<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 25, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
QUALCOMM SPINCO, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3674 33-0918163
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------------
QUALCOMM SPINCO, INC.
5775 MOREHOUSE DRIVE
SAN DIEGO, CALIFORNIA 92121-1714
(858) 587-1121
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
RICHARD SULPIZIO
CHIEF EXECUTIVE OFFICER
QUALCOMM SPINCO, INC.
5775 MOREHOUSE DRIVE
SAN DIEGO, CALIFORNIA 92121-1714
(858) 587-1121
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
FREDERICK T. MUTO, ESQ. SCOTT N. WOLFE, ESQ.
THOMAS A. COLL, ESQ. ROBERT E. BURWELL, ESQ.
DAVID B. BERGER, ESQ. LATHAM & WATKINS
COOLEY GODWARD LLP 701 B STREET, SUITE 2100
4365 EXECUTIVE DRIVE, SUITE 1100 SAN DIEGO, CA 92101-8193
SAN DIEGO, CA 92121-2128 (619) 236-1234
(858) 550-6000
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock ($.0001 par value)... $100,000,000 $26,400
</TABLE>
(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 25, 2000
PROSPECTUS
SHARES
QUALCOMM SPINCO, INC.
COMMON STOCK
------------------------------------------------------------
This is our initial public offering of shares of common stock. We are
offering these shares in the United States and Canada and outside the United
States and Canada.
We propose to list our common stock on the Nasdaq National Market under the
symbol " ." We expect the initial public offering price to be between
$ and $ per share. No public market currently exists for our shares.
We are a wholly-owned subsidiary of QUALCOMM Incorporated. We intend to
change our name prior to the completion of this offering. Upon completion of
this offering, QUALCOMM will own approximately % of our outstanding common
stock, assuming no exercise of the underwriters' over-allotment option. QUALCOMM
currently anticipates that it will complete its divestiture of QUALCOMM
Spinco, Inc. by August 2001 by distributing all of the shares of our common
stock owned by QUALCOMM to holders of QUALCOMM common stock.
INVESTING IN OUR SHARES INVOLVES RISK. "RISK FACTORS" BEGIN ON PAGE 9.
<TABLE>
<CAPTION>
Per
Share Total
-------- --------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to Spinco.......................................... $ $
</TABLE>
We have granted the U.S. underwriters and international underwriters a
30-day option to purchase up to an aggregate of additional shares of
common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about ,
2000.
--------------------------------------------------------------------------------
LEHMAN BROTHERS GOLDMAN, SACHS & CO.
, 2000
<PAGE>
[ARTWORK]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 9
Forward-Looking Statements............. 23
Our Separation from QUALCOMM........... 24
Use of Proceeds........................ 26
Dividend Policy........................ 26
Capitalization......................... 27
Dilution............................... 28
Selected Combined Financial Data....... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 36
Business............................... 45
Management............................. 61
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Arrangements between Spinco and
QUALCOMM............................. 73
Certain Relationships and Related
Transactions......................... 82
Principal Stockholder.................. 82
Description of Capital Stock........... 83
Liability and Indemnification of
Directors and Officers............... 85
Shares Eligible for Future Sale........ 86
Underwriting........................... 87
Legal Matters.......................... 92
Experts................................ 92
Where You Can Find More Information.... 92
Index to Financial Statements.......... F-1
</TABLE>
------------------------
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. We are offering to sell shares of common
stock and soliciting offers to buy shares of common stock only in jurisdictions
where offers and sales are permitted. The information in this document is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of common stock. References in this
prospectus to "Spinco," "we," "our" and "us" refer to QUALCOMM Spinco, Inc. and
its subsidiaries, unless the context requires otherwise. References to
"QUALCOMM" refer to QUALCOMM Incorporated and its subsidiaries.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to each dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the common stock being sold in this offering
and our historical combined financial statements and notes thereto appearing
elsewhere in this prospectus.
SPINCO
OVERVIEW
QUALCOMM Spinco, Inc. is the leading developer and supplier worldwide of
Code Division Multiple Access (CDMA) integrated circuits and system software
solutions for wireless voice and data communications products. We offer complete
system solutions including software and integrated circuits for wireless
handsets and infrastructure equipment. According to Dataquest's most recent
analysis, we are the world's largest fabless provider of semiconductor products.
Our complete system solutions approach provides our customers with advanced
wireless technology, enhanced component integration and interoperability and
reduced time to market. We provide integrated circuits and system software
solutions to many of the world's leading wireless handset and infrastructure
manufacturers, and to date, we have shipped systems for use in more than
100 million CDMA handsets worldwide.
CDMA technology, used for digitally transmitting voice and data over a
wireless network, has been adopted as a worldwide standard for digital cellular
and other mobile and fixed-location wireless services. CDMA offers significant
benefits over analog and other digital wireless technologies. We believe that
our management and design teams have more experience in CDMA integrated circuits
and system software solutions than any other company in the world. We introduced
our first CDMA integrated circuits in 1991 and are currently developing our
sixth, seventh and eighth generation products. We invest heavily in research and
development to both enhance our current offerings and develop future CDMA
applications and products, such as products which operate with multiple wireless
technologies. These multi-mode products will enable world wide roaming and third
generation, or 3G, products for high-speed data, multimedia and mobile Internet
access.
Wireless communications equipment and services have enjoyed tremendous
growth worldwide in both the number of voice service subscribers and subscriber
usage. The strong demand for wireless services is leading to increased demand
for integrated circuits and system software solutions that enable more advanced
mobile devices and network infrastructure equipment. Moreover, wireless service
providers are increasingly focused on providing high-speed wireless data and
Internet access services in addition to voice service. Equipment manufacturers,
or OEMs, are accelerating their development cycles for new infrastructure and
subscriber equipment. These increased time to market pressures can place a
significant strain on their in-house engineering teams. As a result of the
technical rigors of equipment design, the complexity of the enhanced features,
decreased product life cycles and the transition to 3G technology standards,
OEMs of subscriber equipment are finding it increasingly difficult to develop,
supply and integrate all the required components in a timely and cost-effective
manner. Accordingly, OEMs are turning to third party value-added technology
providers to design integrated circuits and system software that provide
superior functionality and feature sets compared to their own in-house
solutions.
We provide our customers full system solutions, incorporating integrated
circuits, software, reference designs, features, tools, and technical support.
Our comprehensive support organization significantly reduces our customers'
design cycles by providing assistance in the design and testing of their
products. We were the first technology provider to support full system
solutions, including software, to the wireless industry. We believe we have the
industry's most advanced CDMA integrated circuits and system software solutions,
based on our leadership in terms of component integration, low power usage, and
broad feature sets. Our product and technology roadmap addresses the emerging
needs of the wireless communications industry for the delivery of high-speed
wireless data and Internet
3
<PAGE>
access. We have an established record of delivering on-time solutions to our
customers, enabling them to meet critical time to market requirements in a
cost-effective manner.
STRATEGY
Our objective is to extend our leadership position in providing integrated
circuits and system software solutions for the worldwide wireless communications
market. Key elements of our strategy include the following:
- EXTEND OUR LEADING POSITION AS A COMPLETE END-TO-END CDMA SYSTEM SOLUTIONS
PROVIDER. We plan to invest heavily in research and development
initiatives focused on extending our leadership position in the CDMA
wireless market through integration of additional components and
functionality.
- CAPITALIZE ON THE GROWING DEMAND FOR HIGH-SPEED WIRELESS DATA AND INTERNET
ACCESS. We intend to be the leader in providing integrated circuits and
system software solutions for high-speed wireless data and Internet
access.
- EXPAND THE CAPABILITIES AND REACH OF OUR WIRELESS COMMUNICATIONS
TECHNOLOGY. We intend to broaden our existing capabilities into
additional wireless technologies, such as multi-mode integrated circuits
supporting CDMA and other wireless technologies, and enhanced product
features, including position location, multimedia capabilities, device
connectivity, voice recognition, and peripheral memory devices. We intend
to address new applications for our solutions, including wireless notebook
computers, personal digital assistants, and remote monitoring systems.
- CONTINUE TO DRIVE INDUSTRY STANDARDS FOR WIRELESS COMMUNICATIONS. We will
seek to maintain our leading role in the formulation of standards for the
wireless communications industry.
BENEFITS OF OUR SEPARATION FROM QUALCOMM
Our company comprises businesses that will be separated from QUALCOMM's
other operations prior to completion of this offering. We believe that we will
realize benefits from our separation from QUALCOMM, including the following:
- MORE EFFECTIVE ACCESS TO THIRD PARTY TECHNOLOGY. By separating our
business from QUALCOMM's other operations, we believe that we will be able
to use our CDMA and other intellectual property rights to gain reasonable
access to other third party technologies without compromising QUALCOMM's
CDMA licensing business.
- GREATER STRATEGIC FOCUS AND RECOGNITION. We expect to have a sharper
focus on enhancing the competitive position of our business, a greater
ability to meet the evolving needs of our customers and increased
recognition within the semiconductor industry and investment community.
- IMPROVED CUSTOMER RELATIONS THROUGH THE ELIMINATION OF POTENTIAL
CONFLICTS. Our existing customers are also licensees of QUALCOMM. These
relationships have from time to time caused a conflict with sales of
integrated circuits and system software solutions to our customers. We
expect that our separation from QUALCOMM may facilitate improved relations
with our customers.
- BETTER INCENTIVES FOR EMPLOYEES AND GREATER ACCOUNTABILITY. We expect
that the motivation and accountability of our employees, the focus of our
management and our ability to attract and retain qualified personnel will
be strengthened by incentive compensation programs tied to the market
performance of our business.
4
<PAGE>
OUR RELATIONSHIP WITH QUALCOMM
We are currently a wholly-owned subsidiary of QUALCOMM. After the completion
of this offering, QUALCOMM will own approximately % of the outstanding
shares of our common stock, or approximately % if the underwriters exercise
their over-allotment option in full. QUALCOMM currently anticipates that it will
complete its divestiture of Spinco by August 2001 by distributing all of the
shares of Spinco common stock owned by QUALCOMM to the holders of QUALCOMM's
common stock. However, QUALCOMM is not required to complete the distribution,
and the distribution may not occur by the contemplated time, or at all. Because
QUALCOMM will own ninety percent or more of our outstanding capital stock, it
may merge us into QUALCOMM at any time.
QUALCOMM will determine the timing, structure and terms of its distribution
of our common stock at its sole discretion. QUALCOMM has filed to obtain a
private letter ruling from the Internal Revenue Service that the distribution of
its shares of Spinco common stock to the holders of QUALCOMM common stock will
be tax-free to QUALCOMM and its stockholders for United States federal income
tax purposes.
We intend to enter into agreements with QUALCOMM that will provide for the
separation of our business operations from QUALCOMM and govern our various
interim and ongoing relationships. These arrangements will not be conditioned on
the distribution. They will provide for, among other things, the transfer from
QUALCOMM to us of the assets and the assumption of the liabilities relating to
our business, the assignment and license to us of selected QUALCOMM intellectual
property, as well as our future licensing and transfer to QUALCOMM of
intellectual property we develop or acquire. All of the agreements providing for
our separation from QUALCOMM will be made in the context of the
parent-subsidiary relationship and are being negotiated in the overall context
of our separation from QUALCOMM. The final terms of these agreements may be more
or less favorable to us than if they had been negotiated with unaffiliated third
parties. For a discussion of the various risks related to our separation from
QUALCOMM, see "Risk Factors--Risks Related to Our Separation from QUALCOMM."
MSM, CSM, RFT, RFR, IFR, IFT, MSP, iMSM and gpsOne are our trademarks. All
other trademarks or service marks appearing in this prospectus are the property
of their respective holders. We were incorporated as a Delaware corporation in
July 2000. Our principal executive offices are currently located at 5775
Morehouse Drive, San Diego, California 92121-1714 and our telephone number is
(858) 587-1121.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Spinco............... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. We will use the net proceeds of this offering
for working capital and general corporate
purposes, including:
- product development;
- selling and marketing; and
- potential acquisitions of products,
technologies or companies.
For more information, see "Use of Proceeds."
Proposed Nasdaq National Market Symbol....... " "
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of , 2000, and excludes
additional shares we may issue under the following plans and arrangements:
- shares of common stock available for issuance under our 2000 Equity
Incentive Plan, including shares of common stock reserved for
issuance to holders of options to purchase QUALCOMM common stock following
QUALCOMM's distribution of our common stock;
- shares available for issuance under our 2000 Non-Employee Directors'
Stock Option Plan; and
- shares available for issuance under our Employee Stock Purchase
Plan.
Except as otherwise indicated, all information in this prospectus assumes
the underwriters' over-allotment option will not be exercised.
6
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The following tables summarize our combined financial data and should be
read together with the combined Spinco financial statements and related notes
thereto, "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. The as adjusted column reflects our receipt and use of the net
proceeds from the offering (at an assumed initial public offering price of
$ per share), after deducting estimated underwriting discounts and
commissions and estimated offering expenses. The historical financial
information presented below may not necessarily reflect the results of
operations, financial position and cash flows we would have had if we had
operated independently as of the dates presented.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,(1) NINE MONTHS ENDED
--------------------------------------------------------- ---------------------
JUNE 27, JUNE 25,
1995 1996 1997 1998 1999 1999 2000
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Third party...................... $ 26,940 $ 111,045 $ 361,502 $ 583,111 $ 900,638 $ 610,767 $ 868,385
Related party.................... -- 61,023 188,179 296,747 247,634 177,399 96,329
--------- --------- --------- --------- --------- --------- ---------
Total revenues................. 26,940 172,068 549,681 879,858 1,148,272 788,166 964,714
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Cost of revenues................. 16,021 154,538 449,579 535,384 527,884 352,381 449,880
Research and development......... 9,328 19,278 24,368 56,437 127,846 84,788 145,340
Selling, general and
administrative................. 4,496 7,784 13,546 29,690 50,134 35,895 48,013
Amortization of goodwill and
other acquisition-related
intangible assets(2)........... -- -- -- -- -- -- 54,995
Purchased in-process
technology(2).................. -- -- -- -- -- -- 60,030
--------- --------- --------- --------- --------- --------- ---------
Total expenses................. 29,845 181,600 487,493 621,511 705,864 473,064 758,258
--------- --------- --------- --------- --------- --------- ---------
(Loss) income before income
taxes............................ (2,905) (9,532) 62,188 258,347 442,408 315,102 206,456
Income tax benefit (expense)....... 1,654 4,303 (22,406) (99,408) (167,435) (119,739) (123,874)
--------- --------- --------- --------- --------- --------- ---------
Net (loss) income.................. $ (1,251) $ (5,229) $ 39,782 $ 158,939 $ 274,973 $ 195,363 $ 82,582
========= ========= ========= ========= ========= ========= =========
Unaudited pro forma net earnings
per common share(3):
Basic.......................... $ $
Diluted........................ $ $
Shares used in unaudited pro
forma per share
calculations(3):
Basic..........................
Diluted........................
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 25, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 12,550
Working capital............................................. 202,410
Total assets................................................ 936,564
Parent's investment......................................... 838,380
</TABLE>
------------------------
(1) Our fiscal year ends on the last Sunday in September. As a result, fiscal
1996 includes 53 weeks.
7
<PAGE>
(2) QUALCOMM completed acquisitions during the nine months ended June 25, 2000,
and will transfer to us specified assets related to those acquisitions. As a
result, during the nine months ended June 25, 2000 we recorded $55 million
in amortization of goodwill and other acquisition-related intangible assets,
and we recorded a $60 million charge related to purchased in-process
technology.
(3) We had no shares of common stock outstanding during fiscal 1999 and during
the nine months ended June 25, 2000. Unaudited pro forma basic net earnings
per common share was calculated based on the common shares outstanding
on the date of our capitalization adjusted for a subsequent -for-one
stock split. Unaudited pro forma diluted earnings per common share reflect
the potential dilutive effect of additional common shares issuable upon
exercise of outstanding stock options, which totaled shares for the
year ended September 26, 1999 and shares for the nine months ended
June 25, 2000. The effect of dilutive stock options was computed using the
treasury stock method at the expected initial public offering price of
$ per share.
8
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND RELATED NOTES, BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. THESE RISKS AND UNCERTAINTIES
ARE NOT THE ONLY ONES FACING US OR THE ONLY ONES THAT MAY ADVERSELY AFFECT OUR
BUSINESS. IF ANY OF THE FOLLOWING RISKS OR UNCERTAINTIES ACTUALLY OCCURS, OUR
BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS WOULD LIKELY SUFFER. IN THAT
EVENT, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE
ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
WE HAVE NO HISTORY AS AN INDEPENDENT COMPANY, SO THE HISTORICAL INFORMATION
PRESENTED IN THIS PROSPECTUS MAY NOT BE REPRESENTATIVE OF OUR FUTURE FINANCIAL
RESULTS.
We have no history as an independent company. Accordingly, the historical
financial information presented in this prospectus may not necessarily reflect
the results of operations, financial position and cash flows we would have had
if we had operated independently during the periods presented. We may not be
profitable on an ongoing basis as a stand-alone company. In the future our
results of operations may differ from those presented in this prospectus due to
our need to establish our own independent banking relationships, administrative
functions and sources of funding. We may not be able to maintain these
relationships, develop these functions or locate these sources successfully, or
on a cost-effective basis.
THE MARKET FOR OUR PRODUCTS IS CHARACTERIZED BY FREQUENT TECHNOLOGICAL
INNOVATION. IF WE DO NOT SUCCESSFULLY DEVELOP NEW PRODUCTS AND REDUCE PRODUCTION
COSTS, OUR FUTURE OPERATING RESULTS AND COMPETITIVE POSITION WILL BE HARMED.
The wireless telecommunications industry is characterized by frequent
technological innovation. Average selling prices for integrated circuits and
other wireless telecommunications products have tended to decline over time.
Therefore, we must continue to develop new products with enhanced features that
we can sell at prices that permit us to achieve acceptable levels of
profitability. Our ability to develop and introduce new products successfully
will depend on numerous factors, including our ability to:
- anticipate, and adequately develop new products on a timely basis to meet,
evolving customer and market requirements and changes in technology and
industry standards;
- obtain rights to manufacture and sell products incorporating technologies
developed by third parties;
- market our products by differentiating them from those of our competitors;
- respond successfully to new product announcements and introductions by our
competitors;
- deliver our products in sufficient volumes and on time; and
- price our products competitively.
Our product development efforts may not be successful, and any new products we
develop may not achieve market acceptance if we do not meet these challenges.
FUTURE SALES OF OUR PRODUCTS DEPEND IN PART ON WIDESPREAD DEPLOYMENT OF CDMA
TECHNOLOGY.
Our current products are based primarily on CDMA technology. Other digital
wireless technologies, particularly Global Systems for Mobile communications, or
GSM, technology, have been more widely adopted to date than CDMA. If CDMA
technology does not become the preferred
9
<PAGE>
industry standard in the countries where we or our customers sell products or if
wireless service providers do not select CDMA for their networks, we may be at a
competitive disadvantage, and competitive pressures may require us to change our
product designs at substantial cost. We may not be able to respond to these
pressures or develop products compatible with the prevailing standard on a
timely basis, or at an acceptable cost, which may limit the future sale of our
products.
IF THE WIRELESS INDUSTRY DELAYS OR DOES NOT DEPLOY 3G WIRELESS STANDARDS BASED
ON CDMA TECHNOLOGY, WE MAY LOSE A TIME TO MARKET ADVANTAGE OR EXPERIENCE OTHER
COMPETITIVE DISADVANTAGES.
Industry and government participants of the International Telecommunications
Union and regional standards development organizations are currently considering
a variety of standards that may be used in 3G wireless networks. 3G CDMA is a
single standard with three modes of implementation. We have strategically
focused on developing products for two of these modes. We have a product for one
mode completed and a product for another mode in development. We are not
currently developing products for the third mode. If the wireless industry
delays or does not deploy 3G standards based on CDMA technology, we may lose a
time to market advantage or experience other competitive disadvantages.
WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUE FROM A LIMITED NUMBER OF
CUSTOMERS. THE LOSS OF ANY ONE OF OUR MAJOR CUSTOMERS WOULD HARM THE RESULTS OF
OUR OPERATIONS.
We derive a significant portion of our revenue from a limited number of
customers. Sales to Samsung Electronics Ltd. comprised 33%, 31% and 23% of our
combined revenues in fiscal 1997, 1998 and 1999, respectively. Sales to QUALCOMM
Personal Electronics, a 51% owned subsidiary of QUALCOMM, comprised 31%, 28% and
18% of our combined revenues in fiscal 1997, 1998 and 1999, respectively. We
expect revenue from sales to QUALCOMM to continue to decline because of
QUALCOMM's sale of its terrestrial wireless consumer products business to
Kyocera Wireless in February 2000. Sales to LG Information and
Communications, Ltd. comprised 19%, 14% and 15% of our combined revenues in
fiscal 1997, 1998 and 1999, respectively. Sales to Hyundai Electronics
Industries Co., Ltd. comprised 10% of our combined revenues in fiscal 1999.
Accordingly, unless and until we diversify and expand our customer base, our
future success will significantly depend upon the timing and size of future
purchase orders, if any, from these customers and, in particular:
- the product requirements of these customers;
- the financial and operational success of these customers; and
- the success of these customers' products that incorporate our products.
The loss of any one of these customers or the delay, even if only temporary,
or cancellation of significant orders from any of these customers would harm our
results of operations.
WE DEPEND UPON A LIMITED NUMBER OF THIRD PARTY MANUFACTURERS TO PRODUCE AND TEST
OUR PRODUCTS. ANY DISRUPTIONS IN THE OPERATIONS OF, OR THE LOSS OF, ANY OF THESE
THIRD PARTIES COULD HARM OUR BUSINESS.
We subcontract all of our manufacturing and assembly and most of the testing
of our integrated circuits. We depend upon a limited number of third parties to
perform these functions, some of which are only available from single sources
with which we do not have long-term contracts. For example, during fiscal 1999,
IBM was the primary manufacturer of our MSM family of integrated circuits. Our
reliance on sole or limited source vendors involves risks. These risks include
possible shortages of key components, product performance shortfalls, and
reduced controls over delivery schedules, manufacturing capability, quality
assurance, quantity and costs. We have no firm long-term commitments from our
manufacturers to supply products to us for any specific period, or in any
specific quantity, except as may be provided in a particular purchase order. As
a result, these
10
<PAGE>
manufacturers may allocate, and in the past have allocated, capacity to the
production of other products while reducing deliveries to us on short notice.
Our operations also may be harmed by lengthy or recurring disruptions at any
of the facilities of our manufacturers. These disruptions may include labor
strikes, work stoppages, fire, earthquake, flooding or other natural disasters.
These disruptions could cause significant delays in shipments until we are able
to shift the products from an affected manufacturer to another manufacturer. The
loss of a significant third party manufacturer or the inability of a third party
manufacturer to meet performance and quality specifications or delivery
schedules could harm our business.
In addition, one or more of our manufacturers may obtain licenses from
QUALCOMM to manufacture CDMA integrated circuits that compete with our products.
In this event, the manufacturer could elect to allocate scarce components and
manufacturing capacity to its own products and reduce deliveries to us. In the
event of a loss of or our decision to change a key third party manufacturer,
qualifying a new manufacturer and commencing volume production or testing could
involve delay and expense, resulting in lost revenues, reduced operating margins
and possible loss of customers.
WE DEPEND ON PASS-THROUGH LICENSES FROM THIRD PARTY MANUFACTURERS TO PROVIDE US
WITH PROTECTION AGAINST CLAIMS THAT WE VIOLATE THIRD PARTY MANUFACTURING PATENTS
AND OTHER INTELLECTUAL PROPERTY RIGHTS. THE LOSS OF ONE OR MORE OF OUR
MANUFACTURERS COULD EXPOSE US TO THIS LIABILITY.
Many of our third party manufacturers have cross-licenses with owners of
patents and other intellectual property rights that may be necessary for the
manufacture of our products. By using third party manufacturers to manufacture,
assemble and test our integrated circuits, we may receive the benefit of
cross-licenses extended to products manufactured, assembled or tested by the
manufacturers. If we are forced to or later decide to use different third party
manufacturers, we may lose the benefit of any cross-licenses extended to our
products and therefore may be exposed to additional liability from the assertion
of patents or other intellectual property rights against us.
SHORTAGES OF OR DEFECTS IN COMPONENTS, MATERIALS OR SOFTWARE USED IN OUR
INTEGRATED CIRCUIT PRODUCTS OR SIMILAR PROBLEMS RELATED TO THE PRODUCTS OF OUR
CUSTOMERS WOULD HARM OUR BUSINESS.
Shortages of or defects or impurities in the components, materials or
software used by us or our customers, delays in the delivery of those
components, materials or software, or equipment failures or other difficulties
would adversely affect our ability to ship products on a timely basis or our
customers' demand for our products, which, in turn, would harm our business. We
also may experience component or software failures or defects which could
require significant product recalls, reworks and/or repairs which are not
covered by warranty reserves and which could consume a substantial portion of
the capacity of our third party manufacturers.
OUR OPERATING RESULTS ARE SUBJECT TO SUBSTANTIAL QUARTERLY AND ANNUAL
FLUCTUATIONS AND TO MARKET DOWNTURNS, AND WE MAY NOT BE ABLE TO SUSTAIN OUR
CURRENT RATE OF GROWTH.
Our revenues, earnings and other operating results have fluctuated
significantly in the past and may fluctuate significantly in the future.
Although we have had significant revenues and earnings growth in prior years, we
may not be able to sustain these growth rates. Our future operating results will
depend on many factors, including the following:
- the loss of existing or anticipated customers or orders;
- decreases in average selling prices of our products;
- the availability and cost of integrated circuits from our third party
manufacturers;
- our ability to develop, introduce and market new products and services on
a timely basis;
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- changes in the mix of products produced and sold;
- product defects;
- intellectual property disputes;
- seasonal customer demand;
- the general conditions of the semiconductor industry, including cyclical
downturns; and
- the rate of adoption and acceptance of new industry standards in our
target markets.
As a company focused on integrated circuits and system software solutions,
our revenues may be more volatile than other companies with more diversified
businesses. General economic or other conditions causing a downturn in the
market for our products, affecting the timing of customer orders or causing
cancellations or rescheduling of orders could also adversely affect our
operating results. Moreover, our customers may change delivery schedules or
cancel or reduce orders without incurring significant penalties and generally
are not subject to minimum purchase requirements.
The foregoing factors are difficult to forecast and these, as well as other
factors, could harm our quarterly or annual operating results. If our operating
results fail to meet the expectations of investment analysts or investors in any
period, the market price of our common stock may decline.
WE ARE SUBJECT TO INTENSE COMPETITION.
We currently face significant competition in our markets and expect that
intense competition will continue. We compete primarily based on:
- the benefits of CDMA relative to other wireless technologies, such as Time
Division Multiple Access, or TDMA, and GSM;
- comprehensiveness of product solutions;
- product performance and quality;
- design and engineering capabilities;
- compliance with industry standards;
- time to market;
- system cost;
- new product innovations; and
- customer support.
This competition has resulted and is expected to continue to result in
declining average selling prices for our products. We anticipate that additional
competitors will enter our markets as a result of growth opportunities in
wireless telecommunications, the trend toward global expansion by foreign and
domestic competitors, technological and public policy changes and relatively low
barriers to entry in selected segments of the industry.
Our current competitors include major semiconductor companies such as Intel,
LSI Logic and Philips, as well as major telecommunication equipment companies
such as Motorola and Lucent. We also face competition from the in-house
development efforts of many of our key customers, including Samsung. Moreover,
some of our customers have rights from QUALCOMM that allow them to manufacture
and sell integrated circuits incorporating CDMA technology and may compete
directly with us.
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Many of our current and potential competitors have advantages over us,
including:
- existing royalty-free cross-licenses to competing and emerging
technologies;
- longer operating histories and presence in key markets;
- access to in-house semiconductor manufacturing facilities;
- greater name recognition;
- access to larger customer bases; and
- greater financial, sales and marketing, manufacturing, distribution,
technical and other resources than we have.
As a result of these factors, these competitors may be more successful than
us. In addition, we anticipate additional competitors to enter the market for
products based on 3G standards. These competitors may have more established
relationships and distribution channels in markets not currently deploying
wireless technology. These competitors also have established or may establish
financial or strategic relationships among themselves or with our existing or
potential customers, resellers or other third parties. These relationships may
affect customers' purchasing decisions. Accordingly, new competitors or
alliances among competitors could emerge and rapidly acquire significant market
share to the detriment of our own.
IF OUR COMPETITORS ACQUIRE RIGHTS TO OUR INTELLECTUAL PROPERTY, OR TO
INTELLECTUAL PROPERTY THAT WE LICENSE FROM QUALCOMM, IT WILL BE EASIER FOR THOSE
COMPETITORS TO OFFER PRODUCTS SIMILAR TO OURS.
QUALCOMM has licensed its CDMA technology to numerous other integrated
circuit manufacturers, and may continue to extend patent licenses relating to
its CDMA technology on terms that may be superior to the terms that we receive.
Although we own an array of proprietary technology that supplements and advances
the technology we license from QUALCOMM, it may be possible for a third party to
copy or otherwise obtain and use our technology or the technology we license
from QUALCOMM without authorization, develop similar technology independently or
design around the patents we own or license. If any of our patents, or the
patents we license from QUALCOMM, fail to protect the relevant technology, it
will be easier for our competitors to offer products similar to ours. In
addition, effective copyright, trademark and trade secret protection may be
unavailable or limited in certain countries. Moreover, we may be required to
license our intellectual property to third parties.
WE DERIVE THE MAJORITY OF OUR REVENUES FROM SALES OUTSIDE THE UNITED STATES, AND
OUR INTERNATIONAL BUSINESS ACTIVITIES SUBJECT US TO RISKS THAT COULD HARM OUR
BUSINESS.
A significant part of our strategy involves our continued pursuit of growth
opportunities in a number of international markets. Our revenues from
international customers as a percentage of total revenues were 60% in fiscal
1997, 62% in fiscal 1998 and 74% in fiscal 1999. In addition, our pursuit of
international growth opportunities may require significant investments for an
extended period before we realize returns, if any, on our investments. Our
business could be adversely affected by:
- unexpected changes in legal or regulatory requirements;
- export controls, tariffs and other barriers;
- fluctuations in currency exchange rates;
- nationalization, expropriation and limitations on repatriation of cash;
- social, economic, banking and political risks;
- taxation; and
- changes in U.S. laws and policies affecting trade, foreign investment and
loans.
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In addition to the general risks associated with our international sales and
operations, we will also be subject to risks specific to the individual
countries in which we do business. Three of our four largest customers during
1999 are based in South Korea. A significant downturn in the economies of Asian
countries where our products are sold, particularly South Korea's economy, would
materially harm our business. We also are subject to risks in certain markets in
which our customers grant subsidies on handsets to their subscribers. For
example, in South Korea the government recently limited the ability of handset
manufacturers to provide subsidies on handsets to its subscribers and this, in
turn, reduced the volume of products purchased from us.
FOREIGN CURRENCY FLUCTUATIONS COULD HARM OUR RESULTS OF OPERATIONS.
We are exposed to risk from fluctuations in foreign currencies that could
impact our results of operations, liquidity and financial condition. Declines in
currency values in selected regions may adversely affect future product sales
because our products may become more expensive to purchase in the countries of
the affected currencies. Our trade receivables are generally dollar denominated.
Accordingly, any significant change in the value of the dollar against our
customers' functional currencies could result in an increase in our customers'
cash flow requirements and could consequently affect our ability to collect
receivables. Our exposure to emerging market currencies may increase as we
expand into those markets.
WE INTEND TO PURSUE STRATEGIC TRANSACTIONS, WHICH COULD DISRUPT OUR BUSINESS AND
HARM OUR FINANCIAL RESULTS.
We intend to pursue strategic transactions that provide access to new
technologies, products or markets. These transactions could include
acquisitions, partnerships, joint ventures, business combinations and
investments. Any transaction may require us to incur non-recurring or on-going
charges and may pose significant integration challenges and/or management and
business disruptions, any of which could harm our business and financial
results. In addition, we may not succeed in retaining key employees of any
business that we acquire. We may not consummate these transactions on favorable
terms or at all or obtain the benefits we anticipate from a transaction.
Accordingly, any of these transactions may have an adverse affect on our
business or results of operations.
OUR INTELLECTUAL PROPERTY ARRANGEMENT WITH QUALCOMM MAY HARM OUR COMPETITIVE
POSITION.
Under the terms of our agreements with QUALCOMM, QUALCOMM may require us to
assign to it selected patents, patent applications and invention disclosures
that we develop or acquire and will receive a license to our other patents,
patent applications and invention disclosures. QUALCOMM will have the right to
license to third parties the patents, patent applications and invention
disclosures we assign to it and the right to sublicense to third parties its
license rights relating to those of our patents that are essential to wireless
standards. QUALCOMM's access to our intellectual property may limit the
competitive advantage we can derive from our development programs, and may
interfere with our ability to enter into strategic transactions with third
parties. If we are unable to enter into these types of transactions, our access
to new technologies, products or markets may be limited.
OUR BUSINESS AND RESULTS OF OPERATIONS WILL BE HARMED IF WE ARE UNABLE TO MANAGE
GROWTH IN OUR BUSINESS.
Since 1996, our business has experienced periods of rapid growth that have
placed, and are expected to continue to place, significant demands on our
managerial, operational and financial resources. In order to manage this growth,
we must continue to improve and expand our management, operational and financial
systems and controls, including quality control and delivery and service
capabilities. We also need to continue to expand, train and manage our employee
base. We must carefully manage production and inventory levels to meet product
demand, new product introductions
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and product transitions. We cannot assure you that we will be able to timely and
effectively meet that demand and maintain the quality standards required by our
existing and potential customers.
In addition, inaccuracies in our demand forecasts could quickly result in
either insufficient or excessive inventories and disproportionate overhead
expenses. Our international expansion plans will require us to establish, manage
and control operations in countries where we have limited or no operating
experience. If we ineffectively manage our growth or are unsuccessful in
recruiting and retaining personnel, our business and results of operations will
be harmed.
THE ENFORCEMENT OF OUR INTELLECTUAL PROPERTY RIGHTS MAY BE EXPENSIVE AND COULD
DIVERT VALUABLE COMPANY RESOURCES.
We rely primarily on patent, copyright, trademark and trade secret laws, as
well as nondisclosure and confidentiality agreements and other methods, to
protect our proprietary technologies and processes. Our intellectual property
portfolio is primarily comprised of a select group of essential CDMA patents,
patent applications and product designs transferred to us by QUALCOMM and the
master intellectual property assignment and license agreement that allows us to
use QUALCOMM's CDMA digital wireless technology, which is covered by various
patents and patent applications. We also develop and seek domestic and foreign
patent protection for our own proprietary technologies. We may need to engage in
litigation to enforce our intellectual property rights, protect our trade
secrets or determine the validity and scope of proprietary rights of others. The
attempted enforcement of intellectual property rights by us could result in
significant costs and diversion of resources away from our development and
commercial efforts.
CLAIMS BY THIRD PARTIES THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY OR THAT
PATENTS ON WHICH WE RELY ARE INVALID COULD ADVERSELY AFFECT OUR BUSINESS.
From time to time, companies may assert patent, copyright and other
intellectual proprietary rights to technologies used in our products or in the
industry generally. These claims may result in our involvement in litigation. We
may not prevail in such litigation given the complex technical issues and
inherent uncertainties in intellectual property litigation. If any of our
products were found to infringe on protected technology, we could be required to
redesign such products, license such technology, and/or pay damages or other
compensation to the infringed party. If we are unable to license protected
technology used in our products, we could be prohibited from making and selling
such products.
QUALCOMM has various cross-licenses from parties claiming rights to wireless
technologies. QUALCOMM also may have the benefit of covenants from third parties
not to assert their patents against QUALCOMM. Following the distribution of
Spinco's common stock by QUALCOMM, we will no longer have the benefit of those
cross-license and covenant not to assert arrangements. Accordingly, we may be
subject to claims that we would not have been subject to as part of QUALCOMM. In
addition, as the number of competitors in our market increases and the
functionality of our products is enhanced and overlaps with the products of
other companies, we may become subject to claims of infringement or
misappropriation of the intellectual property rights of others. Any claims, with
or without merit, could be time consuming, result in costly litigation, divert
the efforts of our technical and management personnel or cause product shipment
delays, any of which could have a material adverse effect upon our operating
results.
A number of third parties have claimed to own patents essential to various
proposed 3G CDMA standards. If we and other product manufacturers are required
to obtain additional licenses and/or pay royalties to one or more patent
holders, this could have a material adverse effect on the commercial
implementation of our CDMA products and our product margins and profitability.
Prior to QUALCOMM's distribution of our common stock to its stockholders, we
may be subject to litigation that we would not face as a stand-alone company
unrelated to QUALCOMM.
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Third parties also may commence actions seeking to establish the invalidity
of our patents or the patents QUALCOMM licenses to us. In the event that a third
party challenges a patent, a court may invalidate the patent or determine that
the patent is not enforceable, which would harm our competitive position. Even
if a third party challenge is not successful, it could be expensive and time
consuming, divert management attention from our business and harm our
reputation.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL NECESSARY FOR THE
DESIGN, DEVELOPMENT, MANUFACTURE AND SALE OF OUR PRODUCTS.
Our future success depends largely upon the continued service of our
executive officers and other key management and technical personnel. Our success
also depends on our ability to continue to attract, retain and motivate
qualified personnel. Our key technical personnel represent a significant asset,
as the source of our technological and product innovations. The competition for
these personnel is intense in the wireless telecommunications industry.
We may have particular difficulty attracting and retaining key personnel in
periods of poor operating performance given the significant use of incentive
compensation both by our competitors and us. In addition, our separation from
QUALCOMM may result in significant disruption of our personnel and may result in
higher than normal turnover rates, including key managerial departures. The loss
of one or more of our key employees or our inability to attract, retain and
motivate qualified personnel could negatively impact our ability to design,
develop, manufacture and sell our products. We do not have employment agreements
with our key management personnel and do not maintain key person life insurance
on any of our personnel.
PRODUCT LIABILITY CLAIMS OR RECALLS COULD HARM OUR BUSINESS.
Testing, manufacturing, marketing and use of our products entails the risk
of product liability. We are currently covered by QUALCOMM's product liability
insurance and will obtain our own product liability insurance after QUALCOMM's
distribution of our common stock to its stockholders. Although we believe this
insurance will be adequate to protect against product liability claims, we
cannot assure you that QUALCOMM or we will be able to continue to maintain such
insurance at a reasonable cost or in sufficient amounts to protect us against
losses due to product liability. Any inability by QUALCOMM or us to maintain
insurance at an acceptable cost or to otherwise protect against potential
product liability could prevent or inhibit the commercialization of our
products. In addition, a product liability claim or recall could harm our
business or reputation.
THE COMPLEXITY OF OUR PRODUCTS COULD RESULT IN UNFORESEEN DELAYS OR EXPENSES AND
IN UNDETECTED DEFECTS OR BUGS, WHICH COULD ADVERSELY AFFECT THE MARKET
ACCEPTANCE OF NEW PRODUCTS AND DAMAGE OUR REPUTATION WITH CURRENT OR PROSPECTIVE
CUSTOMERS.
Highly complex products such as the integrated circuits and software that we
offer or the products into which our products are incorporated may contain
defects and bugs when they are first introduced or as new versions are released.
If any of our integrated circuits, software, or the products into which our
integrated circuits and software are incorporated contain defects or bugs, or
have reliability, quality or compatibility problems, our reputation may be
damaged and customers may be reluctant to buy our products or the products into
which our integrated circuits are incorporated.
In addition, these defects or bugs could interrupt or delay sales to our
customers. In order to alleviate these problems, we may have to invest
significant capital and other resources. Although our products are tested by our
suppliers, our customers and ourselves, we cannot assure you that our new
products or the products into which our integrated circuits and software are
incorporated will not contain defects or bugs. If any of these problems are not
found until after the commercial production
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of such new products, we may be required to incur additional development costs
and product recall, repair or replacement costs. These problems may also result
in claims against us by our customers or others. In addition, these problems may
divert our technical and other resources from other development efforts.
Moreover, we would likely lose, or experience a delay in, market acceptance of
the affected product or products, and we could lose credibility with our current
and prospective customers.
IF WIRELESS HANDSETS POSE HEALTH AND SAFETY RISKS, WE MAY BE SUBJECT TO NEW
REGULATIONS, AND DEMAND FOR OUR PRODUCTS MAY DECREASE.
Media reports have suggested that radio frequency emissions from wireless
handsets may be linked to various health concerns, including cancer, and may
interfere with various electronic medical devices, including hearing aids and
pacemakers. Concerns over radio frequency emissions may have the effect of
discouraging the use of wireless handsets, which would decrease demand for our
products. In recent years, the FCC and foreign regulatory agencies have updated
the guidelines and methods they use for evaluating radio frequency emissions
from radio equipment, including wireless handsets. In addition, interest groups
have requested that the FCC investigate claims that wireless technologies pose
health concerns and cause interference with airbags, hearing aids and medical
devices. There also are some safety risks associated with the use of wireless
handsets while driving. Concerns over these safety risks and the effect of any
legislation that may be adopted in response to these risks could reduce demand
for our products in the U.S. as well as foreign countries.
RISKS RELATED TO OUR SEPARATION FROM QUALCOMM
AFTER OUR SEPARATION FROM QUALCOMM, WE MAY EXPERIENCE INCREASED COSTS RESULTING
FROM DECREASED PURCHASING POWER OR LESS FAVORABLE LICENSE TERMS, EITHER OF WHICH
COULD HARM OUR BUSINESS.
Prior to our separation from QUALCOMM, we were able to take advantage of
QUALCOMM's size and purchasing power in procuring goods, services and
technology. As a separate, stand-alone entity, we may be unable to obtain goods,
services and technology at prices and on terms as favorable as those we obtained
prior to the separation. In addition, our patent cross-license agreement with
QUALCOMM does not permit us to sublicense to third parties that portion of
QUALCOMM's intellectual property portfolio licensed to us. In addition, QUALCOMM
will have the right to acquire a portion of our patents, patent applications and
invention disclosures and restrict our ability to sublicense that intellectual
property to others. As a result, in negotiating patent cross-license agreements
with third parties, we may be unable to obtain agreements on terms as favorable
as we may have been able to obtain if we retained all rights to all of our
inventions, could sublicense all of the intellectual property we develop or
acquire and the QUALCOMM intellectual property that is licensed to us, or had
access to QUALCOMM's entire intellectual property portfolio.
AFTER OUR SEPARATION FROM QUALCOMM, WE WILL NO LONGER BE ABLE TO PASS THROUGH OR
SUBLICENSE SELECTED INTELLECTUAL PROPERTY RIGHTS OF QUALCOMM'S LICENSEES, WHICH
MAY HARM OUR ABILITY TO MARKET OUR PRODUCTS AND SUBJECT US TO LIABILITY.
Prior to our separation from QUALCOMM, we were generally able to pass
through to our customers selected intellectual property rights of some of
QUALCOMM's licensees. Following our separation from QUALCOMM, we will no longer
be able to pass on those benefits to our customers, which may harm our ability
to market our products and may subject us to claims for indemnification by our
customers if they are sued by the holders of the intellectual property licensed
to QUALCOMM.
OUR BUSINESS MAY SUFFER IF QUALCOMM DOES NOT COMPLETE ITS DISTRIBUTION OF OUR
COMMON STOCK.
QUALCOMM currently anticipates that it will complete its divestiture of
Spinco by August 2001 by distributing all of our common stock that it owns to
holders of QUALCOMM common stock.
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However, QUALCOMM is not obligated to do so, and it is possible that QUALCOMM
may decide not to complete this distribution by that time or at all. Completion
of the distribution is subject to, among other things, approval by QUALCOMM's
board of directors, receipt of a favorable Internal Revenue Service ruling
regarding the tax-free nature of the distribution, and market conditions. As a
result, we may not obtain the benefits we expect as a result of this
distribution, including greater strategic focus, more effective access to third
party technology, elimination of potential conflicts with our customers, better
incentives and greater accountability for employees and the other benefits
described in "Our Separation from QUALCOMM." In addition, until this
distribution occurs, the risks discussed below relating to QUALCOMM's control of
us and the potential business conflicts of interest between QUALCOMM and us will
continue to be relevant to our stockholders.
THE TRANSITIONAL SERVICES BEING PROVIDED TO US BY QUALCOMM MAY NOT BE SUFFICIENT
TO MEET OUR NEEDS, AND WE MAY NOT BE ABLE TO REPLACE THESE SERVICES AFTER OUR
AGREEMENTS WITH QUALCOMM EXPIRE.
QUALCOMM has agreed to provide certain transitional services to us,
including services related to:
- engineering;
- information technology systems;
- buildings and facilities;
- finance and accounting; and
- other administrative functions.
Although QUALCOMM is contractually obligated to provide us with these services,
these services may not be provided at the same level of quality as when we were
part of QUALCOMM, and we may not be able to obtain the same benefits. We will
also lease and sublease certain office and manufacturing facilities from
QUALCOMM.
These transitional service arrangements generally have a term of less than
two years following the separation. These agreements were made in the context of
a parent-subsidiary relationship and were negotiated in the overall context of
our separation from QUALCOMM. The final terms of these agreements may be more or
less favorable to us than if they had been negotiated with unaffiliated third
parties. The prices charged to us under these agreements may be lower than the
prices that we may be required to pay third parties for similar services or the
costs of similar services if we undertake them ourselves. Accordingly, upon the
expiration of these various arrangements, we may not be able to replace the
transitional services or enter into appropriate leases in a timely manner or on
terms and conditions, including cost, as favorable as those we will receive from
QUALCOMM.
WE CURRENTLY USE QUALCOMM'S INFORMATION TECHNOLOGY SYSTEMS, AND ALTHOUGH WE PLAN
TO CREATE AND IMPLEMENT OUR OWN INFORMATION TECHNOLOGY SYSTEMS, WE MAY NOT BE
SUCCESSFUL IN DOING SO.
We currently use QUALCOMM's information technology systems to support our
operations, including systems to manage inventory, order processing, human
resources, shipping and accounting. Many of these systems are proprietary to
QUALCOMM and are very complex. These systems have been modified, and are in the
process of being further modified, to enable QUALCOMM to separately track items
related to our business. These modifications, however, may result in unexpected
system failures or the loss or corruption of data. We are in the process of
creating our own information systems to eventually replace QUALCOMM's systems.
However, we may not be successful in implementing these systems and
transitioning data from QUALCOMM's systems to ours. Any failure or significant
downtime in QUALCOMM's or our own information systems could prevent us from
taking customer orders, shipping products or billing customers and could harm
our business.
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WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE, AND WE WILL NOT BE ABLE TO RELY ON
QUALCOMM TO FUND THESE CAPITAL REQUIREMENTS.
The design, development, manufacture and marketing of digital wireless
communications products and services require significant amounts of capital. In
the past, our capital needs have been satisfied by QUALCOMM. However, following
the separation, QUALCOMM will no longer provide funds to finance our working
capital or other cash or banking requirements. We cannot assure you that
financing, if needed, will be available to us on favorable terms or at all.
We believe our capital requirements will vary greatly from quarter to
quarter, depending on, among other things, capital expenditures, fluctuations in
our operating results, financing activities and build-up of inventories. We
believe that the proceeds to us of this offering, along with our future cash
flow from operations, will be sufficient to satisfy our working capital, capital
expenditure and research and development requirements for the foreseeable
future. However, we may require or choose to obtain additional debt or equity
financing in the future. Future equity financings would be dilutive to the
existing holders of our common stock. Future debt financings could involve
restrictive covenants. We may not be able to obtain debt financing with interest
rates as favorable as those historically enjoyed by QUALCOMM.
RISKS RELATED TO OUR RELATIONSHIP WITH QUALCOMM
WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH QUALCOMM WITH RESPECT
TO OUR PAST AND ONGOING RELATIONSHIPS THAT COULD HARM OUR BUSINESS OPERATIONS.
Conflicts of interest may arise between QUALCOMM and us in a number of areas
relating to our past and ongoing relationships, including:
- labor, tax, employee benefit, indemnification and other matters arising
from our separation from QUALCOMM;
- intellectual property matters;
- employee retention and recruiting;
- major business combinations involving us;
- sales or distributions by QUALCOMM of all or any portion of its ownership
interest in us;
- the nature, quality and pricing of transitional services QUALCOMM has
agreed to provide to us; and
- business opportunities that may be attractive to both QUALCOMM and us.
In addition, although QUALCOMM will agree not to compete with us in the CDMA
semiconductor industry for a period of three years, QUALCOMM may decide to
compete with us in the future, creating an additional conflict of interest.
We cannot guarantee that all conflicts will be resolved in a manner that is
favorable to us or that conflicts will not result in harmful consequences to our
business or prospects. Even if we do resolve any conflicts, the resolution may
be less favorable than if we were dealing with an unaffiliated party.
Furthermore, the agreements we will enter into with QUALCOMM may be amended upon
agreement between the parties. While we are controlled by QUALCOMM, QUALCOMM may
be able to require us to agree to amendments to these agreements that may be
less favorable to us than the current terms of the agreement.
OUR DIRECTORS, EXECUTIVE OFFICERS AND EMPLOYEES MAY HAVE CONFLICTS OF INTEREST
BECAUSE OF THEIR POSITIONS WITH QUALCOMM AND THEIR OWNERSHIP OF QUALCOMM COMMON
STOCK.
Many of our directors, executive officers and employees have a substantial
amount of their personal financial portfolios in QUALCOMM common stock and
options to purchase QUALCOMM common stock. Ownership of QUALCOMM common stock by
our directors, officers and employees
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after our separation from QUALCOMM could create, or appear to create, potential
conflicts of interest when directors and officers are faced with decisions that
could have different implications for QUALCOMM and us. In addition, Dr. Irwin M.
Jacobs and Anthony S. Thornley will serve as Chairman of the Board and Chief
Financial Officer, respectively, of both companies, which also could create, or
appear to create, conflicts of interest.
Our financial results will be included in QUALCOMM's consolidated financial
statements prior to the distribution of our common stock by QUALCOMM. Our
directors and executive officers who will hold positions with QUALCOMM, and who
may also be holders of QUALCOMM common stock or options to purchase QUALCOMM
common stock, may therefore consider not only the short-term and long-term
impact of financial and operating decisions on us, but also the impact of these
decisions on QUALCOMM's consolidated financial results and its stockholders. In
some instances, the impact of these decisions could be disadvantageous to us
while advantageous to QUALCOMM.
OUR CLOSE RELATIONSHIP WITH QUALCOMM COULD LIMIT OUR POTENTIAL TO DO BUSINESS
WITH QUALCOMM'S COMPETITORS.
We will continue to have a variety of contractual relationships with
QUALCOMM. Whether or not QUALCOMM completes its distribution of our common
stock, our close relationship with QUALCOMM will continue for a significant
period of time. We cannot predict whether existing and potential customers will
be deterred from purchasing our products or using our services by the existence
of these relationships or the historical ties between QUALCOMM and us. If they
are deterred, our future growth could be hindered.
WE WILL BE CONTROLLED BY QUALCOMM AS LONG AS IT OWNS A MAJORITY OF OUR COMMON
STOCK, AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF
STOCKHOLDER VOTING DURING THAT TIME.
After the completion of this offering, QUALCOMM will own approximately %
of our outstanding common stock, or approximately % if the underwriters
exercise in full their option to purchase additional shares. As long as QUALCOMM
owns a majority of our outstanding common stock, QUALCOMM will continue to be
able to elect our entire board of directors and to remove any director, with or
without cause. Investors in this offering will not be able to affect the outcome
of any stockholder vote prior to the planned distribution of our stock to the
QUALCOMM stockholders. As a result, QUALCOMM will control all matters affecting
us, including:
- the composition of our board of directors and, through it, any
determination with respect to our business direction and policies,
including the appointment and removal of officers;
- the allocation of business opportunities that may be suitable for us and
QUALCOMM;
- any determinations with respect to mergers or other business combinations;
- our acquisition or disposition of assets;
- our financing;
- changes to the agreements providing for our separation from QUALCOMM;
- the payment of dividends on our common stock; and
- determinations with respect to our tax returns.
QUALCOMM is not prohibited from selling a controlling interest in us to a third
party. However, QUALCOMM has agreed not to offer, sell or otherwise transfer any
shares of our common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Lehman Brothers Inc. on behalf
of the underwriters.
20
<PAGE>
BECAUSE QUALCOMM WILL OWN MORE THAN NINETY PERCENT OF OUR OUTSTANDING CAPITAL
STOCK, IT MAY MERGE US INTO QUALCOMM AT ANY TIME.
Although QUALCOMM currently anticipates that by August 2001 it will
distribute all of our common stock that it owns to the holders of QUALCOMM
common stock, it is not obligated to do so, and it is possible that QUALCOMM may
decide not to complete the distribution. Under Delaware law, a parent
corporation that owns at least ninety percent of the outstanding capital of a
subsidiary corporation may merge the subsidiary into the parent without the vote
of the subsidiary's stockholders. Therefore, in the event QUALCOMM elects not to
complete the distribution, it may merge us into itself without the vote of our
stockholders. In such event, our outstanding shares of common stock would be
converted into shares of common stock of QUALCOMM. Our stockholders would be
entitled to appraisal rights under Delaware law, but these rights may not
entitle our stockholders to receive consideration equivalent to the price they
paid for our common stock.
WE MAY BE UNABLE TO RAISE CAPITAL OR ISSUE COMMON STOCK IN CONNECTION WITH
ACQUISITIONS IN THE FUTURE BECAUSE OF OUR RELATIONSHIP WITH QUALCOMM.
Prior to QUALCOMM's distribution of our common stock to its stockholders,
QUALCOMM may seek to maintain a significant percentage of our common stock for
tax planning purposes or otherwise. As a result, we may be constrained in our
ability to raise equity capital in the future or to issue common stock or other
equity securities in connection with future acquisitions.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
The trading price of our common stock could be volatile. The stock market in
general, and the market for technology companies in particular, has experienced
extreme volatility. This volatility has often been unrelated to the operating
performance of particular companies. We cannot be sure that an active public
market for our common stock will develop or continue after this offering.
Investors may be unable to sell their common stock at or above our initial
public offering price. Prices for our common stock will be determined in the
marketplace and may be influenced by many factors, including variations in our
financial results, changes in earnings estimates by industry research analysts,
perceptions of us by investors, general economic, industry and market
conditions, and our relationship with QUALCOMM.
WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS OFFERING AND
MAY NOT USE THE PROCEEDS IN WAYS THAT ENHANCE OUR MARKET VALUE OR RESULTS OF
OPERATIONS.
We will retain broad discretion to allocate the proceeds of this offering.
Our failure to apply these funds effectively could have an adverse effect on our
ability to implement our strategy.
SHARES BECOMING AVAILABLE FOR SALE, INCLUDING SHARES THAT MAY BE ISSUED IN
CONNECTION WITH THE DISTRIBUTION, COULD ADVERSELY AFFECT OUR STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. After this offering, we will have outstanding shares of
our common stock. All of the shares sold in this offering will be freely
tradable. QUALCOMM will own the remaining outstanding shares of our common
stock, but will be restricted from selling or otherwise transferring those
shares for 180 days following the completion of this offering without the prior
written consent of Lehman Brothers Inc. on behalf of the underwriters. QUALCOMM
currently anticipates that following the expiration of the lockup period, and
before August 2001, it will distribute the shares of our common stock that it
owns, which is expected to be more than 90% of our total outstanding shares, to
holders of QUALCOMM common stock, although it is not obligated to do so.
Substantially all of the distributed shares would be eligible for immediate
resale in the public market. We are unable to predict when or if significant
amounts of common stock
21
<PAGE>
will be sold in the open market in anticipation of, or following, this
distribution. We are also unable to predict whether a sufficient number of
buyers would be in the market at that time. In addition, after QUALCOMM
completes its distribution of our common stock, we intend to register up to
additional shares of our common stock for sale upon the exercise of stock
options issued or issuable to existing QUALCOMM option holders or pursuant to
our 2000 Equity Incentive Plan, Employee Stock Purchase Plan and 2000
Non-Employee Directors' Stock Option Plan.
A portion of QUALCOMM's common stock is held by index funds tied to the
Standard & Poor's 500 Index or other stock indices. If we are not included in
these indices at the time of QUALCOMM's distribution of our common stock, these
index funds will be required to sell our stock. Any sales of substantial amounts
of common stock in the public market, or the perception that such sales might
occur, whether as a result of this distribution or otherwise, could harm the
market price of our common stock.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION THAT COULD RESULT IN
SUBSTANTIAL COSTS AND DIVERT MANAGEMENT'S ATTENTION AND RESOURCES.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the potential volatility of our stock price, we may be the
target of securities litigation in the future. Securities litigation could
result in substantial costs and divert management's attention and resources.
THE RELIABILITY OF MARKET DATA INCLUDED IN THIS PROSPECTUS IS UNCERTAIN.
We have included market data from industry publications in this prospectus.
The reliability of this data cannot be assured. Market data used throughout this
prospectus was obtained from industry publications. Industry publications
generally state that the information contained in these publications have been
obtained from sources believed to be reliable, but that its accuracy and
completeness is not guaranteed. Although we believe market data used in this
prospectus to be reliable, it has not been independently verified.
FOLLOWING THE DISTRIBUTION, PROVISIONS CONTAINED IN OUR CERTIFICATE OF
INCORPORATION AND DELAWARE LAW COULD ADVERSELY AFFECT THE PERFORMANCE OF OUR
STOCK.
Our certificate of incorporation provides that after the completion of this
offering, we will have a classified board of directors. Our certificate of
incorporation also requires the approval of holders of at least 66 2/3% of our
voting stock to amend or change the provisions mentioned relating to the
classified board, as well as other selected provisions. Under our bylaws, after
the completion of this offering, stockholders will not be permitted to call
special meetings. Finally, after the completion of this offering, our
certificate of incorporation will provide that after QUALCOMM's distribution of
our common stock to its stockholders, any action required or permitted to be
taken by our stockholders must be effected at a duly called annual or special
meeting rather than by any consent in writing.
Delaware law requires the approval of holders of at least 66 2/3% of our
voting stock as a condition to a merger or certain other business transactions
with, or proposed by, a holder of 15% or more of our voting stock. This approval
is not required in cases where certain of our directors approve the transaction
or where certain minimum price criteria and other procedural requirements are
met.
Following the distribution of our stock by QUALCOMM, QUALCOMM would
relinquish majority control of our stock. The classified board, special meeting
and other charter provisions, and the transaction approval provisions of
Delaware law, may discourage certain types of transactions involving an actual
or potential change in our control. These provisions may also discourage certain
types of transactions in which our stockholders might otherwise receive a
premium for their shares over then current market prices and may limit our
stockholders' ability to approve transactions that they may deem to be in their
best interests.
22
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties, many of which are beyond our control. These statements relate to
future events or our future financial performance. All statements, other than
statements of historical facts included in this prospectus, regarding our
strategy, future operations, financial position, estimated revenues or losses,
projected costs, prospects, plans and objectives of management are
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology including "could," "may," "will," "should," "expect,"
"intend," "plan," "anticipate," "believe," "estimate," "predict," "potential,"
"continue" or "opportunity," the negative of these terms or other comparable
terminology.
Forward-looking statements in this prospectus are only predictions. Actual
events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks described
above and in other parts of this prospectus. These factors may cause our actual
results to differ materially from any forward-looking statement. This prospectus
also contains forward-looking statements attributed to third parties relating to
their estimates regarding the growth of our markets.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot and do not guarantee future results, levels
of activity, performance, market growth or achievements. All forward-looking
statements speak only as of the date of this prospectus. We are under no duty to
update any of the forward-looking statements after the date of this prospectus
to conform them to actual results or to changes in our expectations.
23
<PAGE>
OUR SEPARATION FROM QUALCOMM
On July 25, 2000, QUALCOMM announced a plan to create a separate company
comprised primarily of QUALCOMM's integrated circuits and system software
solutions business. We were incorporated in Delaware in July 2000 in preparation
for our separation from QUALCOMM, and we are currently a wholly-owned subsidiary
of QUALCOMM. Prior to our separation, QUALCOMM has conducted and will expect to
conduct our business through various divisions and subsidiaries. We expect that
the separation of our business from those of QUALCOMM, including the transfer of
related assets, liabilities and intellectual property rights, will be
substantially completed by the closing of this offering.
BENEFITS OF THE SEPARATION
We believe that we will realize certain benefits from our complete
separation from QUALCOMM, including the following:
- MORE EFFECTIVE ACCESS TO THIRD PARTY TECHNOLOGY. In order to expand our
business, we will need to continue to implement and integrate additional
features and functionality in our components. To do so, we must be able to
license or otherwise gain access to third party technology and
intellectual property on reasonable terms and conditions not materially
less favorable than those obtained by our competitors. QUALCOMM will
assign to us a portion of its patents and patent applications that are
essential and/or useful to implement existing and proposed CDMA standards.
A significant number of these patents have either not been licensed to
third parties or have been licensed only for specific CDMA standards such
as cdmaOne. By separating our business from QUALCOMM's other operations,
we intend to use our CDMA patent rights to gain reasonable access to GSM
and other third party technology without compromising QUALCOMM's CDMA
licensing business. We will also be better positioned to extend into new
areas of communications technology through acquisition of complementary
businesses and internal development.
- GREATER STRATEGIC FOCUS AND RECOGNITION. We expect to have a sharper
focus on enhancing the competitive position of the Spinco business by
dedicating the vast majority of our resources to the development of
integrated circuits, system software solutions and reference designs for
the wireless voice, data and Internet markets. We will have a greater
ability to modify business processes to better fit the evolving needs of
our customers. As a separate company focused primarily on providing
integrated circuits and system software solutions, we also expect to have
enhanced recognition within the semiconductor industry and investment
community.
- IMPROVED CUSTOMER RELATIONS THROUGH THE ELIMINATION OF POTENTIAL
CONFLICTS. Our existing customers are also licensees of QUALCOMM. These
relationships have from time to time caused a conflict with sales of
integrated circuits and system software solutions to our customers. We
expect that our separation from QUALCOMM may facilitate improved relations
with our customers.
- BETTER INCENTIVES FOR EMPLOYEES AND GREATER ACCOUNTABILITY. We expect
that the motivation and accountability of our employees and the focus of
our management will be strengthened by incentive compensation programs
tied to the market performance of our business. The separation will enable
us to offer our employees compensation directly linked to that performance
which may enhance our ability to attract and retain qualified personnel.
SEPARATION AND TRANSITIONAL AGREEMENTS
We and QUALCOMM will enter into agreements providing for the separation of
our business from QUALCOMM, including a master separation and distribution
agreement to which we and
24
<PAGE>
QUALCOMM are parties. These agreements will generally provide for, among other
things, the transfer from QUALCOMM to us of assets and the assumption by us of
liabilities relating to our business, in each case to the extent agreed to by
QUALCOMM and us. We also will enter into agreements with QUALCOMM regarding the
transfer and licensing between us of intellectual property relating to our
businesses. We also will enter into agreements governing various interim and
ongoing relationships between the parties, including transitional services
QUALCOMM will provide to us.
The agreements relating to our separation from QUALCOMM are being made in
the context of a parent-subsidiary relationship and are being negotiated in the
overall context of our separation from QUALCOMM. The terms of these agreements
may be more or less favorable than those we could have negotiated with
unaffiliated third parties. For more information regarding the separation
arrangements, see "Arrangements between Spinco and QUALCOMM."
QUALCOMM'S DISTRIBUTION OF OUR COMMON STOCK
After completion of this offering, QUALCOMM will own approximately % of
the outstanding shares of our common stock, or approximately % if the
underwriters exercise their over-allotment option in full. QUALCOMM currently
anticipates that it will complete its divestiture of our company before
August 2001 by distributing all of its shares of our common stock to the holders
of QUALCOMM's common stock. However, QUALCOMM is not obligated to complete the
distribution, and we cannot assure you as to whether or when it will occur. For
a discussion of the risks associated with QUALCOMM's distribution of our common
stock, see "Risk Factors--Risks Related to Our Separation from QUALCOMM--Our
business may suffer if QUALCOMM does not complete its distribution of our common
stock" and "Risks Related to Our Relationship with QUALCOMM--Because QUALCOMM
will own ninety percent of our outstanding capital stock, it may merge us into
QUALCOMM at any time."
QUALCOMM has advised us that it would not complete the distribution of its
shares of our common stock if its board of directors determines that the
distribution is no longer in the best interest of QUALCOMM and its stockholders.
QUALCOMM has further advised us that it currently expects that the principal
factors that it would consider in determining whether and when to complete the
distribution include:
- the relative market prices of our common stock and QUALCOMM's common
stock;
- whether QUALCOMM receives a private letter ruling from the Internal
Revenue Service concluding that the distribution will be tax-free to
QUALCOMM and its stockholders for United States federal income tax
purposes;
- the absence of any court orders or regulations prohibiting or restricting
the completion of the distribution;
- QUALCOMM's relationships with our customers or potential customers and
other companies possessing significant intellectual property with respect
to wireless technologies; and
- market and other conditions affecting the businesses of Spinco or
QUALCOMM.
25
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the offering will be approximately
$ million (based upon an assumed initial public offering price of $ per
share) after deducting underwriting discounts and commissions and estimated
offering expenses ($ if the over-allotment option is exercised in full).
We will use the net proceeds of this offering for working capital and
general corporate purposes, including product development and selling and
marketing. We will retain broad discretion in the allocation of the net proceeds
of this offering. The amounts we actually spend will depend on a number of
factors, including the amount of our future revenues and other factors described
elsewhere in this prospectus. We also may use a portion of the net proceeds to
acquire or invest in complementary businesses, technologies, product lines or
products. Currently, however, we do not have any understandings, commitments or
agreements with respect to these potential transactions. Pending such uses, the
net proceeds of this offering will be invested in short or medium term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, general business conditions and other factors that our board of
directors may deem relevant.
26
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of , 2000. Our
capitalization is presented
- on an actual basis; and
- on an as adjusted basis to reflect our receipt of the estimated net
proceeds from the sale of shares of common stock in this offering at
an assumed price of $ per share.
This information should be read in conjunction with our financial statements
and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF , 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity(1):
Preferred stock, $.0001 par value; shares
authorized, none issued and outstanding, actual and as
adjusted................................................ $ --
Common stock, $.0001 par value; shares authorized
and shares issued and outstanding, actual;
shares authorized, issued and outstanding, as
adjusted................................................ --
Additional paid-in capital................................ --
Parent's investment....................................... 838,380
Retained earnings......................................... --
-------- --------
Total stockholders' equity.............................. 838,380
-------- --------
Total capitalization.................................. $838,380
======== ========
</TABLE>
------------------------
(1) The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of , 2000, and
excludes additional shares we may issue under the following plans and
arrangements:
- shares of common stock available for issuance under our 2000 Equity
Incentive Plan, including shares of common stock reserved for
issuance to holders of options to purchase QUALCOMM common stock following
QUALCOMM's distribution of our common stock;
- shares available for issuance under our 2000 Non-Employee Directors'
Stock Option Plan; and
- shares available for issuance under our Employee Stock Purchase
Plan.
27
<PAGE>
DILUTION
Our net tangible book value as of , 2000 was $ , or $
per share of common stock. Net tangible book value represents the amount of
total tangible assets less total liabilities, divided by the number of shares of
common stock outstanding. After giving effect to our sale of common stock
offered hereby at an assumed initial public offering price of $ per
share and our receipt of the estimated net proceeds therefrom, our pro forma net
tangible book value as of , 2000 would have been approximately
$ million, or $ per share. This represents an immediate increase
in net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Net tangible book value per share before the offering... $
Increase per share attributable to new investors........ $
-------
Pro forma net tangible book value per share after this
offering................................................ $
-------
Dilution per share to new investors....................... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of ,
2000, the differences between existing stockholders and the new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid before deducting
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... % $ % $
New investors................... % %
------ ----- ------- -----
Total......................... 100.0% $ 100.0%
====== ===== ======= =====
</TABLE>
We expect to have shares outstanding as of , 2000. In
addition to the shares of common stock to be outstanding after the offering, we
may issue additional shares of common stock under the following plans and
arrangements:
- shares of common stock available for issuance under our 2000
Equity Incentive Plan, including shares of common stock reserved for
issuance to holders of options to purchase QUALCOMM common stock following
QUALCOMM's distribution of our common stock;
- shares available for issuance under our 2000 Non-Employee
Directors' Stock Option Plan; and
- shares available for issuance under our Employee Stock
Purchase Plan.
28
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following selected combined unaudited financial data should be read in
conjunction with the Spinco combined financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus. The statement of
income data for the years ended September 30, 1997, 1998 and 1999 and the
balance sheet data at September 30, 1998 and 1999 were derived from our audited
combined financial statements. The statement of income data for the years ended
September 30, 1995 and 1996 and for the nine-month periods ended June 27, 1999
and June 25, 2000 and the balance sheet data at September 30, 1995, 1996, 1997
and at June 25, 2000 are derived from our unaudited combined financial
statements. The unaudited combined financial statements have been prepared on
substantially the same basis as the audited combined financial statements and
include all adjustments, consisting only of normal, recurring adjustments, that
we consider necessary for a fair presentation of the financial position and
results of operations for the periods. Historical results are not necessarily
indicative of the results that may be expected in the future, and the results of
interim periods are not necessarily indicative of results that may be expected
for the entire year. In addition, the historical financial information presented
below may not necessarily reflect the results of operations, financial position
and cash flows we would have had if we had operated independently as of the
dates presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30,(1) ---------------------
---------------------------------------------------------- JUNE 27, JUNE 25,
1995 1996 1997 1998 1999 1999 2000
--------- --------- --------- --------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Third party................................ $ 26,940 $ 111,045 $ 361,502 $ 583,111 $ 900,638 $ 610,767 $ 868,385
Related party.............................. -- 61,023 188,179 296,747 247,634 177,399 96,329
--------- --------- --------- --------- ---------- --------- ---------
Total revenues........................... 26,940 172,068 549,681 879,858 1,148,272 788,166 964,714
--------- --------- --------- --------- ---------- --------- ---------
Expenses:
Cost of revenues........................... 16,021 154,538 449,579 535,384 527,884 352,381 449,880
Research and development................... 9,328 19,278 24,368 56,437 127,846 84,788 145,340
Selling, general and administrative........ 4,496 7,784 13,546 29,690 50,134 35,895 48,013
Amortization of goodwill and other
acquisition-related intangible
assets(2)................................ -- -- -- -- -- -- 54,995
Purchased in-process technology(2)......... -- -- -- -- -- -- 60,030
--------- --------- --------- --------- ---------- --------- ---------
Total expenses........................... 29,845 181,600 487,493 621,511 705,864 473,064 758,258
--------- --------- --------- --------- ---------- --------- ---------
(Loss) income before income taxes............ (2,905) (9,532) 62,188 258,347 442,408 315,102 206,456
Income tax benefit (expense)................. 1,654 4,303 (22,406) (99,408) (167,435) (119,739) (123,874)
--------- --------- --------- --------- ---------- --------- ---------
Net (loss) income............................ $ (1,251) $ (5,229) $ 39,782 $ 158,939 $ 274,973 $ 195,363 $ 82,582
========= ========= ========= ========= ========== ========= =========
Unaudited pro forma net earnings per common
share(3):
Basic...................................... $ $
Diluted.................................... $ $
Shares used in unaudited pro forma per share
calculations(3):
Basic......................................
Diluted....................................
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,(1)
---------------------------------------------------- JUNE 25,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 143 $ 229 $ 1,439 $ 921 $ 1,772 $ 12,550
Working capital............................................. 4,793 44,298 86,400 169,684 150,213 202,410
Total assets................................................ 18,270 79,638 125,434 222,313 252,503 936,564
Parent's investment......................................... 11,916 53,476 101,107 194,760 175,783 838,380
</TABLE>
------------------------
(1) Our fiscal year ends on the last Sunday in September. As a result, fiscal
1996 includes 53 weeks.
29
<PAGE>
(2) QUALCOMM completed acquisitions during the nine months ended June 25, 2000
and will transfer to us specified assets related to those acquisitions. As a
result, during the nine months ended June 25, 2000 we recorded $55 million
in amortization of goodwill and other acquisition-related intangible assets,
and we recorded a $60 million charge related to purchased in-process
technology.
(3) We had no shares of common stock outstanding during fiscal 1999 and during
the nine months ended June 25, 2000. Unaudited pro forma basic net earnings
per common share was calculated based on the common shares outstanding
on the date of our capitalization adjusted for a subsequent -for-one
stock split. Unaudited pro forma diluted earnings per common share reflect
the potential dilutive effect of additional common shares issuable upon
exercise of outstanding stock options, which totaled shares for
the year ended September 26, 1999 and shares for the nine months
ended June 25, 2000. The effect of dilutive stock options was computed using
the treasury stock method at the expected initial public offering price of
$ per share.
30
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
are based on our unaudited historical condensed combined financial statements as
of June 25, 2000 and for the nine month period then ended, and our audited
historical combined financial statements for the year ended September 30, 1999,
adjusted to give effect to our separation from QUALCOMM and QUALCOMM's
acquisition of SnapTrack, Inc. The pro forma condensed combined statements of
income for the nine months ended June 25, 2000 and for the year ended
September 30, 1999 give effect to our separation from QUALCOMM and QUALCOMM's
acquisition of SnapTrack as if both had occurred as of October 1, 1998. Our
separation from QUALCOMM is described elsewhere in the prospectus, and the
related adjustments are described in the accompanying notes.
In March 2000, QUALCOMM completed the acquisition of all of the outstanding
capital stock of SnapTrack in a transaction accounted for as a purchase.
QUALCOMM will allocate to us $629 million in goodwill, $60 million in purchased
in-process technology and $19 million in other intangible assets related to
SnapTrack's workforce, customer base and completed and in-process technology to
be transferred to us. QUALCOMM will retain $319 million in goodwill and
$15 million in other intangible assets related to specified SnapTrack patents
that will not be transferred to us. The unaudited pro forma condensed combined
statements of income for the nine months ended June 25, 2000 and for the year
ended September 30, 1999 give effect to our results of operations as if the
acquisition of SnapTrack had occurred on October 1, 1998.
The unaudited pro forma condensed combined financial statements are based
upon available information and certain assumptions set forth in the notes to
such statements, which have been made solely for purposes of developing such pro
forma financial statements. The pro forma financial statements do not purport to
represent what our results of operations or financial condition would actually
have been had our separation from QUALCOMM in fact occurred on such date or to
project our results of operations or financial condition for any future period
or date. The pro forma financial statements should be read in conjunction with
our historical combined financial statements and the historical consolidated
financial statements of SnapTrack included elsewhere in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pro forma financial statements assume the completion of the transactions
contemplated by the master separation and distribution agreement and the
agreements to be entered into pursuant to the master separation and distribution
agreement including the completion of all the asset transfers and contract
assignments contemplated thereby. Assumptions regarding the number of shares of
our common stock may not reflect the actual numbers at the time of QUALCOMM's
planned distribution of our common stock.
31
<PAGE>
QUALCOMM SPINCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 25, 2000
--------------------------------------
ADJUSTMENTS FOR
SPINCO THE OFFERING PRO FORMA
-------- --------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 12,550 $ (a) $ 12,550
Accounts receivable, net................................ 218,295 -- 218,295
Inventories, net........................................ 35,888 -- 35,888
Deferred income taxes................................... 21,141 -- 21,141
Other current assets.................................... 1,909 -- 1,909
-------- -------- --------
Total current assets.................................. 289,783 289,783
Property and equipment, net............................... 38,003 -- 38,003
Goodwill, net............................................. 587,014 -- 587,014
Other assets.............................................. 21,764 -- 21,764
-------- -------- --------
Total assets.......................................... $936,564 $ $936,564
======== ======== ========
LIABILITIES AND PARENT'S INVESTMENT
Current liabilities:
Accounts payable........................................ $ 44,347 $ -- $ 44,347
Payroll and benefit-related liabilities................. 12,503 -- 12,503
Other accrued liabilities............................... 10,772 -- 10,772
Unearned revenue........................................ 19,751 -- 19,751
-------- -------- --------
Total current liabilities............................. 87,373 -- 87,373
Deferred income taxes..................................... 7,730 -- 7,730
Other liabilities......................................... 3,081 -- 3,081
-------- -------- --------
Total liabilities..................................... 98,184 -- 98,184
Parent's investment....................................... 838,380 838,380
-------- -------- --------
Total liabilities and stockholders' equity............ $936,564 $ $936,564
======== ======== ========
</TABLE>
See accompanying notes.
32
<PAGE>
QUALCOMM SPINCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 25, 2000
-------------------------------------------------------------
HISTORICAL
--------------------- SNAPTRACK SEPARATION
SPINCO SNAPTRACK ADJUSTMENTS ADJUSTMENTS PRO FORMA
--------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 964,714 $ 339 $ -- $ -- $ 965,053
--------- -------- -------- -------- ---------
Operating expenses:
Cost of revenues.......................... 449,880 23 -- (39,150)(f) 410,753
Research and development.................. 145,340 5,387 (b) -- -- 150,727
Selling, general and administrative....... 48,013 5,890 (b) -- -- 53,903
Amortization of goodwill and other
acquisition-related intangible assets... 54,995 -- 67,559 (c) -- 122,554
Purchased in-process technology........... 60,030 -- (60,030)(d) -- --
--------- -------- -------- -------- ---------
Total operating expenses.................... 758,258 11,300 7,529 (39,150) 737,937
--------- -------- -------- -------- ---------
Operating income (loss)..................... 206,456 (10,961) (7,529) 39,150 227,116
Interest expense............................ -- (42) -- -- (42)
Investment income, net...................... -- 94 -- -- 94
--------- -------- -------- -------- ---------
Income (loss) before income taxes........... 206,456 (10,909) (7,529) 39,150 227,168
Income tax expense.......................... (123,874) -- 4,517 (e) (15,269)(g) (134,626)
--------- -------- -------- -------- ---------
Net income (loss)........................... $ 82,582 $(10,909) $ (3,012) $ 23,881 $ 92,542
========= ======== ======== ======== =========
Unaudited pro forma net earnings per common
share(h):
Basic..................................... $ $
========= =========
Diluted................................... $ $
========= =========
Shares used in unaudited pro forma per share
calculations(h):
Basic.....................................
========= =========
Diluted...................................
========= =========
</TABLE>
See accompanying notes.
33
<PAGE>
QUALCOMM SPINCO, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------
HISTORICAL
---------------------- SNAPTRACK SEPARATION
SPINCO SNAPTRACK ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................................... $1,148,272 $ 65 $ $ -- $1,148,337
---------- -------- --------- -------- ----------
Operating expenses:
Cost of revenues......................... 527,884 70 -- (48,420)(f) 479,534
Research and development................. 127,846 7,003 (i) -- -- 134,849
Selling, general and administrative...... 50,134 6,564 (i) -- -- 56,698
Amortization of goodwill and other
acquisition-related intangible
assets................................. -- -- 162,142 (c) -- 162,142
---------- -------- --------- -------- ----------
Total operating expenses................... 705,864 13,637 162,142 (48,420) 833,223
---------- -------- --------- -------- ----------
Operating income (loss).................... 442,408 (13,572) (162,142) 48,420 315,114
Interest expense........................... -- (255) -- -- (255)
Investment income, net..................... -- 404 -- -- 404
---------- -------- --------- -------- ----------
Income (loss) before income taxes.......... 442,408 (13,423) (162,142) 48,420 315,263
Income tax expense......................... (167,435) -- 6,234 (e) (18,400)(g) (179,601)
---------- -------- --------- -------- ----------
Net income (loss).......................... $ 274,973 $(13,423) $(155,908) $ 30,020 $ 135,662
========== ======== ========= ======== ==========
Unaudited pro forma net earnings per common
share(h):
Basic.................................... $ $
========== ==========
Diluted.................................. $ $
========== ==========
Shares used in unaudited pro forma per
share calculations(h):
Basic....................................
========== ==========
Diluted..................................
========== ==========
</TABLE>
See accompanying notes.
34
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) Reflects the estimated net proceeds from the expected initial public
offering.
(b) For the nine months ended June 25, 2000, SnapTrack's research and
development expenses and selling, general and administrative expenses
included $1.6 million and $1.8 million, respectively, in amortization of
deferred stock compensation related to SnapTrack's issuance of stock options
with exercise prices less than the estimated fair market value of the
underlying stock on the date of grant. This cost is duplicative, as the fair
value of the stock has been included in the purchase price which results in
additional goodwill amortization, and will not be recorded by us in periods
subsequent to the purchase.
(c) Reflects amortization of goodwill and other intangible assets related to the
SnapTrack acquisition. Goodwill and other intangible assets related to the
SnapTrack acquisition are amortized on a straight-line basis over their
estimated useful lives of four years and are recorded as if the acquisition
had occurred as of October 1, 1998.
(d) Reflects the elimination of the non-recurring $60 million charge for
purchased in-process technology QUALCOMM will transfer to us related to the
SnapTrack acquisition.
(e) Reflects the estimated tax benefit related to SnapTrack's net loss and the
change in deferred tax liabilities resulting from the amortization of
certain of the intangible assets recorded as part of the acquisition.
(f) Reflects the offset of royalties payable to QUALCOMM. QUALCOMM will grant us
a limited royalty-bearing covenant not to assert its patents against us in
connection with our integrated circuits and system software solutions
business. We will receive an offsetting credit equal to our royalty
obligation to QUALCOMM in exchange for our on-going transfer of selected
patents, patent applications and invention disclosures to QUALCOMM, and our
grant to QUALCOMM of licenses for our other patents, patent applications and
invention disclosures.
(g) Reflects the estimated tax expense related to the offset of royalties
payable to QUALCOMM.
(h) We had no shares of common stock outstanding during fiscal 1999 and during
the nine months ended June 25, 2000. Unaudited pro forma basic net earnings
per common share was calculated based on the common shares
outstanding on the date of our capitalization, adjusted for a subsequent
-for-one stock split. Unaudited pro forma diluted net earnings per common
share reflect the potential dilutive effect of additional common shares
issuable upon exercise of outstanding stock options, which totaled
shares in 1999 and shares for the nine months ended June 25, 2000. The
effect of dilutive stock options was computed using the treasury stock
method at the expected initial public offering price of $ per share.
(i) For the year ended September 30, 1999, SnapTrack's research and development
expenses and selling, general and administrative expenses included $1.3
million and $1.2 million, respectively, in amortization of deferred stock
compensation related to SnapTrack's issuance of stock options with exercise
prices less than the estimated fair market value of the underlying stock on
the date of grant. This cost is duplicative, as the fair value of the stock
has been included in the purchase price which results in additional goodwill
amortization, and will not be recorded by us in periods subsequent to the
purchase.
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our combined financial statements
and the related notes and the other financial information included in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
specified factors, including those set forth under "Risk Factors" beginning on
page 9 and elsewhere in this prospectus.
SEPARATION FROM QUALCOMM
We are currently a wholly-owned subsidiary of QUALCOMM. Prior to the
completion of this offering, QUALCOMM will transfer to us its integrated
circuits and system software solutions business, currently known as QUALCOMM's
CDMA Technologies segment; its High Data Rate, or 1xEV, product and technology
group; its QUALCOMM Israel subsidiary; a portion of its position location
business acquired with the SnapTrack acquisition; and its European radio
frequency design business for handsets, purchased in February 2000 from Tellit
Communications Limited. After the completion of this offering, QUALCOMM will own
approximately % of our outstanding common stock. QUALCOMM currently
anticipates that it will complete its divestiture of us by August 2001 by
distributing all of the shares of our common stock it owns to the holders of
QUALCOMM common stock. However, QUALCOMM is not required to complete the
distribution, and the distribution may not occur by the contemplated time, or at
all. Because QUALCOMM will own 90% or more of our outstanding capital stock, it
may merge us into QUALCOMM at any time. Following the distribution, QUALCOMM and
we will be operated as independent companies. However, QUALCOMM and we will
continue to have a relationship as a result of the various agreements being
entered into in connection with the distribution.
SPINCO BUSINESS
We are the leading developer and supplier worldwide of CDMA-based wireless
communication integrated circuits and system software solutions for voice and
data communications products and services. Our CDMA-based products include
system software and baseband, radio frequency, intermediate frequency, and power
amplification integrated circuit products for wireless handset manufacturers.
For wireless infrastructure manufacturers, we offer baseband integrated circuit
products and system software solutions which provide wireless
standards-compliant processing of voice and data signals to and from wireless
handsets.
Our total revenues have grown from $3 million in fiscal 1992 to
$1.1 billion in fiscal 1999. Our revenues were $965 million through the first
nine months of fiscal 2000. We recognize revenues from hardware product sales at
the time units are shipped. We recognize license fees related to software
license agreements over the term of the agreement when the contractual
obligations have been fulfilled.
Prior to the closing of the offering, we will enter into agreements with
QUALCOMM under which QUALCOMM will provide services to us during a transition
period after the separation. The agreements will relate primarily to engineering
services, buildings and facilities, information technology systems, finance and
accounting services and other administrative functions. Under these agreements,
we will reimburse QUALCOMM for its cost of the service plus five percent during
the first year and for its cost of the service plus ten percent thereafter. The
transition period varies depending on the agreement but is generally less than
two years. Some of the agreements, including those for building services and
information technology services, will provide for possible extensions of their
terms beyond the initial transition period. The agreements do not necessarily
reflect the costs of obtaining the services from unrelated third parties or of
our providing the applicable services ourselves. However, we believe that
purchasing these services from QUALCOMM provides us with an efficient means of
obtaining these services during the transition period.
36
<PAGE>
We must also negotiate new agreements with various third parties as a
separate, stand-alone entity. There can be no assurance that the terms we will
be able to negotiate for these agreements will be as favorable as those we
enjoyed as part of QUALCOMM. In addition, as part of QUALCOMM, we benefited from
various economies of scale including shared administrative functions and
facilities. We expect that our operating expenses will increase, although the
amount is not determinable at this time. For a discussion of the various risks
related to our separation from QUALCOMM, see "Risk Factors--Risks Related to Our
Separation from QUALCOMM."
RECENT ACQUISITIONS
Specified assets related to the following recent acquisitions will be
transferred to us as a part of our business:
On March 1, 2000, QUALCOMM completed the acquisition of all of the
outstanding capital stock of SnapTrack, Inc., a developer of wireless position
location technology, in a transaction accounted for as a purchase. The purchase
price was approximately $1 billion, representing the value of QUALCOMM shares
issued to effect the purchase, the value of vested and unvested options and
warrants exchanged at the closing date and estimated transaction costs of
$2 million. The allocation of the purchase price, based on the estimated fair
values of the acquired assets and assumed liabilities, reflects acquired
goodwill of $948 million, purchased in-process technology of $60 million and
other intangible assets of $34 million. QUALCOMM will allocate to us
$629 million of goodwill, $60 million in purchased in-process technology and
$19 million in other assets related to SnapTrack's workforce, customer base and
completed and in-process technology to be transferred to us. QUALCOMM will
retain, among other things, the licensing business of SnapTrack, and accordingly
will retain $319 million in goodwill and $15 million in other intangible assets
related to specified SnapTrack patents that will not be transferred to us.
On February 25, 2000, QUALCOMM purchased the Technology Development Group of
Tellit Communications Limited, a U.K.-based company. QUALCOMM paid the initial
purchase price of $12 million in cash. An additional $9 million in consideration
is payable in cash through March 31, 2001 if specified performance and other
milestones are reached. The preliminary allocation of purchase price, based on
the estimated fair values of acquired assets and liabilities assumed, reflects
acquired goodwill of $11 million and other identified intangible assets of
$1 million.
BASIS OF PRESENTATION
Our fiscal year end is the last Sunday in September. Each accounting period
ends on the last Sunday of the month. Unless otherwise stated, all years and
dates refer to our fiscal year and fiscal periods.
Our combined financial statements reflect the combined financial position,
results of operations and cash flows of the businesses that will be transferred
to us from QUALCOMM as if we had been a separate legal entity for all periods
presented, and as if certain wholly-owned subsidiaries of QUALCOMM had been
owned by us. However, for the periods covered by the financial statements,
wholly-owned subsidiaries combined with us were directly or indirectly owned by
QUALCOMM. All significant intercompany accounts and transactions between
combined entities have been eliminated. The financial statements have been
prepared using QUALCOMM's historical basis in the assets and liabilities and
historical results of operations related to our businesses. We had no cash
balances as of September 30, 1997, 1998 and 1999, other than cash and cash
equivalents owned by combined foreign legal entities, as no specific cash
accounts had been designated by QUALCOMM for us. When our liabilities are paid
or investments are made, it is assumed that the cash used by us was funded by a
parent cash contribution. Similarly, changes in parent's investment represent
QUALCOMM's contribution after giving effect to our net earnings plus net
transfers to and from QUALCOMM. We will begin accumulating retained earnings on
the separation date.
37
<PAGE>
Our combined financial statements include allocations of certain QUALCOMM
corporate expenses, including centralized research and development, legal,
accounting, employee benefits, rent, insurance services, information technology
services, treasury, investor relations and other QUALCOMM corporate and
infrastructure costs. The expense allocations have been determined on bases that
QUALCOMM considered to be a reasonable reflection of the utilization of services
provided to or the benefit received by us. However, the financial information
included herein may not necessarily reflect our combined financial position,
results of operations, changes in cash flows and parent's investment in the
future or what they would have been if we had been a separate stand-alone entity
for the periods presented.
TRANSACTIONS WITH QUALCOMM
Our revenue from sales of products to QUALCOMM was $188 million in fiscal
1997, $297 million in fiscal 1998, $248 million in fiscal 1999, $177 million for
the nine months ended June 27, 1999 and $96 million for the nine months ended
June 25, 2000. We expect revenue from sales to QUALCOMM to continue to decline
because of QUALCOMM's sale of its terrestrial wireless consumer products
business to Kyocera Wireless in February 2000. Our costs of revenues related to
royalties paid to QUALCOMM was $23 million in fiscal 1997, $36 million in fiscal
1998, $48 million in fiscal 1999, $33 million in the nine months ended June 27,
1999 and $39 million in the nine months ended June 25, 2000. Under the terms of
our master intellectual property assignment and license agreement with QUALCOMM,
QUALCOMM will grant us a limited royalty-bearing covenant not to assert its
patents against us in connection with our integrated circuits and system
software solutions business. We will receive an offsetting credit for our
ongoing transfer of selected patents, patent applications and invention
disclosures to QUALCOMM, and our grant to QUALCOMM of licenses of our patents,
patent applications and invention disclosures.
CONCENTRATIONS
A significant portion of our revenues are concentrated with a limited number
of customers as the worldwide market for wireless telephone systems and products
is dominated by a few large corporations.
As a percentage of total revenues, our revenues from international
customers, consisting of export sales, were approximately 60% in fiscal 1997,
62% in fiscal 1998 and 74% in fiscal 1999. As a percentage of total revenues,
sales to three of our South Korean customers comprised 56% in fiscal 1997, 52%
in fiscal 1998, 48% in fiscal 1999, 48% during the nine months ended June 27,
1999 and 41% during the nine months ended June 25, 2000. Since 1997, cumulative
bad debts have not exceeded $1 million.
RESULTS OF OPERATIONS
The following table presents combined statements of income data expressed as
a percentage of our total revenues for the periods indicated. Our historical
reporting results are not necessarily indicative of the results to be expected
for any future period or what they would have been if we were a separate
stand-alone entity for the periods presented.
38
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED SEPTEMBER 30, ENDED
------------------------------ -------------------
JUNE 27, JUNE 25,
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Third party........................................ 66% 66% 78% 77% 90%
Related party...................................... 34% 34% 22% 23% 10%
---- ---- ---- ---- ----
Total revenues................................... 100% 100% 100% 100% 100%
Expenses:
Cost of revenues................................... 82% 61% 46% 45% 47%
Research and development........................... 4% 6% 11% 11% 15%
Selling, general and administrative................ 2% 3% 4% 5% 5%
Amortization of goodwill and other
acquisition-related intangible assets............ -- -- -- -- 6%
Purchased in-process technology.................... -- -- -- -- 6%
---- ---- ---- ---- ----
Total expenses................................... 89% 71% 61% 60% 79%
---- ---- ---- ---- ----
Income before income taxes......................... 11% 29% 39% 40% 21%
Income tax expense............................... 4% 11% 15% 15% 13%
---- ---- ---- ---- ----
Net income......................................... 7% 18% 24% 25% 9%
==== ==== ==== ==== ====
</TABLE>
------------------------
Note: Percentages for certain periods do not sum due to rounding.
YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999
REVENUES
Total revenues increased $330 million or 60% from $550 million in fiscal
year 1997 to $880 million in fiscal year 1998. Total revenues increased
$268 million or 31% from $880 million in fiscal year 1998 to $1.148 billion in
fiscal year 1999.
Third party revenues increased $222 million or 61% from $362 million in
fiscal year 1997 to $583 million in fiscal year 1998. Third party revenues
increased $318 million or 54% to $901 million in fiscal year 1999. The increased
third party revenues in fiscal years 1998 and 1999 resulted from increased
shipments of integrated circuits to our customers to satisfy the strong demand
for wireless handsets in North America, South Korea and Japan.
Related party revenues increased $109 million or 58% from $188 million in
fiscal year 1997 to $297 million in fiscal year 1998. The increase in fiscal
year 1998 related party revenues was due to the increased market share of
QUALCOMM's wireless handset business in the United States. Related party
revenues decreased $49 million or 17% from $297 million in fiscal year 1998 to
$248 million in fiscal year 1999. The decrease in fiscal year 1999 related party
revenues was due to fewer sales of integrated circuit products to QUALCOMM
Personal Electronics because of decreased production activities by Sony
Electronics, a partner in QUALCOMM Personal Electronics.
International revenues increased 65% to $542 million in fiscal 1998 and
increased an additional 57% to $851 million in fiscal 1999 driven by increased
sales to our South Korean and Japanese customers.
COST OF REVENUES
As a percentage of revenue, cost of revenues decreased 21 percentage points
from 82% in fiscal 1997 to 61% in fiscal 1998 and decreased a further
15 percentage points to 46% in fiscal 1999. These improvements in gross margins
were primarily due to our ability to continually enhance our products by
39
<PAGE>
adding feature sets, design improvements and size reductions, while also taking
advantage of process improvements and cost reductions.
OPERATING EXPENSES
Operating expenses include research and development and selling, general and
administrative expenses. Operating expenses increased from $38 million or 7% of
total revenues in fiscal year 1997 to $86 million or 10% of total revenues in
fiscal year 1998. Operating expenses increased to $178 million or 15% of total
revenues in fiscal year 1999.
We have increased our investment in research and development in absolute
dollars every year. Research and development expenses include salaries and
related expenses of engineers and engineering support personnel, initial
tooling, project materials, depreciation on equipment used in research and
development and an allocation of facility expenses and information technology
services. Research and development expenses increased from $24 million or 4% of
total revenues in fiscal year 1997 to $56 million or 6% of total revenues in
fiscal year 1998. Research and development expenses increased to $128 million or
11% of total revenues in fiscal year 1999. These increases were driven by our
commitment to further develop and improve CDMA-based integrated circuits and
system software solutions that support advanced features.
Selling, general and administrative expenses include salaries and related
expenses of sales and marketing personnel, direct marketing expenses, litigation
expenses, accounting and finance, human resources, treasury, investor relations,
information technology and stock administration. Selling, general and
administrative expenses increased from $14 million or 2% of total revenues in
fiscal year 1997 to $30 million or 3% of total revenues in fiscal year 1998.
Selling, general and administrative expenses increased to $50 million or 4% of
total revenues in fiscal year 1999. These increases were driven by the continued
growth in administrative personnel and associated overhead expenses, legal
expenses and information systems necessary to support our growing business.
TAX RATE
The effective tax rate was 36% for fiscal 1997, 38% for fiscal 1998 and 38%
for fiscal 1999. The effective tax rate increased in fiscal 1998 as a result of
taxable income increasing at a greater rate than the research and development
tax credit.
NINE MONTHS ENDED JUNE 27, 1999 AND JUNE 25, 2000
REVENUES
Total revenues increased $177 million or 22% from $788 million in the first
nine months of fiscal 1999 to $965 million in the first nine months of fiscal
2000.
Third party revenues increased $258 million or 42% from $611 million in the
first nine months of fiscal 1999 to $868 million in the first nine months of
fiscal 2000. Third party revenue growth was primarily due to increased customer
demand for CDMA integrated circuits and system software in the United States,
South Korea, and Japan, as well as the addition of sales to Kyocera Wireless
which were previously related party sales to QUALCOMM.
Related party revenues decreased $81 million or 46% from $177 million in the
first nine months of fiscal 1999 to $96 million in the first nine months of
fiscal 2000. The decrease in related party revenues was primarily attributable
to QUALCOMM's sale of its terrestrial wireless consumer products business to
Kyocera Wireless in February 2000.
COST OF REVENUES
Cost of revenues increased from $352 million or 45% of total revenues in the
first nine months of fiscal 1999 to $450 million or 47% of total revenues in the
first nine months of fiscal 2000. The
40
<PAGE>
increase was primarily due to the average selling price of integrated circuits
declining faster than the cost of the integrated circuits.
OPERATING EXPENSES
Operating expenses include research and development and selling, general and
administrative expenses. Operating expenses increased from $121 million or 15%
of total revenues in the first nine months of fiscal 1999 to $193 million or 20%
of total revenues in the first nine months of fiscal 2000.
Research and development expenses include salaries and related expenses of
engineers and engineering support personnel, initial tooling, project materials,
depreciation on equipment used in research and development and an allocation of
facility expenses and information technology services. Research and development
expenses increased $61 million or 71% from $85 million or 11% of total revenues
in the first nine months of fiscal 1999 to $145 million or 15% of total revenues
in the first nine months of fiscal 2000, an increase of four percentage points.
The increase was due to increased spending for research and development to
support new CDMA-based integrated circuit product initiatives, including new
1xEV products, and software development efforts.
Selling, general and administrative expenses include salaries and related
expenses of sales and marketing personnel, direct marketing expenses, litigation
expenses, accounting and finance, human resources, treasury, investor relations,
information technology and stock administration. Selling, general and
administrative expenses increased from $36 million or 5% of total revenues in
the first nine months of fiscal 1999 to $48 million or 5% of total revenues in
the first nine months of fiscal 2000. The increase was driven by the continued
growth in sales and administrative personnel and associated overhead expenses,
legal expenses and information systems necessary to support our growing
business.
ACQUISITION-RELATED CHARGES
QUALCOMM completed acquisitions of SnapTrack and Tellit during the first
nine months of fiscal 2000, and will transfer to us specified assets related to
those acquisitions. As a result, during the first nine months of fiscal 2000, we
recorded $55 million in amortization of goodwill and other acquisition-related
intangible assets, and we recorded a $60 million charge related to in-process
technology. Goodwill is amortized on a straight-line basis over its estimated
useful life, ranging from three to four years.
TAX RATE
Our effective tax rate, calculated on a separate return basis, was 38% for
the first nine months of fiscal 1999 and 60% for the first nine months of fiscal
2000. The increase in the effective rate for the first nine months of 2000 is
primarily due to the non-deductibility of the amortization of goodwill for tax
purposes.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth a summary of our unaudited quarterly
operating results for each quarter in fiscal 1999 and the first three quarters
of fiscal 2000. This information has been derived from unaudited interim
combined financial statements that, in the opinion of management, have been
prepared on a basis consistent with the combined financial statements contained
elsewhere in this prospectus and include all adjustments, which are only normal
and recurring, necessary for a fair presentation of such information when read
in conjunction with our combined financial statements and the related notes
beginning on page F-1. The operating results for any quarter are not necessarily
41
<PAGE>
indicative of results for any future period or what they would have been if we
were a separate stand-alone entity for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
DECEMBER 27, MARCH 28, JUNE 27, SEPTEMBER 26, DECEMBER 26, MARCH 26, JUNE 25,
1998 1999 1999 1999 1999 2000 2000
------------ --------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Third party................. $144,364 $214,744 $251,659 $289,871 $280,977 $256,549 $330,859
Related party............... 53,846 52,671 70,882 70,235 66,418 22,420 7,491
-------- -------- -------- -------- -------- -------- --------
Total revenues............ 198,210 267,415 322,541 360,106 347,395 278,969 338,350
-------- -------- -------- -------- -------- -------- --------
Expenses:
Cost of revenues............ 92,387 115,948 144,046 175,503 173,921 124,652 151,307
Research and development.... 25,626 26,682 32,480 43,058 39,459 47,469 58,412
Selling, general and
administrative............ 11,380 12,212 12,303 14,239 11,025 16,244 20,744
Amortization of goodwill and
other acquisition-related
intangible assets......... -- -- -- -- -- 13,114 41,881
Purchased in-process
technology................ -- -- -- -- -- 60,030 --
-------- -------- -------- -------- -------- -------- --------
Total expenses............ 129,393 154,842 188,829 232,800 224,405 261,509 272,344
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes..................... 68,817 112,573 133,712 127,306 122,990 17,460 66,006
Income tax expense.......... (26,064) (42,892) (50,783) (47,696) (73,794) (10,476) (39,604)
-------- -------- -------- -------- -------- -------- --------
Net income.................. $ 42,753 $ 69,681 $ 82,929 $ 79,610 $ 49,196 $ 6,984 $ 26,402
======== ======== ======== ======== ======== ======== ========
</TABLE>
The following table presents combined statements of income data expressed as
a percentage of our total revenues for the periods indicated. Our historical
reporting results are not necessarily indicative of the results to be expected
for any future period or what they would have been if we were a separate
stand-alone entity for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
DECEMBER 27, MARCH 28, JUNE 27, SEPTEMBER 26, DECEMBER 26, MARCH 26, JUNE 25,
1998 1999 1999 1999 1999 2000 2000
------------ --------- -------- ------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Third party.............. 73% 80% 78% 80% 81% 92% 98%
Related party............ 27% 20% 22% 20% 19% 8% 2%
---- ---- ---- ---- ---- ---- ----
Total revenues......... 100% 100% 100% 100% 100% 100% 100%
Expenses:
Cost of revenues......... 47% 43% 45% 49% 50% 45% 45%
Research and
development............ 13% 10% 10% 12% 11% 17% 17%
Selling, general and
administrative......... 6% 5% 4% 4% 3% 6% 6%
Amortization of goodwill
and other acquisition-
related intangible
assets................. -- -- -- -- -- 5% 12%
Purchased in-process
technology............. -- -- -- -- -- 22% --
---- ---- ---- ---- ---- ---- ----
Total expenses......... 65% 58% 59% 65% 65% 94% 80%
---- ---- ---- ---- ---- ---- ----
Income before income
taxes.................. 35% 42% 41% 35% 35% 6% 20%
Income tax expense....... 13% 16% 16% 13% 21% 4% 12%
---- ---- ---- ---- ---- ---- ----
Net income............... 22% 26% 26% 22% 14% 3% 8%
==== ==== ==== ==== ==== ==== ====
</TABLE>
--------------------------
Note: Percentages for certain periods do not sum due to rounding.
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LIQUIDITY AND CAPITAL RESOURCES
Historically, QUALCOMM has managed cash on a centralized basis. Cash
receipts associated with our business have been received by QUALCOMM, and
QUALCOMM has directly paid our expenses and other disbursements. Accordingly, we
have reported only cash resident at our foreign offices.
Under our separation and distribution agreement with QUALCOMM, QUALCOMM will
transfer to us substantially all of the assets and liabilities related to our
business prior to the closing of this offering. We will receive the net proceeds
of the offering, which along with the future cash flows generated from our
operations, will be sufficient to meet our capital requirements for the
foreseeable future.
We generated cash from operations of $4 million in fiscal 1997 compared to
$82 million in fiscal 1998 and $307 million in fiscal 1999. For the first nine
months of fiscal 1999, we generated cash from operations of $263 million and
$159 million for the same period in fiscal 2000. For the 1998 and 1999 fiscal
years, the improved cash flow from operations primarily reflects the increase in
net income resulting from increased revenues and gross margins. For the first
nine months of 2000, cash from operations decreased from the same period in the
prior year as a result of increased spending for research and development and
increased working capital needs primarily attributable to accounts receivable.
Capital expenditures for property and equipment constituted our primary use
of cash in investing activities in fiscal 1997, 1998, 1999 and during the first
nine months of fiscal 1999 and 2000. During the first nine months of fiscal
2000, another significant use of cash included QUALCOMM's acquisition of the
Technology Development Group of Tellit Communications Limited, a U.K.-based
company. The initial purchase price of $12 million for the Tellit acquisition
was paid in cash. An additional $9 million in consideration is payable in cash
through March 31, 2001 if specified performance and other milestones are
reached.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for
Derivative Instruments and Hedging Activities." In May 1999, the FASB delayed
the effective date of FAS 133 by one year. We will be required to adopt FAS 133
for fiscal year 2001. This statement establishes a new model for accounting for
derivatives and hedging activities. Under FAS 133, all derivatives must be
recognized as assets and liabilities and measured at fair value. We believe that
the adoption of this new accounting standard will not have a material impact on
our combined 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." We will be
required to adopt FIN 44 effective July 1, 2000 in respect to specific
provisions applicable to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after that date. FIN 44 addresses practice issues related to
the application of Accounting Practice Bulletin Opinion No. 25, "Accounting for
Stock Issued to Employees." We believe that the application of FIN 44 will not
have a material impact on our combined financial position or results of
operation.
YEAR 2000
We completed our assessment of risks associated with Year 2000 complications
as scheduled, including addressing leap year and calendar date calculation
concerns. We believe that we have reduced the possibility of significant
interruptions of normal operations due to Year 2000 complications. As of
July 24, 2000, our products, computing, and communications infrastructure
systems have operated without Year 2000 related problems and appear to be Year
2000 ready. We are not aware that any of our major customers or third party
manufacturers have experienced significant Year 2000 related problems.
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We believe all of our critical systems are Year 2000 ready. However, there
is no guarantee that we have discovered all possible failure points. Specific
factors contributing to this uncertainty include failure to identify all
systems, non-ready third parties whose systems and operations may impact us, and
other similar uncertainties.
Contingency plans are complete and will be implemented if required. Should a
significant problem occur, we would revert to standard manual contingency
procedures to continue operations until the problem is corrected.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Financial instruments held by combined subsidiaries which are not
denominated in the functional currency of those entities are subject to the
effects of currency fluctuations, which may affect reported earnings. We believe
that our exposure to foreign exchange market risk from those instruments is not
material.
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BUSINESS
OVERVIEW
We are the leading developer and supplier worldwide of CDMA integrated
circuits and system software solutions for wireless voice and data
communications products. In addition, according to Dataquest's most recent
analysis, we are the world's largest fabless provider of semiconductor products.
We offer complete system solutions including the following integrated circuits
and software:
- BASEBAND INTEGRATED CIRCUITS. Our MSM and CSM families of baseband
integrated circuits host our system software, control the other components
of our end-to-end system and support features which enable a
multimedia-based wireless Internet user experience.
- RADIO FREQUENCY (RF) AND INTERMEDIATE FREQUENCY (IF) INTEGRATED
CIRCUITS. Our RF and IF integrated circuits are designed to efficiently
operate in conjunction with the other elements of our complete system
solutions to convert incoming radio signals to a frequency usable by our
microprocessors and convert out-going signals back to radio frequency.
- POWER AMPLIFICATION (PA) INTEGRATED CIRCUITS. Our PA integrated circuits
are designed to enable maximum power efficiency in operation with the
other components of our complete solutions in amplifying out-bound radio
frequency signals.
- SYSTEM SOFTWARE. Our system software is designed and optimized for our
CDMA-based integrated circuits to support the wireless communications
functionality as well as the advanced features, such as multimedia-based
wireless Internet access, that our technology enables.
Together, our baseband, RF, IF and PA integrated circuits and system
software form complete system solutions for wireless communications
manufacturers. This approach provides our customers with advanced wireless
technology offering complete component interoperability and integration,
resulting in reduced time to market. In addition to providing the key components
in a wireless system, we work extensively with our customers and provide system
reference designs and development tools to assist in customization of features
and user interfaces, to integrate our solutions with components developed by
others, and to test interoperability with existing and planned networks.
We introduced our first CDMA integrated circuits in 1991 and are currently
developing our sixth, seventh and eighth generation products. To date, we have
shipped system solutions for use in more than 100 million CDMA handsets
worldwide. We provide integrated circuits and system software solutions to many
of the world's leading wireless handset and infrastructure manufacturers,
including:
<TABLE>
<CAPTION>
<S> <C>
Acer Communications & Multimedia, Inc. LM Ericsson Telephone Company
Alps Electric Co., Ltd. Lucent Technologies Inc.
Casio Computer Co., Ltd. Motorola, Inc.
Denso Corporation Nortel Networks Corporation
Fujitsu Limited Samsung Electronics Co., Ltd.
Hitachi Ltd. Sanyo Electric Co., Ltd.
Hyundai Electronics Industries Co., Ltd. Sony Corporation
Kyocera Corporation Telson Electronics Co., Ltd.
LG Information and Communications, Ltd. Toshiba Corporation
</TABLE>
We were established in 1995 as a division of QUALCOMM Incorporated, a
leading provider of digital wireless communications products, technologies and
services that are based on the CDMA technology developed by QUALCOMM. CDMA, used
for digitally transmitting voice and data over a wireless network, has been
adopted as a worldwide standard for digital cellular, PCS and other wireless
systems. CDMA is an advanced technology offering significant benefits over
analog and other earlier digital wireless technologies such as TDMA-based
technologies. These benefits include increased capacity, higher call quality,
fewer dropped calls, enhanced privacy, superior data transmission, lower power
usage, extended talk time, lower infrastructure costs and a much broader overall
feature set.
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In addition to providing complete system solutions to a broad range of
wireless infrastructure and mobile device companies today, we invest heavily in
research and development to both enhance our current offerings and develop
future CDMA applications and products. We are developing products compatible
with multiple wireless technologies, or multi-mode products, to enable world
wide roaming. We also are developing and commercializing 3G wireless
communications technologies to handle the anticipated increase in mobile
Internet usage and wireless multimedia applications, including 1xEV, which
optimizes CDMA for high-speed data transmission. In connection with our
separation from QUALCOMM, we will maintain our own wireless intellectual
property portfolio, and we will license additional intellectual property from
QUALCOMM.
Because QUALCOMM is the pioneer in developing CDMA technology for mobile
networks, and because of our focus on developing CDMA-based integrated circuits
and system software solutions, we believe that both our management and design
teams have more experience in designing, developing and marketing CDMA-based
system software solutions and related products and services for wireless
applications than any other company in the world. Our engineering team consists
of more than 900 engineers, approximately 120 of whom hold Ph.D. degrees. Some
of our engineers were involved in the original development and patenting of
QUALCOMM's CDMA technology in the 1980s, representing an invaluable resource in
our ability to continually develop our technology.
INDUSTRY OVERVIEW
Wireless communications equipment and services have enjoyed tremendous
growth worldwide in both number of subscribers and subscriber usage.
International Data Corporation (IDC) estimates that between 1998 and 2000 the
number of worldwide wireless subscribers increased from approximately
303.5 million to 557.5 million and estimates that there will be approximately
1.1 billion subscribers by the end of 2003. Growth in the market for wireless
communications services has traditionally been fueled by demand for voice
communications. There have been several factors responsible for this increasing
demand, including:
- an increasingly mobile workforce with increased need for wireless voice
communications;
- lower cost of service, including flat-rate and bundled long-distance
calling pricing plans;
- wireless networks becoming the primary telecommunications infrastructure
in developing countries due to the higher costs of and longer time
required for installing wireline networks;
- regulatory environments worldwide favoring increased competition in
wireless communications; and
- increased privacy, call clarity and security of digital networks based on
digital second generation wireless technology standards.
In addition to the tremendous demand for wireless voice services, wireless
service providers are increasingly focused on providing wireless data services,
including wireless access to the Internet and position location services.
According to IDC, the number of Internet users will grow from 144 million at the
end of 1998 to 602 million by 2003, which we expect will result in significant
demand for access to the Internet through wireless networks. We believe wireless
technology standards enabling faster data transmission rates and the
introduction of Internet-enabled handsets will facilitate mobile Internet access
and accelerate the proliferation of Internet use on a global basis. IDC
estimates that by 2003, over 40 million people will have wireless Internet
browsing capabilities, growing from less than 1.2 million in 1998. In addition,
IDC predicts the total value of wireless Internet services, including access
services provided by wireless operators, will increase from $4.3 billion in 1998
to more than $38.1 billion by 2003, representing a compound annual growth rate
of nearly 55%. Critical to the adoption of wireless Internet devices and
services is high-speed data connectivity, which is driving the evolution of
wireless standards. We expect that the spread of high-speed, cost-effective
Internet access
46
<PAGE>
will encourage the development of other remote supervision, position location
and telemetry applications.
THE EVOLUTION OF WIRELESS STANDARDS
The significant growth in wireless penetration worldwide and demand for
enhanced network functionality requires constant innovation to further improve
network reliability, expand capacity and introduce differentiated services. To
meet these requirements, progressive generations of wireless communications
technology standards have been established.
FIRST GENERATION. The first generation wireless communications standard,
widely deployed in the late 1980s, was based on analog technology. While this
generation helped fuel the adoption of wireless communications usage, the
technology is characterized by inherent capacity limitations, minimal data
transfer capabilities, low security, inconsistent service levels and significant
power consumption.
SECOND GENERATION. As the deployment of cellular phone systems grew, the
limitations of analog technology drove the development of second generation,
digital-based technology standards. Second generation digital technology
provides for significantly enhanced efficiency within a broadcast spectrum as
well as greatly increased capacity compared to analog systems. Second generation
technologies also enabled numerous enhanced services, including paging, e-mail
and facsimile, connections to computer networks, greater privacy, lower prices,
a greater number of service options and greater fraud protection. The three main
second generation digital technologies are CDMA, which was developed by
QUALCOMM, TDMA and GSM, a form of TDMA.
CDMA. CDMA technology, developed and patented by QUALCOMM, offers 10 to 20
times the capacity of analog systems and more than three times the capacity of
TDMA-based systems, through more efficient utilization of wireless operators'
licensed spectrum. Since its commercial introduction in late 1995, CDMA has
begun commercial service or is being deployed in more than 35 countries. Some of
the advantages of CDMA technology over both analog and TDMA-based technologies
include:
- ENHANCED VOICE QUALITY. CDMA technology provides significantly greater
voice quality than analog and other digital technologies.
- ENHANCED CALL SECURITY. CDMA transmissions are encrypted, making them
virtually impossible to decipher without having the appropriate code to
retrieve a transmission.
- INCREASED NETWORK CAPACITY. CDMA permits wireless networks to handle a
significantly greater number of calls than other digital technologies,
including TDMA, due in part to its efficient use of spectrum.
- FEWER DROPPED CALLS. While other digital technologies employ an abrupt
handoff of calls as the user travels between base stations or "cells,"
CDMA technology employs "soft handoffs," maintaining multiple connections
to base stations as a user travels between coverage areas.
- COMPATIBILITY WITH INTERNET PROTOCOLS. CDMA technology is more compatible
with Internet protocols than other digital technologies.
THIRD GENERATION TECHNOLOGY. As demand for wireless networks that carry
both data and voice traffic at faster speeds has increased significantly,
several 3G wireless standards have been proposed to the International
Telecommunications Union, the ITU, by a variety of companies and alliances.
These proposals include both CDMA and TDMA-based technologies. The ITU, based in
Geneva, Switzerland, is an international union that determines which technology
or technologies will be established as 3G standards. A technology standard
selected for 3G must efficiently support significantly increased data speeds and
capacity over limited spectrum bandwidth, thereby enabling new and enhanced
services and applications such as mobile e-commerce, position location and
mobile multimedia Web browsing, including music and video downloads.
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CDMA-BASED 3G TECHNOLOGY. A 3G standard encompassing three CDMA wireless
modes is in preparation for adoption by the ITU. These three modes are: (1) two
phases of cdma2000, or Multi-Carrier; (2) WCDMA, or Direct Spread; and (3) Time
Division Duplex. The two phases of cdma2000 are cdma2000 1x and cdma2000 3x.
cdma2000 1x utilizes the same standard 1.25 MHz channel bandwidth as existing
cdmaOne systems and, as a result, is compatible with wireless operators'
existing network equipment. We believe cdma2000 1x provides approximately twice
the voice capacity of cdmaOne and six to eight times that of TDMA-based
networks. Additionally, cdma2000 1x initially provides peak data rates of 144
Kbps, with growth to 384 Kbps planned, longer battery life and position location
functionality in compliance with FCC mandates for emergency 911 calls. One
wireless operator has announced its intention to introduce cdma2000 1x during
2000, and we expect widespread deployment among wireless operators upgrading
their cdmaOne networks in 2001, making cdma2000 1x the first 3G technology to be
commercially deployed. cdma2000 3x is designed to support peak data rates of up
to 2 Mbps.
In addition, QUALCOMM's High Data Rate technology, or 1xEV, is currently
being considered by the ITU for inclusion in the cdma2000 mode of the 3G
standard. 1xEV supports peak data rates of 2.4 Mbps per second and uses the same
standard 1.25 MHz channel bandwith as existing cdmaOne systems. As a result,
1xEV is compatible with wireless operators' existing cdmaOne network equipment.
Despite operating in the standard 1.25 MHz bandwidth, 1xEV supports higher data
rates than WCDMA, which uses the 5 MHz bandwidth.
DEMAND FOR COMPLETE SYSTEM SOLUTIONS FOR WIRELESS APPLICATIONS
Strong demand for wireless services is leading to increased demand for
integrated circuits and system software solutions that enable mobile devices and
network infrastructure equipment. The highly competitive environment has led
many of these service providers to subsidize the sale of enhanced features in
handsets and invest in network infrastructure equipment to facilitate service
differentiation. This trend is shortening the product lifecycle for handsets and
accelerating investment in network infrastructure. We believe more frequent
replacement and upgrading of handsets will increase handset production volumes
for the vendors who are first to offer new features, functionality and design.
The increased time constraints on product rollout and delivery can place a
significant strain on the in-house engineering teams of equipment manufacturers,
or OEMs, as they accelerate their time to market for new infrastructure and
subscriber equipment. As a result of the technical rigors of equipment design
and the complexity of the enhanced features, OEMs of subscriber handsets are
finding it increasingly difficult to develop, supply and integrate all the
required components in a timely and cost-effective manner. This difficulty of
performing all significant engineering internally has caused some OEMs to rely
increasingly on third party value-added technology providers that have the
component and systems level expertise to design and supply these solutions.
The transition to 3G technology standards and the requirements for
compatability between generations of wireless technology is likely to accelerate
this outsourcing trend as those OEMs with limited expertise in CDMA seek to
access the most complete system solutions to enable timely product launches. We
believe that a strategic focus on integrated circuit and system software design
is necessary to facilitate superior execution and provides for the achievement
of better feature sets than OEM in-house solutions. Moreover, we believe the
competitive landscape in wireless equipment compels OEMs to avoid the risk of
being disadvantaged by limited access to the latest generation features and
functionality and to seek such solutions through outsourcing rather than
in-house development. These trends are increasingly leading OEMs to outsource
semiconductor and system content in their handsets and base stations to third
party solutions providers.
48
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REQUIREMENTS FOR WIRELESS SYSTEM SOLUTIONS
Beyond providing state-of-the-art technology for OEMs, we believe a complete
system solutions provider must also:
- provide complete integrated circuits and system software solutions with
assured interoperability to support the increasing complexity of wireless
technology;
- integrate key additional feature sets in the overall solution for optimal
performance;
- provide customized products and services for OEMs and deliver on time to
meet critical time to market requirements;
- provide seamless compatibility with both legacy and future systems and
technology, enabling rapid product evolution; and
- develop strong customer relationships and provide a track record of
technology innovation and technological excellence in designing solutions.
THE SPINCO SOLUTION
We offer equipment manufacturers a full system solution, incorporating
integrated circuits, software, reference designs, features, tools, and technical
support. The key strengths of our solution are:
- THE INDUSTRY'S MOST ADVANCED CDMA SOLUTION. We have the most widely
utilized integrated circuits and system software solutions for the CDMA
marketplace. We believe this is due to our product leadership in terms of
component integration, low power usage, and broad feature sets. Our
solutions combine baseband integrated circuits with IF and RF
capabilities, proprietary software protocol stacks, and system design
tools. Our highly integrated, complete solutions deliver high
functionality in a cost-effective manner to wireless equipment
manufacturers. We incorporate many features in our solutions, including
leading technologies for position location, multimedia capabilities,
device connectivity, voice recognition and peripheral memory devices.
- A PRODUCT AND TECHNOLOGY ROADMAP TO ADDRESS THE EMERGING NEEDS OF THE
WIRELESS COMMUNICATIONS INDUSTRY. We have applied our capabilities and
experiences, along with our customer relationships, to develop a roadmap
for designing future integrated circuits and system software solutions
that will meet the requirements of next generation wireless
communications, specifically 3G. We are a leader in developing solutions
that meet the requirements of equipment manufacturers and wireless
carriers and help drive industry standards for the delivery of high-speed
wireless data access.
- A PROVEN TRACK RECORD OF SUCCESS IN THE WIRELESS SEMICONDUCTOR MARKET. We
provide the only CDMA-based integrated circuits and system software
solutions that have been successfully deployed in all CDMA marketplaces
worldwide. We have an established record of delivering on-time solutions
to our customers, thereby enabling them to meet critical time to market
requirements. We deliver to our worldwide customer base strong customer
service and the ability to deliver high-volume production of our
integrated circuits and system software solutions.
- A COMPLETE PROVIDER OF END-TO-END SOLUTIONS. We deliver leading integrated
circuits and system software solutions for both the wireless handset and
base station markets. This end-to-end capability enables us to understand
the complete market for wireless communications equipment and more rapidly
introduce new technological innovations to that market.
- THE WORLD'S MOST EXPERIENCED TEAM OF CDMA ENGINEERS. We have had a
continuous presence as a leader of the wireless communications industry
and have been a pioneer in the development and commercialization of CDMA.
Our team of engineers has been developing CDMA-based solutions for the
wireless communications industry for over ten years and continues to
enhance our existing technologies to meet the future requirements of the
industry.
49
<PAGE>
- A COMPREHENSIVE SUPPORT ORGANIZATION. We help significantly reduce our
customers' design cycles by providing assistance in the design and testing
of their products for full network compliance through a fully dedicated
customer support organization.
STRATEGY
Our objective is to extend our leadership position in providing integrated
circuits and system software solutions for the worldwide wireless communications
market. Key elements of our strategy include the following:
- EXTEND OUR LEADING POSITION AS A COMPLETE, END-TO-END CDMA SYSTEM
SOLUTIONS PROVIDER. We plan to invest heavily in research and development
initiatives focused on extending our leadership position in the market for
wireless communications products using CDMA technology. We have a broad
and unique expertise in designing and developing CDMA-based integrated
circuits, as well as the software, reference designs and tools and
providing technical support required to create a complete CDMA system
solution. We believe that our ability to deliver complete solutions to our
customers in both the handset and base station markets will strengthen our
competitive advantage over other providers of wireless communications
integrated circuits. We plan to further integrate additional components
and functionality into a single integrated circuit to help our customers
reduce product costs and size and to simplify customers' design processes.
In addition, we will continue to provide high quality support to enable
our customers to reduce their design cycles and meet their time to market
objectives.
- CAPITALIZE ON THE GROWING DEMAND FOR HIGH-SPEED WIRELESS DATA AND INTERNET
ACCESS. We intend to be the technology leader in the market for high-speed
wireless data and Internet access. We are devoting significant research
and development resources toward innovations in this area, including
efforts relating to the 3G standard and 1xEV. We believe that high-speed
data transmission offers significant growth opportunities in the wireless
industry, which will enable our customers to integrate new features such
as Internet access and advanced multimedia capabilities into new products.
We believe that we are the leading developer of solutions for this growing
market, evidenced by our field demonstrations of high-speed mobile data
capabilities.
- EXPAND THE CAPABILITIES AND REACH OF OUR WIRELESS COMMUNICATIONS
TECHNOLOGY. As new wireless communications standards and other
technologies emerge, we will continue to augment and broaden our existing
capabilities into additional wireless technologies and applications. We
are currently developing integrated circuit solutions that incorporate
multiple wireless operating standards, including multiple modes of 3G CDMA
and GSM, on a single integrated circuit. We also intend to enhance our
integrated circuits and system software by integrating new product
features, including position location, multimedia capabilities, device
connectivity, voice recognition, and peripheral memory devices. We intend
to continue to pursue acquisitions and strategic relationships with
companies that possess industry-leading capabilities in each of these
emerging areas. We intend to extend the reach of wireless technology with
our integrated circuits and system software solutions for new applications
such as wireless notebook computers, personal digital assistants, and
remote monitoring systems.
- CONTINUE TO DRIVE INDUSTRY STANDARDS FOR WIRELESS COMMUNICATIONS. We
intend to maintain our leading role in the formulation of standards for
the wireless communications industry. We believe that this provides us
with significant benefits, including accelerating and expanding the
development of markets for our products and services, encouraging market
participants to develop products and services based on a common set of
standards, and gaining valuable insight that allows us to be early to
market with products incorporating the latest wireless communications
standards. We will continue to develop integrated circuits and system
software that support the leading industry standards including both phases
of cdma2000, 1xEV and WCDMA, and promote technology innovations that will
help drive future industry standards. In
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addition, we intend to work closely with other leading industry
participants, including QUALCOMM, and government organizations to develop
these standards.
TECHNOLOGY
Through our master intellectual property assignment and license agreement,
QUALCOMM will assign to us design patents and specific utility patents that
pertain solely to our products, as well as a portion of QUALCOMM's other patents
that are essential to practice second and third generation CDMA wireless
standards and patents that cover valuable product features. QUALCOMM also will
assign to us its rights in the copyrights, trademarks, service marks and trade
names related to our business, as well as designs for integrated circuits and
related software and firmware. While QUALCOMM will retain licenses to use the
technology it assigns to us, we believe this arrangement provides us with
sufficient access to the intellectual property we believe is most important to
our business. For more information regarding our licensing arrangements with
QUALCOMM, see "Arrangements between Spinco and QUALCOMM--Master Intellectual
Property Assignment and License Agreement."
We have significant expertise in CDMA technology, including over 900
engineers. Our insight into the evolution of CDMA technology has allowed us to
develop clear product and technology migration paths for our customers. Our
active participation in the development of new CDMA-based technology and the
formation of wireless communications industry standards allows us to drive,
rather than react to, advances in technology.
We approach the development of our solutions as an equipment systems,
engineering and technology company rather than as a traditional semiconductor
company, and seek to provide complete, end-to-end integrated circuit and system
software solutions. Our pioneering work in developing system software, for
example, has allowed us to add value to our integrated circuit products by
combining and optimizing integrated circuits with system software solutions. In
addition, unlike many technology providers who only provide laboratory-level
product testing, we rigorously field test our products on multiple wireless
networks throughout the world using our own prototype handsets and equipment.
Our integrated circuits and system software solutions implement the
following technologies:
- CDMAONE. cdmaOne, our current implementation of the CDMA technology
developed by QUALCOMM, was adopted as a North American industry standard,
or IS-95, in July 1993 by the Telecommunications Industry Association. We
currently support both IS-95A, a second generation standard with data
rates up to 1.4 Kbps, and IS-95B, a standard now deployed in Korea and
Japan which supports data rates up to 64 Kbps.
- CDMA-BASED 3G STANDARDS. As a result of the benefits of CDMA, we expect
that the most widely deployed 3G standard will be based on CDMA
technology. The 3G standard will have three modes of operation:
Multi-Carrier, Direct Spread and Time Division Duplex. Multi-Carrier mode
is also known as cdma2000 and Direct Spread is also known as WCDMA. The
three CDMA modes of the 3G standard are designed to operate with the
Internet and on both of the dominant telecommunications network standards
in use today, while offering significantly greater capacity than non-CDMA
digital standards and delivering multiple simultaneous services combining
wireless voice, data, video and Internet access. The 3G systems are
designed to provide data rates of up to 2.0 Mbps. We believe our CDMA
expertise has given us a significant time to market advantage in
developing 3G integrated circuit and system software solutions. We have
strategically focused on developing products for the cdma2000 and WCDMA
modes.
- HIGH DATA RATE (1XEV). 1xEV technology is designed to supply reliable,
always-on and cost-effective wireless Internet access to consumers. It is
fully compatible with existing cdmaOne and 3G cdma2000 mode technologies,
and is being standardized as part of the cdma2000 mode of the 3G standard.
We expect 1xEV technology to be competitive with fixed-site Digital
Subscriber Line and cable modem solutions in terms of speed, while
additionally providing
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mobile access. 1xEV's versatility allows the technology to be embedded in
handsets, laptop and handheld computers, and other fixed, portable and
mobile devices, enabling manufacturers to deliver products with access to
services that were previously only available through wired connections to
the Internet or enterprise networks. 1xEV provides a 2.4 Mbps peak data
rate while using a minimal amount of wireless operators' licensed
spectrum, and like existing cdmaOne networks, 1xEV operates within a
standard 1.25 MHz channel bandwidth. As a complementary solution to voice
networks utilizing operators' existing cell sites, towers, antennas and
network equipment, 1xEV technology allows operators to leverage their
current infrastructure investment and maintain backwards compatibility
with existing subscriber equipment. We are designing and developing a
family of integrated circuits and system software solutions to support
1xEV deployment in cdmaOne and 3G networks.
- POSITION LOCATION TECHNOLOGY. The FCC has mandated that beginning in
March 2001, wireless service operators must support automatic location
identification for emergency 911 calls. In October 1999, we announced our
baseband integrated circuits and system software solutions featuring
integrated support for wireless position location technology, called
gpsOne. The gpsOne solution uses a hybrid technique that combines
information from Global Positioning Systems (GPS) satellites,
U.S. government-owned satellites that provide position location
information, and CDMA terrestrial networks. By taking advantage of the
measurements provided by chosen CDMA base stations and GPS satellites as
available, future integrated circuits and system software solutions will
provide enhanced location services, accelerate the location determination
process and provide better accuracy for callers in emergency situations.
PRODUCTS
We offer equipment manufacturers integrated solutions including integrated
circuits, system and applications software, reference designs, tools, and
technical support. Our system software allows the handset to operate under
wireless standards such as CDMA, and supports our enhanced feature set. Our
system software is hosted in our baseband integrated circuits which provide the
processing capabilities of the wireless device through microprocessors optimized
for digital wireless voice and data communications. Our baseband integrated
circuits are optimized to support our enhanced feature set which enables a rich
multi-media-based wireless Internet user experience. Our baseband integrated
circuits and system software control the other components of our end-to-end
solution. Our RF and IF integrated circuits convert incoming radio signals to a
frequency usable by our microprocessors and convert out-going signals back to
radio frequency. After conversion to radio frequency, the out-bound signal is
powered for transmission to its destination through our PA integrated circuits.
Together our system software and baseband, RF, IF and PA integrated circuit
products form complete integrated circuit and system software solutions for
wireless handset manufacturers. For wireless infrastructure manufacturers, we
offer baseband integrated circuit and system software solutions which provide
wireless standards-compliant processing of voice and data signals to and from
wireless handsets. We also provide reference designs and system design tools
that assist manufacturers to customize their product features and user
interface, integrate our solution with other components the manufacturer
incorporates into their product, test interoperability with standardized CDMA
networks and rapidly debug the product.
INTEGRATED CIRCUITS AND SYSTEM SOFTWARE SOLUTIONS
We provide integrated circuits and system software solutions that include
highly integrated hardware, software and system support for cdmaOne and 3G
wireless applications. We provide solutions for subscriber equipment as well as
infrastructure and test equipment. We provide both system software for radio and
call processing in addition to feature and application software options in a
comprehensive software product offering.
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Our system software solutions are tied to specific baseband integrated
circuit products and perform call processing, peripheral and memory management,
operating system and other system related functions. We also provide application
programming interfaces on top of these functions for easy integration of our
customers' own proprietary code with our system software. The system software is
released in several phases with increased functionality in each new phase,
allowing our baseband products to be enhanced with new functionality. Our
commercial system software releases are thoroughly tested both in our CDMA
laboratories and in networks throughout the world to provide robust stability
and ease of integration into network compliant commercial products.
Through application software, we deliver many features and functions on top
of our system software which we include in our standard system software or sell
separately. These functions are designed to enhance the wireless user's
experience, particularly for wireless Internet applications, and to allow our
customers to design products that are highly customized to meet the variety of
features needed to meet the requirements of multiple end-user markets. We also
provide a default graphical user interface to serve as a starting point for
design. A number of these features which we view as essential to providing
wireless Internet users with an optimal user experience are collectively
referred to as our Wireless Internet Launchpad. Our current and planned
integrated circuit and system software solutions each implement various subsets
of the Wireless Internet Launchpad functionality. This functionality includes:
- MULTIMEDIA. MP3 audio software player for near CD-quality sound; support
for MPEG-4, a protocol for video files; a MIDI music synthesizer; and
support for Compact Media Extensions for simultaneous streaming of music,
graphics, text and audio for Internet-based multi-media applications.
- CONNECTIVITY. A high data rate link for high-speed synchronization
between devices, known as Universal Serial Bus; short distance radio links
for device communication under the Bluetooth standard; e-mail attachments;
support for standard Internet protocols; and a micro-browser interface.
- USER INTERFACE. Voice recognition capabilities including
speaker-dependent speech recognition, speaker-independent control words,
voice memo and speech prompting; an answering machine; and support for LCD
and color LCD screens.
- POSITION LOCATION. Integrated gpsOne and SnapTrack position location
technology for the most accurate location functionality.
- STORAGE. Porting for external data storage devices such as memory cards.
We are currently shipping our MSM3000, MSM5000 and MSM3100 products. In
addition, we are developing our sixth, seventh and eighth generation of
integrated circuit and system software solutions to support a single worldwide
CDMA standard for 3G systems. The following table summarizes the most current
and future generations of our baseband integrated circuits:
[INSERTED IS A GRAPHIC DEPICTING OUR BASEBAND INTEGRATED CIRCUIT PRODUCT
MIGRATION PATH FROM OUR 5TH TO OUR 8TH GENERATION BASEBAND INTEGRATED CIRCUITS.
THE TABLE ADDITIONALLY SHOWS THE COMPATIBILITY BETWEEN OUR VARIOUS BASEBAND
INTEGRATED CIRCUITS WITHIN EACH GENERATION OF PRODUCTS. ON THE LEFT SIDE OF THE
GRAPHIC IS THE HEADER "5TH GENERATION." INCLUDED IN THE 5TH GENERATION OF
PRODUCTS ARE THE MSM3000 AND MSM5000, EACH REPRESENTED BY AN INTEGRATED CIRCUIT
GRAPHIC. IN THE CENTER LEFT OF THE GRAPHIC IS THE HEADER "6TH GENERATION."
INCLUDED IN THE 6TH GENERATION OF PRODUCTS ARE THE MSM3100, MSM3300, MSM5100 AND
MSM5500, EACH REPRESENTED BY AN INTEGRATED CIRCUIT GRAPHIC. IN THE CENTER RIGHT
OF THE GRAPHIC IS THE HEADER "7TH GENERATION." INCLUDED IN THE 7TH GENERATION OF
PRODUCTS ARE THE MSM5110 AND THE MSM5200, EACH REPRESENTED BY AN INTEGRATED
CIRCUIT GRAPHIC. ON THE RIGHT SIDE OF THE GRAPHIC IS THE HEADER "8TH
GENERATION." THERE IS AN ADDITIONAL GRAPHIC WHICH REPRESENTS OUR 8TH GENERATION
OF PRODUCTS, WITH A LEGEND DESCRIBING THEIR ANTICIPATED FUNCTIONALITY.]
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OUR SUBSCRIBER INTEGRATED CIRCUIT SOLUTIONS
The following table summarizes recent current and future generations of our
subscriber equipment integrated circuit solutions, which comprise complete
solutions of baseband, IF, RF and PA integrated circuits and system software.
Each generation realizes a significant increase in integration, reducing the
number of components and allowing smaller printed circuit board area, enhanced
features and faster data rates.
[INSERTED IS A GRAPHIC DEPICTING OUR 5TH THROUGH 8TH GENERATION SUBSCRIBER
EQUIPMENT INTEGRATED CIRCUIT SOLUTIONS. EACH INTEGRATED CIRCUIT GRAPHIC INCLUDES
EACH COMPONENT THAT GOES INTO A COMPLETE WIRELESS HANDSET CIRCUIT BOARD BASED ON
EACH OF OUR 5TH THROUGH 8TH GENERATION INTEGRATED CIRCUIT SOLUTIONS. THOSE
COMPONENTS SUPPLIED BY US IN THE CIRCUIT BOARD ARE HIGHLIGHTED IN BLACK. EACH
THIRD PARTY COMPONENT IS DESCRIBED AND EACH OF OUR COMPONENTS IS LABELED BY
NAME. ALONG THE RIGHT SIDE OF EACH CIRCUIT BOARD GRAPHIC IS THE TOTAL NUMBER OF
INTEGRATED CIRCUITS INCLUDED IN THE BOARD. THE 5TH GENERATION INTEGRATED CIRCUIT
SOLUTION INCLUDES OUR MSM3000/MSM5000, IFT3000 AND IFR3000 AND A TOTAL OF
11 INTEGRATED CIRCUITS, 8 OF WHICH ARE NOT OUR PRODUCTS. THE 6TH GENERATION
INTEGRATED CIRCUIT SOLUTION INCLUDES OUR MSM3100/MSM3300/MSM5100/MSM4100,
RFT3100, PA3100, IFR3000 AND RFR3100/RFR3300 AND A TOTAL OF 8 INTEGRATED
CIRCUITS, 3 OF WHICH ARE NOT OUR PRODUCTS. THE 7TH GENERATION INTEGRATED CIRCUIT
SOLUTION INCLUDES OUR MSM5110/MSM5200/MSM5500, RFT5100, PA5100, IFR3100/IFR3300,
AND RFR3100/RFR3300 AND A TOTAL OF 7 INTEGRATED CIRCUITS, 2 OF WHICH ARE NOT OUR
PRODUCTS. THERE IS A FOOTNOTE INDICATING THAT OUR 8TH GENERATION INTEGRATED
CIRCUIT SOLUTION IS NOT DEPICTED.]
FIFTH GENERATION ARCHITECTURE INTEGRATED CIRCUIT AND SYSTEM SOFTWARE SOLUTIONS
Our fifth generation integrated circuit and system software solutions are
based on the following baseband semiconductors:
- MSM3000. We began shipping our MSM3000 in January 1999. The MSM3000
features data rates up to 86.4 Kbps, faster than standard fixed line modem
speeds, a microprocessor architecture optimized for high-speed data
services and advanced power control for improved battery life. These
features enable operators to deploy a suite of data services, called High
Speed Packet Data or HSPD, including rapid mobile access to databases,
e-mail and the Internet. To date, eight CDMA handset manufacturers have
begun volume shipments of handsets and another 21 manufacturers are
designing products based on the MSM3000 integrated circuits and system
software solutions. HSPD services have been commercially available in
South Korea since September 1999 and in Japan since January 2000.
- MSM5000. We began shipments of our MSM5000 for trial systems in June
2000. The MSM5000 integrated circuit and system software solution is the
world's first semiconductor and software solution for 3G CDMA standards.
The MSM5000 digital baseband solution is designed to support cdma2000 1x
for operation in a single 1.25 MHz channel. Some 3G standards networks
will use all of a wireless operator's spectrum for operation, precluding
compatibility with cdmaOne. Our implementation of cdma2000 1x is fully
compatible with current cdmaOne networks, allowing operators to deploy 3G
networks while maintaining existing coverage for all subscribers and to
forego the expense of providing 3G handsets to their existing subscriber
base. We believe cdma 2000 1x offers the most capital efficient migration
path from existing networks to the complete implementation of 3G
standards. cdma2000 1x provides operators up to twice the overall voice
network capacity of existing cdmaOne networks. Additionally, the MSM5000
features peak data rates of 144 Kbps and provides up to a 50 percent
increase in handset standby time. Moreover, the MSM5000 is compatible with
the MSM3000, allowing manufacturers currently producing handsets using the
MSM3000 to rapidly implement 3G cdma2000 1x subscriber equipment. The
MSM5000 is currently being used in U.S. trials together with our CSM5000
base station integrated circuit and system software solutions.
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In our fifth generation solutions, the baseband semiconductor interoperates
with the IFR3000, IFT3000 and IF/RF semiconductors. The IFR3000 converts
received intermediate frequency signals to baseband frequency signals. The
IFT3000 converts outgoing baseband signals to intermediate frequency signals.
Both the IFR3000 and IFT3000 support dual-mode analog cellular and CDMA
operation.
SIXTH GENERATION ARCHITECTURE INTEGRATED CIRCUIT AND SYSTEM SOFTWARE SOLUTIONS
Our sixth generation integrated circuit and system software solutions are
based on the following baseband semiconductors:
- MSM3100. We commenced shipping the MSM3100 in September 1999. This
integrated circuit features an increased level of integration of discrete
components compared to the MSM3000, allowing a 50 percent reduction of the
printed circuit board area and up to 300 hours of standby time. This
enables manufacturers to quickly design very small, feature-rich handsets
with longer standby times and support for higher data rate services. The
MSM3100 integrated circuit also adds support for new high-performance
voice and data processing features including Universal Serial Bus
interface, speaker phone and advanced speaker-independent voice
recognition functionality. In December 1999, we shipped our new tri-mode
software for use with the MSM3100 solution, which supports cellular and
PCS cdmaOne in a single handset.
- MSM3300. The MSM3300 will allow the design of a new generation of
industry-leading CDMA handsets and data communication devices, allowing
these devices to realize their potential as multi-media entertainment and
information devices. The MSM3300 will enable a host of new functions
including:
- position location, allowing location-based commercial and emergency
services using our breakthrough combined satellite and
network-based gpsOne and SnapTrack technology which can locate a
phone user with an accuracy of 5 meters outdoors and 30 meters
indoors;
- Bluetooth, a global standard for wireless connectivity, which
allows replacement of various proprietary cables for connecting
devices with a universal short-range radio link;
- MP3 audio software player for near CD-quality sound;
- support for e-mail voice attachment;
- MIDI music synthesizer with support for 128 instrument sounds;
- Compact Media Extensions for simultaneous streaming of MIDI,
graphics, text and audio for multi-media Internet applications;
- support for external memory storage cards for music and data
download; and
- a new advanced digital sound processor enabling integration of the
new features at very low power consumption.
The MSM3300 will be a mixed signal integrated circuit capable of both
digital and analog signal processing functions. The MSM3300 will be
compatible with the MSM3100 integrated circuit, allowing our customers to
easily upgrade from the MSM3100 to the MSM3300.
- MSM5100. Our MSM5100 will be a multi-media solution for 3G cdma2000 1x
technology. The MSM5100 will be designed to possess the same advanced
feature set of the MSM3300 and also will be compatible with the MSM3300,
enabling very fast design of full function 3G multi-media subscriber
units.
- MSP1000. Our MSP1000 solution will be capable of performing the functions
associated with personal digital assistant (PDA) applications and will be
intended for either stand-alone PDA
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implementations or as a companion processor to a variety of our other MSM
integrated circuits. The MSP1000 will be part of our complete wireless
Internet solution and will complement our Wireless Internet Launchpad
suite, which enables a broad range of new terminal products, applications
and Internet services, including advanced multimedia, connectivity,
position location, user interface and removable storage functionality.
- IMSM4100. Our iMSM4100 solution will feature dual central processing
units capable of processing computation and memory intensive applications
and will be targeted at the wireless handheld computing market. We believe
the dedication of a single complete microprocessor and greater memory to
multi-media applications will facilitate a greatly optimized solution for
high-end devices in terms of size, power and capability. The iMSM4100 will
support a large number of operating systems, including Windows CE and
Symbian, as well as Java applications.
In our sixth generation solution, the baseband semiconductor hardware
interoperates with the RFR3100 or RFR3300, IFR3300, RFT3100 and PA3100
integrated circuit set. The RFR3100 and RFR3300 converts received radio
frequency signals to intermediate frequency. The RFR3100 is dual-band capable,
operating in either cellular or PCS frequencies. The RFR3300 is tri-band
capable, operating in cellular, PCS and GPS frequencies. The IFR3300 converts
intermediate frequency signals to baseband frequency signals as well as GPS band
signals to baseband signals. The IFR3300 supports dual-mode analog cellular and
cdmaOne operation along with GPS signals. The RFT3100 converts outgoing baseband
signals to radio frequency signals and is dual-band capable, operating in either
cellular or PCS frequencies. The PA3100 comes in cellular and PCS versions and
provides power amplification in a very low-power mode of operation, providing
the handset with extended talk time.
SEVENTH GENERATION ARCHITECTURE INTEGRATED CIRCUIT AND SYSTEM SOFTWARE SOLUTIONS
Our seventh generation integrated circuit and system software solutions will
be based on the following baseband semiconductors:
- MSM5110. Our MSM5110 will be a dual-mode solution that integrates 3G
cdma2000 1x and 3x. This solution will provide the benefits of 3G CDMA,
doubling wireless network voice capacity compared to cdmaOne networks.
- MSM5200. Our MSM5200 solution will use the 3G WCDMA mode.
- IMSM5500. Our iMSM5500 will be a multi-mode solution that will integrate
3G cdma2000 1x, 1xEV, and 3x standards. This solution will provide the
benefits of 3G CDMA, doubling wireless network voice capacity relative to
cdmaOne networks, while providing the 2.4 Mbps speed of 1xEV to fully
realize the convergence of the Internet and wireless technologies and
services.
In our seventh generation solution, the baseband semiconductor will
interoperate with the RFR3100, IFR3300, RFT5100 and PA5100 semiconductors. The
RFR3100 will convert radio frequency signals to intermediate frequency and is
designed to be dual-band capable, operating in either cellular or PCS
frequencies. The IFR3300 converts intermediate frequency signals to baseband
frequency signals as well as GPS band signals to baseband signals and supports
dual-mode analog cellular and CDMA operation. The RFT3100 converts baseband
signals to radio frequency signals. The RFT5100 is dual-band capable, operating
in either cellular or PCS frequencies. The PA5100 provides power amplification
in a very low-power mode of operation, providing the handset with extended talk
time. The PA5100 comes in a cellular and PCS band version.
EIGHTH GENERATION ARCHITECTURE INTEGRATED CIRCUIT AND SYSTEM SOFTWARE SOLUTIONS
We are designing and developing our eighth generation of integrated circuits
and system software solutions. Our eighth generation solutions will be capable
of multi-mode, multi-band 3G CDMA and IS-95 operation in a single fully
integrated solution. We also expect that our eighth generation solutions
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will support GSM operation. We expect the integrated circuits to support
worldwide product use and more extensive feature sets.
INFRASTRUCTURE AND TEST EQUIPMENT SOLUTIONS
- CSM2000. Our CSM2000 integrated circuit is used for cdmaOne
infrastructure and test equipment. The CSM2000 is a multiple-channel,
digital baseband integrated circuit, capable of supporting up to eight
forward link channels and eight reverse link channels. Each channel
element performs searching, modulation, demodulation and Viterbi decoding.
The channel elements are chained together internally, which allows CDMA
infrastructure manufacturers who use the CSM2000 to benefit from having
only one set of transmit outputs and a reduction in the drive power
required per channel.
- CSM5000. The CSM5000 integrated circuit will be used for cdma2000 1x
infrastructure and test equipment. The integrated circuit is based on a
new architecture integrating a microprocessor for reverse link processing.
Each channel element performs searching, modulation and demodulation and
Viterbi and Turbo decoding. The CSM5000 provides capacity for up to 32
simultaneous calls on a single integrated circuit, allowing up to 64
forward link channels and 32 reverse link channels. The CSM5000 will allow
for an increase in the number of possible calls per channel card and a
significant decrease in channel card power consumption per call. This
increase in integration and reduction in power consumption will allow for
the design of significantly smaller and more versatile base station and
test equipment and reduce the overall cost of deploying 3G cdma2000 1x
networks.
RESEARCH AND DEVELOPMENT
The wireless communications industry is characterized by rapid technological
change, requiring a continuous effort to enhance existing products and develop
new products and technologies. Our success will depend to a substantial degree
upon our ability to develop and introduce in a timely fashion new products and
enhancements to our existing products that meet changing customer requirements
and emerging industry standards.
We maintain a substantial program of research and product development. As of
July 19, 2000, our research and development staff consisted of over 900
engineers, approximately 120 of whom hold Ph.D. degrees. Our research and
development expenditures in fiscal years 1997, 1998 and 1999 totaled
approximately $24 million, $56 million and $128 million, respectively. Most of
these expenditures are related to the development of CDMA technology for
wireless applications, including salaries and related costs of employees engaged
in ongoing research, design and development activities. We maintain our research
and development activities primarily at our facilities in San Diego, California,
Boulder, Colorado and Campbell, California. We are seeking to hire additional
skilled development engineers. We intend to continue to maintain a substantial
research and development program.
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CUSTOMERS AND STRATEGIC RELATIONSHIPS
We supply integrated circuits to the world's leading CDMA handset and
infrastructure manufacturers, including:
<TABLE>
<S> <C>
Acer Communications & Multimedia, Inc. LM Ericsson Telephone Company
Alps Electric Co., Ltd. Lucent Technologies Inc.
Casio Computer Co., Ltd. Motorola, Inc.
Denso Corporation Nortel Networks Corporation
Fujitsu Limited Samsung Electronics Co., Ltd.
Hitachi Ltd. Sanyo Electric Co., Ltd.
Hyundai Electronics Industries Co., Ltd. Sony Corporation
Kyocera Corporation Telson Electronics Co., Ltd.
LG Information and Communications, Ltd. Toshiba Corporation
</TABLE>
We have an ongoing commitment to the evolution and expansion of our
technologies and products through strategic partnerships and alliances. These
partnerships and alliances are designed to ensure product leadership and
competitive advantages in the marketplace. Our partnerships and alliances
include the following:
- LUCENT TECHNOLOGIES. A collaboration on 3G wireless data technology,
including the first over-the-air data calls using cdma2000 1x technology;
- SYMBIAN. A joint effort to promote the interoperability of Symbian-based
wireless information devices using our CDMA integrated circuits and system
software solutions;
- RF MICRO DEVICES. An alliance to provide advanced power amplifiers for
the CDMA market; and
- ERICSSON. A joint development and marketing effort related to wireless
technology solutions supporting the Bluetooth and CDMA standards.
SALES AND MARKETING
We market and sell our products in the United States through a direct sales
force based in San Diego, California, and internationally through a direct sales
force based in Seoul, South Korea, Tokyo, Japan, Beijing, China and Munich,
Germany. We currently have approximately 85 sales and marketing personnel. Our
sales and marketing strategy is to achieve design wins with technology leaders
in our targeted markets by, among other things, providing superior field
application and engineering support. We dedicate sales managers to principal
customers to promote close cooperation and communication.
MANUFACTURING
We currently outsource all of the manufacturing of our products to several
leading independent foundries on a turnkey basis, with our suppliers delivering
fully assembled and tested products based on our proprietary designs. The use of
this fabless model allows us to focus our resources on designing, verifying and
selling integrated circuit and system software solutions where we believe we
have a greater competitive advantage. This strategy also allows us to rapidly
adapt to meet our customers' needs and changes in the marketplace, and to avoid
large investments required to own and operate a semiconductor wafer fabrication
facility.
Our fabrication suppliers currently include IBM, Taiwan Semiconductor
Manufacturing Company and others. Through collaboration with these suppliers and
our own internal dedicated foundry engineering team, we have been able to
deliver products with a high level of quality and reliability. Current process
technologies in production or design include 0.25 micron and 0.18 micron CMOS
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technology for digital baseband devices, BiCMOS technologies for mixed signal
analog devices and Silicon Germanium (SiGe) technology for certain RF analog
devices.
We rely on our foundry suppliers and their subcontractors for substantially
all of our manufacturing, assembly and testing requirements. All of our foundry
suppliers produce products for other companies. Our foundry suppliers are not
obligated to supply products to us for any specific period or in any specific
quantity, except as may be provided in a particular purchase order that has been
accepted by one of our subcontract manufacturers. We seek to use more than one
independent foundry to manufacture each of our high volume products, which
allows us to mitigate manufacturing quality and capacity risks and provides us
with leverage to control our production costs.
ASSEMBLY AND TEST. We rely on our semiconductor foundry suppliers for
turnkey production, which includes subcontracting and management of all assembly
and test of semiconductor devices to our design specifications. Our in-house
foundry and quality engineering groups conduct qualification, oversight and
auditing of assembly and test services. Our assembly subcontractors include
Anam/ Amkor, ChipPAC and others. While we have not experienced any material
disruption in supply from assembly subcontractors to date, we could experience
assembly problems in the future in the event any of our assembly or test
subcontractors experiences financial difficulty, capacity shortage or damage or
destruction to its facilities.
QUALITY ASSURANCE. The wireless telecommunications industry demands
high-quality and reliable semiconductors for use in equipment. We focus on
product reliability from the initial stage of the design cycle through each
specific design process, including layout and production test design. We also
subject our designs to in-depth circuit simulation at temperature, voltage and
processing extremes before initiating the manufacturing process.
In addition, we prequalify each of our foundry and assembly subcontractors.
This prequalification process consists of a detailed technical review of process
performance, design rules, process models, tools and support, as well as an
on-site audit and analysis of the subcontractor's quality system and
manufacturing capability. We also participate in quality and reliability
monitoring through each stage of the production cycle by reviewing electrical
and parametric data from our wafer foundry and assembly subcontractors. We
closely monitor wafer foundry production to ensure consistent overall quality,
reliability and yield levels.
COMPETITION
The wireless communications industry in general and the markets in which we
compete in particular are intensively competitive. We compete worldwide with a
number of United States and international manufacturers that are both larger and
smaller than us in terms of resources and market share. As a result of the trend
toward global expansion by foreign and domestic competitors, technological and
public policy changes and relatively low barriers to entry in the industry, we
anticipate that additional competitors will enter this market. We believe that
the principal competitive factors for CDMA integrated circuit providers to our
addressed markets are product performance, level of integration, quality,
compliance with industry standards, price, time to market, system cost, design
and engineering capabilities, new product innovation and customer support. The
specific bases on which we compete against alternative CDMA integrated circuit
providers vary by product platform. We also compete against alternative wireless
technologies including GSM, TDMA and analog.
Our current competitors include major semiconductor companies such as Intel,
LSI Logic and Philips, as well as major telecommunication equipment companies
such as Motorola and Lucent. We also face competition from the in-house
development efforts of many of our key customers, including Samsung. We also
face competition from start-up ventures, several of which have begun shipping
commercial products, such as PrairieComm, Inc. Moreover, some of our customers
have licenses from
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QUALCOMM that allow them to manufacture and sell integrated circuits
incorporating CDMA technology and may compete directly with us.
Our competitors may devote a significantly greater amount of their
financial, technical, marketing and other resources to aggressively market
competitive communications systems or develop and adopt competitive digital
cellular technologies, and those efforts may materially and adversely affect our
results of operations, liquidity and financial position. Moreover, competitors
may offer more attractive product pricing or financing terms than we do as a
means of gaining access to the wireless markets.
QUALCOMM has entered into royalty-bearing license arrangements with Intel,
LSI Logic Corporation, Philips and PrairieComm, Inc. covering specified patents
belonging to QUALCOMM applicable to integrated circuits. Pursuant to these
arrangements, QUALCOMM's licensees are licensed to manufacture and sell cdmaOne
and cdma2000 (and, in the case of Philips, WCDMA) integrated circuits to
subscriber licensees of QUALCOMM. To date, most of those licensees have elected
to purchase their CDMA integrated circuits and system software requirements from
us. Under the terms of their agreements with QUALCOMM, Motorola and Lucent also
have rights under specified QUALCOMM patents to manufacture and sell CDMA
integrated circuits to licensees that hold separate licenses under QUALCOMM
intellectual property rights incorporated in those chips. In every case, the
right of the licensees to use or resell the licensed integrated circuits is
subject to the payment of royalties to QUALCOMM on the products into which the
integrated circuits are incorporated.
We face additional competition in the development of components for next
generation digital wireless technology and services. We support a new 3G
CDMA-based standard that operates on telecommunications networks that currently
support existing GSM and cdmaOne systems. Other industry participants are
aggressively promoting the adoption of different standards.
EMPLOYEES
As of June 2000, we had approximately 1,850 total employees, including over
900 engineers of whom approximately 120 hold Ph.D. degrees. Our success will
depend largely on our ability to recruit, train and retain highly skilled
engineering and other technical, managerial, sales and marketing personnel. The
competition for technical professionals is intense. None of our employees is
represented by a labor union, and we consider our employee relations to be good.
FACILITIES
Our principal executive offices are located in San Diego, California, in
four buildings covering approximately 347,000 square feet in the aggregate. We
plan to lease one of these buildings directly from QUALCOMM, and occupy the
others under subleases from QUALCOMM. We also expect to lease from QUALCOMM two
buildings in Boulder, Colorado, covering a total of 73,800 square feet, and
sublease from QUALCOMM one building in Campbell, California covering 49,940
square feet. In addition, our international subsidiaries in Israel and the
United Kingdom occupy properties in those countries of approximately 53,000
square feet and 9,420 square feet, respectively.
LEGAL PROCEEDINGS
We are not presently involved in any material legal proceeding. However, we
are subject to litigation from time to time in the ordinary course of our
business, and we may in the future become subject to litigation that will have a
material adverse affect on our business.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information about our directors,
executive officers and key employees as of July 24, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ---------------------------------------------------
<S> <C> <C>
Irwin Mark Jacobs......................... 66 Chairman of the Board
Richard Sulpizio.......................... 50 Chief Executive Officer and Director
Donald E. Schrock......................... 54 President, Chief Operating Officer and Director
Anthony S. Thornley....................... 54 Interim Chief Financial Officer and Secretary
Richard C. Atkinson....................... 71 Director
Adelia A. Coffman......................... 47 Director
Jerome S. Katzin.......................... 82 Director
Frank Savage.............................. 62 Director
Brent Scowcroft........................... 75 Director
</TABLE>
IRWIN MARK JACOBS has served as our Chairman of the board since July 2000,
and has served as Chairman of the board and Chief Executive Officer of QUALCOMM
since it began operations in July 1985. He was also QUALCOMM's President prior
to May 1992. Before joining QUALCOMM, Dr. Jacobs was Executive Vice President
and a director of M/A-COM, Inc., a telecommunications company. From
October 1968 to April 1985, Dr. Jacobs held various executive positions at
LINKABIT (M/A-COM LINKABIT after August 1980), a company he co-founded. During
most of his period of service with LINKABIT, he was Chairman, President and
Chief Executive Officer and was at all times a director. Dr. Jacobs received his
B.E.E. degree from Cornell University and his M.S. and Sc.D. degrees from the
Massachusetts Institute of Technology. He is a member of the National Academy of
Engineering and was awarded the National Medal of Technology in 1994.
RICHARD SULPIZIO has served as our Chief Executive Officer and a director
since July 2000. Mr. Sulpizio also currently serves as President of QUALCOMM, a
position he has held since July 1998, and has served as QUALCOMM's Chief
Operating Officer since 1995. Mr. Sulpizio was President of QUALCOMM Wireless
Business Solutions (formerly QUALCOMM's OmniTRACS Division) from February 1994
to August 1995. Prior to his assignment in the OmniTRACS division, he held the
position of Chief Operating Officer from May 1992 to February 1994.
Mr. Sulpizio joined QUALCOMM in May 1991 as Vice President, Information Systems
and was promoted to Senior Vice President in September 1991. Prior to joining
QUALCOMM, Mr. Sulpizio spent eight years with Unisys Corporation, a diversified
computer and electronics company. He also spent ten years with Fluor Engineering
and Constructors, implementing computer systems worldwide. Mr. Sulpizio holds a
bachelor's degree in liberal arts from California State University, Los Angeles
and a master's degree in systems management from the University of Southern
California.
DONALD E. SCHROCK has served as our President and Chief Operating Officer
and as a director since July 2000. Mr. Schrock also currently serves as Senior
Vice President of QUALCOMM, a position he has held since February 1997, and
President of QUALCOMM's QCT Products Division since October 1997. He joined
QUALCOMM in January 1996 as Corporate Vice President and in June 1996 was
promoted to General Manager, QCT Products Division. Prior to joining QUALCOMM,
he was Group Vice President and Division Manager with Hughes Aircraft Company.
Prior to his employment with Hughes, Mr. Schrock was Vice President of
Operations with Applied Micro Circuits Corporation. Mr. Schrock has also held
positions as Vice President/Division General Manager at Burr-Brown Corporation
and spent 15 years with Motorola Semiconductor. Mr. Schrock holds a B.S.E.E.
with
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honors from the University of Illinois, as well as a M.S.E.E. and Advanced
Business Administration degrees from Arizona State University.
ANTHONY S. THORNLEY has served as our Interim Chief Financial Officer and
Secretary since July 2000. Mr. Thornley also currently serves as Executive Vice
President and Chief Financial Officer of QUALCOMM, and has held these positions
since November 1997 and March 1994, respectively. Prior to joining QUALCOMM,
Mr. Thornley was with Nortel, a telecommunications equipment manufacturer, for
sixteen years in various financial and information systems management positions,
including Vice President, Public Networks, Vice President Finance NT World Trade
and Corporate Controller Nortel Limited. He has also worked for Coopers and
Lybrand and is a Fellow of the Institute of Chartered Accountants in England and
Wales. Mr. Thornley received his bachelor's of science degree in chemistry from
the University of Manchester, England.
RICHARD C. ATKINSON has served as a director of our company since
July 2000. Dr. Atkinson also has served as a director of QUALCOMM since
January 1991. Dr. Atkinson has been serving as the President of the University
of California since October 1995. Prior to that he served as Chancellor of the
University of California at San Diego since 1980. Dr. Atkinson joined the board
of directors of Cubic Corporation, a high-tech electronic company, in May 1999.
Dr. Atkinson is a former director of the National Science Foundation, past
president of the American Association for the Advancement of Science and former
chair of the Association of American Universities. He is one of the founders of
Computer Curriculum Corporation. He is a member of the National Academy of
Sciences, the Institute of Medicine, the National Academy of Education and the
American Philosophical Society. Dr. Atkinson holds a Ph.D. degree from Indiana
University and a Ph.B. degree from the University of Chicago.
ADELIA A. COFFMAN has served as a director of our company since July 2000.
Ms. Coffman also has served as a director of QUALCOMM from July 1985 to
February 1989 and since January 1992. Ms. Coffman is one of QUALCOMM's founders
and she served as QUALCOMM's Chief Financial Officer from July 1985 until
April 1994. She also held the titles of Vice President and Senior Vice President
at QUALCOMM during that time. Ms. Coffman currently provides financial
consulting services and is also active in Oregon Diverse Industries, LLC, a real
estate investment and development company of which she is an owner. From
July 1970 until July 1985, Ms. Coffman held various positions at LINKABIT and
M/A-COM LINKABIT. Prior to joining QUALCOMM, Ms. Coffman was Controller of
M/A-COM LINKABIT. Ms. Coffman received her bachelor's of science degree in
business from San Diego State University.
JEROME S. KATZIN has served as a director of our company since July 2000.
Mr. Katzin also has served as a director of QUALCOMM since November 1987. From
1953 until his retirement in 1990, Mr. Katzin was engaged in investment banking
with Kuhn Loeb & Co. and successor firms. He is a director of the Coastal
Corporation, an oil and gas business. Mr. Katzin is a graduate of the University
of Chicago and has a J.D. degree from the University of Chicago Law School. He
was on the legal staff of the U.S. Securities and Exchange Commission from 1941
to 1953 and held the position of Director of the Division of Public Utilities.
He is a member of the Board of Overseers of the University of California at San
Diego and was formerly a trustee and President of the U.C. San Diego Foundation.
He is a trustee of the San Diego Foundation.
FRANK SAVAGE has served as a director of our company since July 2000.
Mr. Savage also has served as a director of QUALCOMM since February 1996. He has
served as Chairman of Alliance Capital Management International and a director
of Alliance Capital Management Corporation since July 1993. He also served as
Senior Vice President of The Equitable Life Assurance Society of the United
States from February 1988 until March 1996. Alliance Capital is an investment
management subsidiary of Equitable Life Assurance Society. He was the Chairman
of Equitable Capital Management Corporation, an Equitable Life investment
management subsidiary, from April 1992 until it merged
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<PAGE>
with Alliance Capital in July 1993. From December 1970 to July 1985, he held
various positions with Equitable Life, including investment officer and Vice
President. Mr. Savage is a director of Lockheed Martin Corporation, an
aero-technology corporation, Lyondell Chemical Company, a chemical company,
ENRON Corporation, an energy company, Essence Communications, Inc., a media
company and The Johns Hopkins and Howard Universities. He earned a B.A. from
Howard University in 1962, an M.A. from The Johns Hopkins University Nitze
School of Advanced International Studies in 1968 and received an Honorary
Doctorate Degree in Humane Letters from Hofstra University.
BRENT SCOWCROFT has served as a director of our company since July 2000.
General Scowcroft also has served as a director of QUALCOMM since
December 1994. General Scowcroft is the President of The Scowcroft Group, Inc.,
an international business consulting firm he founded in June 1994. He is also
the President of the Forum for International Policy, a non-profit organization
that he founded in 1993 that promotes American leadership and foreign policy. He
served as Assistant to the President for National Security Affairs for President
Bush from January 1989 until January 1993; he also held that position for
President Ford during his term. A retired U.S. Air Force Lieutenant General,
General Scowcroft served in numerous national security posts in the Pentagon and
the White House prior to his appointments as Assistant to the President for
National Security Affairs. He received his B.S. degree from West Point and M.A.
and Ph.D. degrees from Columbia University. General Scowcroft is also a director
of Devon Energy, an oil and gas company, and Pennzoil-Quaker State, an
automotive consumer car care company.
BOARD COMMITTEES
The board of directors currently has no committees. Prior to the completion
of the offering, the board will create audit and compensation committees, the
members of which will be independent directors.
ELECTION OF DIRECTORS
Upon the closing of the offering, we will have authorized eight directors.
Upon the closing of the offering, under the terms of our certificate of
incorporation, our board of directors will be divided into three classes:
- class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001;
- class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002; and
- class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not anticipate that any interlocking relationship will exist between
any member of the compensation committee and any member of any other company's
board of directors or compensation committee.
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STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
All of our common stock is currently owned by QUALCOMM, and thus none of our
officers or directors own any of our common stock. To the extent our directors
and officers own shares of QUALCOMM common stock at the time of the
distribution, they will participate in the distribution on the same terms as
other holders of QUALCOMM common stock.
The following table sets forth the number of shares of QUALCOMM common stock
beneficially owned on July 20, 2000 by each director, each of the executive
officers named in the Summary Compensation Table in the "--Executive
Compensation" section below, and all of our directors, director nominees and
executives officers as a group. Except as otherwise noted, the individual
director or executive officer or his or her family members had sole voting and
investment power with respect to such securities. The total number of shares of
QUALCOMM common stock outstanding as of July 20, 2000 was 745,059,404.
<TABLE>
<CAPTION>
SHARES OF QUALCOMM
COMMON STOCK
BENEFICIALLY OWNED(1)
-----------------------
PERCENT OF
BENEFICIAL OWNER NUMBER(2) TOTAL
---------------- ---------- ----------
<S> <C> <C>
Irwin Mark Jacobs(3)................................... 25,635,682 3.41%
Richard Sulpizio(4).................................... 1,277,678 *
Donald E. Schrock...................................... 282,114 *
Anthony S. Thornley.................................... 934,712 *
Richard C. Atkinson(5)................................. 1,797,256 *
Adelia A. Coffman(6)................................... 982,880 *
Jerome S. Katzin(7).................................... 1,723,672 *
Frank Savage........................................... 148,520 *
Brent Scowcroft........................................ 537,992 *
All Executive Officers and Directors as a Group
(9 persons)............................................ 33,320,506 4.41%
---------- ----
</TABLE>
------------------------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the SEC. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, the Company believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned.
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<PAGE>
(2) Includes shares issuable upon exercise of options exercisable within
60 days of July 20, 2000 as follows:
<TABLE>
<CAPTION>
NAME SHARES
---- ----------
<S> <C>
Dr. Jacobs.................................................. 5,971,790
Mr. Sulpizio................................................ 1,155,772
Mr. Schrock................................................. 276,000
Mr. Thornley................................................ 924,666
Dr. Atkinson................................................ 489,000
Ms. Coffman................................................. 289,000
Mr. Katzin.................................................. 385,000
Mr. Savage.................................................. 129,000
Mr. Scowcroft............................................... 497,000
----------
All directors and executive officers as a group............. 10,117,228
</TABLE>
Includes 125,318 shares issuable upon exercise of options held in trusts
for the benefit of Dr. Jacobs and his spouse. Also includes 44,684 shares
issuable upon exercise of options held in trusts for the benefit of
Mr. Sulpizio's children for which Mr. Sulpizio's spouse is the trustee.
(3) Includes 19,545,172 shares held in family trusts and 118,720 shares held in
trust for the benefit of relatives.
(4) Includes 113,506 shares held in family trusts and 8,400 shares held for the
benefit of Mr. Sulpizio's children.
(5) Includes 84,000 shares held in a foundation of which Dr. Atkinson disclaims
beneficial ownership. Also includes 783,616 shares held in family trusts,
408,000 shares held in a pension plan trust for the benefit of employees of
a business operated by Dr. Atkinson and 32,640 shares held in trust for the
benefit of relatives.
(6) Includes 693,880 shares held in family trusts.
(7) Includes 16,000 shares held in a foundation of which Mr. Katzin disclaims
beneficial ownership. Also includes 1,102,128 shares held in family trusts
and 220,544 shares held in trust for the benefit of Mr. Katzin's
grandchildren of which Mr. Katzin's wife is the trustee.
COMPENSATION OF DIRECTORS
Each of our non-employee directors receives (i) a fee of $1,000 for each
board or board committee meeting attended and (ii) a fee of $500 for each board
or board committee meeting in which that director participates by telephone.
When traveling from out of town, the members of the board are also eligible for
reimbursement for their travel expenses incurred in connection with attendance
at board meetings and board committee meetings. Employee directors do not
receive any compensation for their participation in board or board committee
meetings.
EXECUTIVE COMPENSATION
The compensation described in this table was paid by QUALCOMM for services
rendered in all capacities to Spinco and QUALCOMM. The table does not include
medical, group life insurance or other benefits which are available generally to
all of our salaried employees and certain perquisites and other personal
benefits received which do not exceed the lesser of $50,000 or 10% of his or her
salary and bonus as disclosed in this table.
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<PAGE>
SUMMARY OF COMPENSATION
The following table shows compensation awarded or paid to, or earned by, our
Chief Executive Officer and our other three most highly compensated executive
officers at September 26, 1999 for services to QUALCOMM and its subsidiaries for
the fiscal year ended September 26, 1999:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION(1)
--------------------------- -------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Irwin Mark Jacobs ..................... 1999 $773,085 $975,000 -- $302,909
Chairman of the Board
Richard Sulpizio ...................... 1999 537,323 540,000 -- 32,133
Chief Executive Officer
Donald E. Schrock ..................... 1999 329,814 325,000 -- 559,975
President and Chief Operating Officer
Anthony S. Thornley ................... 1999 402,125 435,000 -- 47,432
Interim Chief Financial Officer
and Secretary
</TABLE>
------------------------
(1) Includes QUALCOMM matching 401(k) contributions, executive benefits
payments, executive retirement stock matching, financial planning services
and split-dollar life insurance as follows:
<TABLE>
<CAPTION>
COMPANY EXECUTIVE
MATCHING EXECUTIVE RETIREMENT FINANCIAL SPLIT-DOLLAR
401(K) BENEFITS STOCK PLANNING LIFE TOTAL OTHER
NAME YEAR CONTRIBUTIONS PAYMENTS MATCHING(1) SERVICES INSURANCE(2) COMPENSATION
---- -------- ------------- --------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Irwin Mark Jacobs............ 1999 $3,125 $2,948 $118,812 $31,246 $146,778 $302,909
Richard Sulpizio............. 1999 3,125 1,195 17,589 10,224 -- 32,133
Donald E. Schrock............ 1999 3,125 1,920 554,930 -- -- 559,975
Anthony S. Thornley.......... 1999 3,125 1,260 43,047 -- -- 47,432
</TABLE>
------------------------
(1) QUALCOMM has a voluntary retirement plan that allows eligible executives to
defer up to 100% of their income on a pre-tax basis. QUALCOMM will match in
stock, subject to vesting, up to 50% of a participant's eligible
contributions. Eligible contributions refer to: (a) 15% of salary through
December 31, 1998; (b) 15% of bonus paid for fiscal years through 1997;
(c) 20% of bonus paid with respect to fiscal year 1998; and (d) 20% of
income on or after January 1, 1999. The values stated above are the values
of QUALCOMM's quarterly contributions on their respective dates of
contribution.
(2) Represents the dollar value of the benefit or premiums paid for a
split-dollar life insurance policy (unrelated to term life insurance
coverage) reflecting the present value of the economic benefit of the
premiums paid by QUALCOMM during the fiscal year which ended September 26,
1999.
SPINCO OPTION GRANTS IN LAST FISCAL YEAR
We did not grant any options during the fiscal year ended September 26,
1999.
QUALCOMM OPTION GRANTS IN LAST FISCAL YEAR
QUALCOMM did not grant any options to our named executive officers during
the fiscal year ended September 26, 1999.
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<PAGE>
AGGREGATE SPINCO OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
None of our named executive officers exercised options to purchase our
common stock during the fiscal year ended September 26, 1999.
AGGREGATE QUALCOMM OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth, with respect to Dr. Jacobs and
Messrs. Sulpizio, Schrock and Thornley, information regarding the number and
value of securities underlying unexercised options to purchase QUALCOMM common
stock held by each of them as of September 26, 1999.
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS HELD AT IN-THE-MONEY
ON SEPTEMBER 26, 1999 OPTIONS AT SEPTEMBER 26, 1999(1)
EXERCISE VALUE ------------------------------------- -------------------------------------
NAME (#) REALIZED ($) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
---- --------- ------------- ---------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Irwin Mark Jacobs....... -- $ -- 4,560,000 4,000,000 $194,678,640 $162,330,560
Richard Sulpizio........ 1,100,000 17,728,000 788,000 1,792,000 32,401,190 73,298,960
Donald E. Schrock....... 416,000 9,776,480 -- 1,184,000 -- 47,912,720
Anthony S. Thornley..... 640,000 14,844,320 520,000 1,520,000 21,176,440 61,419,880
</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 $47.375 on the last
trading day of the fiscal year as reported on the Nasdaq National Market.
Dollar values in the table above are calculated by taking the fair market
value of QUALCOMM's common stock as of the date of exercise, subtracting the per
share exercise price of the option and multiplying the result by the number of
shares. Options were granted at an exercise price equal to the fair market value
of our common stock, as determined by the board of directors on the date of
grant.
BENEFIT PLANS
2000 EQUITY INCENTIVE PLAN
We plan to adopt a 2000 Equity Incentive Plan, which will be effective as of
the completion of this offering.
SHARE RESERVE. A total of shares of our common stock will be
reserved for issuance under the 2000 Plan.
Except with respect to Spinco options granted to holders of QUALCOMM options
in connection with QUALCOMM's distribution of its shares of our common stock,
when a stock award expires or is terminated before it is exercised, the shares
not acquired pursuant to the stock award will again become available for
issuance under the 2000 Plan.
ADMINISTRATION. Our board of directors will administer the 2000 Plan, but
may delegate this authority to a committee of one or more board members. Our
board or this committee will have the authority to construe, interpret and amend
the 2000 Plan, as well as to determine the following terms with respect to each
stock award:
- the recipient;
- the grant date;
- the number of shares subject to the award;
- the terms of exercisability and vesting;
- the exercise price; and
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<PAGE>
- the type of consideration required to receive stock under the award.
Our board of directors may amend the 2000 Plan at any time. However, no
amendment or modification of the 2000 Plan may be made that adversely affects
the vested rights of a holder of a stock award unless the holder consents to the
amendment. In addition, our board of directors may, if required or desirable,
seek the approval of our stockholders to an amendment that will:
- increase the maximum number of shares reserved for issuance under the 2000
Plan, except for permissible adjustments in the event of specified changes
in our capitalization;
- materially modify the eligibility requirements for participation in the
2000 Plan; or
- materially increase the benefits accruing to participants in the 2000
Plan.
ELIGIBILITY. The 2000 Plan will permit us to grant stock awards to
employees, directors and consultants of us or certain of our affiliates. A stock
award may be an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code, a "nonstatutory stock option," a right to purchase
restricted stock, or a restricted stock bonus. Incentive stock options may be
granted only to our employees, including those of some of our affiliates.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to the chief
executive officer or any of the four highest compensated officers (excluding the
chief executive officer) in a taxable year to the extent that the compensation
of that officer exceeds $1,000,000. To prevent options granted under the 2000
Plan from being included in this compensation, in any calendar year the board
may not grant options under the 2000 Plan to an employee covering an aggregate
of more than shares.
STOCK OPTION PROVISIONS GENERALLY. An incentive stock option granted under
the 2000 Plan cannot exceed ten years in duration and its exercise price cannot
be less than 100% of the fair market value of the common stock on the date of
grant. An incentive stock option granted to a person who, at the time of grant,
owns or is deemed to own more than 10% of the total combined voting power of us
or any of our affiliates cannot exceed five years in duration and its exercise
price cannot be less than 110% of the fair market value of the common stock on
the date of grant. At the time of grant our board will determine the exercise
price and duration of a nonstatutory stock option. The aggregate fair market
value, determined at the time of grant, of shares of our common stock with
respect to which incentive stock options are exercisable for the first time by
an optionholder during any calendar year under all of our stock plans may not
exceed $100,000. An incentive stock option may be transferred only on death, but
a nonstatutory stock option may be transferred as permitted in the stock option
agreement.
Unless the terms of an optionholder's stock option agreement provide for
earlier or later termination, if an optionholder's service relationship with us
and our affiliates terminates, then that optionholder may exercise vested
options within:
- 12 months after that date, if termination is due to death;
- 12 months after an optionholder's death that occurs subsequent to that
individual's termination due to disability; or
- 30 days after that date, if termination is for any reason other than
disability or death.
If all service to us by an optionholder ceases due to disability, then the
option will remain exercisable until its termination and, in the case of an
option that is not fully vested, continue to vest. The optionholder may
designate a beneficiary to exercise the option following the optionholder's
death. Otherwise, the option exercise rights will pass by the optionholder's
will or by the laws of descent and distribution, unless otherwise provided for
in an option agreement.
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<PAGE>
PROVISIONS OF OTHER STOCK AWARDS GENERALLY. The board or committee will
determine the purchase price of nonstatutory stock options and stock purchase
awards. Stock bonuses may be awarded in consideration of past services without
additional payment. Shares that we sell or award under the 2000 Plan may, but
need not, be subject to a repurchase option in our favor in accordance with a
vesting schedule. The board or committee, however, may accelerate the vesting of
such restricted stock.
EFFECT ON STOCK AWARDS OF A CHANGE IN CONTROL. The 2000 Plan will provide
that in the event of a change in control in the beneficial ownership of us, the
surviving entity may assume all outstanding stock awards or substitute similar
stock awards for them. If the surviving entity determines not to assume or
substitute for these stock awards, generally the vesting in full of stock awards
held by persons whose service with us or our affiliates has not already
terminated will accelerate immediately prior to this change in control; however,
additional restrictions may apply with respect to options held by persons who
are not then providing services to us or our subsidiaries. If there is no
assumption or substitution, then all outstanding stock awards terminate upon the
change in control to the extent not exercised.
In addition, the 2000 Plan provides that options held by any employee,
consultant or director of us or of our affiliates who is either terminated for
any reason other than for cause or is constructively terminated, in either case
within 24 months following a change in control, will accelerate and immediately
become fully vested and exercisable.
OTHER PROVISIONS. If there is a transaction or event which does not involve
the receipt of consideration by us, including a merger, consolidation,
reorganization, stock dividend, or stock split, our board will appropriately
adjust the class and the maximum number of shares subject to the 2000 Plan, the
cap on the number of shares available for incentive stock options, and the
Section 162(m) limit. Our board also will appropriately adjust the price under
outstanding stock awards as well as the class and number of shares covered by
those stock awards.
EFFECT OF DISSOLUTION OR LIQUIDATION. If we dissolve or liquidate, then all
outstanding stock awards will terminate immediately prior to that event.
PLAN TERMINATION. The 2000 Plan will terminate as determined by our board
or committee, but incentive stock options will not be granted more than
10 years following the effective date of the 2000 Plan.
STOCK AWARDS ISSUED. As the 2000 Plan will not be effective until the
completion of this offering, we have not granted any stock awards under the 2000
Plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
We plan to adopt a 2000 Employee Stock Purchase Plan that will be effective
as of the completion of this offering.
SHARE RESERVE. A total of shares of common stock will be authorized
for issuance under the 2000 Purchase Plan.
The 2000 Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code. Under the
2000 Purchase Plan, eligible employees will be able to purchase common stock at
a discount price in periodic offerings. The 2000 Purchase Plan will be effective
as of the completion of this offering.
ELIGIBILITY. All of our employees, including those of our subsidiaries,
will be potentially eligible to participate in the 2000 Purchase Plan so long as
they are customarily employed by us for at least five months per calendar year
and for at least 20 hours per week. Any employee who is a 5% or greater
stockholder will not be eligible to participate in the 2000 Purchase Plan.
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<PAGE>
OFFERINGS. Under the 2000 Purchase Plan, our board may specify offerings of
up to 27 months. Within each offering period, the board may approve one or more
purchase periods. More than one offering can be initiated at any time. Unless
our board determines otherwise, at the end of each purchase period participating
employees may purchase shares of our common stock at a price per share equal to
the lower of:
- 85% of the fair market value of a share of our common stock on the first
day of the offering; or
- 85% of the fair market value of a share of our common stock on the
purchase date.
Fair market value generally means the closing sales price, or the closing
bid, if no sales were reported, as quoted on the Nasdaq National Market on the
last trading day prior to the relevant determination date, as reported in THE
WALL STREET JOURNAL. The shares offered will be registered on a Form S-8
registration statement.
The board may provide that employees who become eligible to participate
after an offering period begins nevertheless may enroll in that offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they commence
participating in the 2000 Purchase Plan; or
- 85% of the fair market value of a share on the purchase date.
Participating employees may allocate up to an amount determined by our board
for the purchase of stock under the 2000 Purchase Plan. Our board will determine
whether to place any limits on the number of shares that may be purchased under
an offering. Employees may end their participation in an offering before that
offering ends. Participation ends automatically on termination of employment.
OTHER PROVISIONS. A participant's purchase rights under the 2000 Purchase
Plan, together with any other purchase rights granted under other employee stock
purchase plans established by us or by our affiliates, cannot exceed $25,000 of
fair market value for each calendar year.
Upon a change in control, our board may provide that the successor either
will assume or replace outstanding purchase rights. Alternatively, the board may
shorten the ongoing offering period and provide that our stock will be purchased
for the participants immediately before the change in control.
SHARES ISSUED. The 2000 Purchase Plan will not be effective until the
completion of this offering. Therefore, no shares of common stock have been
purchased under the 2000 Purchase Plan.
PLAN TERMINATION. The 2000 Purchase Plan will not have a termination date.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
We plan to adopt a 2000 Non-Employee Directors' Stock Option Plan. The 2000
Directors' Plan will provide for the automatic grant to our non-employee
directors of options to purchase shares of our common stock.
SHARE RESERVE. We will reserve a total of shares of our common
stock for issuance under the 2000 Directors' Plan. If an optionholder does not
purchase the shares subject to his or her option before the option expires or
otherwise terminates, the shares that are not purchased will again become
available for issuance under the 2000 Directors' Plan.
ADMINISTRATION. Our board will administer the 2000 Directors' Plan. The
board has the authority to construe, interpret and amend the 2000 Directors'
Plan, but the 2000 Directors' Plan specifies the essential terms of the options,
including:
- the option recipients;
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<PAGE>
- the grant dates;
- the number of shares subject to the option;
- the exercisability and vesting of the option;
- the exercise price; and
- the type of consideration.
ELIGIBILITY. We will automatically issue options to our non-employee
directors under the 2000 Directors' Plan as follows:
- Each person who is first elected or appointed as a non-employee director
after the effective date of this offering, and who does not already hold a
stock option granted by us, will automatically receive an initial grant
for a number of shares equal to shares. 20% of the shares subject
to this type of option grant will vest on the first anniversary of the
date of its grant and the remaining shares will vest in 48 consecutive
equal monthly installments after the first anniversary date.
- In addition, on , a non-employee director will automatically
receive an additional option grant for shares provided that no
option has been granted to the non-employee director within the prior 270
days. This type of option grant will generally vest in 60 consecutive
equal monthly installments beginning one month after the grant date.
As long as an optionholder continues to serve with us or with an affiliate
of ours, whether in the capacity of a director, an employee or a consultant, her
or his option will continue to vest and be exercisable during its term. If all
service to us by an optionholder ceases due to disability or retirement at age
70 or older after nine or more years of service on our board or QUALCOMM's
board, then the option will remain exercisable until its termination date and,
in the case of an option that is not fully vested, continue to vest. If all
service to us by an optionholder ceases due to death or due to disability that
is followed by death, then the vesting of all unvested shares will be
accelerated as of the optionholder's death.
OTHER OPTION TERMS. Options granted under the 2000 Directors' Plan will
have an exercise price equal to 100% of the fair market value of our common
stock on the grant date. An option's normal termination date is the tenth
anniversary of the date of its grant. However, if an optionholder ceases to
provide any services to us other than due to retirement, disability or death as
noted above, then an option will generally terminate 30 days thereafter. If
termination of all services is due to death or disability followed by death,
then an option will terminate up to 12 months after the date of death.
The optionholder may designate a beneficiary to exercise the option
following the optionholder's death. Otherwise, the option exercise rights will
pass by the optionholder's will or by the laws of descent and distribution,
unless otherwise provided for in an option agreement.
OTHER PROVISIONS. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, or stock
split, may change the class and number of shares subject to the 2000 Directors'
Plan and to outstanding options granted under the 2000 Directors' Plan. In that
event, our board will appropriately adjust the 2000 Directors' Plan as to the
class and the maximum number of shares subject to the 2000 Directors' Plan. Our
board also will adjust the class of shares, number of shares and exercise price
per share subject to the outstanding options.
In the event of a change in control, the surviving entity may either assume
or replace outstanding options under the 2000 Directors' Plan. If the
outstanding options are not assumed or replaced, then generally the vesting of
options held by persons then performing services as an employee or director of,
or consultant to, us or our affiliates will accelerate. Unexercised options will
terminate upon the change
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in control. If assumption or replacement does occur, then vesting of an assumed
or replaced option may accelerate and vest in full if the service of an
optionholder terminates for specified reasons within one month prior to or
13 months following the change in control.
OPTIONS ISSUED. The 2000 Directors' Plan will not be effective until the
completion of this offering; therefore, we have not issued any options under the
2000 Directors' Plan.
PLAN TERMINATION. The 2000 Directors' Plan has no set termination date.
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ARRANGEMENTS BETWEEN SPINCO AND QUALCOMM
We have provided below a summary description of the master separation and
distribution agreement, effective as of , 2000, and the key related
agreements. This description, which summarizes the material terms of those
agreements, is not complete. You should read the full text of these agreements,
which will be filed with the Securities and Exchange Commission as exhibits to
the registration statement of which this prospectus is a part.
MASTER SEPARATION AND DISTRIBUTION AGREEMENT
The master separation and distribution agreement contains the key provisions
relating to the separation, this offering and the anticipated distribution by
QUALCOMM of the shares of our common stock owned by QUALCOMM to the holders of
QUALCOMM's common stock.
THE SEPARATION. The separation is scheduled to occur prior to completion of
the offering. The master separation and distribution agreement is expected to
provide for the transfer to us of assets and liabilities from QUALCOMM related
to our business as described in this prospectus. The various ancillary
agreements that are exhibits to the master separation and distribution agreement
and which detail the separation and various interim and ongoing relationships
between QUALCOMM and us include:
- a general assignment and assumption agreement;
- a master intellectual property, assignment and license agreement;
- an employee matters agreement;
- a tax matters agreement;
- an interim services agreement; and
- a real estate matters agreement.
To the extent that the terms of any of these ancillary agreements conflict
with the master separation and distribution agreement, the terms of these
agreements govern. These agreements are described more fully below.
THE INITIAL PUBLIC OFFERING. We are obligated to use our reasonable best
efforts to satisfy the following conditions to the consummation of this
offering, any of which may be waived by QUALCOMM:
- the registration statement containing this prospectus must be effective;
- United States securities laws must be satisfied;
- our common stock must be listed on the New York Stock Exchange or the
Nasdaq National Market;
- all of our obligations under the underwriting agreement must be met or
waived by the underwriters;
- QUALCOMM must own at least 90.1% of our stock and must be satisfied that
the distribution will be tax free to its United States stockholders;
- no legal restraints must exist preventing the separation or this offering;
- the separation must have occurred; and
- the master separation and distribution agreement must not have been
terminated.
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THE DISTRIBUTION. QUALCOMM currently anticipates that it will complete its
divestiture of Spinco by August 2001 by distributing all of the shares of our
common stock owned by QUALCOMM to the holders of QUALCOMM's common stock. We
will jointly prepare an information statement with QUALCOMM and send it to
QUALCOMM's stockholders before the distribution becomes effective. The
information statement will inform QUALCOMM stockholders of the distribution and
its specifics. QUALCOMM may, in its sole discretion, change the distribution
date or decide not to complete the distribution at all. QUALCOMM intends to
consummate the distribution only if, among other things, the following
conditions are met, any of which may be waived by QUALCOMM:
- the Internal Revenue Service must issue a favorable private letter ruling
concluding that the distribution will be tax-free to QUALCOMM and its
stockholders for United States federal income tax purposes;
- absence of any court orders or regulations prohibiting or restricting the
distribution;
- all required government approvals must be in effect; and
- no legal restraints must exist prohibiting or restricting the completion
of the distribution.
In addition, QUALCOMM has advised us that it would not complete the distribution
if its board of directors determines that it is no longer in the best interest
of QUALCOMM or its stockholders.
COVENANTS BETWEEN QUALCOMM AND SPINCO. In addition to signing documents
that transfer control and ownership of various assets and liabilities of
QUALCOMM relating to our business, we have agreed with QUALCOMM to enter into
additional service agreements, exchange information, engage in certain auditing
practices and resolve disputes in particular ways.
NONCOMPETITION. QUALCOMM has agreed, for a period of three years after the
distribution date, that it will not compete with us in the CDMA semiconductor
industry.
MAKE-WHOLE REIMBURSEMENT. If and to the extent that, as of the date of the
separation, QUALCOMM has any arrangements with its licensees permitting such
licensees to reduce the net amount of royalties these licensees otherwise would
be required to pay QUALCOMM because they purchase our products, we will be
required to pay to QUALCOMM, under specified circumstances, an amount equal to
the royalty reduction.
INFORMATION EXCHANGE. Both QUALCOMM and we have agreed to share information
with each other, at no cost to the requesting party, for the following purposes,
unless the sharing would be commercially detrimental:
- each party has agreed to maintain adequate internal accounting to allow
the other party to satisfy its own reporting obligations and prepare its
own financial statements;
- each party will retain records that may be beneficial to the other party
for a specified period of time. If the records are going to be destroyed,
the destroying party will give the other party an opportunity to retrieve
all relevant information from the records; and
- each party will do its best to provide the other party with personnel,
directors, officers or agents who may be used as witnesses in legal
proceedings.
AUDITING PRACTICES. So long as QUALCOMM is required to consolidate our
results of operations and financial position, we have agreed to:
- not change independent accounting firms without QUALCOMM's consent;
- use reasonable commercial efforts to cause our auditors to date their
opinion on our audited annual financial statements on the same date as
QUALCOMM's auditors date their opinion on QUALCOMM's financial statements;
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- provide QUALCOMM all relevant information to enable QUALCOMM to prepare
its financial statements (and QUALCOMM has agreed to provide us all
relevant information to enable us to prepare our financial statements);
and we and QUALCOMM have agreed to:
- grant each other's internal auditors access to our records; and
- notify each other of any change in our accounting principles.
GENERAL RELEASE OF PRE-SEPARATION CLAIMS. Effective as of the separation
date, subject to specified exceptions, we will release QUALCOMM and its
affiliates, agents, successors and assigns, and QUALCOMM will release us, and
our affiliates, agents, successors and assigns, from any liabilities arising
from events occurring on or before the separation date, including events
occurring in connection with the activities to implement the separation, the
initial public offering and the distribution. This provision will not impair a
party from enforcing the master separation and distribution agreement, any
ancillary agreement or any arrangement specified in any of these agreements.
INDEMNIFICATION. The master separation and distribution agreement also
contains provisions governing indemnification. In general, we have agreed to
indemnify QUALCOMM and its affiliates, agents, successors and assigns from all
liabilities arising from:
- our business, any of our liabilities or any of our contracts; and
- any breach by us of the master separation and distribution agreement or
any ancillary agreement.
QUALCOMM has agreed to indemnify us and our affiliates, agents, successors
and assigns from all liabilities arising from:
- QUALCOMM's business other than the businesses transferred to us pursuant
to the separation; and
- any breach by QUALCOMM of the master separation and distribution agreement
or any ancillary agreement.
The indemnifying party will make all indemnification payments net of
insurance proceeds that the indemnified party receives. The agreement also
contains provisions governing notice and indemnification procedures.
LIABILITY ARISING FROM THIS PROSPECTUS. We and QUALCOMM have agreed to
share any liability arising from any untrue statement of a material fact or any
omission of a material fact in this prospectus. We and QUALCOMM will share any
such liability equally.
INSURANCE MATTERS. The master separation and distribution agreement also
contains provisions governing our insurance coverage from the separation date
until the distribution date. In general, we agree to reimburse QUALCOMM for
premium expenses related to insurance coverage during this period. Prior to the
distribution, QUALCOMM will maintain insurance policies on our behalf that are
generally comparable to those maintained at QUALCOMM.
ENVIRONMENTAL MATTERS. Under the general assignment and assumption
agreement, we will generally assume environmental liabilities associated with
the historic operations of the businesses transferred to us. This would include,
for example, liabilities associated with non-compliance with environmental laws
prior to separation. However, under the master separation and distribution
agreement and general assignment and assumption agreement, there are exceptions
to our assumption
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of liabilities for environmental contamination associated with the historic
operations of those businesses. They include the following:
- QUALCOMM will generally retain and indemnify us for all liabilities for
environmental contamination, whether or not arising out of the businesses
transferred to us, on any property (including third party disposal sites)
other than the properties that are to be leased or transferred to us upon
separation; and
- QUALCOMM will also retain and indemnify us for liabilities associated with
any contamination existing prior to the separation date on those
properties to be transferred to us which are currently undergoing
investigation and remediation by QUALCOMM and for which QUALCOMM has
accrued a reserve.
We will indemnify QUALCOMM for liabilities associated with environmental
contamination at those sites that are to be leased or transferred to us (other
than specifically listed properties which are undergoing investigation and
remediation by QUALCOMM) regardless of whether the contamination was caused by
historic operations of the business transferred to us or a business retained by
QUALCOMM. We will have limited access to QUALCOMM's historic insurance policies
for coverage of liabilities associated with pre-separation contamination assumed
by us. Each party will be responsible for all liabilities associated with any
environmental contamination caused by that party post-separation.
DISPUTE RESOLUTION. If problems arise between QUALCOMM and us, we have
agreed to the following procedures:
- we will make a good faith effort to first resolve the dispute through
negotiation;
- if negotiations fail, we will attempt to resolve the dispute through
non-binding mediation; or
- if mediation fails, we can resort to litigation. In addition, nothing
prevents either of us, acting in good faith, from initiating litigation at
any time if failure to do so would substantially disadvantage the
initiating party.
NO REPRESENTATIONS AND WARRANTIES. Neither QUALCOMM nor we are making any
promises to the other regarding:
- the value of any asset that QUALCOMM is transferring;
- whether there is a lien or encumbrance on any asset that QUALCOMM is
transferring; or
- the legal sufficiency of any conveyance of title to any asset QUALCOMM is
transferring.
NO SOLICITATION OR HIRE. Both QUALCOMM and we have agreed not to directly
recruit or hire employees of the other party for three years after the
distribution date. However, these restrictions will terminate upon a change in
control of either party and will not apply in the case of a former employee not
employed by either party six months prior to the hiring.
CONFIDENTIALITY. The master separation and distribution agreement provides
that both parties agree not to disclose confidential information of the other
party except in specific circumstances. QUALCOMM and we also agree not to use
this information in violation of any restrictions on use contained in the other
written agreements between us.
EXPENSES. All of the costs and expenses related to this offering as well as
the costs and expenses related to the separation and distribution will be
allocated between QUALCOMM and us. It is anticipated that we will bear the costs
and expenses associated with this offering and QUALCOMM will bear the costs and
expenses associated with the distribution. We will each bear our own internal
costs incurred in consummating these transactions.
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TERMINATION OF THE AGREEMENT. QUALCOMM, in its sole discretion, may
terminate the master separation and distribution agreement and all ancillary
agreements and abandon the distribution at any time.
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
The general assignment and assumption agreement identifies the assets
QUALCOMM will transfer to us and the liabilities we will assume from QUALCOMM in
the separation. The general assignment and assumption agreement also describes
when and how these transfers and assumptions will occur. In general, the general
assignment and assumption agreement provides that QUALCOMM will transfer to us,
and we will accept and assume, substantially all assets and liabilities
primarily related to our business.
DELAYED TRANSFERS. If it is not practicable to transfer specified assets
and liabilities on the separation date, the general assignment and assumption
agreement provides that these assets and liabilities will be transferred after
the separation date.
OBTAINING APPROVALS AND CONSENTS. We and QUALCOMM agree to use all
reasonable efforts to obtain any required consents, substitutions or amendments
required to novate or assign all rights and obligations under any contracts that
will be transferred to us in the separation.
NONRECURRING COSTS AND EXPENSES. Any nonrecurring costs and expenses that
are not allocated in the master separation and distribution agreement or any
other ancillary agreement shall be the responsibility of the party that incurs
the costs and expenses.
MASTER INTELLECTUAL PROPERTY ASSIGNMENT AND LICENSE AGREEMENT
The master intellectual property assignment and license agreement allocates
rights relating to patents, patent applications, invention disclosures,
copyrights, mask works, trademarks and trade secrets. Under the master
intellectual property assignment and license agreement, QUALCOMM will assign to
us, prior to the completion of this offering and subject to existing licensing
arrangements, ownership of all of its design patents and specific utility
patents that pertain solely to our products, as well as a portion of its other
patents essential to practice IS-95 standards and 3G CDMA standards and
specified patents that cover other valuable product features. In addition, we
will receive from QUALCOMM a portion of existing patent applications and
invention disclosures relating to CDMA standards and all of its patent
applications and invention disclosures that pertain solely to our products.
QUALCOMM, however, will retain a royalty-free, worldwide, nonexclusive license
to all patents and patent applications it assigns to us. We will receive all of
the patents, patent applications and invention disclosures assigned to us
subject to any licenses to third parties that QUALCOMM may previously have
granted.
In addition, QUALCOMM will agree not to assert against us, during the
eight-year period following the distribution, the patents it retains at the
completion of this offering, and all other patents it applies for, acquires or
otherwise obtains the right to license during this eight-year period, in each
instance in connection with our manufacture and sale of integrated circuits and
modules, together with the associated software, to licensees of QUALCOMM. In
exchange for QUALCOMM's agreement not to assert these patents against us, we
will pay QUALCOMM a royalty based on the selling price of products we sell that
are covered by patents we license from QUALCOMM.
Under the agreement, we will receive a credit equal to the royalty we would
otherwise owe to QUALCOMM each year in exchange for our granting QUALCOMM
acquisition and licensing rights with respect to our new patents, patent
applications and invention disclosures each year during the same eight-year
period. The agreement will require us to meet with QUALCOMM at least once each
calendar quarter during the eight-year period and provide QUALCOMM the right to
select a portion
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of our new patents, patent applications and invention disclosures to be assigned
to QUALCOMM. However, we have the right to reject selections pursuant to a
prescribed procedure, provided that QUALCOMM is entitled to make an alternate
selection. This rejection right will generally be implemented so that QUALCOMM
will receive its first choice and at least every other choice in the order of
its preference each quarter. Any issued patent or published patent application
designated by QUALCOMM will be assigned subject to any pre-existing license
agreement we have entered into with respect to that patent or published patent
application. We, however, may not license unpublished patent applications or
invention disclosures to third parties, in order to ensure that any unpublished
patent applications or invention disclosures selected by QUALCOMM will not be
licensed by us to third parties at the time of their assignment to QUALCOMM. In
addition, we will be required to grant to QUALCOMM a royalty-free, worldwide,
nonexclusive license to use any of our patents, patent applications or invention
disclosures that we do not assign to QUALCOMM pursuant to this selection
procedure, including all of the patents and patent applications we create or
obtain during the eight-year period, subject to QUALCOMM's agreement not to
compete with us for a period of three years following the distribution. QUALCOMM
may sublicense our patents, patent applications and invention disclosures
essential to any wireless telecommunications standard to third parties for use
in wireless applications so long as the third parties agree not to assert their
patent rights against us with respect to our manufacture, use or sale of
products for use in compliance with any wireless telecommunications standard.
With respect to any proposed QUALCOMM sublicensee that does not agree that it
will not assert its patents against us, we will be required to license such
essential patents to that sublicensee on a fair and reasonable basis, free from
unfair discrimination.
In the event of a change of control of QUALCOMM, we may terminate QUALCOMM's
right to designate our patents, patent applications and invention disclosures
for assignment to QUALCOMM, QUALCOMM's right to grant further sublicenses to our
patents, patent applications and invention disclosures and QUALCOMM's right to
license the patents, patent applications and invention disclosures that we do
not assign to QUALCOMM. If we elect to terminate QUALCOMM's acquisition or
sublicense rights, we would no longer receive a royalty credit from QUALCOMM and
we would be required to begin paying QUALCOMM a royalty in exchange for its
agreement not to assert its patent rights against us. If we elect to terminate
QUALCOMM's right to license further patents from us, our right to license
further patents from QUALCOMM will also terminate.
In the event of a change of control of our company, QUALCOMM's right to
designate some of our patents, patent applications and invention disclosures for
assignment to it and its right to license from us and to sublicense to third
parties our patents, patent applications and invention disclosures essential to
any wireless telecommunications standard will automatically terminate unless the
company acquiring us agrees to be bound by the assignment and license provisions
described above with respect to its intellectual property as well as ours. If
the acquiring company does not agree to be bound by either the assignment
provision or the license and sublicense of essential patents provision, we would
no longer receive a royalty credit from QUALCOMM, and we would be required to
begin paying QUALCOMM a royalty in exchange for its agreement not to assert its
patent rights against us. If the acquiring party elects to be bound by the
patent assignment provision, however, QUALCOMM would still have the right to
(1) terminate the royalty credits and cause the acquiring company to commence
paying royalties or (2) require us to re-assign to it, subject to existing
licensing arrangements, the intellectual property QUALCOMM assigned to us prior
to the completion of this offering, along with a portion of the patents, patent
applications and invention disclosures developed by us prior to the change in
control. We would not, in the second instance, have the right to refuse to
assign to QUALCOMM any of these patents, patent applications and invention
disclosures designated by QUALCOMM. QUALCOMM's distribution of our common stock
to its stockholders will not constitute a change of control of our company for
purposes of the master intellectual property and license agreement.
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The master intellectual property assignment and license agreement will also
allocate rights relating to copyrights, trademarks, service marks and trade
names. QUALCOMM will assign to us its rights in listed copyrights, trademarks
and applications that pertain primarily to the business transferred to us. The
copyrights assigned to us will include all designs for integrated circuits and
related software and firmware. QUALCOMM, however, will retain a royalty-free,
nonexclusive license to use some of these designs, software and firmware in its
ongoing business, subject to QUALCOMM's agreement not to compete with us for a
period of three years following the distribution. QUALCOMM also will license to
us the nonexclusive, royalty-free right to use the QUALCOMM name on integrated
circuit products, modules and associated software for a period of four years
after the distribution, subject to terms and conditions customary for trademark
licenses.
EMPLOYEE MATTERS AGREEMENT
We will enter into an employee matters agreement with QUALCOMM to allocate
assets, liabilities, and responsibilities relating to our current and former
United States employees and their participation in QUALCOMM's benefit plans,
including stock plans.
In general, separate agreements will address similar issues relating to
foreign employment and benefit matters.
All of our eligible United States employees will continue to participate in
the QUALCOMM benefit plans on terms and conditions comparable to those for
QUALCOMM employees until we establish comparable benefit plans for our current
and former employees. We intend to establish these plans no later than the time
of the distribution.
Prior to the completion of the offering, all of QUALCOMM's United States
employees who work in our business will be transferred to our United States
payroll. At that time, we will adopt specified plans associated with our United
States payroll system, such as the Spinco stock plans. After that time, we will
adopt benefit plans that reflect our more permanent separation from QUALCOMM,
such as the Spinco health and welfare plans. Each Spinco benefit plan is
expected to be comparable to the corresponding QUALCOMM benefit plan.
Once we establish our own benefit plans, we may modify or terminate the
plans in accordance with the terms of the plans and our policies. No Spinco
benefit plan will provide benefits that overlap benefits under the corresponding
QUALCOMM benefit plan at the time of the distribution. Each Spinco benefit plan
will provide that all service, compensation and other benefit determinations
that, as of the distribution, were recognized under the corresponding QUALCOMM
benefit plan will be taken into account under that Spinco benefit plan.
Each Spinco benefit plan will assume any liabilities under the corresponding
QUALCOMM benefit plan for Spinco employees. Assets relating to the employee
liabilities will also be transferred to Spinco or the related Spinco plans and
trusts from trusts and other funding vehicles associated with QUALCOMM's benefit
plans.
TREATMENT OF QUALCOMM OPTIONS. Concurrently with QUALCOMM's distribution of
its shares of our common stock to its stockholders, in general we intend to
grant a stock option to each eligible employee, director, or consultant of
Spinco, a Spinco-controlled subsidiary as determined by QUALCOMM, or QUALCOMM
who holds either an option previously granted under the QUALCOMM equity
incentive plan(s) or QUALCOMM directors' plan, or an option assumed by QUALCOMM
as part of a previous acquisition. The exercise price of these Spinco options
will be determined in a manner designed to preserve the intrinsic value of the
QUALCOMM options existing
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immediately prior to the distribution. Each Spinco option will cover a number of
shares of Spinco common stock equal to:
- the number of shares of QUALCOMM common stock subject to the option (as if
such option was fully vested), multiplied by
- the distribution ratio that determines the number of shares of Spinco
common stock to be distributed for each share of QUALCOMM common stock.
None of these Spinco options will permit the purchase of fractional shares
of our common stock. Based on the number of QUALCOMM options outstanding and
eligible for this treatment on , we anticipate that we will grant
Spinco options to purchase a total of approximately shares of our common
stock in connection with the distribution to QUALCOMM option holders. The per
share exercise price of these Spinco options will be determined, and the per
share exercise price of the corresponding QUALCOMM options will be adjusted at
the date of distribution, based on a formula designed to preserve the intrinsic
value of the QUALCOMM options and allocate a portion of that value to the
corresponding Spinco options. The resulting Spinco options will vest, be
exercisable, expire and otherwise essentially mirror the provisions of the
corresponding QUALCOMM options.
In some cases, we cannot distribute Spinco options. In these circumstances,
the holders of QUALCOMM options will have their options adjusted at the date of
distribution in a manner designed to preserve the intrinsic value of such
options, but no Spinco options will be granted with respect to QUALCOMM options
held by those option holders. As a result, following the distribution, each
holder of such outstanding QUALCOMM options prior to the distribution will have
the intrinsic value of each of their options preserved.
TREATMENT OF RIGHTS GRANTED UNDER THE QUALCOMM EMPLOYEE STOCK PURCHASE
PLAN. We intend to establish an employee stock purchase plan for the benefit of
Spinco employees that is comparable to the QUALCOMM employee stock purchase
plan. Under the QUALCOMM employee stock purchase plan, all purchase rights
granted to Spinco employees prior to the distribution and which would not be
exercisable until after the distribution would terminate. However, before these
purchase rights terminate, we plan to grant Spinco purchase rights to replace
the purchase rights under the QUALCOMM employee stock purchase plan options. If
implemented, under the terms of the Spinco employee stock purchase plan, the
holder of the terminating QUALCOMM purchase rights will be able to contribute to
the Spinco employee stock purchase plan an amount equal to the amount previously
contributed toward the purchase of QUALCOMM common stock under the terminating
QUALCOMM employee stock purchase plan purchase rights. The per share offering
price for each Spinco purchase right issued in substitution for a terminating
purchase right under the QUALCOMM employee stock purchase plan and the maximum
number of Spinco shares that the individual may purchase will be determined in
accordance with the requirements established under Sections 423 and 424 of the
Internal Revenue Code. These Spinco purchase rights will maintain the original
vesting, term and other provisions of the corresponding QUALCOMM employee stock
purchase plan purchase rights, except that vesting and termination of these
Spinco purchase rights will depend upon an employee's continued employment with
Spinco under the terms of our employee stock purchase plan. The offering price
and the maximum number of shares that may be purchased under all other purchase
rights that were previously granted under the QUALCOMM employee stock purchase
plan prior to the distribution and that would not terminate will be adjusted to
reflect the effect of the distribution within the parameters established under
Section 424(a) of the Internal Revenue Code.
TAX MATTERS AGREEMENT
We will enter into a tax matters agreement with QUALCOMM providing for each
of our obligations concerning various tax liabilities. The tax matters agreement
will provide that if necessary,
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QUALCOMM generally will pay for and indemnify us with respect to all federal,
state, local and foreign taxes relating to our business for any taxable period
ending prior to this offering. In addition, the tax matters agreement will
provide that QUALCOMM and we will make payments between us so that, with respect
to tax returns for any taxable period in which we or any of our subsidiaries are
included in QUALCOMM's consolidated group for United States federal income tax
purposes, or in any consolidated, combined or unitary group which includes
QUALCOMM or any of its subsidiaries for state, local or foreign income tax
purposes, the amount of taxes to be paid by us will be determined, subject to
specified adjustments, as if we and each of our subsidiaries filed our own
consolidated, combined or unitary tax return. Each member of a consolidated
group for U.S. federal income tax purposes is jointly and severally liable for
the federal income tax liability of each other member of the consolidated group.
Accordingly, although the tax matters agreement will allocate tax liabilities
between QUALCOMM and us, for any period in which we were included in QUALCOMM's
consolidated group we could be liable in the event that any federal tax
liability was incurred, but not discharged, by any other member of the group.
The tax matters agreement will allocate responsibility for various taxes
arising from restructurings related to the spinoff between QUALCOMM and us. In
addition, we will bear 50% of unanticipated taxes related to the spinoff where
neither party is at fault.
In addition, the tax matters agreement will provide that we will indemnify
QUALCOMM for any taxes arising out of the failure of the spin-off or some of the
transactions related to it to qualify as tax-free as a result of actions taken,
or the failure to take required actions, by us or any of our subsidiaries.
Specifically, we will be required under the tax matters agreement to comply with
the representations made to the Internal Revenue Service in connection with the
private letter ruling that has been requested by QUALCOMM regarding the tax-free
nature of the distribution of our stock by QUALCOMM to QUALCOMM's stockholders.
The tax matters agreement will further provide for cooperation with respect
to tax matters, the exchange of information and the retention of records which
may affect the income tax liability of either party. Disputes arising between
QUALCOMM and us relating to matters covered by the tax matters agreement will be
subject to resolution through specific dispute resolution provisions.
INTERIM SERVICES AGREEMENT
We will enter into an interim services agreement with QUALCOMM covering the
provision of various interim services, including financial, accounting,
engineering, information technology, customer, human resources, building, legal
and other services by QUALCOMM to us or, in some circumstances, vice versa.
These services will generally be provided at cost plus 5% for a period of one
year after the separation and at cost plus 10% thereafter. The interim services
will generally have a term of two years or less from the date of separation.
However, some interim services may be extended beyond the initial two-year
period. The interim services agreement also will cover the provision of
additional transitional services identified from time to time after the
separation date that were inadvertently or unintentionally omitted from the
specified services, or that are essential to effectuate an orderly transition
under the separation agreement, so long as the provision of such services would
not significantly disrupt QUALCOMM's or our operations or significantly increase
the scope of QUALCOMM's or our responsibility under the interim services
agreement.
In addition, the interim services agreement will provide for the replication
of some computer systems, including hardware, software, data storage or
maintenance and support components. Generally, the party in need of the
replicated system will bear the costs and expenses of replication, while the
party purchasing new hardware or licensing new software will bear the costs and
expenses of purchasing the new hardware or obtaining the new software licenses.
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REAL ESTATE MATTERS AGREEMENT
The real estate matters agreement will address real estate matters relating
to the QUALCOMM leased and owned properties that QUALCOMM will lease or sublease
to us. The agreement will describe the terms upon which QUALCOMM will lease or
sublease these properties to us, and include a description of each of the
properties to be leased or subleased. The standard forms of each lease and
sublease will be contained in schedules to the agreement.
The real estate matters agreement will also require both parties to use
reasonable efforts to obtain any landlord consents required for the proposed
subleases, including QUALCOMM paying commercially reasonable consent fees and
negotiating other commercially reasonable amendments to the leases, if required
by the landlords, and us agreeing to provide the security required under the
applicable leases. The real estate matters agreement will further provide that
subleases of leased sites shall not be made if the underlying lease is
terminated due to casualty or action by the landlord prior to the separation
date, and neither party will have any liability related to the termination.
The real estate matters agreement will give the parties the right to change
the terms and provisions of each lease and sublease by mutual agreement based on
changes in the requirements of the parties. The real estate matters agreement
will also provide that all reasonable costs required to prepare and effect each
lease and sublease, including landlord consent fees and attorneys' fees, will be
paid by QUALCOMM.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Following the separation, QUALCOMM will continue to have a significant
relationship with us as a result of the agreements being entered into between
QUALCOMM and us in connection with the separation. QUALCOMM's relationship as a
licensor of CDMA technology to us will give QUALCOMM significant influence over
us and will create conflicts with us. Other conflicts between us and QUALCOMM
may arise because some of our directors and officers will also hold positions
with QUALCOMM or own QUALCOMM common stock or options to purchase QUALCOMM
common stock. In addition, after the expiration of three years from the date of
the separation, QUALCOMM will not be restricted from competing with us in our
current business. Furthermore, QUALCOMM may at any time pursue other wireless
telecommunications businesses or interests which would also be attractive to us.
PRINCIPAL STOCKHOLDER
Prior to this offering, all of the outstanding shares of our common stock
will be owned by QUALCOMM. After this offering, QUALCOMM will own about %,
or about % if the underwriters exercise their over-allotment option in
full, of our outstanding common stock. Except for QUALCOMM, we are not aware of
any person or group that will beneficially own more than 5% of the outstanding
shares of our common stock following this offering.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
We are authorized to issue shares of common stock, $.0001 par value,
and shares of undesignated preferred stock, $.0001 par value. The
following description of our capital stock is subject to and qualified in its
entirety by our certificate of incorporation and bylaws, which will be included
as exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Delaware law.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share on
all matters voted on by stockholders. These holders possess all of our voting
power, except as otherwise required by law or as may be provided in any
resolution adopted by our board of directors with respect to any series of
preferred stock. Subject to any preferential or other rights of any outstanding
series of preferred stock that may be designated by our board of directors, the
holders of our common stock are entitled to such dividends as may be declared
from time to time by our board of directors from available funds available
therefor, and upon liquidation are entitled to receive pro rata all of our
assets available for distribution to such holders. Shares of our common stock
are not subject to redemption and holders do not have preemptive rights to
purchase additional shares of our common stock.
PREFERRED STOCK
Our board of directors is authorized to provide for the issuance of shares
of preferred stock, in one or more series, and to determine, with respect to any
series, the terms and rights of each series, including the following:
- the designation of the series;
- the rate and time of, and conditions and preferences with respect to,
dividends, and whether such dividends are cumulative;
- the voting rights, if any, of shares of the series;
- the price, timing and conditions regarding the redemption of shares of
such series and whether a sinking fund should be established for the
series;
- the rights and preferences of shares of the series in the event of
voluntary or involuntary dissolution, liquidation or winding up of our
affairs; and
- the right, if any, to convert or exchange shares of the series into or for
stock or securities of any other series or class.
We believe that the availability of the preferred stock provides us with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. Having
these authorized shares of preferred stock available for issuance allows us to
issue shares of preferred stock without the expense and delay of a special
stockholders' meeting. These authorized shares of preferred stock, as well as
shares of our common stock, are available for issuance without further action by
our stockholders, unless action is required by applicable law, the rules of any
stock exchange on which our securities may be listed or the rights and
preferences of any outstanding preferred stock.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW. We are governed by the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a public
Delaware corporation from engaging in a
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"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock. This statute
could have the effect of delaying, deferring or preventing a change in our
control.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS. Our certificate of
incorporation provides that after the completion of this offering, our board of
directors will be divided into three classes, with each class serving a
staggered three-year term. This classification system may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us, as the classification of a board of directors generally increases the
difficulty of replacing a majority of those directors. Our certificate of
incorporation provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and after this offering may not be effected by any consent in
writing. In addition, our bylaws provide that special meetings of our
stockholders may be called only by the Chairman of our board of directors, our
Chief Executive Officer, or by the board of directors pursuant to a resolution
adopted by a majority of the total number of authorized directors. Our
certificate of incorporation also specifies that the authorized number of
directors may be changed only by resolution of our board of directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in our certificate of incorporation and bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in control of us or our management (including transactions in
which stockholders might otherwise receive a premium for their shares over then
current prices) and may limit the ability of stockholders to remove current
management or approve transactions that stockholders may deem to be in their
best interests and, therefore, could adversely affect the price of our common
stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is
.
NASDAQ NATIONAL MARKET LISTING
We intend to apply to list our common stock on the Nasdaq National Market
under the trading symbol " ."
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LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our officers and directors are covered by certain provisions of Delaware
law, our certificate of incorporation, our bylaws, individual indemnification
agreements with us and insurance policies which serve to limit, and, in certain
instances, to indemnify them against, certain liabilities which they may incur
in such capacities. These various provisions are described below.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. In June 1986, Delaware
enacted a statute which authorizes corporations to limit or eliminate the
personal liability of their directors to the corporations and their stockholders
for monetary damages for breach of the directors' fiduciary duty of care. This
duty of care requires that, when acting on behalf of the corporation, directors
must exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations now authorized by the
statute, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting negligence or gross negligence in the
exercise of their duty of care. Although the statute does not change directors'
duty of care, it enables corporations to limit the relief available for a breach
of the duty of care to equitable remedies such as injunction or rescission. Our
certificate of incorporation limits the liability of our directors to us or our
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by this legislation. Specifically, a
director of our company will not be personally liable for monetary damages for
breach of that director's fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful share repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation
Law; or
- for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION AND INSURANCE. As a Delaware corporation, we have the
power, under specified circumstances generally requiring the director or officer
to act in good faith and in a manner he reasonably believes to be in or not
opposed to our best interests, to indemnify our directors and officers in
connection with actions, suits or proceedings brought against them by a third
party or in our name, by reason of the fact that they were or are such directors
or officers, against expenses, judgments, fines and amounts paid in settlement
in connection with any such action, suit or proceeding. Our bylaws generally
provide for mandatory indemnification of our directors and officers to the full
extent provided by Delaware law. In addition, we intend to enter into
indemnification agreements with our directors and officers which generally
provide for mandatory indemnification under circumstances for which
indemnification would otherwise be discretionary under Delaware law.
We intend to purchase and maintain insurance on behalf of any person who is
or was a director or officer of our company, or is or was a director or officer
of our company serving at our request as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
we would have the power or obligation to indemnify him against such liability
under the provisions of our bylaws.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission this indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
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SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of our common stock sold in this offering will be
freely tradable without restriction under the Securities Act, except for any
shares which be may acquired by one of our affiliates, as that term is defined
in Rule 144 under the Securities Act. Persons who may be deemed to be affiliates
generally include individuals or entities that control, are controlled by, or
are under common control with, us and may include our directors and officers as
well as our significant stockholders, if any.
QUALCOMM has announced that, subject to specified conditions, it intends to
distribute to its stockholders by August 2001 all of the shares of our
common stock owned by QUALCOMM by means of the distribution. Shares of our
common stock distributed to QUALCOMM stockholders in the distribution generally
will be freely transferable, except for shares of common stock received by
persons who may be deemed to be our affiliates. Persons who are affiliates will
be permitted to sell the shares of common stock that are issued in this offering
or that they receive in the distribution only through registration under the
Securities Act, or under an exemption from registration, such as the one
provided by Rule 144.
The shares of our common stock held by QUALCOMM before distribution are
deemed "restricted securities" as defined in Rule 144, and may not be sold other
than through registration under the Securities Act or under an exemption from
registration, such as the one provided by Rule 144. In general, under Rule 144,
a person who has beneficially owned restricted securities for at least one year
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
QUALCOMM and we have agreed not to offer, sell or otherwise transfer any
shares of our common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Lehman Brothers Inc. on behalf
of the underwriters. In addition, we have agreed that we will not grant options
to purchase shares of our common stock unless such options provide that the
shares issuable thereunder may not be sold during the same 180-day period
without the prior written consent of Lehman Brothers Inc. on behalf of the
underwriters.
We have reserved shares of our common stock for issuance under our
various stock plans. In addition, under our employee matters agreement with
QUALCOMM, we will issue options to purchase shares of our common stock to our
employees, directors and consultants who currently hold QUALCOMM options and we
will grant purchase rights under our employee stock purchase plan to our
employees who currently participate in QUALCOMM's employee stock purchase plan.
See "Management--Benefit Plans." We currently expect to file a registration
statement under the Securities Act to register shares reserved for issuance
under our stock plans. Shares issued pursuant to awards after the effective date
of such registration statement (other than shares issued to affiliates)
generally will be freely tradable without further registration under the
Securities Act.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement,
which is filed as an exhibit to the registration statement relating to this
prospectus, the underwriters of the offering in the United States and Canada
named below, for whom Lehman Brothers Inc. and Goldman, Sachs & Co. are acting
as U.S. representatives, and the underwriters outside the United States and
Canada named below, for whom Lehman Brothers International (Europe) and Goldman,
Sachs & Co. are acting as international representatives, have severally agreed
to purchase from us, and we have agreed to sell to the underwriters, the number
of shares of common stock set forth opposite the name of each underwriter.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- -----------
<S> <C>
Lehman Brothers Inc.........................................
Goldman, Sachs & Co.........................................
-----------
Total...................................................
===========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITERS SHARES
-------------------------- -----------
<S> <C>
Lehman Brothers International (Europe)......................
Goldman, Sachs & Co.........................................
-----------
Total...................................................
===========
</TABLE>
We refer to the U.S. underwriters and international underwriters as the
underwriters and the U.S. representatives and international representatives as
the representatives. The underwriting agreement provides that the obligations of
the several underwriters to purchase the shares included in the offering depend
on the satisfaction of the conditions contained in the underwriting agreement.
The underwriters are obligated to purchase all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares. The offering price and underwriting discounts and commissions per
share for the U.S. offering and the international offering are identical.
The conditions contained in the underwriting agreement include the
requirement that:
- the representations and warranties made by us to the underwriters are
true;
- there is no material change in the financial markets; and
- we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
shown on the cover page of this prospectus, and to dealers, who may include the
underwriters, at the public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After the offering, the underwriters may change the offering price and other
selling terms.
The underwriting discount is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting discount is %
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of the public offering price. We have agreed to pay the underwriters the
following total amount, assuming either no exercise or full exercise by the
underwriters of their over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
------------------------------------
WITH FULL
FEE WITHOUT EXERCISE OF EXERCISE OF
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- ------------------- --------------
<S> <C> <C> <C>
Underwriting discount paid by
Spinco............................. $ $ $
</TABLE>
We have granted the underwriters an option to purchase up to an aggregate of
additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discount shown on the cover page of this prospectus. The underwriters may
exercise this option at any time until 30 days after the date of the
underwriting agreement. If the option is exercised, each U.S. underwriter will
be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the tables
above, and we will be obligated, under the over-allotment option, to sell the
shares of common stock to the underwriters.
Spinco and QUALCOMM have agreed that, without the prior written consent of
Lehman Brothers Inc. on behalf of the underwriters, they will not, during the
period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
The restrictions described in this paragraph do not apply to:
- the sale of shares to the underwriters;
- shares of common stock issued by us under employee incentive plans or upon
the exercise of options issued under employee incentive plans;
- the distribution by QUALCOMM to its stockholders of the shares of our
common stock it holds following the offering; or
- transactions by any person other than Spinco or QUALCOMM relating to
shares of common stock or other securities acquired in open market
transactions after the completion of the offering of the shares.
The U.S. underwriters and the international underwriters have entered into
an agreement under which each U.S. underwriter has agreed that, as part of the
distribution of the shares of common stock offered in the U.S. offering:
- it is not purchasing any of these shares for the account of anyone other
than a U.S. Person (as defined below), and
- it has not offered or sold, will not offer, sell, resell or deliver,
directly or indirectly, any of these shares or distribute any prospectus
to anyone other than a U.S. Person.
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In addition, under the agreement among U.S. underwriters and international
underwriters, each international underwriter has agreed that, as part of the
distribution of the shares of common stock offered in the international
offering:
- it is not purchasing any of these shares for the account of a U.S. Person,
and
- it has not offered or sold, and will not offer, sell, resell, or deliver,
directly or indirectly, any of these shares or distribute any prospectus
to any U.S. Person.
The limitations described above do not apply to stabilization transactions
or to certain other transactions specified in the underwriting agreement and the
agreement among U.S. underwriters and international underwriters, including
- certain purchases and sales between U.S. underwriters and the
international underwriters;
- certain offers, sales, resales, deliveries or distributions to or through
investment advisors or other persons exercising investment discretion;
- purchases, offers or sales by a U.S. underwriter who is also acting as an
international underwriters or by an international underwriter who is also
acting as a U.S. underwriter; and
- other transactions specifically approved by the U.S. representatives and
the international representatives.
As used in this section, the term "U.S. Person" means any resident or
national of the United States or Canada, any corporation, partnership or other
entity created or organized in or under the laws of the United States or Canada,
or any estate or trust the income of which is subject to United States or
Canadian federal income taxation regardless of the source. The term "United
States" means the United States of America, including the District of Columbia,
and its territories, its possessions and other areas subject to its
jurisdiction, and the term "Canada" means Canada, its provinces, its
territories, its possessions and other areas subject to its jurisdiction.
According to the agreement among the U.S. underwriters and international
underwriters, sales may be made between the U.S. underwriters and the
international underwriters of the number of shares of common stock as may be
mutually agreed. The price of any shares so sold shall be the public offering
price as then in effect for the shares of common stock being sold by the U.S.
underwriters and the international underwriters less an amount equal to the
selling concession allocable to those shares of common stock, unless otherwise
determined by mutual agreement. To the extent that there are sales between the
U.S. underwriters and the international underwriters under the agreement among
the U.S. underwriters and the international underwriters, the number of shares
of common stock available for sale by the U.S. underwriters or by the
international underwriters may be more or less than the amount specified in the
tables above.
Before this offering, there has been no public market for shares of our
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
- our capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market valuations of
companies in related businesses.
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We intend to apply for quotation of our common stock on the Nasdaq National
Market under the trading symbol " ."
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter of this offering and will be
facilitating electronic distribution through the Internet.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement. We
have also agreed to contribute to payments that the underwriters may be required
to make for these liabilities.
The underwriters may purchase and sell shares of common stock in the open
market. These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common stock in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist
of various bids for or purchases of common stock made by the underwriters in the
open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of the common stock or preventing or retarding a decline in the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Each international underwriter has represented and agreed that:
- it has not offered or sold and, prior to the date six months after the
date of issue of the shares of common stock, will not offer to sell any
shares of common stock to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995;
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- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Regulation with respect to anything
done by it in relation to the shares of common stock in, from or otherwise
involving the United Kingdom; and
- it has only issued or passed on, and will only issue or pass on, to any
person in the United Kingdom any document received by it in connection
with the issue of the shares of common stock if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom these
documents may otherwise be issued or passed upon.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
The underwriters have informed us that they do not intend to confirm sales
to discretionary accounts that exceed 5% of the total number of shares offered
by them.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the public offering price shown on the
cover page of this prospectus.
From time to time, some of the underwriters have provided, and may continue
to provide, investment banking services to each of Spinco and QUALCOMM for which
such underwriters have received or will receive customary fees and commissions.
In particular, Lehman Brothers Inc. has advised, and may continue to advise, the
board of directors of QUALCOMM regarding various matters concerning the
separation of Spinco from QUALCOMM and the proposed distribution by QUALCOMM to
its stockholders of the shares of our common stock it holds following the
offering.
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LEGAL MATTERS
Cooley Godward LLP, San Diego, California will pass upon the validity of the
shares of our common stock offered by this prospectus for us. Latham & Watkins,
San Diego, California will pass upon certain legal matters in connection with
this offering for the underwriters.
EXPERTS
The financial statements of QUALCOMM Spinco, Inc. as of September 30, 1998
and 1999 and for each of the three years in the period ended September 30, 1999
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of SnapTrack, Inc. and subsidiary as
of December 31, 1999 and 1998 and for the years then ended and cumulative from
August 31, 1995 (inception) through December 31, 1999, included in this
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock being offered. This prospectus does not contain all of the
information described in the registration statement and the related exhibits and
schedules. For further information about us and the common stock being offered,
we refer you to the registration statement and the related exhibits and
schedules. The statements contained in this prospectus regarding the contents or
provisions of any contract or other document we refer to in this prospectus are
not necessarily complete, and in each instance we refer you to the copy of that
contract or other document filed as an exhibit to the registration statement. A
copy of the registration statement and the related exhibits and schedules may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Information on the operations of the offices of the Commission may be
obtained by calling the Commission at 1-800-SEC-0330. Copies of all or any part
of the registration statement may be obtained from these offices upon the
payment of the fees prescribed by the Commission. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding companies that file electronically with the Commission.
The address of the Web site is http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
--------
<S> <C>
QUALCOMM SPINCO, INC:
Report of Independent Accountants........................... F-2
Combined Balance Sheets at September 30, 1998 and 1999, and
June 25, 2000 (unaudited)................................. F-3
Combined Statements of Income for Fiscal 1997, 1998 and 1999
and for the nine months ended June 27, 1999 (unaudited)
and June 25, 2000 (unaudited)............................. F-4
Combined Statements of Cash Flows for Fiscal 1997, 1998 and
1999 and for the nine months ended June 27, 1999
(unaudited) and June 25, 2000 (unaudited)................. F-5
Combined Statements of Parent's Investment for Fiscal 1997,
1998 and 1999 and for the nine months ended June 25, 2000
(unaudited)............................................... F-6
Notes to Combined Financial Statements...................... F-7
SNAPTRACK, INC. AND SUBSIDIARY:
Independent Auditors' Report................................ F-19
Consolidated Balance Sheets at December 31, 1999 and 1998... F-20
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 1999 and 1998 and
cumulative from August 31, 1995 (Inception) through
December 31, 1999......................................... F-21
Consolidated Statements of Shareholders' Deficit from August
31, 1995 (Inception) through December 31, 1999............ F-22
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 and cumulative from August 31,
1995 (Inception) through December 31, 1999................ F-24
Notes to Consolidated Financial Statements.................. F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of QUALCOMM Spinco, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, of cash flows and of parent's investment present
fairly, in all material respects, the financial position of QUALCOMM
Spinco, Inc. at September 30, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended
September 30, 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.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
July 24, 2000
F-2
<PAGE>
QUALCOMM SPINCO, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999 JUNE 25, 2000
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 921 $ 1,772 $ 12,550
Accounts receivable, net.................................. 158,152 172,440 218,295
Inventories, net.......................................... 24,604 33,384 35,888
Deferred income taxes..................................... 10,976 17,942 21,141
Other current assets...................................... 2,575 914 1,909
-------- -------- --------
Total current assets.................................... 197,228 226,452 289,783
Property and equipment, net................................. 24,719 25,039 38,003
Goodwill, net............................................... -- -- 587,014
Other assets................................................ 366 1,012 21,764
-------- -------- --------
Total assets............................................ $222,313 $252,503 $936,564
======== ======== ========
LIABILITIES AND PARENT'S INVESTMENT
Current liabilities:
Accounts payable.......................................... $ 18,967 $ 56,374 $ 44,347
Payroll and benefit-related liabilities................... 2,799 8,364 12,503
Other accrued liabilities................................. 4,628 10,471 10,772
Unearned revenue.......................................... 1,150 1,030 19,751
-------- -------- --------
Total current liabilities............................... 27,544 76,239 87,373
Deferred income taxes....................................... -- -- 7,730
Other liabilities........................................... 9 481 3,081
-------- -------- --------
Total liabilities....................................... 27,553 76,720 98,184
Commitments and contingencies (Note 7)
Parent's investment......................................... 194,760 175,783 838,380
-------- -------- --------
Total liabilities and parent's investment............... $222,313 $252,503 $936,564
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
QUALCOMM SPINCO, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED
-------------------------------------- -----------------------------
1997 1998 1999 JUNE 27, 1999 JUNE 25, 2000
-------- -------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Third party.................... $361,502 $583,111 $ 900,638 $ 610,767 $ 868,385
Related party.................. 188,179 296,747 247,634 177,399 96,329
-------- -------- ---------- --------- ---------
Total revenues............... $549,681 $879,858 $1,148,272 $ 788,166 $ 964,714
-------- -------- ---------- --------- ---------
Expenses:
Cost of revenues............... 449,579 535,384 527,884 352,381 449,880
Research and development....... 24,368 56,437 127,846 84,788 145,340
Selling, general and
administrative............... 13,546 29,690 50,134 35,895 48,013
Amortization of goodwill and
other acquisition-related
intangible assets............ -- -- -- -- 54,995
Purchased in-process
technology................... -- -- -- -- 60,030
-------- -------- ---------- --------- ---------
Total expenses............... 487,493 621,511 705,864 473,064 758,258
-------- -------- ---------- --------- ---------
Income before income taxes....... 62,188 258,347 442,408 315,102 206,456
Income tax expense............... (22,406) (99,408) (167,435) (119,739) (123,874)
-------- -------- ---------- --------- ---------
Net income....................... $ 39,782 $158,939 $ 274,973 $ 195,363 $ 82,582
======== ======== ========== ========= =========
Unaudited pro forma net earnings
per common share (Note 1):
Basic.......................... $ $
========== =========
Diluted........................ $ $
========== =========
Shares used in unaudited pro
forma per share calculations
(Note 1):
Basic..........................
========== =========
Diluted........................
========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
QUALCOMM SPINCO, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED
------------------------------------- -----------------------------
1997 1998 1999 JUNE 27, 1999 JUNE 25, 2000
-------- -------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................... $ 39,782 $158,939 $ 274,973 $ 195,363 $ 82,582
Depreciation and amortization... 4,736 7,045 11,916 8,967 67,652
Purchased in-process
technology.................... -- -- -- -- 60,030
Deferred income tax provision
(benefit)..................... 432 (4,682) (6,979) (1,366) (7,061)
Increase (decrease) in cash
resulting from changes in:
Accounts receivable, net...... (46,089) (70,635) (14,288) 25,800 (45,770)
Inventories................... 6,659 (9,870) (8,780) 6,422 (2,504)
Other current assets.......... (68) (1,847) 1,661 1,563 (637)
Accounts payable.............. (8,858) 3,984 37,407 19,473 (12,062)
Accrued liabilities........... 6,923 (1,817) 11,408 7,379 53
Unearned revenue.............. 100 1,050 (120) (562) 16,384
-------- -------- --------- --------- ---------
Net cash provided by operating
activities.................... 3,617 82,167 307,198 263,039 158,667
-------- -------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures............ (10,256) (17,083) (12,236) (10,102) (24,582)
Business acquisitions........... -- -- -- -- (12,386)
Other items, net................ -- (316) (161) (135) (127)
-------- -------- --------- --------- ---------
Net cash used by investing
activities.................... (10,256) (17,399) (12,397) (10,237) (37,095)
-------- -------- --------- --------- ---------
FINANCING ACTIVITIES:
Parent's investment, net........ 7,849 (65,286) (293,950) (251,255) (109,920)
Other........................... -- -- -- -- (874)
-------- -------- --------- --------- ---------
Net cash provided (used) by
financing activities.......... 7,849 (65,286) (293,950) (251,255) (110,794)
-------- -------- --------- --------- ---------
Net increase (decrease) in cash
and cash equivalents.......... 1,210 (518) 851 1,547 10,778
Cash and cash equivalents at
beginning of period........... 229 1,439 921 921 1,772
-------- -------- --------- --------- ---------
Cash and cash equivalents at end
of period..................... $ 1,439 $ 921 $ 1,772 $ 2,468 $ 12,550
======== ======== ========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
QUALCOMM SPINCO, INC.
COMBINED STATEMENTS OF PARENT'S INVESTMENT
(IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT SEPTEMBER 30, 1996............................... $ 53,476
Net income.................................................. 39,782
Net transfers from QUALCOMM Incorporated.................... 7,849
---------
BALANCE AT SEPTEMBER 30, 1997............................... 101,107
Net income.................................................. 158,939
Net transfers to QUALCOMM Incorporated...................... (65,286)
---------
BALANCE AT SEPTEMBER 30, 1998............................... 194,760
Net income.................................................. 274,973
Net transfers to QUALCOMM Incorporated...................... (293,950)
---------
BALANCE AT SEPTEMBER 30, 1999............................... 175,783
Net income (unaudited)...................................... 82,582
Net transfers from QUALCOMM Incorporated (unaudited)........ 580,015
---------
BALANCE AT JUNE 25, 2000 (UNAUDITED)........................ $ 838,380
=========
</TABLE>
See accompanying notes.
F-6
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
QUALCOMM Spinco, Inc. (the "Company"), a Delaware corporation, is a
wholly-owned subsidiary of QUALCOMM Incorporated ("QUALCOMM"). QUALCOMM will
transfer to the Company its integrated circuits and system software solutions
business, currently referred to as QUALCOMM CDMA Technologies; its High Data
Rate, or 1xEV, product and technology group; its QUALCOMM Israel subsidiary; a
portion of its position location business acquired with the SnapTrack, Inc.
("SnapTrack") acquisition; and its European radio frequency design business for
handsets, purchased in February 2000 from Tellit Communications Limited
("Tellit"), on a date prior to the closing of an initial public offering
anticipated by the Company (the "Separation Date") .
After completion of the Company's initial public offering, QUALCOMM will own
approximately % of the Company's outstanding common stock. QUALCOMM
anticipates that it will spin off the Company (the "Distribution") by August
2001 (the "Distribution Date") by distributing all of the shares of the
Company's common stock owned by QUALCOMM to the holders of QUALCOMM common
stock. However, QUALCOMM is not required to complete the distribution, and the
distribution may not occur by the contemplated time, or at all. Because QUALCOMM
will own 90% or more of the Company's outstanding capital stock, it may merge
the Company into QUALCOMM at any time. Following the Distribution, QUALCOMM and
the Company will be operated as independent companies. QUALCOMM and the Company
will, however, continue to have a relationship as a result of the various
agreements being entered into in connection with the Distribution (Note 6).
The Company develops and supplies Code Division Multiple Access ("CDMA")
integrated circuits and system software solutions for wireless voice and
wireless data communications products and services. The Company's CDMA-based
products include system software and baseband, radio frequency, intermediate
frequency and power amplification integrated circuits for wireless handset
manufacturers.
BASIS OF PRESENTATION
The combined financial statements reflect the combined financial position,
results of operations and cash flows of the businesses that will be transferred
to the Company from QUALCOMM as if the Company had been a separate legal entity
for all periods presented, and as if certain wholly-owned subsidiaries of
QUALCOMM had been owned by the Company. However, for the periods covered by the
financial statements, wholly-owned subsidiaries combined with the Company were
directly or indirectly owned by QUALCOMM. All significant intercompany accounts
and transactions between combined entities have been eliminated. The financial
statements have been prepared using QUALCOMM's historical basis in the assets
and liabilities and historical results of operations related to the Company's
businesses. The Company had no cash balances as of September 30, 1997, 1998 and
1999, other than cash and cash equivalents owned by combined foreign legal
entities, as no specific cash accounts had been designated by QUALCOMM for the
Company. When Company liabilities are paid or investments are made, it is
assumed that the cash used by the Company was funded by a parent cash
contribution. Similarly, changes in parent's investment represent QUALCOMM's
contribution after giving effect to the net earnings of the Company plus net
transfers to and from QUALCOMM. The Company will begin accumulating retained
earnings on the Separation Date.
The combined financial statements include allocations of certain QUALCOMM
corporate expenses, including centralized research and development, legal,
accounting, employee benefits, rent,
F-7
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
insurance services, information technology services, treasury, investor
relations and other QUALCOMM corporate and infrastructure costs. The expense
allocations have been determined on bases that QUALCOMM considered to be a
reasonable reflection of the utilization of services provided to or the benefit
received by the Company. However, the financial information included herein may
not necessarily reflect the combined financial position, results of operations,
changes in cash flows and parent's investment of the Company in the future or
what they would have been had the Company been a separate, stand-alone entity
during the periods presented.
FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts and the disclosure of
contingent amounts in the Company's financial statements and the accompanying
notes. Actual results could differ from those estimates.
In the opinion of management, the unaudited financial information for the
interim periods presented reflects all adjustments, which are only normal and
recurring, necessary for a fair presentation. Operating results for interim
periods are not necessarily indicative of operating results for an entire fiscal
year.
FISCAL YEAR
The Company operates and reports using a fiscal year ending on the last
Sunday in September. For presentation purposes, the Company has indicated its
fiscal year as ending on September 30.
REVENUES
Revenues from hardware product sales are recognized at the time units are
shipped. License fees related to software license agreements are recognized when
the contractual obligations have been fulfilled. Deferred revenue consists
primarily of deferred maintenance revenue and fees related to software licenses
under which the Company has not fulfilled its contractual obligations.
CONCENTRATIONS
A significant portion of the Company's revenues are concentrated with a
limited number of customers as the worldwide market for wireless telephone
systems and products is dominated by a small number of large corporations and
government agencies.
Revenues from international customers, consisting of export sales, were
approximately 60%, 62% and 74% of total revenues in fiscal 1997, 1998 and 1999,
respectively, and 73% and 82% (unaudited) of total revenues for the nine months
ended June 27, 1999 and June 25, 2000, respectively. Sales to three South Korean
customers comprised 33%, 19% and 4% of total revenues during fiscal 1997; 31%,
14%, and 7% of total revenues during fiscal 1998; 23%, 15%, and 10% of total
revenues during fiscal 1999, and 22%, 15%, and 11% of total revenues (unaudited)
during the nine months ended June 27, 1999, and 17%, 16% and 8% of total
revenues (unaudited) during the nine months ended June 25, 2000. As a percentage
of total accounts receivable, accounts receivable from three South Korean
customers were 54%, 17% and 5% at September 30, 1998; 46%, 2% and 14% at
September 30, 1999; and 26%, 12% and 14% (unaudited) at June 25, 2000.
F-8
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are comprised
of money market funds. The carrying amounts approximate fair value due to the
short maturities of these instruments. The Company's policy is to place its cash
and cash equivalents with high quality financial institutions to limit the
amount of credit exposure.
INVENTORIES
Inventories are comprised of finished goods and are valued at the lower of
cost or market using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated or amortized
using the straight-line method over their estimated useful lives, ranging from
two to five years. Leasehold improvements are amortized over the shorter of
their estimated useful lives or the remaining term of the related lease.
Maintenance, repairs and minor renewals, and betterments are charged to expense.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible and identifiable intangible assets of
businesses acquired. Goodwill is amortized on a straight-line basis over its
useful life, ranging from three to four years. Other intangible assets are
amortized on a straight-line basis over their useful lives, ranging from three
to four years.
LONG-LIVED ASSETS AND INTANGIBLE ASSETS
The Company assesses potential impairments to its long-lived assets and
intangible assets when there is evidence that events or changes in circumstances
indicate that the carrying amount of an asset may not be recovered. An
impairment loss is recognized when the undiscounted cash flows expected to be
generated by an asset (or group of assets) is less than its carrying amount. Any
required impairment loss would be measured as the amount by which the asset's
carrying value exceeds its fair value, and would be recorded as a reduction in
the carrying value of the related asset and a charge to results of operations.
The Company has not incurred any such losses.
WARRANTY
Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related revenue is
recognized.
STOCK-BASED COMPENSATION
The Company measures compensation expense for stock-based employee
compensation using the intrinsic value method and provides pro forma disclosures
of net income and net earnings per common share as if the fair value method had
been applied in measuring compensation expense. Since the Company has not
previously granted equity awards, historical stock-based compensation cost for
stock
F-9
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
awards is measured as the Company's allocated share of the excess, if any, of
the fair value of QUALCOMM's common stock at the date of the grant over the
amount the employee must pay to acquire the stock. To date, the Company has not
recognized any such expense.
Equity instruments issued to non-employees for goods or services are
accounted for at fair value and are marked to market until service is complete
or a performance commitment date is reached.
FOREIGN CURRENCY
Local currencies are generally considered to be the functional currency for
operations outside the United States. Assets and liabilities are translated at
year-end exchange rates; income and expenses are translated at average rates of
exchange prevailing during the year. Resulting remeasurement gains or losses are
recognized as a component of other comprehensive income. Net foreign currency
transaction gains or losses were not material in any of the periods presented.
INCOME TAXES
Historically, the Company's operations have been included in the
consolidated income tax returns filed by QUALCOMM. Income tax expense in the
Company's financial statements has been calculated on a separate tax return
basis.
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 more likely than not be realized in future tax returns. Tax law and rate
changes are reflected in income in the period such changes are enacted.
UNAUDITED PRO FORMA NET EARNINGS PER COMMON SHARE
The Company had no shares of common stock outstanding during fiscal 1999 and
during the nine months ended June 25, 2000. Unaudited pro forma basic net
earnings per common share was calculated based on the common shares
outstanding on the date of capitalization of the Company adjusted for a
subsequent -for-one stock split. Unaudited pro forma diluted net earnings per
common share reflect the potential dilutive effect of additional common shares
issuable upon exercise of outstanding stock options, which totaled shares
in 1999 and shares for the nine months ended June 25, 2000. The effect of
dilutive stock options was computed using the treasury stock method at the
expected initial public offering price of $ per share.
COMPREHENSIVE INCOME
The Company has no material components of other comprehensive income and,
accordingly, comprehensive income is the same as net income for all periods
presented.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("FAS 133"), "Accounting for
Derivative Instruments and Hedging
F-10
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activities." In May 1999, the FASB delayed the effective date of FAS 133 by one
year. The Company will be required to adopt FAS 133 for fiscal year 2001. This
statement establishes a new model for accounting for derivatives and hedging
activities. Under FAS 133, all derivatives must be recognized as assets and
liabilities and measured at fair value. The Company believes that the adoption
of this new accounting standard will not have a material impact on its combined
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." The Company
will be required to adopt FIN 44 effective July 1, 2000 in respect to certain
provisions applicable to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee status
that occur on or after that date. FIN 44 addresses practice issues related to
the application of Accounting Practice Bulletin Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company believes that the application of FIN 44
will not have a material impact on its combined financial position or results of
operations.
NOTE 2--ACQUISITIONS
SNAPTRACK, INC.
On March 1, 2000, QUALCOMM acquired all of the outstanding capital stock of
SnapTrack, a developer of wireless position location technology, in a
transaction accounted for as a purchase. The purchase price was approximately
$1 billion, representing the value of QUALCOMM shares issued to effect the
purchase, the value of vested and unvested options and warrants exchanged at the
closing date and estimated transaction costs of $2 million. The preliminary
allocation of purchase price by QUALCOMM, based on the estimated fair values of
the acquired assets and assumed liabilities, reflected acquired goodwill of
$948 million, purchased in-process technology of $60 million and other
intangible assets of $34 million. Tangible assets acquired and liabilities
assumed were not material to QUALCOMM's financial statements. QUALCOMM expects
to finalize the purchase price allocation within one year and does not
anticipate material adjustments to the preliminary purchase price allocation.
QUALCOMM will allocate to the Company $629 million in goodwill, $60 million
in purchased in-process technology and $19 million in other intangible assets
related to SnapTrack's workforce, customer base and completed and in-process
technology to be transferred to the Company. QUALCOMM will retain $319 million
in goodwill and $15 million in other intangible assets related to specific
SnapTrack patents that will not be transferred to the Company. Goodwill and
other intangible assets resulting from the SnapTrack acquisition are amortized
on a straight-line basis over their estimated useful lives of four years. The
acquisition has been treated as a non-cash transaction in the statement of cash
flows.
Purchased in-process technology was expensed upon acquisition because
technological feasibility had not been established, and no future alternative
uses existed. The value of in-process technology was calculated by identifying
research projects in areas for which technological feasibility has not been
established, estimating the costs to develop the purchased in-process technology
into commercially viable products, estimating the resulting net cash flows from
such products, discounting the net cash flows to present value, and applying the
percentage completion of the projects thereto. The discount
F-11
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
rate includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology.
The combined financial statements include the operating results and the
amortization of goodwill and other intangible assets from the date of
acquisition, based on the allocation of purchased assets to the Company.
Unaudited pro forma operating results for the Company, assuming the acquisition
of SnapTrack and allocation of goodwill and other intangible assets to the
Company had been made at the beginning of the periods presented, are as follows
(in thousands) (unaudited):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ---------------------
SEPTEMBER 30, JUNE 27, JUNE 25,
1999 1999 2000
-------------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $1,148,337 $788,182 $965,053
========== ======== ========
Net income.................................. $ 105,643 $ 72,325 $ 68,661
========== ======== ========
Pro forma net earnings per common share:
Basic..................................... $ $
========== ========
Diluted................................... $ $
========== ========
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and may not be indicative of the results of operations which
actually would have occurred had the combination been in effect at the beginning
of the respective periods or of future results of operations of the combined
entities.
TECHNOLOGY DEVELOPMENT GROUP OF TELLIT COMMUNICATIONS LTD.
On February 25, 2000, QUALCOMM purchased the Technology Development Group of
Tellit, a U.K.-based company. QUALCOMM paid the initial purchase price of
$12 million in cash. An additional $9 million in consideration is payable in
cash through March 31, 2001 if certain performance and other milestones are
reached. The preliminary allocation of purchase price, based on the estimated
fair values of acquired assets and liabilities assumed, reflects acquired
goodwill of $11 million and other intangible assets of $1 million. The Company
expects to finalize the purchase price allocation within one year and does not
anticipate material adjustments to the preliminary purchase price allocation.
Any adjustments to the purchase price related to contingent consideration are
expected to increase goodwill. Amounts allocated to goodwill and assembled
workforce are amortized on a straight-line basis over their estimated useful
lives of three years. The combined financial statements include the operating
results of the Technology Development Group of Tellit from the date of
acquisition. Pro forma results of operations have not been presented because the
effect of this acquisition is not material.
NOTE 3--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
ACCOUNTS RECEIVABLE, NET
Accounts receivable are comprised of trade receivables. Accounts receivable
are presented net of an allowance for doubtful accounts of $3 million at
September 30, 1998 and 1999. No allowance for doubtful accounts is recorded at
June 25, 2000 (unaudited). Accounts receivable from related parties was
$26 million and $16 million at September 30, 1998 and 1999, respectively.
Predominantly all of the
F-12
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (CONTINUED)
trade receivables at September 30, 1998 and 1999 are from customers in the
wireless telecommunications industry.
PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment...................................... $ 25,565 $ 33,102
Machinery and equipment................................. 16,101 20,392
Furniture and office equipment.......................... 964 1,128
Leasehold improvements.................................. 524 720
-------- --------
43,154 55,342
Less accumulated depreciation and amortization.......... (18,435) (30,303)
-------- --------
$ 24,719 $ 25,039
======== ========
</TABLE>
GOODWILL, NET
At June 25, 2000, goodwill is presented net of $53 million in accumulated
amortization.
NOTE 4--INCOME TAXES
The components of income tax provision for the years ended September 30 are
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current provision:
Federal...................................... $19,288 $ 87,135 $145,182
State........................................ 2,686 16,711 28,090
Foreign...................................... -- 244 1,142
------- -------- --------
21,974 104,090 174,414
------- -------- --------
Deferred expense (benefit):
Federal...................................... (107) (4,696) (6,488)
State........................................ 666 28 (326)
Foreign...................................... (127) (14) (165)
------- -------- --------
432 (4,682) (6,979)
------- -------- --------
$22,406 $ 99,408 $167,435
======= ======== ========
</TABLE>
F-13
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INCOME TAXES (CONTINUED)
The following is a reconciliation from the expected statutory federal income
tax expense to the Company's actual income tax expense for the years ended
September 30 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Expected income tax expense at federal statutory
tax rate...................................... $21,766 $90,421 $154,841
State income tax expense, net of federal
benefit....................................... 2,829 11,755 20,129
Foreign taxes................................... -- 245 1,142
Permanent differences........................... (760) (426) (1,118)
Tax credits..................................... (1,429) (2,587) (7,559)
------- ------- --------
Actual income tax expense....................... $22,406 $99,408 $167,435
======= ======= ========
</TABLE>
At September 30, 1998 and 1999, the Company had $11 million and $18 million
in net deferred tax assets, respectively, which are comprised of income
recognition differences.
At September 30, 1999, the Company had no unused net operating losses,
research or alternative minimum tax credits.
No cash amounts were paid for income taxes by the Company during the periods
presented since the Company's operations were included in the consolidated
income tax returns filed by QUALCOMM. Taxes currently payable are recorded as a
net transfer from QUALCOMM.
NOTE 5--EMPLOYEE BENEFIT PLANS
At the Distribution Date, the Company will assume responsibility for
employee benefit plans for employees of the Company. Until the Distribution
Date, the expenses for QUALCOMM programs associated with employees of the
Company are allocated to the Company. The Company expects to enter into employee
benefit plans prior to the Distribution Date, including equity incentive plans
which will provide for the grant of various types of equity-based compensation
to employees of the Company, including incentive stock option plans,
non-qualified stock options plans and other stock-based awards, and a
non-employee directors' stock option plan, an employee savings and retirement
plan, an employee stock purchase plan and an executive retirement plan.
EMPLOYEE SAVINGS AND RETIREMENT PLAN
QUALCOMM's 401(k) plan allows eligible employees to contribute up to 15% of
their salary, subject to annual limits. The Company matches a portion of its
employees' contributions and may, at its discretion, make additional
contributions based upon earnings. The contribution expense allocated to the
Company by QUALCOMM was $0.3 million, $0.5 million and $1.9 million for fiscal
1997, 1998 and 1999, respectively.
STOCK OPTION PLANS
The QUALCOMM board of directors may grant options to selected employees,
directors and consultants of the Company to purchase shares of QUALCOMM's common
stock at a price not less than the fair market value of the stock at the date of
grant. QUALCOMM's 1991 Stock Option Plan (the "Plan"), as amended, provides for
the grant of both incentive stock options and non-qualified
F-14
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--EMPLOYEE BENEFIT PLANS (CONTINUED)
stock options. Generally, options outstanding vest over a one to six year period
and are exercisable for up to ten years from the grant date.
EMPLOYEE STOCK PURCHASE PLANS
QUALCOMM has employee stock purchase plans for all eligible employees to
purchase shares of common stock at 85% of the lower of the fair market value on
the first or the last day of each six-month offering period. Employees may
authorize up to 15% of their compensation to be withheld during any offering
period, subject to certain limitations.
EXECUTIVE RETIREMENT PLANS
QUALCOMM has voluntary retirement plans that allow eligible executives to
defer up to 100% of their income on a pretax basis. On a quarterly basis,
participants receive up to a 10% match of their deferral in QUALCOMM's common
stock based on the then current market price, to be issued to the participant
upon eligible retirement. The income deferred and QUALCOMM's match are unsecured
and subject to the claims of general creditors of QUALCOMM.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Pro forma information regarding net income and net earnings per common share
has been estimated at the date of grant using the Black-Scholes option-pricing
model based on the following assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK
STOCK OPTION PLANS PURCHASE PLANS
------------------------------------ ------------------------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Risk-free interest rate............. 6.3% 5.5% 5.2% 5.1% 5.1% 4.7%
Volatility.......................... 50% 50% 51% 50% 50% 51%
Dividend yield...................... -- -- -- -- -- --
Expected life (years)............... 6 6 6 0.5 0.5 0.5
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
QUALCOMM's options have characteristics significantly different than those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options.
For purposes of pro forma disclosures, the estimated fair value of the
options is assumed to be amortized to expense over the options' vesting periods.
The pro forma effects of recognizing
F-15
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--EMPLOYEE BENEFIT PLANS (CONTINUED)
compensation expense under the fair value method on net income and net earnings
per common share for the years ended September 30 are as follows (in thousands,
except for net earnings per share):
<TABLE>
<CAPTION>
1997 1998 1999
----------------------- ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income......................... $39,782 $38,569 $158,939 $155,521 $274,973 $263,453
Pro forma net earnings per common
share (unaudited):
Basic............................ $ $
Diluted.......................... $ $
</TABLE>
The pro forma effect on net income includes the amortization of expense
related to employee stock options granted to employees of the Company and an
allocation of expense related to employee stock options granted to QUALCOMM
employees providing service to the Company. The effects on pro forma disclosures
of applying the fair value method are not likely to be representative of the
effects on pro forma disclosures of future years because the fair value method
is applicable only to options granted subsequent to September 30, 1995.
NOTE 6--TRANSACTIONS WITH QUALCOMM
The Company's revenue from sales of products to QUALCOMM was $188 million in
1997, $297 million in 1998, $248 million in 1999, $177 million (unaudited) for
the nine months ended June 27, 1999 and $96 million (unaudited) for the nine
months ended June 25, 2000. The Company's cost of revenues related to royalties
charged by QUALCOMM was $23 million in 1997, $36 million in 1998, $48 million in
1999, $33 million (unaudited) in the nine months ended June 27, 1999 and
$39 million (unaudited) in the nine months ended June 25, 2000.
The Company's costs and expenses include allocations from QUALCOMM for
centralized research and development, legal, accounting, employee benefits,
rent, insurance services, information technology services, treasury, investor
relations and other QUALCOMM corporate and infrastructure costs. The expense
allocations have been determined in a manner that QUALCOMM considered to be a
reasonable reflection of the utilization of services provided to or the benefit
received by the Company. However, such allocations may not necessarily reflect
the costs and expenses to be incurred in the future or what they would have been
had the Company been a separate, stand-alone entity during the periods
presented. The bases used for expense allocation include relative labor costs,
operating expenses and gross profit, headcount, and square footage. Allocated
costs included in the combined statements of income are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED
------------------------------ -----------------------------
1997 1998 1999 JUNE 27, 1999 JUNE 25, 2000
-------- -------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Costs of revenues........................ $ 2,314 $ 1,602 $ 3,214 $ 2,338 $ 3,026
Research and development................. 10,818 29,290 57,935 39,892 63,395
Selling, general and administrative...... 7,820 17,668 32,657 24,132 29,215
------- ------- ------- ------- -------
Total.................................... $20,952 $48,560 $93,806 $66,362 $95,636
======= ======= ======= ======= =======
</TABLE>
F-16
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--TRANSACTIONS WITH QUALCOMM (CONTINUED)
For purposes of governing certain of the ongoing relationships between the
Company and QUALCOMM at and after the Separation Date and to provide for an
orderly transition, the Company and QUALCOMM expect to enter into various
agreements, including a Master Separation and Distribution Agreement, a General
Assignment and Assumption Agreement, a Master Intellectual Property Assignment
and License Agreement, an Employee Matters Agreement, a Tax Matters Agreement,
an Interim Services Agreement and a Real Estate Matters Agreement.
NOTE 7--COMMITMENTS AND CONTINGENCIES
LITIGATION
On February 26, 1999, the Lemelson Medical, Education & Research Foundation,
Limited Partnership, ("Lemelson") filed an industry-wide action in the United
States District Court for the District of Arizona. The complaint names a total
of 88 parties, including QUALCOMM, as defendants and purports to assert claims
for infringement of 15 patents. The complaint alleges that application specific
integrated circuit ("ASIC") devices sold by the Company, or the processes by
which such devices are manufactured, infringe the asserted patents. On
October 1, 1999, QUALCOMM and Lemelson entered into a settlement agreement
resolving all claims made against QUALCOMM in the complaint which did not have a
material effect on the financial results of the Company.
The Company is engaged in other legal actions arising in the ordinary course
of its business and believes that the ultimate outcome of these actions will not
have a material adverse effect on its results of operations, liquidity or
financial position.
NOTE 8--SEGMENT INFORMATION
The Company operates in one reportable segment. The operations of the
Company are primarily conducted in the United States, the Company's country of
domicile.
Sales information by geographic area for the years ended September 30 is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
United States............................... $221,104 $338,249 $ 296,936
South Korea................................. 312,491 479,921 685,405
Other Foreign............................... 16,086 61,688 165,931
-------- -------- ----------
$549,681 $879,858 $1,148,272
======== ======== ==========
</TABLE>
The Company distinguishes revenues from external customers by geographic
areas based on customer location.
The net book value of long-lived assets located outside of the United States
was $4 million, $5 million and $4 million at September 30, 1997, 1998 and 1999,
respectively.
F-17
<PAGE>
QUALCOMM SPINCO, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal Year 1997
Allowance for doubtful
accounts...................... $ 914 $1,017 $ 64 $1,867
Inventory reserves.............. 2,169 8,312 6,930 3,551
------ ------ ------ ------
$3,083 $9,329 $6,994 $5,418
====== ====== ====== ======
Fiscal Year 1998
Allowance for doubtful
accounts...................... $1,867 $1,445 $ 78 $3,234
Inventory reserves.............. 3,551 (139) 915 2,497
------ ------ ------ ------
$5,418 $1,306 $ 993 $5,731
====== ====== ====== ======
Fiscal Year 1999
Allowance for doubtful
accounts...................... $3,234 $ -- $ 1 $3,233
Inventory reserves.............. 2,497 3,791 1,191 5,097
------ ------ ------ ------
$5,731 $3,791 $1,192 $8,330
====== ====== ====== ======
</TABLE>
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
SnapTrack, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of
SnapTrack, Inc. and subsidiary (a development stage company) as of December 31,
1999 and 1998, and the related consolidated statements of operations and
comprehensive loss, shareholders' deficit and cash flows for the years then
ended and cumulative from August 31, 1995 (inception) through December 31, 1999.
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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of SnapTrack, Inc. and its
subsidiary as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for the periods stated above, in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 25, 2000
F-19
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 5,931,210 $ 4,426,864
Receivables............................................... 1,175,108 2,233,339
Prepaids and other current assets......................... 245,814 107,585
------------ -----------
Total current assets.................................... 7,352,132 6,767,788
Property and equipment, net................................. 601,158 272,990
Other assets................................................ 101,080 22,719
------------ -----------
Total................................................... $ 8,054,370 $ 7,063,497
============ ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 272,474 $ 325,424
Accrued liabilities....................................... 1,248,754 717,029
Deferred revenue.......................................... 6,935,000 4,700,000
Current portion of long-term debt......................... 714,772 858,911
------------ -----------
Total current liabilities............................... 9,171,000 6,601,364
Long-term debt.............................................. 768,331 702,276
------------ -----------
Total liabilities....................................... 9,939,331 7,303,640
------------ -----------
Shareholders' deficit:
Convertible preferred stock, $0.0005 par value--8,000,000
shares authorized (aggregate liquidation preference of
$9,500,019):
Series A; 600,000 shares designated and outstanding..... 294,078 294,078
Series B; 1,280,000 shares designated and outstanding... 797,466 797,466
Series C; 2,636,362 shares designated; 2,454,544 shares
outstanding in 1999 and 1998.......................... 3,464,418 3,464,418
Series D; 3,200,000 shares designated; 3,133,164 and
1,043,618 shares outstanding in 1999 and 1998,
respectively.......................................... 15,082,314 4,984,314
Common stock--$0.0005 par value; 28,000,000 shares
authorized; 4,714,219 and 3,896,132 shares outstanding
in 1999 and 1998, respectively.......................... 33,608,791 34,240
Deferred stock compensation............................... (30,521,901) --
Accumulated other comprehensive income.................... 10,124 --
Deficit accumulated during the development stage.......... (24,620,251) (9,814,659)
------------ -----------
Total shareholders' deficit............................. (1,884,961) (240,143)
------------ -----------
Total................................................. $ 8,054,370 $ 7,063,497
============ ===========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM
AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE FROM
YEAR ENDED AUGUST 31, 1995
DECEMBER 31, (INCEPTION) THROUGH
-------------------------- DECEMBER 31,
1999 1998 1999
------------ ----------- -------------------
<S> <C> <C> <C>
Service and other revenues........................ $ 368,462 $ 228,694 $ 640,013
Costs and expenses:
Cost of service and other revenues.............. 72,275 134,633 206,908
Research and development........................ 6,420,245 2,979,686 11,346,093
Sales and marketing............................. 4,112,558 1,880,882 6,924,789
General and administrative...................... 1,815,815 1,300,459 4,152,365
Amortization of deferred stock compensation:
Research and development...................... 1,568,515 -- 1,568,515
Sales and marketing........................... 683,398 -- 683,398
General and administrative.................... 687,612 -- 687,612
------------ ----------- ------------
Total costs and expenses...................... 15,360,418 6,295,660 25,569,680
------------ ----------- ------------
Loss from operations.............................. (14,991,956) (6,066,966) (24,929,667)
Other income (expense), net....................... 186,364 (20,534) 309,416
------------ ----------- ------------
Net loss.......................................... (14,805,592) (6,087,500) (24,620,251)
Other comprehensive income:
Foreign currency translation adjustment......... 10,124 -- 10,124
------------ ----------- ------------
Comprehensive loss................................ $(14,795,468) $(6,087,500) $(24,610,127)
============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
PERIOD FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK DEFERRED DURING THE
---------------------- -------------------- STOCK DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT COMPENSATION STAGE
--------- ---------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, August 31, 1995 (inception)............... -- $ -- -- $ -- $ -- $ --
September 1995--Sale of common stock at
$0.0015 per share for cash........................ 3,000,000 5,000
November 1995--Sale of common stock at
$0.0125 per share for cash........................ 532,500 6,656
Series A preferred stock subscription for cash...... 100,000
January 1996--Sale of Series A preferred stock at
$0.50 per share for cash, including issuance of
subscribed stock (net of issuance costs of
$5,922)........................................... 600,000 194,078
January 1996--Sale of common stock at $0.052
per share for cash................................ 267,000 13,350
February 1996--Sale of common stock at $0.05
per share for cash................................ 40,000 2,000
March 1996--Sale of common stock at $0.05
per share for cash................................ 20,000 1,000
May 1996--Sale of Series B preferred stock at
$.625 per share for cash (net of issuance costs of
$2,534)........................................... 1,280,000 797,466
December 1996--Sale of Series C preferred stock
at $1.375 per share for cash (net of issuance
costs of $4,155).................................. 2,436,362 3,345,843
Exercise of stock options........................... 26,632 1,384
December 1997--Issuance of Series C preferred stock
warrants.......................................... 20,917
Net loss (August 31, 1995--December 31, 1997)....... -- -- -- -- -- (3,727,159)
--------- ---------- --------- ------- ------------ -----------
Balances, December 31, 1997......................... 4,316,362 $4,458,304 3,886,132 $29,390 $ -- $(3,727,159)
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
------------- -----------
<S> <C> <C>
Balances, August 31, 1995 (inception)............... $ -- $ --
September 1995--Sale of common stock at
$0.0015 per share for cash........................ 5,000
November 1995--Sale of common stock at
$0.0125 per share for cash........................ 6,656
Series A preferred stock subscription for cash...... 100,000
January 1996--Sale of Series A preferred stock at
$0.50 per share for cash, including issuance of
subscribed stock (net of issuance costs of
$5,922)........................................... 194,078
January 1996--Sale of common stock at $0.052
per share for cash................................ 13,350
February 1996--Sale of common stock at $0.05
per share for cash................................ 2,000
March 1996--Sale of common stock at $0.05
per share for cash................................ 1,000
May 1996--Sale of Series B preferred stock at
$.625 per share for cash (net of issuance costs of
$2,534)........................................... 797,466
December 1996--Sale of Series C preferred stock
at $1.375 per share for cash (net of issuance
costs of $4,155).................................. 3,345,843
Exercise of stock options........................... 1,384
December 1997--Issuance of Series C preferred stock
warrants.......................................... 20,917
Net loss (August 31, 1995--December 31, 1997)....... (3,727,159)
----------- -----------
Balances, December 31, 1997......................... $ -- $ 760,535
</TABLE>
(Continued)
F-22
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT (CONTINUED)
PERIOD FROM AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK DEFERRED DURING THE
----------------------- ----------------------- STOCK DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT COMPENSATION STAGE
--------- ----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997................... 4,316,362 $ 4,458,304 3,886,132 $ 29,390 $ -- $ (3,727,159)
January--Issuance of Series C preferred stock
at $1.375 per share for fair value of
services received........................... 18,182 25,000
February--Issuance of Series C preferred stock
warrants.................................... 72,658
May--Sale of Series D preferred stock
at $4.815 per share for cash (net of
issuance costs of $40,707).................. 1,038,426 4,959,315
May--Issuance of Series D preferred stock at
$4.815 per share for fair value of services
received.................................... 5,192 24,999
Exercise of stock options..................... 10,000 4,850
Net loss...................................... (6,087,500)
--------- ----------- --------- ----------- ------------ ------------
Balances, December 31, 1998................... 5,378,162 9,540,276 3,896,132 34,240 -- (9,814,659)
March--Sale of Series D preferred stock
at $4.815 per share for cash (net of
issuance costs of $33,503).................. 2,089,546 10,027,660
March--Issuance of Series D preferred stock
warrants.................................... 70,340
Exercise of stock options..................... 818,087 113,125
Deferred stock compensation................... 33,461,426 (33,461,426)
Amortization of deferred stock compensation... 2,939,525
Net loss...................................... (14,805,592)
Other comprehensive income....................
--------- ----------- --------- ----------- ------------ ------------
Balances, December 31, 1999................... 7,467,708 $19,638,276 4,714,219 $33,608,791 $(30,521,901) $(24,620,251)
========= =========== ========= =========== ============ ============
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
------------- ------------
<S> <C> <C>
Balances, December 31, 1997................... $ -- $ 760,535
January--Issuance of Series C preferred stock
at $1.375 per share for fair value of
services received........................... 25,000
February--Issuance of Series C preferred stock
warrants.................................... 72,658
May--Sale of Series D preferred stock
at $4.815 per share for cash (net of
issuance costs of $40,707).................. 4,959,315
May--Issuance of Series D preferred stock at
$4.815 per share for fair value of services
received.................................... 24,999
Exercise of stock options..................... 4,850
Net loss...................................... (6,087,500)
------- ------------
Balances, December 31, 1998................... -- (240,143)
March--Sale of Series D preferred stock
at $4.815 per share for cash (net of
issuance costs of $33,503).................. 10,027,660
March--Issuance of Series D preferred stock
warrants.................................... 70,340
Exercise of stock options..................... 113,125
Deferred stock compensation................... --
Amortization of deferred stock compensation... 2,939,525
Net loss...................................... (14,805,592)
Other comprehensive income.................... 10,124 10,124
------- ------------
Balances, December 31, 1999................... $10,124 $ (1,884,961)
======= ============
</TABLE>
See notes to consolidated financial statements. (Concluded)
F-23
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM
AUGUST 31, 1995 (INCEPTION) THROUGH DECEMBER 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE FROM
YEAR ENDED AUGUST 31, 1995
DECEMBER 31, (INCEPTION) THROUGH
-------------------------- DECEMBER 31,
1999 1998 1999
------------ ----------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(14,805,592) $(6,087,500) $(24,620,251)
Reconciliation to net cash used in operating
activities:
Depreciation and amortization.................... 279,818 121,078 503,087
Amortization of deferred stock compensation...... 2,939,525 -- 2,939,525
Issuance of stock for services received.......... -- 49,999 49,999
Accretion of debt................................ 36,620 27,087 63,707
Issuance of warrants for services................ -- 4,850 4,850
Changes in operating assets and liabilities:
Receivables.................................... 1,058,231 (2,145,839) (1,176,402)
Prepaids and other current assets.............. (138,229) 12,099 (230,985)
Other assets................................... (78,361) (13,449) (101,080)
Accounts payable............................... (52,950) 265,998 272,474
Accrued expenses............................... 531,725 438,252 1,248,754
Deferred revenue............................... 2,235,000 4,550,000 6,935,000
------------ ----------- ------------
Net cash used in operating activities........ (7,994,213) (2,777,425) (14,111,322)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. (608,020) (266,300) (1,104,279)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock, net......... 10,027,660 4,959,315 19,424,362
Proceeds from sale of common stock................. -- -- 28,006
Proceeds from sale of warrants..................... -- -- 7,382
Proceeds from exercise of stock options............ 113,125 -- 114,509
Proceeds from borrowing............................ 663,090 2,219,428 2,991,201
Repayment of borrowing............................. (707,454) (711,353) (1,428,807)
------------ ----------- ------------
Net cash provided by financing activities...... 10,096,421 6,467,390 21,136,653
------------ ----------- ------------
Effect of exchange rate changes on cash and
equivalents........................................ 10,158 -- 10,158
Net increase in cash and equivalents................. 1,504,346 3,423,665 5,931,210
Cash and equivalents, Beginning of period............ 4,426,864 1,003,199 --
------------ ----------- ------------
CASH AND EQUIVALENTS, End of period.................. $ 5,931,210 $ 4,426,864 $ 5,931,210
============ =========== ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of preferred stock warrants in connection
with venture loan agreement...................... $ 70,340 $ 72,658 $ 156,533
============ =========== ============
Deferred stock compensation........................ $ 33,461,426 $ -- $ 33,461,426
============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest........... $ 210,806 $ -- $ 445,074
============ =========== ============
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--SnapTrack Inc. (the Company) was incorporated on August 31,
1995 in California, and is engaged in the development of an ultra-high
performance tracking system that integrates a Global Positioning Satellite
System receiver, a two-way wireless transceiver, and a Geographic Information
System. The Company has developed a prototype for this device and is continuing
to refine and enhance its technical capabilities. The Company is subject to the
risks associated with a development stage enterprise, including the need to
refine its product technology, to extend its marketing and distribution channels
and to continue to raise financing.
DEVELOPMENT STAGE--The Company is in the development stage as of
December 31, 1999. Successful completion of the Company's developmental program
and, ultimately, the attainment of profitable operations is dependent upon
future events, including future financing, successfully completing product
development, and achieving a sufficient level of sales and market demand to
become an established operating enterprise. The activities of the Company have
been accounted for as set forth in Statement of Financial Accounting Standards
No. 7, "Accounting and Reporting by Development Stage Enterprises."
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control, and could have
a material adverse effect on the Company's business, operating results, and
financial condition. These risks include variability and uncertainty of revenues
and operating results; product concentration, technological change, and new
products; competition; intellectual property/litigation; management of growth;
dependence on key personnel; limited sources of component supply; licenses from
third parties; geographic concentration; acquisitions and investments;
international operations; regulatory requirements; expansion of distribution
channels; and year 2000 compatibility issues.
CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash
equivalents and receivables. The Company invests only in high-quality credit
instruments.
CASH AND EQUIVALENTS--The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents at December 31, 1999 consisted of commercial
paper. The carrying amount of the Company's cash equivalents approximates fair
value due to the short-term maturity of those investments.
RECEIVABLES--At December 31, 1999, receivables consists entirely of amounts
billed in connection with five software licenses and related consulting. Revenue
recognition on these contracts has been deferred pending completion of
contractual obligations. At December 31, 1998, receivables consist entirely of
amounts billed in connection with two service contracts.
F-25
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over estimated useful lives of one to three years or the lease term, if
shorter.
LONG-LIVED ASSETS--The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
REVENUE RECOGNITION--Service revenues related to installation, training and
customer support are recognized upon completion. For contracts requiring
customer acceptance, revenue recognition is deferred pending such acceptance.
In 1998, the Company adopted Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," which requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. Revenue for software licenses is
recognized upon delivery provided that collection is probable. Software support
and maintenance revenue are deferred and amortized over the maintenance period
on a straight-line basis. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations and cash
flows.
RESEARCH AND DEVELOPMENT--Research and development expenses are charged to
operations as incurred.
INCOME TAXES--Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, as well as net
operating loss and tax credit carryforwards, net of a valuation allowance to
reduce deferred tax assets to amounts that are more likely than not to be
realizable.
STOCK-BASED COMPENSATION--The Company accounts for stock-based awards issued
to employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees."
RECENTLY ISSUED ACCOUNTING STANDARD--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. SFAS No. 133 will be effective for the Company's year
ending December 31, 2001. The Company has not completed its assessment of the
impact on this statement of the Company's financial position, results of
operations or cash flows.
F-26
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Computers and software................................ $ 644,661 $ 280,200
Office and test equipment............................. 339,055 149,559
Leasehold improvements................................ 120,525 66,499
---------- ---------
1,104,241 496,258
Accumulated depreciation and amortization............. (503,083) (223,268)
---------- ---------
Property and equipment, net........................... $ 601,158 $ 272,990
========== =========
</TABLE>
3. ACCRUED LIABILITIES
Accrued liabilities at December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Accrued professional expenses......................... $ 242,000 $131,271
Accrued commissions................................... 104,850 175,347
Accrued payroll and benefits.......................... 379,348 180,479
Other................................................. 522,556 229,932
---------- --------
Total accrued liabilities............................. $1,248,754 $717,029
========== ========
</TABLE>
4. LONG-TERM DEBT
Long-term obligations at December 31 consist of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Venture loan, 12.87% interest........................ $ 825,528 $1,284,892
Equipment term loan, 6.99% to 9.68% interest......... 657,575 276,295
---------- ----------
1,483,103 1,561,187
Current portion...................................... (714,772) (858,911)
---------- ----------
Long-term portion.................................... $ 768,331 $ 702,276
========== ==========
</TABLE>
Borrowings under the venture loan are collateralized by substantially all
assets and are payable in 42 monthly installments. At December 31, 1999, no
additional borrowings were available under this loan.
Maximum borrowings under the equipment term loan agreement are $1,000,000.
Current borrowings are collateralized by equipment with original cost of
$872,296 (net book value of approximately $450,588 at December 31, 1999) and are
payable in 42 monthly installments. At
F-27
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
4. LONG-TERM DEBT (CONTINUED)
December 31, 1999, the Company had $144,751 of borrowing capacity remaining
under the equipment loan.
Outstanding borrowings are due as follows:
<TABLE>
<S> <C>
2000........................................................ $ 714,772
2001........................................................ 554,927
2002........................................................ 150,479
2003........................................................ 62,925
----------
$1,483,103
==========
</TABLE>
In connection with both the equipment term loan agreement and the venture
loan agreement, the Company issued certain Series D preferred stock warrants
(Note 5). The value of the warrants are being amortized on a straight-line basis
over the term of the loans.
5. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Significant terms of the Series A, B, C and D preferred stock are as
follows:
- Each share is convertible into one share of common stock (subject to
adjustments for events of dilution) at any time at the option of the
holder. Conversion is automatic in the event of a firm underwritten public
offering of common stock meeting certain criteria.
- Each share has voting rights equal to the number of shares of common stock
into which it may convert.
- In the event of liquidation, merger, dissolution or winding up of the
Company, preferred shareholders shall first receive $0.50 per share for
Series A, $0.625 per share for Series B, $1.375 per share for Series C and
$4.815 per share for Series D, plus any declared and unpaid dividends.
After payment of preferential amounts, the holders of common stock shall
be entitled to receive all remaining assets of the Company.
- To the extent declared, annual per share dividends of $0.025 on Series A,
$0.03125 on Series B, $0.07 on Series C and $0.24 on Series D must be paid
prior to any common stock dividends.
STOCK PURCHASE PLAN
Under the 1995 Stock Purchase Plan, 859,500 shares of common stock were
authorized for issuance to key personnel at fair market value. At December 31,
1999, all shares had been sold under this plan, and 2,503 shares are subject to
repurchase by the Company at the original issue price if the purchaser's
employment with the Company is terminated. The Company's repurchase rights lapse
ratably over a four-year period.
F-28
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
5. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK PURCHASE WARRANTS
In March 1999, in connection with the venture and equipment loan agreements
(Note 4), the Company issued warrants to purchase 22,700 shares of Series D
preferred stock at a price of $4.815 per share. The warrants were valued at
$70,340 and expire in March 2007.
In February 1998, in connection with the venture loan agreement (Note 4),
the Company issued warrants to purchase 105,454 shares of Series C preferred
stock at a price of $1.375 per share. The warrants were valued at $72,658 and
expire in March 2005.
In April 1998, in connection with a users consortium agreement, the Company
issued warrants to purchase 30,000 shares of common stock at a price of $1.375
per share. The warrants had nominal value and expire in April 2003.
In December 1997, in connection with the equipment term and venture loan
agreement (Note 4), the Company issued warrants to purchase 54,544 shares of
Series C preferred stock at $1.375 per share. The warrants were valued at
$20,917 and expire in December 2004.
The value of the above warrants have been estimated using the Black-Scholes
option pricing model with the following assumptions: expected life, the term of
the option, risk free interest rate of 4.66% in 1999, 5.43% in 1998 and 5.73% in
1997, 75% volatility in 1999 and 50% volatility in 1998 and 1997 and no dividend
during the expected term.
STOCK OPTION PLAN
Under the 1995 Stock Option Plan, 4,318,500 shares of common stock have been
authorized for the grant of incentive or nonqualified stock options. Options
must be granted at not less than fair market value (85% of fair value for
nonqualified options). Such options generally vest over four years and expire in
ten years.
F-29
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
5. SHAREHOLDERS' EQUITY (CONTINUED)
Stock option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING
----------------------------
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Granted (weighted average fair value of $0.015).... 1,039,212 $0.065
Exercised.......................................... (26,632) 0.050
Canceled........................................... (158,166) 0.055
---------
Balances, December 31, 1996........................ 854,414 0.067
Granted (weighted average fair value of $0.0035)... 676,000 0.138
---------
Balances, December 31, 1997........................ 1,530,414 0.098
Granted (weighted average fair value of $0.32)..... 1,344,000 0.440
Exercised.......................................... (10,000) 0.485
Canceled........................................... (156,000) 0.485
---------
Balances, December 31, 1998........................ 2,708,414 0.244
Granted (weighted average fair value of $26.77).... 1,423,350 0.740
Exercised.......................................... (818,087) 0.138
Canceled........................................... (152,208) 0.413
---------
Balances, December 31, 1999........................ 3,161,469 $0.487
=========
</TABLE>
Additional information regarding options outstanding as of December 31, 1999
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------
WEIGHTED AVERAGE
REMAINING
NUMBER CONTRACTUAL NUMBER
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE
------------------------ ----------- ---------------- -----------
<S> <C> <C> <C>
$0.0625................................. 397,748 5.3 242,795
0.1375.................................. 513,556 9.8 206,639
0.4850.................................. 1,118,815 8.8 232,023
0.7500.................................. 892,500 9.6 --
1.0000.................................. 238,850 9.9 --
--------- -------
3,161,469 681,457
========= =======
</TABLE>
At December 31, 1999, exercisable options had a weighted average exercise
price of $0.487. At December 31, 1998, options to purchase 795,694 shares were
exercisable with a weighted average
F-30
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
5. SHAREHOLDERS' EQUITY (CONTINUED)
exercise price of $0.10. At December 31, 1999, options to purchase 302,312
shares of common stock were available for future grant.
DEFERRED STOCK COMPENSATION
In connection with grants of certain stock options in 1999, the Company
recorded deferred stock compensation of $33,461,426 for the difference between
the estimated fair value for accounting purposes and the stock price as
determined by the board of directors on the date of grant. This amount is being
amortized to expense using the straight-line approach over the vesting period of
the related stock options, generally four years. Amortization of deferred stock
compensation for the year ended December 31, 1999 was $2,939,525.
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with APB No. 25, "Accounting for
Stock Issued to Employees" and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements which are granted with exercise prices equal to or
less than the fair market value at grant date.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net loss had the Company adopted the fair value method.
Under SFAS 123, the fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such models were developed
to estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the Company's
stock option awards. These models also require subjective assumptions, including
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the minimum value option pricing model
with the following weighted average assumptions: expected life, five years; risk
free interest rate, ranging from approximately 4.7% to 6.1% in 1999 and
approximately 5.4% in 1998, respectively; and no dividend payments during the
expected term. The Company's calculations are based on a single option valuation
approach and forfeitures are recognized as they occur. If the computed fair
values of the options had been amortized to expense over the vesting period of
the awards, the effect on pro forma net loss would not have been material.
However, the 1999 and 1998 pro forma adjustments may not be indicative of future
period pro forma adjustments.
F-31
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
5. SHAREHOLDERS' EQUITY (CONTINUED)
COMMON SHARES RESERVED FOR ISSUANCE
At December 31, 1999, the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock...................... 600,000
Conversion of Series B preferred stock...................... 1,280,000
Conversion of Series C preferred stock...................... 2,454,544
Conversion of Series D preferred stock...................... 3,133,164
Exercise of common stock options............................ 3,161,469
Exercise and conversion of preferred stock warrants......... 182,698
Exercise of common stock warrants........................... 30,000
----------
10,841,875
==========
</TABLE>
On December 15, 1998, the board of directors approved a two-for-one stock
split effective January 18, 1999. All references to share and per share amounts
in the accompanying financial statements give retroactive effect to reflect the
split.
6. INCOME TAXES
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets--
Net operating loss carryforwards................. $ 6,482,000 $ 1,439,000
Accruals not currently deductible for tax
purposes....................................... 848,000 597,000
Research and development credit carryforwards.... 633,000 326,000
Deferred tax liabilities--
Depreciation..................................... (171,000) (266,000)
----------- -----------
Net deferred tax assets............................ 7,792,000 2,096,000
Valuation allowance................................ (7,792,000) (2,096,000)
----------- -----------
Total.............................................. $ -- $ --
=========== ===========
</TABLE>
Due to the uncertainties surrounding the utilization of its net deferred tax
assets, the Company has recorded a valuation allowance to fully provide against
its otherwise recognizable net deferred tax assets at December 31, 1999 and
1998.
Current federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation.
F-32
<PAGE>
SNAPTRACK, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998 AND CUMULATIVE FROM AUGUST 31, 1995
(INCEPTION) THROUGH DECEMBER 31, 1999
7. LEASE COMMITMENTS
The Company occupies facilities under leases which expire at various dates
through July 2004. Rental expense for the years ended December 31, 1999, 1998
and cumulative from inception was approximately $342,265, $158,000, and
$500,265, respectively. Future minimum lease payments are approximately
$493,153, $395,908, $143,201, $53,509 and $31,430 in 2000, 2001, 2002, 2003 and
2004, respectively.
8. RELATED PARTY TRANSACTIONS
The Company obtains legal services from shareholders. Legal expenses with
these shareholders for the years ended December 31, 1999 and 1998 and cumulative
from inception were approximately $590,000, $646,000, and $1,560,000,
respectively.
9. PENDING LITIGATION
The Company is involved in various legal proceedings. Management, after
reviewing these proceedings with legal counsel, believes the aggregate
liability, if any, will not materially affect the consolidated financial
condition or results of operations of the Company. However, the outcome of
litigation is inherently uncertain and no assurance can be given as to the
ultimate resolution.
10. SUBSEQUENT EVENTS
On March 1, 2000 the Company shareholders sold 100% of the stock of the
Company to Qualcomm, Inc. for approximately $1 billion in Qualcomm, Inc. stock.
F-33
<PAGE>
[GRAPHIC -- BACKGROUND MAP]
SHARES
COMMON STOCK
-------------
PROSPECTUS
, 2000
---------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
------------
<S> <C>
Registration fee............................................ $ 26,400
NASD filing fee............................................. 5,500*
Nasdaq Stock Market Listing Application fee................. **
Blue sky qualification fees and expenses.................... **
Printing and engraving expenses............................. **
Legal fees and expenses..................................... **
Accounting fees and expenses................................ **
Transfer agent and registrar fees........................... **
Miscellaneous............................................... **
------------
Total................................................... $ 2,000,000*
============
</TABLE>
* Estimated.
** To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), the Registrant has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act.
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the Delaware Law and (ii) require the Registrant to
indemnify its directors and officers to the fullest extent permitted by
Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary. Pursuant to Section 145 of the
Delaware Law, a corporation generally has the power to indemnify its present and
former directors, officers, employees and agents against expenses incurred by
them in connection with any suit to which they are, or are threatened to be
made, a party by reason of their serving in such positions so long as they acted
in good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of the corporation and, with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful. The
Registrant believes that these provisions are necessary to attract and retain
qualified persons as directors and officers. These provisions do not eliminate
the directors' duty of care, and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware Law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for acts or omissions that the
director believes to be contrary to the best interests of the Registrant or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Registrant or its stockholders when the director was
aware, or should have been aware, of a risk of serious injury to the Registrant
or its stockholders, for acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
Registrant or its
II-1
<PAGE>
stockholders, for improper transactions between the director and the Registrant
and for improper distributions to stockholders and loans to directors and
officers. The provision also does not affect a director's responsibilities under
any other law, such as the federal securities law or state or federal
environmental laws.
The Registrant will enter into indemnity agreements with each of its
directors and executive officers that will require the Registrant to indemnify
such persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also will
set forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Registrant has an insurance policy covering the officers and directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in July 2000, the Registrant has sold and issued the
following unregistered securities:
(a) In connection with the Registrant's formation in July 2000, the
Registrant issued shares of Common Stock to QUALCOMM Incorporated.
The Registrant issued such shares in reliance on the exemption provided
in Section 4(2) of the Securities Act.
The recipient of the above-described securities represented its intention to
acquire the securities for investment only and not with a view to distribution
thereof. The recipient had adequate access through its relationship with the
Registrant, to information about the Registrant. Appropriate legends were
affixed to the stock certificates issued in such transactions.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Form of Master Separation and Distribution Agreement between
QUALCOMM and the Registrant*
3.1 Certificate of Incorporation*
3.2 Form of Amended and Restated Certificate of Incorporation*
3.3 Bylaws*
4.1 Specimen Stock Certificate*
5.1 Opinion of Cooley Godward LLP*
10.1 Form of Spinco 2000 Equity Incentive Plan*
10.2 Form of Nonstatutory Stock Option Agreement under the 2000
Equity Incentive Plan*
10.3 Form of Incentive Stock Option Agreement under the 2000
Equity Incentive Plan*
10.4 Form of Spinco Employee Stock Purchase Plan*
10.5 Form of Spinco 2000 Non-Employee Directors' Stock Option
Plan*
10.6 Form of Non-Qualified Stock Option Agreement under the 2000
Non-Employee Directors' Stock Option Plan*
10.7 Form of General Assignment and Assumption Agreement between
QUALCOMM and the Registrant*
10.8 Form of Master Intellectual Property Assignment and License
Agreement between QUALCOMM and the Registrant*
10.9 Form of Employee Matters Agreement between QUALCOMM and the
Registrant*
10.10 Form of Tax Matters Agreement between QUALCOMM and the
Registrant*
10.11 Form of Interim Services Agreement between QUALCOMM and the
Registrant*
10.12 Form of Real Estate Matters Agreement between QUALCOMM and
the Registrant*
10.13 Form of Master Separation and Distribution Agreement between
QUALCOMM and the Registrant*
21.1 Subsidiaries of the Registrant*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1*
24.1 Power of Attorney. Reference is made to page II-5
27.1 Financial Data Schedule for the fiscal year ended
September 30, 1999 and the nine months ended June 25, 2000
</TABLE>
------------------------
* To be filed by amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(b) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
County of San Diego, State of California, on July 24, 2000.
<TABLE>
<S> <C> <C>
QUALCOMM SPINCO, INC.
By: /s/ RICHARD SULPIZIO
----------------------------------------
Richard Sulpizio
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard Sulpizio and Anthony S. Thornley and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments, exhibits thereto and other documents in connection therewith) to
this Registration Statement and any subsequent registration statement filed by
the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, which relates to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ IRWIN M. JACOBS Chairman of the Board July 24, 2000
------------------------------------
Irwin M. Jacobs
/s/ RICHARD SULPIZIO Chief Executive Officer and Director July 24, 2000
------------------------------------ (Principal Executive Officer)
Richard Sulpizio
/s/ ANTHONY S. THORNLEY Interim Chief Financial Officer and July 24, 2000
------------------------------------ Secretary (Principal Financial and
Anthony S. Thornley Accounting Officer)
/s/ DONALD E. SCHROCK President, Chief Operating Officer and July 24, 2000
------------------------------------ Director
Donald E. Schrock
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD C. ATKINSON Director July 24, 2000
------------------------------------
Richard C. Atkinson
/s/ ADELIA A. COFFMAN Director July 24, 2000
------------------------------------
Adelia A. Coffman
/s/ JEROME S. KATZIN Director July 24, 2000
------------------------------------
Jerome S. Katzin
/s/ FRANK SAVAGE Director July 24, 2000
------------------------------------
Frank Savage
/s/ BRENT SCOWCROFT Director July 24, 2000
------------------------------------
Brent Scowcroft
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
2.1 Form of Master Separation and Distribution Agreement between
QUALCOMM and the Registrant*
3.1 Certificate of Incorporation*
3.2 Form of Amended and Restated Certificate of Incorporation*
3.3 Bylaws*
4.1 Specimen Stock Certificate*
5.1 Opinion of Cooley Godward LLP*
10.1 Form of Spinco 2000 Equity Incentive Plan*
10.2 Form of Nonstatutory Stock Option Agreement under the 2000
Equity Incentive Plan*
10.3 Form of Incentive Stock Option Agreement under the 2000
Equity Incentive Plan*
10.4 Form of Spinco Employee Stock Purchase Plan*
10.5 Form of Spinco 2000 Non-Employee Directors' Stock Option
Plan*
10.6 Form of Non-Qualified Stock Option Agreement under the 2000
Non-Employee Directors' Stock Option Plan*
10.7 Form of General Assignment and Assumption Agreement between
QUALCOMM and the Registrant*
10.8 Form of Master Intellectual Property Assignment and License
Agreement between QUALCOMM and the Registrant*
10.9 Form of Employee Matters Agreement between QUALCOMM and the
Registrant*
10.10 Form of Tax Matters Agreement between QUALCOMM and the
Registrant*
10.11 Form of Interim Services Agreement between QUALCOMM and the
Registrant*
10.12 Form of Real Estate Matters Agreement between QUALCOMM and
the Registrant*
10.13 Form of Master Separation and Distribution Agreement between
QUALCOMM and the Registrant*
21.1 Subsidiaries of the Registrant*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Cooley Godward LLP. Reference is made to
Exhibit 5.1*
24.1 Power of Attorney. Reference is made to page II-5
27.1 Financial Data Schedule for the fiscal year ended
September 30, 1999 and the nine months ended June 25, 2000
</TABLE>
------------------------
* To be filed by amendment.
