicios, S.A. de C.V. ("Pegaso
Comunicaciones"), a Mexican company 99%-owned by Alejandro Burillo Azcarraga, a
Director of Leap and a member of the Board's Compensation Committee. The
purposes of this loan were to facilitate investment by Pegaso Comunicaciones in
Pegaso Telecomunicaciones, S.A. de C.V. ("Pegaso"), a joint venture in which
Leap has an interest, and to ensure that the investors in Pegaso made all
capital contributions to Pegaso that were required for the acquisition of
certain Mexican telecommunications licenses on September 30, 1998. The Pegaso
Loan was paid in full, as scheduled, in two
14
<PAGE> 17
payments of $7.5 million and $10 million made in October 1998 and December 1998,
respectively. Leap earned interest at the rate of 13% per annum on the loan to
Pegaso Comunicaciones.
In April 1999, Leap entered into an agreement with Pegaso to provide it
with network management and operations services for five years, subject to
earlier termination in accordance with the terms of the agreement. Leap
generally subcontracted these services to a subsidiary of an international
telecommunications company. From the September 23, 1998 spin-off of Leap until
April 1999, Leap also provided management and operations services to Pegaso
through a subsidiary of the international telecommunications company. In fiscal
1999, Pegaso paid Leap $28.2 million for services plus related expenses under
these arrangements. Mr. Burillo and his affiliates own an interest of
approximately 14.6% in Pegaso. Leap owns an interest of approximately 22.4% in
Pegaso.
In March 2000, Leap acquired substantially all of the assets of Chase
Telecommunications Holdings, Inc., a company partially owned and controlled by
Mr. Chase. As partial consideration of that acquisition, (i) Mr. Chase entered
into a Consulting Agreement with a wholly-owned subsidiary of Leap pursuant to
which Mr. Chase will receive $250,000 per year for 5 years and was granted
options to purchase 9,450 shares of Leap Common Stock, (ii) Chase
Telecommunications Holdings, Inc. received a warrant to purchase 202,566 shares
of Leap Common Stock for an aggregate exercise price of $1,000,000, and (iii)
Chase Telecommunications Holdings, Inc. received a contingent earn-out payment
of up to $41.0 million (plus certain expenses) based on the earnings of the
business acquired from Chase Telecommunications Holdings, Inc. during the fifth
full year following the closing of the acquisition.
STOCKHOLDER PROPOSALS
Leap recently announced a change in its fiscal year to correspond to the
calendar year. Therefore, the next annual meeting of stockholders, the date of
which has not yet been determined, will occur in Spring 2001 following the
completion of Leap's fiscal year ending December 31, 2000. When such meeting
date is set, Leap will announce the date to its stockholders in its next
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission.
Due to the change in fiscal year, proposals that stockholders wish to include in
the Proxy Statement for the next annual meeting of stockholders must be received
by Leap a reasonable time before Leap begins to print and mail its proxy
materials and must satisfy the conditions established by the Securities and
Exchange Commission for such proposals. Proposals that stockholders wish to
present at the annual meeting of stockholders to be held following the next
fiscal year end (which will not be included in the related Proxy Statement) must
be received by Leap at its principal executive office at 10307 Pacific Center
Court, San Diego, California 92121, not more than 90 days prior to the date of
the annual meeting of stockholders and no later than 5:00 p.m., Pacific time, on
the date that is 60 days prior to the date of the annual meeting of stockholders
and must satisfy the conditions for such proposals set forth in Leap's Bylaws.
If a public announcement of the date for the next annual meeting of stockholders
is made less than 70 days prior to such date, then proposals that stockholders
wish to present at the annual meeting of stockholders must be received by Leap
no later than 10 days following the date of the public announcement.
Stockholders are also advised to review Leap's Bylaws, which contain additional
advance notice requirements, including requirements with respect to advance
notice of stockholder proposals and director nominations.
15
<PAGE> 18
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Special Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
A COPY OF LEAP'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
AUGUST 31, 1999, AS AMENDED, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, EXCLUDING EXHIBITS, MAY BE OBTAINED BY STOCKHOLDERS WITHOUT CHARGE
BY WRITTEN REQUEST ADDRESSED TO LEAP WIRELESS INTERNATIONAL, INC., ATTN.:
INVESTOR RELATIONS, 10307 PACIFIC CENTER COURT, SAN DIEGO, CALIFORNIA 92121.
By Order of the Board of Directors
/s/ Harvey P. White
Harvey P. White
Chairman of the Board and
Chief Executive Officer
August , 2000
16
<PAGE> 19
PROXY PROXY
LEAP WIRELESS INTERNATIONAL, INC.
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 28, 2000
The undersigned hereby appoints Harvey P. White and James E. Hoffmann, and each
of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Leap Wireless International,
Inc. (the "Company") which the undersigned may be entitled to vote at the
Special Meeting of Stockholders of the Company to be held at the Torrey Pines
Hilton, 10950 N. Torrey Pines Road, La Jolla, California 92037, on Thursday,
September 28, 2000 at 3:00 p.m. local time and at any and all continuations,
adjournments or postponements thereof, with all powers that the undersigned
would possess if personally present, on the following matters, in accordance
with the following instructions, and on all other matters that may properly come
before the meeting. With respect to any matter not known to the Company as of
August 10, 2000, such proxies are authorized to vote in their discretion.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS
1 AND 2, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
YOUR VOTE IS IMPORTANT. THEREFORE, YOU ARE URGED TO COMPLETE,
SIGN, DATE, AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on other side)
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<PAGE> 20
LEAP WIRELESS INTERNATIONAL, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. Proposal to approve amendment of Leap's Amended and Restated Certificate of
Incorporation to increase the number of authorized shares of Leap's Common
Stock from 75,000,000 to 300,000,000.
2. Proposal to approve the adoption of Leap's 2000 Stock Option Plan.
I PLAN TO ATTEND THE MEETING [ ]
Please vote, sign, date and promptly
return this proxy in the enclosed return
envelope which is postage prepaid if
mailed in the United States.
Please sign exactly as name appears
hereon. If the stock is registered in the
names of two or more persons, each should
sign. Executors, administrators,
trustees, guardians and attorneys-in-fact
should add their titles. If signer is a
corporation, please give full corporate
name and have a duly authorized officer
sign, stating title. If signer is a
partnership, please sign in partnership
name by authorized person.
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Signature
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Signature
Dated: , 2000
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FOLD AND DETACH HERE
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