<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MARCH 17, 2000
LEAP WIRELESS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-29752 33-0811062
(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
10307 PACIFIC CENTER COURT, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 882-6000
<PAGE> 2
This amended report is being filed to include financial statements to
the registrant's Current Report on Form 8-K, filed April 3, 2000. The financial
statements reflect the registrant's, and an indirect subsidiary of the
registrant's, March 17, 2000 acquisition of substantially all of the assets of
Chase Telecommunications Holdings, Inc.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 17, 2000, Leap Wireless International, Inc., a Delaware
corporation (the "Company"), and an indirect subsidiary of the Company, Cricket
Communications, Inc. ("Cricket"), completed the acquisition of substantially all
of the assets of Chase Telecommunications Holdings, Inc. ("CTH"). The
acquisition was effected pursuant to that certain Asset Purchase Agreement dated
as of December 24, 1998 (the "Asset Purchase Agreement"), by and among the
Company, CTH, Chase Telecommunications, Inc. ("ChaseTel"), Anthony Chase, an
individual, and Richard McDugald, an individual. Prior to completion of the
acquisition, the Company owned 7.2% of the outstanding common stock of CTH.
Pursuant to the Asset Purchase Agreement, the Company acquired all of
the outstanding common stock of ChaseTel Licensee Corp. ("Licensee"), and
Cricket acquired substantially all of the other assets of CTH, including all of
the outstanding common stock of ChaseTel. The Company and Cricket acquired the
assets in exchange for: (a) $6.3 million in cash; (b) a five-year warrant to
purchase 1% of the outstanding common stock (643,068 shares) of Cricket
Communications Holdings, Inc., a subsidiary of the Company which owns Cricket,
with an aggregate exercise price of $1.0 million; (c) the return to CTH of
shares of CTH common stock held by the Company and all outstanding warrants to
purchase CTH common stock held by the Company; and (d) a future cash payment of
up to $41 million (plus certain fees and expenses) to be based on the earnings
of the wireless telecommunications business developed using the PCS licenses
acquired from CTH during the fifth full fiscal year following the acquisition.
The terms of the acquisition, including the purchase price, were
established through arms-length negotiations between the Company and CTH.
The Company and Cricket acquired the CTH assets subject to outstanding
indebtedness: (a) to QUALCOMM Incorporated in the amount of approximately $29
million; (b) to Cricket in the amount of approximately $77 million; and (c) to
the Federal Communications Commission in the principal amount of approximately
$79 million. Concurrently with the completion of the acquisition, the
outstanding indebtedness to QUALCOMM Incorporated was repaid with the proceeds
of borrowings under Cricket's credit facility with Lucent Technologies Inc. and
the outstanding indebtedness to Cricket was forgiven.
The primary assets of CTH consisted of the common stock of ChaseTel, an
operating company owning wireless telecommunications networks in Chattanooga and
Nashville, Tennessee, the common stock of Licensee, which holds 11 FCC C-Block
PCS licenses (each of 15 MHz) in Tennessee and surrounding states, and the
common stock of ChaseTel Real Estate Holding Company, Inc., which owns certain
real property interests in Tennessee. Prior to the acquisition, these assets
were used to provide wireless telecommunications services and the Company and
Cricket intend to continue such uses for the acquired assets.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
Consolidated Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1999 and
1998
Consolidated Statements of Operations for the fiscal
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Redeemable Stock and
Stockholders' Equity (Deficit) for each of the fiscal
years in the period from January 1, 1996 to December 31,
1999
Consolidated Statements of Cash Flows for the fiscal
years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
LEAP WIRELESS INTERNATIONAL, INC.
Pro Forma Financial Statements:
Unaudited Pro Forma Consolidated Balance Sheet at
February 29, 2000
Unaudited Pro Forma Consolidated Statement of Operations
for the six months ended February 29, 2000
Unaudited Pro Forma Consolidated Statement of Operations
for the year ended August 31, 1999
Notes to the Pro Forma Financial Information (unaudited)
(c) Exhibits.
<TABLE>
<S> <C>
2.1 Asset Purchase Agreement, dated December 24, 1998, by and among
Chase Telecommunications Holdings, Inc., Chase Telecommunications,
Inc., Anthony Chase, Richard McDugald and Leap Wireless
International, Inc. (incorporated herein by reference to Exhibit
10.20 to the Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1998, as filed with the Securities and Exchange
Commission on January 14, 1999).
23.1 Consent of Independent Accountants.
99.1* Press Release, dated March 20, 2000.
</TABLE>
- ---------------
* Filed as an exhibit to the registrant's Current Report on Form 8-K dated April
3, 2000.
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 25, 2000 Leap Wireless International, Inc.
By: /s/ JAMES E. HOFFMANN
---------------------------------
James E. Hoffmann
Senior Vice President, General
Counsel and Secretary
<PAGE> 5
LEAP WIRELESS INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHASE TELECOMMUNICATIONS HOLDINGS, INC
Consolidated Financial Statements:
Report of Independent Accountants ....................................................................... F-2
Consolidated Balance Sheets at December 31, 1999 and 1998 ............................................... F-3
Consolidated Statements of Operations for the fiscal years ended December 31, 1999, 1998 and 1997 ....... F-4
Consolidated Statements of Redeemable Stock and Stockholders' Equity (Deficit) for each of the
fiscal years in the period from January 1, 1996 to December 31, 1999 ............................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 1999, 1998 and 1997 ....... F-6
Notes to Consolidated Financial Statements .............................................................. F-7
LEAP WIRELESS INTERNATIONAL, INC
Pro Forma Financial Information ............................................................................... F-22
Unaudited Pro Forma Consolidated Balance Sheet at February 29, 2000 ..................................... F-23
Unaudited Pro Forma Consolidated Statement of Operations for the six months ended February 29, 2000...... F-24
Unaudited Pro Forma Consolidated Statement of Operations for the year ended August 31, 1999 ............. F-25
Notes to the Pro Forma Financial Information (unaudited) ................................................ F-26
</TABLE>
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Chase Telecommunications Holdings, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of redeemable
stock and stockholders' deficit present fairly, in all material respects, the
financial position of Chase Telecommunications Holdings, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, in March 2000 the
Company sold substantially all of its assets and, as a result, has no continuing
operations.
PricewaterhouseCoopers LLP
San Diego, California
May 16, 2000
F-2
<PAGE> 7
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................. $ 1,783 $ 5,912
Accounts receivable, net.................................. 716 218
Inventory................................................. 781 89
Prepaids and other current assets......................... 585 305
--------- --------
Total current assets.................................... 3,865 6,524
Property and equipment, net............................... 28,290 25,090
PCS licenses, net......................................... 60,299 58,436
Deferred financing costs and other assets, net............ 431 593
--------- --------
Total assets............................................ $ 92,885 $ 90,643
========= ========
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued liabilities.................. $ 3,589 $ 1,154
Unearned revenue.......................................... 663 12
Interest payable.......................................... 2,145 4,611
--------- --------
Total current liabilities............................... 6,397 5,777
--------- --------
Government financing...................................... 64,780 62,575
Qualcomm credit facility.................................. 31,696 23,648
Cricket Communications credit facilities.................. 56,294 22,152
Senior subordinated notes................................. 18,457 16,458
Notes payable to related parties.......................... 2,924 2,658
--------- --------
Total long-term liabilities............................. 174,151 127,491
--------- --------
Commitments and contingencies (Notes 4, 5 and 9)
Redeemable stock:
Series A preferred stock, $0.01 par value, 4,500 shares
authorized; 2,000 shares issued and outstanding,
liquidation preference of $2,240 at December 31,
1999.................................................... 2,240 2,080
Class B common stock (with put feature), $0.01 par value;
4,298 shares issued and outstanding..................... 2,018 2,018
Class C common stock, $0.01 par value; 20,000 shares
authorized; 9,327 shares issued and outstanding......... 2,492 2,492
--------- --------
Total redeemable stock.................................. 6,750 6,590
--------- --------
Stockholders' deficit:
Class A common stock, $0.01 par value; 30,000 shares
authorized; 6,218 shares issued and outstanding......... -- --
Class B common stock, $.01 par value; 200,000 shares
authorized; 42,339 shares issued and outstanding........ -- --
Additional paid-in capital................................ 9,000 9,000
Accumulated deficit....................................... (103,413) (58,215)
--------- --------
Total stockholders' deficit............................. (94,413) (49,215)
--------- --------
Total liabilities, redeemable stock and stockholders'
deficit................................................ $ 92,885 $ 90,643
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 8
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Service revenue...................................... $ 3,460 $ 360 $ --
Equipment sales revenue.............................. 2,648 485 --
-------- -------- --------
Total revenues............................... 6,108 845 --
Operating expenses:
Cost of services..................................... (2,747) (592) --
Cost of equipment sold............................... (6,551) (1,692) --
Selling, general and administrative.................. (9,455) (7,194) (3,729)
Depreciation and amortization........................ (16,546) (1,271) (119)
-------- -------- --------
Operating loss.................................... (29,191) (9,904) (3,849)
Interest expense....................................... (15,893) (17,241) (18,085)
Interest income........................................ 117 189 80
Other income (expense)................................. (71) 449 --
-------- -------- --------
Net loss.......................................... (45,038) (26,507) (21,853)
Preferred stock dividend and accretion................. (160) (759) --
-------- -------- --------
Net loss applicable to common stockholders........ $(45,198) $(27,266) $(21,853)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 9
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE STOCK AND STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE STOCK
----------------------------------------------------
SERIES A CLASS B COMMON
PREFERRED STOCK (WITH PUT CLASS C
STOCK FEATURE) COMMON STOCK
--------------- ---------------- ---------------
SHARES VALUE SHARES VALUE SHARES VALUE
------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................. -- $ -- 8,042 $ 6,018 8,609 $2,492
Accretion of Class B
common stock (with
put feature) to put
value................ -- -- -- 600 -- --
Net loss............... -- -- -- --
----- ------ ------ ------- ----- ------
Balance at December 31,
1997................. -- -- 8,042 6,618 8,609 2,492
Issuance of Class B
common stock......... -- -- -- -- -- --
Issuance of Class B
common stock as
dilution
protection........... -- -- -- -- -- --
Removal of Class B
common stock put
feature by
Qualcomm............. -- -- (3,744) (4,600) -- --
Issuance of Class A and
Class C common stock
as dilution
protection........... -- -- -- -- 718 --
Issuance of Series A
preferred stock to
Senior Subordinated
Notes investors...... 2,000 1,321 -- -- -- --
Preferred stock
dividend and
accretion............ -- 759 -- -- -- --
Net loss............... -- -- -- -- -- --
----- ------ ------ ------- ----- ------
Balance at December 31,
1998................. 2,000 2,080 4,298 2,018 9,327 2,492
Preferred stock
dividend and
accretion............ -- 160 -- -- -- --
Net loss............... -- -- -- -- -- --
----- ------ ------ ------- ----- ------
Balance at December 31,
1999................. 2,000 $2,240 4,298 $ 2,018 9,327 $2,492
===== ====== ====== ======= ===== ======
<CAPTION>
STOCKHOLDERS' DEFICIT
---------------------------------------------------------
COMMON STOCK
-------------------------------
CLASS A CLASS B ADDITIONAL
-------------- -------------- PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL DEFICIT
------ ----- ------ ----- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................. 5,141 $-- 32,229 $-- $ -- $ (9,096)
Accretion of Class B
common stock (with
put feature) to put
value................ -- -- -- -- -- (600)
Net loss............... -- -- -- -- (21,853)
----- --- ------ --- ------ ---------
Balance at December 31,
1997................. 5,141 -- 32,229 -- -- (31,549)
Issuance of Class B
common stock......... -- -- 5,617 -- 5,000 --
Issuance of Class B
common stock as
dilution
protection........... -- -- 749 -- -- --
Removal of Class B
common stock put
feature by
Qualcomm............. -- -- 3,744 -- 4,000 600
Issuance of Class A and
Class C common stock
as dilution
protection........... 1,077 -- -- -- -- --
Issuance of Series A
preferred stock to
Senior Subordinated
Notes investors...... -- -- -- -- -- --
Preferred stock
dividend and
accretion............ -- -- -- -- -- (759)
Net loss............... -- -- -- -- -- (26,507)
----- --- ------ --- ------ ---------
Balance at December 31,
1998................. 6,218 -- 42,339 -- 9,000 (58,215)
Preferred stock
dividend and
accretion............ -- -- -- -- -- (160)
Net loss............... -- -- -- -- -- (45,038)
----- --- ------ --- ------ ---------
Balance at December 31,
1999................. 6,218 $-- 42,339 $-- $9,000 $(103,413)
===== === ====== === ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 10
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss............................................. $(45,038) $(26,507) $(21,853)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 16,546 1,271 119
Noncash interest charges and amortization of debt
discount........................................ 12,381 8,439 6,616
Management fees accrued under Cricket credit
facility........................................ 737 -- --
Changes in assets and liabilities:
Accounts receivable............................... (498) (218) --
Inventory......................................... (692) (89) --
Prepaids and other assets......................... (280) (295) 644
Accounts payable and accrued liabilities.......... 2,435 (1,081) 738
Unearned revenue.................................. 651 12 --
Interest payable.................................. (2,466) 4,117 10,916
-------- -------- --------
Net cash used in operating activities.................. (16,224) (14,351) (2,820)
-------- -------- --------
Investing activities:
Purchases of property and equipment.................. (21,609) (23,784) (2,391)
-------- -------- --------
Net cash used in investing activities.................. (21,609) (23,784) (2,391)
-------- -------- --------
Financing activities:
Issuance of common stock............................. -- 5,000 --
Borrowings under Qualcomm credit facility............ 4,688 20,133 2,177
Borrowings under Cricket credit facility............. 29,016 20,492 --
Repayment of other long-term liabilities............. -- (2,000) --
Debt issuance and related costs...................... -- (20) --
-------- -------- --------
Net cash provided by financing activities.............. 33,704 43,605 2,177
-------- -------- --------
Net increase (decrease) in cash and cash equivalents... (4,129) 5,470 (3,034)
Cash and cash equivalents at beginning of year......... 5,912 442 3,476
-------- -------- --------
Cash and cash equivalents at end of year............... $ 1,783 $ 5,912 $ 442
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............. $ 7,966 $ 4,685 $ 553
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 11
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY
THE COMPANY AND NATURE OF BUSINESS
Chase Telecommunications Holdings, Inc. and its wholly owned subsidiaries
(the "Company"), formerly Chase Telecommunications, Inc., was incorporated in
Delaware on April 25, 1996. The Company was formed to provide broadband personal
communications services ("PCS") in the state of Tennessee and surrounding areas.
The Company originally bid for and was granted Federal Communication Commission
("FCC") licenses to provide PCS services to approximately 6.3 million POPs (the
population covered by a license or a group of licenses) in its service area,
including the Nashville, Memphis, Knoxville and Chattanooga metropolitan areas.
In September 1996, the Company acquired 30 MHz PCS licenses in the FCC's
block PCS auction ("C Block") for a total price of approximately $175.0 million.
The Company had originally exercised its right as a "small business" to pay
approximately $157.6 million of its total purchase price by issuing to the U.S.
government a ten-year 7% note payable (the "Government Financing"). In June
1998, the Company exercised its right, under FCC order #98-46, to disaggregate
its PCS licenses (the "Spectrum Disaggregation"), whereby the Company only
retained 15 MHz of the original 30 MHz PCS licenses. The offer to disaggregate
the PCS licenses was extended to all C Block license holders in order to
alleviate many of the financial difficulties that most C Block license holders
were facing as a result of the significant economic burden required to build out
a PCS network. In conjunction with this Spectrum Disaggregation, the U.S.
government forgave one-half of the Company's original debt obligation associated
with its PCS licenses, and more than half of the accrued interest through the
date of disaggregation.
In June 1998, the Company entered into investment, equipment credit and
working capital facility agreements with Qualcomm Incorporated ("Qualcomm"). In
September 1998, Qualcomm transferred to Leap Wireless International, Inc.
("Leap") its investment in and working capital facility to the Company in
conjunction with the spin-off of Leap from Qualcomm. In June 1999, Leap
contributed its investment in and working capital facility to the Company to
Leap's majority-owned subsidiary, Cricket Communications, Inc. ("Cricket
Communications").
In September 1998, the Company completed the build-out of its PCS network
in the Chattanooga metropolitan area financed by borrowings under the Qualcomm
and Cricket Communications credit facilities and began selling services under
the "ChaseTel" brand.
ASSET PURCHASE AGREEMENT
In December 1998, the Company entered into an asset purchase agreement (the
"Asset Purchase Agreement"), as amended, with Leap and Cricket Communications,
whereby Leap and Cricket Communications agreed to acquire substantially all of
the assets of the Company. The purchase was subject to FCC approval and was
completed in March 2000. The total purchase price was equal to (a) $6.3 million
in cash; (b) a warrant to purchase 1% of the common stock of Cricket
Communications Holdings, Inc. ("Cricket Communications Holdings"), a
majority-owned subsidiary of Leap, at an exercise price of $1.0 million; (c)
certain earn-out payments of up to $41.0 million (plus certain expenses) based
on the earnings of the business acquired during the fifth full fiscal year
following closing; (d) all of Leap's outstanding shares of common stock of the
Company and outstanding warrants to purchase shares of common stock of the
Company, and (e) the assumption of debt obligations of the Company's
subsidiaries. The liabilities assumed include approximately $78.8 million in
principal
F-7
<PAGE> 12
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
amounts owed to the FCC associated with the PCS licenses and the amounts owed
under the Qualcomm equipment credit facility of approximately $31.7 million at
December 31, 1999.
As a result of the purchase, the Company has no continuing operations
except for the potential exercise of the warrant to purchase shares of common
stock of Cricket Communications and the receipt of any earn-out payments
pursuant to the Asset Purchase Agreement. As discussed in Note 4, payments on
the senior subordinated notes are not due until 2008 and payments on the notes
payable to related parties are not due until all senior debt of the Company is
repaid. The remaining assets of the Company, including any amounts realized from
contingent earnout payments and the exercise of the warrant, will ultimately be
distributed to the noteholders and shareholders, when realized, pursuant to the
Company's plan of liquidation.
The following unaudited pro forma condensed balance sheet gives effect to
the sale of substantially all the assets of the Company and reflects the
remaining assets and liabilities of the Company at December 31, 1999 (in
thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 6,427
Noncurrent assets........................................... --
--------
$ 6,427
========
Senior subordinated notes................................... $ 18,457
Notes payable to related parties............................ 2,924
Redeemable stock............................................ 6,750
Stockholders' deficit....................................... (21,703)
--------
$ 6,427
========
</TABLE>
Concurrently with the execution of the Asset Purchase Agreement, as
amended, the Company and Cricket Communications entered into a management
agreement and a trademark license agreement whereby Cricket Communications began
managing a significant component of the Company's day-to-day operations and the
Company agreed to begin marketing its wireless services under the "Cricket"
brand. In March 1999, the Company began offering new flat-rate wireless local
service plans under the "Cricket" brand. In January 2000, the Company launched
Cricket service in Nashville, Tennessee.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
FINANCIAL STATEMENT PREPARATION
The consolidated financial statements are prepared using generally accepted
accounting principles. These principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
F-8
<PAGE> 13
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized on monthly airtime fees ratably over the fee period.
Revenue is recognized on long-distance or other special charges when incurred by
the customer. Revenue is recognized on sales of merchandise held for resale when
the product is delivered to customers.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At December 31, 1999,
the Company's cash and cash equivalents consisted of deposits with banks and
investments in money market accounts. The Company has not experienced any losses
on its deposits of cash and cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying value of its long-term debt
instruments approximate fair value due to their risk adjusted market rates of
interest.
INVENTORY
Inventory consists of merchandise held for resale, principally phones and
phone accessories, and is stated at the lower of cost or market. The Company
uses the first-in, first-out method of determining cost of inventory.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Constructed assets are
recorded at cost plus capitalized interest and direct costs incurred during the
construction phase. Depreciation is provided based on the straight-line method
over the estimated useful lives of the respective assets, generally five to
seven years for the PCS network and three to seven years for computer and office
equipment. Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful lives of the improvements. Repair and maintenance
costs are expensed as incurred.
In conjunction with the Company's replacement of certain network equipment
in January 2000, an increase in depreciation expense of approximately $12.5
million was recorded in the year ended December 31, 1999.
PCS LICENSES
The Company recorded an intangible asset for the acquired PCS licenses at
cost, with cost determined as (a) the present value of the deferred payment
obligation provided by the Government Financing based upon prevailing rates of
interest which the Company believes would have resulted if an independent
borrower and an independent lender had negotiated a similar transaction under
comparable terms and conditions (estimated to be 15%) and (b) the down payments.
In June 1998, in connection with the Spectrum Disaggregation (Note 4), the
carrying amount of the Company's PCS licenses was reduced.
F-9
<PAGE> 14
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Capitalization of interest on Government Financing begins when the
activities necessary to get the Company's PCS network ready for its intended use
are initiated and concludes when the PCS network is ready for its intended use.
The Company amortizes the operational portion of its licenses, including
capitalized interest, based on the straight line method over 40 years. The
Company capitalized interest of $2.0 million, $197,000 and $0 for the years
ended December 31, 1999, 1998 and 1997, respectively.
DEBT DISCOUNT AND DEFERRED FINANCING FEES
Debt discount and deferred financing fees are amortized and recognized as
interest expense under the effective interest method.
LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
total amount of an asset may not be recoverable. An impairment loss is
recognized when estimated future cash flows expected to result from the use of
the asset and its eventual disposition are less than its carrying amount. No
such impairment losses have been recorded by the Company.
INCOME TAXES
Current income tax benefit (expense) is the amount expected to be
receivable (payable) for the current year. A deferred tax asset and/or liability
is computed for both the expected future impact of differences between the
financial statement and tax bases of assets and liabilities and for the expected
future tax benefit to be derived from tax loss and tax credit carry forwards.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be "more likely than not" realized in future
tax returns. Tax rate changes are reflected in income in the period such changes
are enacted.
ADVERTISING AND PROMOTIONAL COSTS
Costs of advertising and promotions are expensed as incurred. Advertising
and promotional expenses were $1.7 million, $1.0 million and $0 for the years
ended December 31, 1999, 1998 and 1997, respectively.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its employee and outside
director's stock-based compensation using the intrinsic value method.
Compensation charges related to non-employee stock-based compensation are
measured using the fair value method.
CONCENTRATIONS
The Company purchases a substantial portion of its PCS network
infrastructure from two major suppliers. Furthermore, the Company relies on one
vendor to provide substantially all of its billing services. Loss of any of
these suppliers could adversely impact operations temporarily until a comparable
substitute could be found. The Company does not have a concentration of
available sources of labor or
F-10
<PAGE> 15
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
services, nor does the Company have any significant concentration of business
transacted with a particular customer, that could, if suddenly eliminated,
severely impact operations.
STOCK SPLIT
In December 1998, the stockholders of the Company approved (a) a 1:100
reverse stock split of the Company's Class A common stock, par value $0.01 per
share, (b) a 1:100 reverse stock split of the Company's Class B common stock,
par value $0.01 per share, and (c) a 1:100 reverse stock split of the Company's
Class C common stock, par value $0.01 per share. In May 1997, the stockholders
of the Company approved (a) a 2.435536:1 stock split of the Company's Class A
common stock, (b) a 4.898706:1 stock split of the Company's Class B common stock
and (c) a 2.435536:1 stock split of the Company's Class C common stock.
Retroactive effect has been given to the stock splits in stockholders' deficit
in the accompanying consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which the Company will be
required to adopt for fiscal year 2001. This statement establishes a new model
for accounting for derivatives and hedging activities. Under SFAS No. 133, all
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company does not expect that the adoption of SFAS No. 133 will have a
material impact on its consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarized certain of the staff's interpretations in
applying generally accepted accounting principles to revenue recognition. The
provisions of SAB No. 101 are effective for the Company's quarter ending June
30, 2000. The Company does not expect that the adoption of SAB No. 101 will have
a material impact on its consolidated financial position or results of
operations.
In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation -- an
Interpretation of APB 25." FIN 44 clarifies the application of Opinion 25 for
(a) the definition of employee for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a non compensatory plan,
(c) the accounting consequences of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective July
1, 2000, but certain conclusions cover specific events that occur after either
December 15, 1998 or January 12, 2000. The Company does not expect that the
adoption of FIN 44 will have a material effect on its consolidated financial
position or results of operations.
F-11
<PAGE> 16
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable, net:
Trade accounts receivable................................ $ 724 $ 258
Other accounts receivable................................ 50 18
-------- -------
774 276
Allowance for doubtful accounts.......................... (58) (58)
-------- -------
$ 716 $ 218
======== =======
Property and equipment, net:
PCS network.............................................. $ 25,313 $25,247
Computer and office equipment............................ 731 713
Leasehold improvements................................... 195 240
Construction in progress................................. 19,582 --
-------- -------
45,821 26,200
Accumulated depreciation and amortization................ (17,531) (1,110)
-------- -------
$ 28,290 $25,090
======== =======
PCS licenses, net:
PCS licenses............................................. $ 60,455 $58,467
Accumulated depreciation and amortization................ (156) (31)
-------- -------
$ 60,299 $58,436
======== =======
Accounts payable and accrued liabilities:
Accounts payable......................................... $ 462 $ 486
Accrued payroll and related benefits..................... 99 138
Other accrued liabilities................................ 3,028 530
-------- -------
$ 3,589 $ 1,154
======== =======
</TABLE>
NOTE 4. DEBT
Amounts due on long-term debt are $4.2 million in 2000, $10.4 million in
2001, $12.4 million in 2002, $31.5 million in 2003, $34.3 million in 2004 and
$89.6 million thereafter.
GOVERNMENT FINANCING
In September 1996, in connection with the grant to the Company of its PCS
licenses, Government Financing was issued for a ten-year term at an annual
interest rate of 7%. The Government Financing originally was recorded at its
estimated fair market value of $99.0 million. In June 1998, in conjunction with
the FCC's limited debt relief, the Company elected Spectrum Disaggregation and
returned one-half of its spectrum (15 MHz of its originally granted 30 MHz) in
each market in return for a 50% reduction of its original debt obligation and
accrued interest thereon and a partial credit on its original license down
payment. As a result of this election, the Company's aggregate carrying value of
its PCS licenses was reduced from $116.9 million to $58.4 million, the face
value of the Government Financing was reduced
F-12
<PAGE> 17
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
from $157.6 million to $78.8 million, the related interest payable was reduced
from $18.3 million to $6.3 million, and the effective interest rate was reduced
from 15% to 11.6%. The Government Financing is collateralized by a first
priority security interest in the PCS licenses.
Under the terms of the Government Financing, the Company is required to
make quarterly installment payments of interest only for the first four years
after Spectrum Disaggregation and quarterly installment payments of interest and
principal over the remaining four years of the original ten-year term.
The original issuance discount of the Government Financing is being
amortized, using the effective interest method, over the term of the debt and is
included as a component of interest expense. The unamortized discount at
December 31, 1999 was approximately $14.0 million.
QUALCOMM CREDIT FACILITY
The Company and Qualcomm are parties to a credit agreement (the "Qualcomm
Credit Facility"), as amended, for the Company's purchase of PCS network
infrastructure and other costs associated with the development and construction
of its PCS network. At December 31, 1999, $31.7 million was outstanding under
the Qualcomm Credit Agreement, including $3.6 million of accrued interest.
The aggregate principal amount of all loans made under the Qualcomm Credit
Facility during any calendar year amortize quarterly over a five-year period
commencing at the end of the first calendar quarter occurring in the third
calendar year following the year in which such loans were made. Amortization of
the aggregate principal amount of all loans made in a given year consist of
quarterly payments of 2.50% of such aggregate principal amount in the third
calendar year following the year such loans were made and 3.75%, 5.00%, 6.25%
and 7.50% of such aggregate principal amount in the fourth, fifth, sixth and
seventh calendar years, respectively, following the year such loans were made.
Borrowings under the Qualcomm Credit Facility bear interest at a rate per
annum equal to, at the Company's option, either (a) LIBOR plus 5.25% or (b) a
base rate plus 4.00% (11.75% at December 31, 1999). The base rate is the higher
of (a) the prime rate as publicly announced by The Bank of New York and (b) the
federal funds rate plus 0.5%. Until the earlier of (a) the interest payment date
applicable to such loan that is nearest to December 31, 1999, and (b) the date
on which the loans are converted to a fixed rate high-yield structure, as
described below, interest due on the loans is not payable but will be
automatically added to the aggregate principal amount outstanding as a new base
rate loan on the interest payment date applicable to such loan (unless the
Company pays the interest on such loans on or prior to such applicable interest
payment date). Thereafter, interest is payable, in the case of base rate loans,
quarterly or in the case of Eurodollar loans, at the end of the one-, three- or
six-month interest payment period selected by the Company for such Eurodollar
loan. The Qualcomm Credit Facility also requires the payment of certain
commitment, facility and administrative agent fees.
Borrowings under the Qualcomm Credit Facility are collateralized (to the
extent permitted by applicable law) by a perfected first priority lien on all of
the assets of the Company, including all of the capital stock of the Company and
its subsidiaries, except that the lien with respect to the PCS licenses is
junior to that of the FCC under the Government Financing and is limited to the
proceeds of an authorized sale or transfer of such PCS Licenses (and subject to
the terms and conditions of the FCC security agreements).
The Qualcomm Credit Facility contains a number of restrictive covenants
which, among other things, limit the ability of the Company and its subsidiaries
to, subject to specified exceptions, (a) incur
F-13
<PAGE> 18
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
additional indebtedness, create liens and other encumbrances, enter into capital
leases and guarantee obligations, (b) merge or consolidate with another entity,
(c) sell or otherwise dispose of assets, (d) declare dividends, make
distributions to stockholders and repurchase its stock, (e) make investments,
capital expenditures, loans and advances, (f) enter into transactions with
affiliates, (g) change its line of business, (h) prepay other indebtedness and
(i) amend other material agreements. In addition, the vendor financing requires
the maintenance of certain specified financial and operating covenants. The
Company is currently in compliance with all covenants.
Qualcomm has the right, at any time, to cause all or any specified portion
of the loans under the vendor financing to be converted to collateralized fixed
rate obligations which shall otherwise have terms, covenants and conditions
substantially similar to those of high-yield debt issuance of wireless
communications companies at the time of such proposed conversion provided,
however, that Qualcomm may not cause such a conversion if (a) the yield to
maturity for such obligations is anticipated to exceed 13.0% per annum or (b)
the final maturity of such obligations would be prior to the final maturity of
the notes.
CRICKET COMMUNICATIONS CREDIT FACILITIES
The Company and Cricket Communications are parties to a credit facility
(the "Working Capital Facility") that provides working capital funds to the
Company. At December 31, 1999 a total of $56.3 million was outstanding under the
Working Capital Facility, including $5.0 million of accrued interest, and a
total of $50.0 million was available to the Company. In February 2000, the
Working Capital Facility was increased from $50.0 million to $65.0 million.
Borrowings under the facility are subject to interest at an annual rate of prime
plus 4.5%. Principal and capitalized interest amounts outstanding at March 31,
2000 are to be repaid in semi-annual payments ratably over a six-year period
commencing June 2000. Accrued and capitalized interest amounts subsequent to
March 31, 2000 are payable at maturity in January 2008. Borrowings are
collateralized by substantially all of the assets of the Company and are
subordinated to the Qualcomm Credit Agreement.
Borrowings under the Working Capital Facility bear interest at a rate equal
to a base rate (as defined) plus 4.5% (12.25% at December 31, 1999). Until the
earlier of (a) the interest payment date applicable to such loan that is nearest
to October 31, 1999, and (b) the date on which the loans are converted to a
fixed rate high-yield structure, as described below, interest due on the loans
is not payable but will be automatically added to the aggregate principal amount
of the working capital loans. Thereafter, interest is payable quarterly.
In October 1999, the Company entered into an equipment financing agreement
(the "Equipment Credit Facility") with Cricket Communications related to the
Company's purchase of infrastructure from Cricket Communications until
completion of the purchase of substantially all the assets of the Company
pursuant to the Asset Purchase Agreement. Cricket Communications purchased the
equipment and services from a major telecommunications supplier and resold the
equipment and services to the Company on substantially similar terms.
SENIOR SUBORDINATED NOTES
In 1996, the Company entered into a securities purchase agreement with
certain institutional and other accredited investors (the "1996 Investors"). The
securities purchase agreement, as amended (the "1996 Purchase Agreement"),
provided for the issuance and sale of senior subordinated notes (the "12% Senior
Subordinated Notes") in an aggregate principal amount not to exceed $15,000,000,
and shares of
F-14
<PAGE> 19
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Class B common stock and Class C common stock (Note 5). The 12% Senior
Subordinated Notes bore interest at the rate of 12% per annum during the first
year outstanding and 16% per annum thereafter. Interest was payable quarterly in
arrears commencing on June 30, 1996.
In connection with the 1996 Purchase Agreement, the Company simultaneously
entered into a registration rights agreement, security agreement and security
holders agreement granting the 1996 Investors certain registration rights, a
secondary security interest in certain of the PCS Licenses, restricting certain
stock transfers and other transactions to ensure compliance with FCC rules.
The proceeds from the 1996 Purchase Agreement were allocated between the
12% Senior Subordinated Notes, Class B common stock and Class C common stock
based on the relative fair market value of each security, resulting in an
original issuance discount of approximately $1.9 million on the 12% Senior
Subordinated Notes. This discount was being amortized using the effective
interest method over the term of the loan resulting in an effective interest
rate of 17.8%.
In April 1998, the Company amended and restated the 1996 Purchase
Agreement. The amended and restated purchase agreement (the "Amended and
Restated Purchase Agreement"), resulted in the exchange of the 12% Senior
Subordinated Notes in the amount of $18.2 million, which includes accrued
interest of $3.2 million, for 10% senior subordinated unsecured notes in the
same amount ("10% Senior Subordinated Unsecured Notes"). In addition, the
Company issued 2,000 shares of redeemable Series A preferred stock to the 1996
Investors (Note 5). The 10% Senior Subordinated Unsecured Notes bear interest at
10% per annum. Interest is payable quarterly at the option of the Company. To
the extent interest is not paid, such interest shall compound quarterly and be
added to the principal balance of the 10% Senior Subordinated Unsecured Notes.
The 10% Senior Subordinated Unsecured Notes, along with accrued and unpaid
interest, are due and payable on the later of their tenth anniversary or the
date which is six months after the maturity of senior debt, as defined. Under
the terms of the Qualcomm Credit Facility, the Company is prohibited from paying
any interest on subordinated indebtedness.
The 10% Senior Subordinated Unsecured Notes and the Series A preferred
stock were each recorded at their respective fair value resulting in an original
issuance discount of approximately $2.7 million and $678,000, respectively. The
discount on the 10% Senior Subordinated Unsecured Notes is being amortized to
interest expense under the effective interest method over the term of the loan
resulting in an effective interest rate of 11.6%. The discount on the Series A
preferred stock is being accreted over the term of the preferred stock. The
unamortized discount on the 10% Senior Subordinated Unsecured Notes and the
Series A preferred stock at December 31, 1999 was approximately $2.7 million and
$594,000 million, respectively.
NOTES PAYABLE TO RELATED PARTIES
The Company has a note payable to the current holders of the shares of
Class A common stock (note payable to related parties) in the amount of $2.0
million plus accrued interest. The note payable to related parties bears
interest at 10% per annum. The principal and interest balances are payable
following full repayment of all senior debt of the Company, including amounts
owed under the Qualcomm Credit Facility and 10% Senior Subordinated Unsecured
Notes.
F-15
<PAGE> 20
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. STOCKHOLDERS' EQUITY
SERIES A PREFERRED STOCK
In connection with the Amended and Restated Purchase Agreement, the Company
issued 2,000 shares of non-voting Series A preferred stock to the 1996
Investors. The holders of the outstanding shares of Series A preferred stock
shall be entitled to receive fully cumulative dividends, as may be declared by
the Company's Board of Directors, at a rate per share of $80 per annum. Declared
but unpaid dividends accrue interest from the applicable payment date at a rate
of 8% per annum. No dividends have been declared on the preferred stock.
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, the preferred stockholders are entitled to receive an amount in
cash equal to the aggregate liquidation preference of $1,000 per share plus all
accumulated and unpaid dividends to the date fixed for liquidation.
The Company has the right to redeem, in whole or in part, the Series A
preferred stock outstanding at any time at a price per share equal to the
aggregate liquidation preference plus all accumulated and unpaid dividends to
the date of redemption. The Series A preferred stock is subject to mandatory
redemption on the earlier of a change in control, as defined, or June 30, 2008.
The sale of substantially all of the assets of the Company pursuant to the Asset
Purchase Agreement constitutes a change in control. Therefore, the Series A
preferred stock is reflected at its redemption price at each balance sheet date.
COMMON STOCK
The authorized capital stock of the Company consists of three voting
classes of common stock: Class A common stock, Class B common stock and Class C
common stock. The Class A common stock is held solely by the Qualifying
Investors in the Company's Control Group under FCC rules. All economic, voting
and conversion rights of the Company's capital stock, stock options and warrants
as described herein are subject to legal and administrative requirements of the
FCC.
So long as any shares of Class A common stock are outstanding, except as
provided by law, the holders of Class A common stock are the only holders of
common stock entitled to vote on matters submitted to a vote of the
stockholders, and such vote will be by a simple majority in number of votes cast
by the holders of Class A common stock. In addition, so long as any shares of
Class A common stock are outstanding, the affirmative vote of a majority of the
holders of Class A common stock, voting separately as a class, and a majority of
the holders of Class B common stock and Class C common stock, voting together as
a single class, will be required to approve certain specified matters other than
the election of directors. At such time as no shares of Class A common stock are
outstanding, each holder of Class B common stock will be entitled to one vote
for each share of Class B common stock held on all matters submitted to the vote
of the Company's stockholders.
The holders of Class A common stock have the right to elect a majority of
the Company's Board of Directors. The holders of the Class C common stock have
the right to elect one director. The holders of the Class B common stock have
the right to elect the remaining members of the Company's Board of Directors.
The number of members of the Company's Board of Directors will at all times
consist of the minimum number necessary to permit the holders of Class B common
stock to elect at least one director.
In accordance with FCC regulations and the Company's certificate of
incorporation (Certificate of Incorporation), holders of Class A common stock
and Class C common stock will hold a 15 percent and 10 percent interest,
respectively, in the Company' equity on a fully diluted basis, in compliance
with
F-16
<PAGE> 21
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
applicable FCC regulations. In the event that the Company issues additional
shares of Class B common stock or other equity securities which would otherwise
dilute the interest of holders of Class A common stock or Class C common stock
below the applicable required percentage ownership interest or otherwise result
in a position inconsistent with FCC policy (Adverse FCC Consequence), the
Certificate of Incorporation requires the Company to issue control group
warrants to holders of Class A common stock or Class C common stock, as the case
may be, entitling such holders to purchase such number of shares of Class B
common stock at an exercise price equal to the fair market value of such Class B
common stock at the time of issuance of such warrants so that such holders of
Class A common stock or Class C common stock, as the case may be, will maintain
(after the issuance of such additional securities) the applicable required
percentage ownership interest or so that such Adverse FCC Consequence will not
occur. Under current FCC rules, Additional Control Group Shares and Control
Group Warrants will only be issued until the earlier of (a) September 17, 2006,
in the case of shares or warrants issued to holders of Class A common stock, and
September 17, 1999, in the case of shares or warrants issued to holders of Class
C common stock, and (b) the date on which such termination would not otherwise
result in an Adverse FCC Consequence. The Certificate of Incorporation provides
that the exercise price, the expiration date and any other terms of any such
warrants issued to members of the Control Group may be adjusted by the Company's
board of directors as necessary to comply with FCC rules. The FCC required
percentage ownership interest is (a) for holders of Class A common stock, 15
percent for the initial three-year period following the License Grant Date and
10 percent for the next seven-year period, and (b) for holders of Class C common
stock, 10 percent for the initial three-year period following the License Grant
Date and zero thereafter.
In certain circumstances, shares of Class A common stock and Class C common
stock outstanding are convertible into shares of Class B common stock on a
share-for-share basis. The Company's Certificate of Incorporation requires the
conversion of shares of Class A common stock and Class C common stock into
shares of Class B common stock on the day following the first day that any such
conversion would not result in an Adverse FCC Consequence. Under FCC rules and
regulations currently in effect, on September 17, 1999, one-third of the
outstanding shares of Class A common stock and all the shares of Class C common
stock may be converted into shares of Class B common stock and the remaining
shares of Class A common stock and Class C common stock may be converted into
shares of Class B common stock on September 17, 2006. Upon any such partial
mandatory conversion of Class A common stock (or Class C common stock) into
shares of Class B common stock, shares will be converted on a pro rata basis
among all holders of Class A common stock (or, if applicable, Class C common
stock).
Holders of common stock are subject to certain restrictions on ownership
pursuant to the terms of the Company's Certificate of Incorporation to ensure
compliance with certain regulatory requirements regarding ownership of C Block
licenses. Under the Company's Certificate of Incorporation, if any person or
entity holds shares of capital stock of the Company or is otherwise attributed
with ownership of any shares and such ownership is likely, in the judgment of
the Board of Directors, to cause an Adverse FCC Consequence or otherwise violate
the rules and regulations of the FCC, the Company may (a) require such person or
entity to divest itself of such shares in a transaction that does not result in
such an Adverse FCC Consequence or FCC rule violation or (b) redeem such
holders' shares to the extent necessary to prevent such Adverse FCC Consequence
or FCC rule violation for a redemption price equal to the lower of the fair
market value of such shares (as determined in good faith by the Company's Board
of Directors) and such holders' purchase price for such shares.
F-17
<PAGE> 22
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In May 1998, pursuant to a securities purchase agreement (the SBC Purchase
Agreement), SBC Wireless purchased 5,617 shares of Class B common stock of the
Company for $5.0 million. Pursuant to the SBC Purchase Agreement, SBC Wireless
has agreed to use good faith efforts to negotiate mutual roaming arrangements
with Chase Telecommunications Holdings and to provide Chase Telecommunications
Holdings, free of charge, strategic and operational reviews, assistance with
annual budget analysis and consultation with key management regarding customer
service, marketing, distribution strategies and human resources. SBC Wireless'
obligation to provide such strategic services shall continue until the earlier
to occur of (a) November 2000 or (b) such time as SBC Wireless holds less than a
2 percent interest in the Company.
Upon a change in control of the Company, as defined in the 1996 Purchase
Agreement (Note 4), the 1996 Investors shall have the right to require the
Company to redeem any or all of the Class B common stock and Class C common
stock issued to the 1996 Investors. Accordingly, such shares are not classified
as a component of stockholders' deficit in the accompanying balance sheets. The
shares of Class B common stock subject to this put feature are included in the
caption "Class B common stock (with put feature)" in the accompanying balance
sheets. The redemption price for the Class B common stock (with put feature) and
Class C common stock is the greater of (a) the fair market value at the time of
the put relating to the Class B common stock and the Class B common stock into
which the shares of Class C common stock are convertible, (b) the change of
control value of the Class B common stock and the Class B common stock into
which such shares of Class C common stock are convertible determined by applying
to such Class B common stock the valuation derived from the purchase price paid
by the acquiring person(s) in the change of control and (c) $4.5 million (the
amount equal to the product of .30 times the aggregate principal amount of the
12% Senior Subordinated Notes purchased). The sale of substantially all of the
assets of the Company pursuant to the Asset Purchase Agreement constitutes a
change in control. Therefore, the Class B common stock (with put feature) and
Class C common stock are reflected at their applicable redemption prices at each
balance sheet date.
In December 1996, pursuant to a stock purchase agreement, Qualcomm
purchased 374,374 shares of Class B common stock of the Company for $4.0
million. In connection with the investment, Qualcomm was granted certain
anti-dilution, registration and redemption rights and the right of first refusal
under certain circumstances. In September 1998, Qualcomm distributed to Leap its
equity investment in the Company, which was in turn contributed to Cricket
Communications. Under the terms of the stock purchase agreement, Leap had the
option to require the Company, under certain circumstances, to redeem the shares
of Class B common stock held by Leap at a defined redemption price. The shares
of Class B common stock subject to this redemption feature were included in the
caption "Class B common stock (with put feature)" at their redemption value in
the Company's balance sheet at December 31, 1997. During 1998, the put feature
associated with the Class B common stock (with put feature) terminated. As such,
the amount associated with these securities was reclassified to the
stockholders' deficit section in the accompanying balance sheets.
WARRANTS
In connection with the Qualcomm Credit Facility, Qualcomm received warrants
to purchase additional shares of Class B common stock representing a 9% equity
interest in the Company at a nominal price. In September 1998, a portion of
these warrants was assigned to Leap. Pursuant to the Asset Purchase Agreement,
both Leap and Qualcomm agreed to relinquish their warrants at the closing of the
purchase. Additionally, at closing, Qualcomm agreed to relinquish its shares of
Class B common
F-18
<PAGE> 23
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock for no consideration. The warrants were recorded at zero in the
accompanying financial statements as the value as of the date of issuance was
deemed to be de minimis.
In November 1995, the Company issued a warrant to a stockholder for the
purchase of 980 shares of Class B common stock at an exercise price of $122.50
per share. The warrant expires on the fifth anniversary of the date of issuance.
The warrant was recorded at zero in the accompanying financial statements as the
value at of the date of issuance was deemed to be de minimis.
NOTE 6. BENEFIT PLAN
In November 1996, the Company adopted an incentive compensation plan (the
"1996 Long-Term Incentive Plan") which provides the ability to grant
nonqualified stock options, restricted stock, incentive stock options, stock
appreciation rights and other long-term incentive awards. The 1996 Long-Term
Incentive Plan is administered by the Board of Directors of the Company, which
has the authority to determine the option recipients, the number of shares
subject to each option grant, the term of the grants, the exercise price and the
vesting schedule.
Stock option activity during the year ended December 31, 1998 includes the
grant of options to purchase 3,754 shares of Class B common stock at an exercise
price of $200 per share to three employees of the Company and includes the grant
of options to purchase 520 shares of Class B common stock at an exercise price
of $890 per share to six employees of the Company. The options granted to these
individuals vest over a period of two years. Of those options granted, no
options were canceled during 1998 and 1,564 options were exercisable at December
31, 1998. During the year ended December 31, 1999, all of the outstanding
options were cancelled in conjunction with the Asset Purchase Agreement.
The Company measures compensation expense for its stock-based employee
compensation plan using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Had compensation cost for the Company's stock-
based compensation plans been determined based on the fair value method at the
grant dates for awards under this plan, the effect on the Company's net loss for
the year ended December 31, 1998 would have been de minimis.
The weighted average fair value of options granted during the year ended
December 31, 1998 was approximately $91.54 per option. The fair value of each
option was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants during
1998: dividend yield of 0.0%; volatility of 0.0%; risk-free interest rate of
5.56%; and an expected life of seven years.
F-19
<PAGE> 24
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES
The components of the Company's deferred tax assets (liabilities) are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Capitalized start-up costs for tax purposes............. $ 3,449 $ 4,369
Organizational costs.................................... (38)
Capitalized network development and license cost........ 66 70
Accruals and reserves................................... 44 156
Deferred network amortization........................... 5,125 5,183
Depreciation............................................ 5,134 (108)
Net operating loss carryforward......................... 26,091 13,148
-------- --------
Total deferred tax assets............................ 39,909 22,780
Less -- Valuation allowance............................... (39,909) (22,780)
-------- --------
Deferred tax assets, net............................. $ -- $ --
======== ========
</TABLE>
Due to the uncertainty surrounding the realization of these assets, a
valuation allowance has been provided for the full amount of the deferred tax
assets. As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $68.7 million, which can be used to offset
taxable income in future years. The federal net operating loss will begin to
expire in 2011. The state net operating loss will begin to expire in 2018. A
change in control, as defined by federal income tax regulations, could
significantly limit the Company's ability to utilize its carryforwards.
A reconciliation of the income tax provision (benefit) to the amount
computed by applying the statutory federal income tax rate to income before
income tax provision is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amounts computed at statutory federal rate....... $(15,313) $(9,012) $(7,430)
State income taxes, net of federal benefit..... (1,816) (1,188) (907)
Increase in valuation allowance................ 17,129 10,200 8,337
Other..........................................
-------- ------- -------
$ -- $ -- $ --
======== ======= =======
</TABLE>
NOTE 8. RELATED PARTY TRANSACTIONS
The president and chairman of the Board of Directors of the Company is a
stockholder and member of the Board of Directors of a company from which the
Company subleases certain office space. During the years ended December 31,
1999, 1998 and 1997, rental payments totaled approximately $21,000 $19,000 and
$22,000 respectively.
The Company paid a holder of Class A common stock approximately $0,
$137,000 and $78,000 during the years ended December 31, 1999, 1998 and 1997,
respectively, for consulting services.
F-20
<PAGE> 25
CHASE TELECOMMUNICATIONS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additionally, the Company paid a holder of Class B common stock approximately
$200,000 during the year ended December 31, 1998, for consulting services.
NOTE 9. COMMITMENTS AND CONTINGENCIES
LEASES
The aggregate amount charged to expense for the years ended December 31,
1999, 1998 and 1997, pursuant to non-cancelable and month-to-month operating
leases totaled approximately $958,000, $373,000 and $52,000, respectively.
The Company has entered into various leases for its offices, cell-site
facilities and equipment used in its operations. Future minimum lease payments
relating to these non-cancelable operating leases are as follows (in thousands):
<TABLE>
<S> <C>
For the year ended December 31, 1999
2000.................................................... $1,497
2001.................................................... 1,542
2002.................................................... 1,588
2003.................................................... 1,635
2004 and thereafter..................................... 3,420
------
$9,682
======
</TABLE>
401(K) PLAN
Effective April 1, 1998, the Company established a defined contribution
401(k) plan. The Company's matching contribution is discretionary in its
entirety and is determined on a quarterly basis by the Company's board of
directors. The Company can also make additional discretionary profit-sharing
contributions. To date, the Company has not made any matching contributions.
F-21
<PAGE> 26
LEAP WIRELESS INTERNATIONAL, INC.
PRO FORMA FINANCIAL INFORMATION
The Pro Forma Financial Information is based on the historical
consolidated financial statements of Leap Wireless International, Inc. and its
subsidiaries ("Leap" or the "Company") at February 29, 2000, for the six months
ended February 29, 2000 and for the year ended August 31, 1999, adjusted to give
effect to the acquisition in March 2000 of substantially all the assets of Chase
Telecommunications Holdings, Inc. ("Chase Telecommunications Holdings") by the
Company and its indirect subsidiary, Cricket Communications, Inc. as if it had
already occurred. The Unaudited Pro Forma Consolidated Balance Sheet at February
29, 2000 gives effect to the acquisition of substantially all the assets of
Chase Telecommunications Holdings as if it had occurred as of February 29, 2000.
The Unaudited Pro Forma Consolidated Statements of Operations for the six months
ended February 29, 2000 and the year ended August 31, 1999 give effect to the
acquisition of substantially all the assets of Chase Telecommunications Holdings
as if it had occurred as of September 1, 1998. The acquisition and related
adjustments are described in the accompanying notes. The Pro Forma Financial
Information is based upon available information and certain assumptions that
management believes are reasonable. In our opinion, all adjustments have been
made that are necessary to present fairly the pro forma data. The final recorded
amounts could differ although such differences are not expected to be material.
The Pro Forma Financial Information is provided for illustrative
purposes only and does not purport to represent what the Company's results of
operations or financial condition actually would have been had this acquisition
in fact occurred on such dates or to project the Company's results of operations
or financial condition for any future period or date. The Pro Forma Financial
Information and accompanying notes should be read in conjunction with the
historical financial statements of the Company and Chase Telecommunications
Holdings.
F-22
<PAGE> 27
LEAP WIRELESS INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 29, 2000
--------------------------------------------------------------------------
HISTORICAL
-----------------------------------
CHASE LEAP
TELECOMMUNICATIONS PRO FORMA CONSOLIDATED
LEAP HOLDINGS ADJUSTMENTS PRO FORMA
---------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........................ $ 599,935 $ 5,336 $ (6,300)(1) $ 598,971
Restricted cash equivalents and short-term
investments.................................... 58,667 -- -- 58,667
Accounts receivable, net......................... 6,354 5,925 -- 12,279
Inventories...................................... 5,379 145 -- 5,524
Recoverable taxes................................ 8,034 -- -- 8,034
Other current assets............................. 6,181 148 -- 6,329
---------- --------- -------- ----------
Total current assets....................... 684,550 11,554 (6,300) 689,804
---------- --------- -------- ----------
Property and equipment, net...................... 136,777 35,559 2,893 (4) 175,229
Investments in and loans receivable from
unconsolidated wireless operating
companies...................................... 71,676 -- (17,606)(2) 54,070
Intangible assets, net........................... 94,626 60,456 42,543 (4) 197,625
Restricted investments........................... 49,811 -- -- 49,811
Deferred financing costs and other assets........ 16,223 404 -- 16,627
---------- --------- -------- ----------
Total assets............................... $1,053,663 $ 107,973 $ 21,530 $1,183,166
========== ========= ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable and accrued liabilities......... $21,361 $ 8,115 $-- $29,476
Loans payable to banks........................... 32,007 -- -- 32,007
Other current liabilities........................ 1,618 2,439 -- 4,057
---------- --------- -------- ----------
Total current liabilities.................. 54,986 10,554 -- 65,540
---------- --------- -------- ----------
Long-term debt................................... 552,876 196,985 (93,401)(2) (3) 656,460
Other long-term liabilities...................... 10,120 12 -- 10,132
---------- --------- -------- ----------
Total liabilities.......................... 617,982 207,551 (93,401) 732,132
---------- --------- -------- ----------
Redeemable stock................................. -- 6,777 (6,777)(3) --
---------- --------- --------- ----------
Stockholders' equity (deficit):
Preferred stock................................ -- -- -- --
Common stock................................... 3 1 (1)(2) 3
Additional paid-in capital..................... 787,887 9,000 6,353 (1) (2) 803,240
Accumulated deficit............................ (346,134) (115,356) 115,356 (2) (346,134)
Accumulated other comprehensive loss........... (6,075) -- -- (6,075)
---------- --------- -------- ----------
Total stockholders' equity (deficit)....... 435,681 (106,355) 121,708 451,034
---------- ---------- -------- ----------
Total liabilities and stockholders' equity
(deficit)............................... $1,053,663 $ 107,973 $ 21,530 $1,183,166
========== ========= ======== ==========
</TABLE>
See Notes to the Pro Forma Financial Information.
F-23
<PAGE> 28
LEAP WIRELESS INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 29, 2000
----------------------------------------------------------------
HISTORICAL
-------------------------------
CHASE LEAP
TELECOMMUNICATIONS PRO FORMA CONSOLIDATED
LEAP HOLDINGS ADJUSTMENTS PRO FORMA
--------- ------------------ ----------- ------------
<S> <C> <C> <C> <C>
Operating revenues .............................. $ 14,283 $ 5,289 $ -- $ 19,572
--------- -------- ------- ---------
Operating expenses:
Cost of operating revenues ...................... (22,462) (7,540) -- (30,002)
Selling, general and administrative ............. (33,041) (6,186) 716 (5) (38,511)
Depreciation and amortization ................... (10,248) (18,546) (1,214)(6) (30,008)
--------- -------- ------- ---------
Total operating expenses ............... (65,751) (32,272) (498) (98,521)
--------- -------- ------- ---------
Operating loss .............................. (51,468) (26,983) (498) (78,949)
Equity in net loss of unconsolidated
wireless operating companies ................. (50,059) -- 20,162 (7) (29,897)
Interest income ................................. 1,577 32 -- (8) 1,609
Interest expense ................................ (21,120) (9,488) 4,962 (8) (25,646)
Foreign currency transaction losses ............. (1,396) -- -- (1,396)
Minority interest ............................... 518 -- -- 518
Other income (expense), net ..................... (2,868) (165) -- (3,033)
--------- -------- ------- ---------
Income (loss) before extraordinary item ...... $(124,816) $(36,604) $24,626 $(136,794)
========= ======== ======= =========
Basic and diluted loss per common share
before extraordinary item .................... $ (6.31) $ (6.91)
========= =========
Shares used to calculate basic and
diluted loss per common share before
extraordinary item ........................... 19,788 19,788
========= =========
</TABLE>
See Notes to the Pro Forma Financial Information.
F-24
<PAGE> 29
LEAP WIRELESS INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, 1999
-----------------------------------------------------------------
HISTORICAL
-------------------------------
CHASE LEAP
TELECOMMUNICATIONS PRO FORMA CONSOLIDATED
LEAP HOLDINGS ADJUSTMENTS PRO FORMA
--------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues .............................. $ 3,907 $ 4,389 $ -- $ 8,296
--------- -------- ------- --------
Operating expenses:
Cost of operating revenues ...................... (3,810) (7,513) -- (11,323)
Selling, general and administrative ............. (28,745) (7,682) 373 (5) (36,054)
Depreciation and amortization ................... (5,824) (5,476) (2,376)(6) (13,676)
--------- -------- ------- --------
Total operating expenses ............... (38,379) (20,671) (2,003) (61,053)
--------- -------- ------- --------
Operating loss .............................. (34,472) (16,282) (2,003) (52,757)
Equity in net loss of unconsolidated
wireless operating companies ................. (100,300) -- 20,900 (7) (79,400)
Write-down of investments in
unconsolidated wireless operating
company ...................................... (27,242) -- -- (27,242)
Interest income ................................. 2,505 207 -- (8) 2,712
Interest expense ................................ (10,356)) (16,129) 6,092 (8) (20,393)
Foreign currency transaction losses ............. (7,211) -- -- (7,211)
Gain on sale of wholly owned subsidiary ......... 9,097 -- -- 9,097
Gain on issuance of stock by
unconsolidated wireless operating
company ...................................... 3,609 -- -- 3,609
Other income (expense), net ..................... (243) 379 -- 136
--------- -------- ------- --------
Net income (loss) ............................. $(164,613) $(31,825) $24,989 $(171,449)
========= ======== ======= =========
Basic and diluted net loss per
common share ................................. $ (9.19) $ (9.57)
========= =========
Shares used to calculate basic and
diluted net loss per common share ............ 17,910 17,910
========= =========
</TABLE>
See Notes to the Pro Forma Financial Information.
F-25
<PAGE> 30
LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO THE PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
NOTE 1. DESCRIPTION OF TRANSACTION
CHASE TELECOMMUNICATIONS HOLDINGS ACQUISITION
In March 2000, the Company acquired substantially all the assets of
Chase Telecommunications Holdings for: $6.3 million in cash; the assumption of
certain liabilities of Chase Telecommunications Holdings; a warrant to purchase
1% of the common stock of Cricket Communications Holdings, Inc. ("Cricket
Communications Holdings"), exercisable at $1.0 million; the return of the
Company's existing stock ownership and warrants to purchase stock in Chase
Telecommunications Holdings; and certain contingent earn-outs.
The acquisition will be accounted for under the purchase method of
accounting. Based on the fair value of Chase Telecommunications Holdings'
liabilities in the unaudited pro forma consolidated balance sheet, and the fair
value of approximately $15.4 million attributed to the warrant to purchase 1% of
the common stock of Cricket Communications Holdings, the aggregate purchase
price will be approximately $153.4 million ($161.7 million, excluding discount
on Federal Communications Commission ("FCC") debt). The fair value of the
warrant was determined on the date of closing, which was the date the number of
warrant shares first become known, using the Black-Scholes option pricing model.
Of this amount approximately $50.4 million has been allocated to property and
equipment and other assets and approximately $103.0 million to intangible
assets, primarily wireless licenses. The contingent earn-out payments, up to a
maximum of $41.0 million plus certain costs, are based upon certain targeted
operating results for the Chase Telecommunications Holdings properties during
the fifth full fiscal year following the closing of the transaction. These
payment obligations, if any, will be recorded as additional purchase price.
NOTE 2. PRO FORMA ADJUSTMENTS RELATED TO ACQUISITION OF SUBSTANTIALLY ALL THE
ASSETS OF CHASE TELECOMMUNICATIONS HOLDINGS
(1) To record (a) purchase consideration of $6.3 million in cash; and (b)
fair value of approximately $15.4 million attributed to the warrant to
purchase 1% of the common stock of Cricket Communications Holdings.
(2) (a) Elimination of inter-company working capital loans of $59.4 million
and equipment loans of $17.6 million, including accrued and capitalized
interest, provided by Leap to Chase Telecommunications Holdings; (b)
adjustment to carrying value of Chase Telecommunications Holdings debt
obligation to the FCC, calculated using an interest rate of 9.75% per
annum; and (c) elimination of stockholders' deficit of Chase
Telecommunications Holdings upon consolidation. The carrying value of
Leap's investment in and working capital loans to Chase
Telecommunications Holdings have previously been reduced to zero.
(3) To eliminate long-term debt totaling $21.8 million and redeemable
preferred stock totaling $6.8 million of Chase Telecommunications
Holdings not assumed by Leap in the acquisition.
F-26
<PAGE> 31
(4) To record (a) increase of $2.9 million in property and equipment to
estimated fair value; and (b) estimated fair value of non-compete
agreements of $0.9 million, customer list of $5.5 million and wireless
licenses of $96.6 million in connection with the preliminary purchase
price allocation.
(5) To eliminate Leap management and royalty fee expense recorded by Chase
Telecommunications Holdings.
(6) Additional amortization resulting from the preliminary purchase price
allocation of (a) $0.1 million and $0.3 million for the six months ended
February 29, 2000 and the year ended August 31, 1999, respectively, for
non-compete agreements (amortized on a straight-line basis over the
three year non-compete term of the agreements); (b) $1.0 million and
$2.0 million for the six months ended February 29, 2000 and the year
ended August 31, 1999, respectively, for customer list (amortized on a
straight-line basis over a 33 month remaining expected useful life for
the market where service has commenced); and (c) $67,000 and $82,000 for
the six months ended February 29, 2000 and the year ended August 31,
1999, respectively, for wireless licenses (amortized on a straight-line
basis over a 40 year remaining expected useful life for the market where
service has commenced).
(7) Elimination of the Company's share of the net loss of Chase
Telecommunications Holdings previously recognized under the equity
method of accounting.
(8) (a) Elimination of interest expense recorded by Chase Telecommunications
Holdings on debt balances not assumed by Leap and inter-company working
capital and equipment loans provided by Leap; and (b) adjustment to
interest expense resulting from the amortization of the discount on the
FCC debt obligations of Chase Telecommunications Holdings. Interest
income due to Leap has previously been eliminated.
* * * *
F-27
<PAGE> 32
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Asset Purchase Agreement, dated December 24, 1998, by and among
Chase Telecommunications Holdings, Inc., Chase Telecommunications,
Inc., Anthony Chase, Richard McDugald and Leap Wireless
International, Inc. (incorporated herein by reference to Exhibit
10.20 to the Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1998, as filed with the Securities and Exchange
Commission on January 14, 1999).
23.1 Consent of Independent Accountants.
99.1* Press Release, dated March 20, 2000.
</TABLE>
- ---------
* Filed as an exhibit to the registrant's Current Report on Form 8-K dated April
3, 2000.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of Leap Wireless International, Inc. and Cricket
Communications Holdings, Inc. of our report dated May 16, 2000 relating to the
consolidated financial statements of Chase Telecommunications Holdings, Inc.,
which appears in this Form 8-K/A Amendment No. 1.
PricewaterhouseCoopers LLP
San Diego, California
May 25, 2000
