<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUALCOMM INCORPORATED
QUALCOMM FINANCIAL TRUST I
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-3685934
DELAWARE 52-6845046
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
6455 LUSK BOULEVARD
SAN DIEGO, CALIFORNIA 92121
(619) 587-1121
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN R. ALTMAN, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
QUALCOMM INCORPORATED
6455 LUSK BOULEVARD
SAN DIEGO, CALIFORNIA 92121-2779
(619) 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. LATHAM & WATKINS
COOLEY GODWARD LLP 701 B STREET
4365 EXECUTIVE DRIVE, SUITE 1100 SAN DIEGO, CA 92101
SAN DIEGO, CA 92121 TELEPHONE: (619) 236-1234
TELEPHONE: (619) 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 being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under 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. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"), ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 18, 1997
PROSPECTUS
13,200,000 5 3/4% TRUST CONVERTIBLE PREFERRED SECURITIES
QUALCOMM FINANCIAL TRUST I
(LIQUIDATION AMOUNT $50 PER CONVERTIBLE PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AND CONVERTIBLE INTO THE COMMON STOCK OF
[QUALCOMM LOGO]
This Prospectus relates to the resale of the 5 3/4% Trust Convertible
Preferred Securities (the "Convertible Preferred Securities"), liquidation
amount $50 per Convertible Preferred Security, which represent preferred
undivided beneficial interests in the assets of QUALCOMM Financial Trust I, a
statutory business trust created under the laws of the State of Delaware (the
"Trust"), and the shares of common stock, par value $0.0001 per share ("Common
Stock"), of QUALCOMM Incorporated, a Delaware corporation ("QCOM" and, together
with its subsidiaries, "QUALCOMM" or the "Company"), issuable upon conversion of
the Convertible Preferred Securities. The Convertible Preferred Securities were
issued and sold (the "Original Offering") on February 25, 1997 (the "Original
Closing Date") and March 10, 1997 (together with the Original Closing Date, the
"Original Offering Date") to the Initial Purchasers (as defined herein) and were
simultaneously sold by the Initial Purchasers in transactions exempt from the
Securities Act of 1933, as amended (the "Securities Act"), in the United States
to persons reasonably believed by the Initial Purchasers to be qualified
institutional buyers as defined in Rule 144A under the Securities Act, in the
United States to a limited number of other institutional "accredited investors"
(as defined in Rule 501(A)(1), (2), (3) or (7) under the Securities Act) and
outside the United States to non-U.S. persons in offshore transactions in
reliance on Regulation S under the Securities Act. All of the beneficial
interests in the assets of the Trust represented by common securities of the
Trust (the "Common Securities" and, together with the Preferred Securities, the
"Trust Securities") are owned by QCOM. The Trust exists for the exclusive
purposes of issuing the Trust Securities and investing the proceeds of the sale
thereof in 5 3/4% Convertible Subordinated Debentures due February 24, 2012 of
QCOM (the "Convertible Subordinated Debt Securities") in an aggregate principal
amount equal to the aggregate liquidation amount of the Trust Securities. The
Convertible Subordinated Debt Securities are unsecured obligations of QCOM and
are subordinate and junior in right of payment to certain other indebtedness of
QCOM as described herein. Upon an event of default under the Declaration (as
defined herein), the holders of the Convertible Preferred Securities will have a
preference over the holders of the Common Securities with respect to payments in
respect of distributions and payments upon liquidation, redemption and
otherwise.
Each Convertible Preferred Security is convertible in the manner described
herein at the option of the holder, at any time beginning April 28, 1997 and
prior to the Conversion Expiration Date (as defined herein), into shares of
Common Stock, at the rate of 0.6882 shares of Common Stock for each Convertible
Preferred Security (equivalent to a conversion price of $72.6563 per share of
Common Stock), subject to adjustment in certain circumstances. See "Description
of the Convertible Preferred Securities -- Conversion Rights." The last reported
sale price of Common Stock, which is reported under the symbol "QCOM" on the
Nasdaq National Market, on June 10, 1997, was $46.63 per share. (Continued on
next page)
------------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF
DISTRIBUTIONS ON THE CONVERTIBLE PREFERRED SECURITIES MAY BE DEFERRED AND THE
RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE , 1997
<PAGE> 3
The Convertible Preferred Securities and the Common Stock issuable upon
conversion of the Convertible Preferred Securities (the "Offered Securities")
may be offered and sold from time to time by the holders named herein or by
their transferees, pledgees, donees or their successors (collectively, the
"Selling Holders") pursuant to this Prospectus. The Offered Securities may be
sold by the Selling Holders from time to time directly to purchasers or through
agents, underwriters or dealers. See "Plan of Distribution" and "Selling
Holders." If required, the names of any such agents or underwriters involved in
the sale of the Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth in
an accompanying supplement to this Prospectus (each, a "Prospectus Supplement").
The Selling Holders will receive all of the net proceeds from the sale of the
Offered Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. No portion of the net proceeds
of this offering will be received by QCOM or the Trust. QCOM is responsible for
payment of all other expenses incident to the offer and sale of the Offered
Securities. The Selling Holders and any broker-dealers, agents or underwriters
which participate in the distribution of the Offered Securities may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Offered Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" for a description of
indemnification arrangements.
Holders of the Convertible Preferred Securities are entitled to receive
cumulative cash distributions at an annual rate of 5 3/4% of the liquidation
amount of $50 per Convertible Preferred Security, accruing from February 25,
1997 and payable quarterly in arrears on March 1, June 1, September 1 and
December 1, commencing June 1, 1997 ("distributions"). The distribution payable
on June 1, 1997, which will be calculated at the above rate and based on a
period that is longer than a full quarter, will be in the amount of $0.7667 per
Convertible Preferred Security. The distribution rate and the distribution and
other payment dates for the Convertible Preferred Securities will correspond to
the interest rate and interest and other payment dates on the Convertible
Subordinated Debt Securities, which will be the sole asset of the Trust. As a
result, if principal or interest is not paid on the Convertible Subordinated
Debt Securities, no amounts will be paid on the Convertible Preferred
Securities. The payment of distributions out of moneys held by the Trust, and
payments on liquidation of the Trust or the redemption of Convertible Preferred
Securities, as set forth below, are guaranteed by QCOM (the "Guarantee") to the
extent described herein and under "Description of the Guarantee." The Guarantee
covers payments of distributions and other payments on the Convertible Preferred
Securities only if and to the extent the Trust has funds available therefor,
which will not be the case unless QCOM has made a payment of interest or
principal or other payments on the Convertible Subordinated Debt Securities held
by the Trust as its sole asset. QCOM's obligations under the Guarantee, taken
together with its obligations under the Convertible Subordinated Debt Securities
and the Indenture (as defined herein) and its obligations under the Declaration,
including its liabilities to pay costs, expenses, debts and obligations of the
Trust (other than with respect to the Trust Securities), constitute a full and
unconditional guarantee by QCOM of amounts due on the Convertible Preferred
Securities. See "Effect of Obligations Under the Convertible Subordinated Debt
Securities and the Guarantee" and "Description of the Guarantee."
The obligations of QCOM under the Guarantee are subordinate and junior in
right of payment to all other liabilities of QCOM and will rank pari passu with
the most senior preferred stock issued by QCOM from time to time, if any, and
with any guarantee that may be entered into by QCOM with respect to any
preferred stock of any subsidiary or affiliate of QCOM. If QCOM does not make
principal or interest payments on the Convertible Subordinated Debt Securities,
the Trust will not have sufficient funds to redeem or make distributions on the
Convertible Preferred Securities, in which event holders of the Convertible
Preferred Securities would not be able to rely on the Guarantee for payment of
such redemption or distributions until the Trust has sufficient funds available
therefor. The obligations of QCOM under the Convertible Subordinated Debt
Securities are subordinate and junior in right of payment to all present and
future Senior Indebtedness (as defined herein) of QCOM.
So long as QCOM shall not be in default under the Convertible Subordinated
Debt Securities, QCOM has the right to defer payments of interest on the
Convertible Subordinated Debt Securities by extending the interest payments
period on the Convertible Subordinated Debt Securities, at any time, for up to
20
2
<PAGE> 4
consecutive quarters (each, and "Extension Period"). If interest payments are so
deferred, distributions on the Convertible Preferred Securities also will be
deferred. Despite such deferral, during an Extension Period distributions will
continue to accumulate with interest thereon (to the extent permitted by
applicable law) at an annual rate of 5 3/4% per annum, compounded quarterly, and
during any Extension Period, holders of Convertible Preferred Securities will be
required to include deferred interest income in their gross income for United
States federal income tax purposes in advance of receipt of the cash
distributions attributable to such deferred income. There could be multiple
Extension Periods of varying lengths throughout the term of the Convertible
Subordinated Debt Securities. Accrued interest will not be paid on the
Convertible Subordinated Debt Securities that are converted, provided, however,
that if a Convertible Subordinated Debt Security is converted on or after a
record date for payment of interest thereon, the interest payable on the related
payment date with respect to such Convertible Subordinated Debt Securities shall
be paid to the Trust (which will distribute such interest to the holder of the
converted Convertible Preferred Securities as of the record date) or other
holder of Convertible Subordinated Debt Securities as of the record date, as the
case may be, despite such conversion. See "Description of the Convertible
Subordinated Debt Securities -- Option to Extend Interest Payment Period," "Risk
Factors -- Risks Relating to Securities -- Option to Extent Interest Payment
Period; Tax Consequences" and "Certain United States Federal Income Tax
Consequences -- Original Issue Discount, Premium and Market Discount." In the
event of any such deferral of interest payments, the holders of the Convertible
Preferred Securities do not have the right to appoint a special representative
or trustee or otherwise act to protect their interests.
The Convertible Subordinated Debt Securities are redeemable at the option
of QCOM (in whole or in part) from time to time, on or after March 4, 2000 or at
any time in certain circumstances upon the occurrence of a Tax Event (as defined
herein). If QCOM redeems Convertible Subordinated Debt Securities, the Trust
must redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Subordinated Debt Securities so
redeemed at the prices set forth herein (the "Redemption Price") plus accrued
and unpaid distributions thereon to the date fixed for redemption. See
"Description of the Convertible Preferred Securities -- Redemption." In
addition, upon the occurrence of a Special Event (as defined herein) arising
from a change in law or a change in legal interpretation, unless the Convertible
Subordinated Debt Securities are redeemed in the limited circumstances described
below and subject to certain conditions, the Trust may be dissolved (with the
consent of QCOM) with the result that the Convertible Subordinated Debt
Securities would be distributed (with the consent of QCOM) to the holders of the
Convertible Preferred Securities, on a pro rata basis, in lieu of any cash
distribution. If QCOM declines to consent to such dissolution and distribution,
QCOM may incur an obligation to pay Additional Interest (as defined herein). See
"Description of the Convertible Subordinated Debt Securities -- Additional
Interest." In the case of the occurrence of a Special Event that is a Tax Event,
QCOM will have the right in certain circumstances to redeem the Convertible
Subordinated Debt Securities at 100% of the principal amount thereof plus
accrued and unpaid interest thereon, which would result in the redemption by the
Trust of Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Subordinated Debt Securities so
redeemed, on a pro rata basis. The outstanding Convertible Preferred Securities
will be redeemed upon maturity of the Convertible Subordinated Debt Securities.
The Convertible Subordinated Debt Securities mature on February 24, 2012. See
"Description of the Convertible Preferred Securities -- Special Event Redemption
or Distribution" and "Description of the Convertible Subordinated Debt
Securities." At any time, QCOM will have the right to terminate the Trust and
cause the Convertible Subordinated Debt Securities purchased by the Trust to be
distributed pro rata to holders of the Convertible Preferred Securities and
Common Securities in connection with the dissolution of the Trust.
In the event of the voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust, after satisfaction of creditors of the
Trust, if any, the holders of the Convertible Preferred Securities will be
entitled to receive, for each Convertible Preferred Security, a liquidation
amount of $50 plus accrued and unpaid distributions thereon (including interest,
if any, thereon) to the date of payment, unless in connection with such
liquidation, dissolution, winding-up or termination to the Convertible
Subordinated Debt Securities are distributed to the holders of the Convertible
Preferred Securities. See "Description of the Convertible Preferred
Securities -- Liquidation Distribution Upon Termination."
3
<PAGE> 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE LITIGATION REFORM
ACT 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF THE COMPANY, INCLUDING, WITHOUT LIMITATION, STATEMENTS UNDER THE
CAPTIONS "RISK FACTORS" AND "THE COMPANY" INCLUDED HEREIN, AS WELL AS
"MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" IN THE COMPANY'S QUARTERLY AND ANNUAL REPORTS ON FORMS 10-Q AND
10-K, RESPECTIVELY. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES, AND AS SUCH MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESS OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS
PROSPECTUS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD
THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH
STATEMENT IS BASED. FURTHER INFORMATION ON OTHER FACTORS THAT COULD AFFECT THE
FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS IS INCLUDED
IN THE SECTION HEREIN ENTITLED "RISK FACTORS."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. Reports,
proxy statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of
such materials also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. They are also available through the Commission's World Wide Web site
(http://www.sec.gov).
QCOM and the Trust have filed with the Commission a Registration Statement
(which term shall encompass any amendments thereto) on Form S-3 under the
Securities Act with respect to the securities offered by this Prospectus (the
"Registration Statement"). This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to QCOM and the Trust and the
securities offered by this Prospectus, reference is made to the Registration
Statement, including the exhibits thereto, and the financial statements and
notes thereto filed or incorporated by reference as a part thereof, which are on
file at the offices of the Commission and may be obtained upon payment of the
fee prescribed by the Commission, or may be examined without charge at the
offices of the Commission. Statements made in this Prospectus concerning the
contents of the any document referred to herein are not necessarily complete,
and, in each such instance, are qualified in all respects by reference to the
applicable documents filed with the Commission. The Registration Statement and
the exhibits thereto filed by QCOM and the Trust with the Commission may be
inspected and copied at the locations described above.
4
<PAGE> 6
No separate financial statements of the Trust have been included herein.
The Trust and QCOM do not consider that such financial statements would be
material to potential investors because the Trust is a newly organized special
purpose entity, has no operating history or independent operations and is not
engaged in and does not propose to engage in any activity other than holding as
trust assets the Convertible Subordinated Debt Securities of QCOM and issuing
the Convertible Preferred Securities and Common Securities, and QCOM has fully
and unconditionally guaranteed all of the Trust's obligations under the
Convertible Preferred Securities. See "The Trust," "Description of the
Convertible Preferred Securities," "Description of the Guarantee" and
"Description of the Convertible Subordinated Debt Securities."
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference: the Company's Annual Report on Form 10-K for
the year ended September 29, 1996, Quarterly Report on Form 10-Q for the
quarters ended December 29, 1996 and March 30, 1996, the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders filed pursuant to Rule
14a-6 of the Exchange Act, and Forms 8-K dated February 25, 1997 and March 7,
1997 filed with the Commission, are hereby incorporated by reference in this
Prospectus except as superseded or modified herein. All documents subsequently
filed by the Company with the Commission pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act and prior to the termination of the offering of
the Convertible Preferred Securities made hereby shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
filling of such documents. Any statement contained in any document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that as to the text
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus. The
Company will provide without charge to each person to whom this Prospectus is
delivered, upon written request of such person, a copy of any or all of the
foregoing documents incorporated by reference into this Prospectus (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be delivered
to the Treasurer at the Company's principal executive offices located at 6455
Lusk Boulevard, San Diego, California 92121-2779; telephone: (619) 587-1121.
CD-7000(R), CoveragePLUS(R), Digital by QUALCOMM(R), Eudora(R), Eudora
Light(TM), Eudora Pro(TM), Expert Dispatch(R), Expert Swap(R), InTRACS(R),
JTRACS(R), JTRACS Pro(TM), OmniTRACS(R), OnTRACS(TM), PureVoice(TM), QASPR(R),
QCELP(TM), QCELP-13(TM), QCMobility(TM), QCP-800(TM), QCP-900(TM), QCP-1900(TM),
QCP-2700(TM), QCPilot(R), QCPlan(R), QCT-2000(TM), QCT-1000(TM), QCT-6000(TM),
QCT-8000(TM), QCTel(TM), QDSS(R), QEDesign(R), QMATCH(R), QSWAP(R), QTOPS(TM),
QTRACS(R), QUALCOMM(R), SensorTRACS(R), SmartRate(TM) and TrailerTRACS(R), are
trademarks and/or servicemarks of the Company. All other trademarks or
servicemarks appearing in this Prospectus or incorporated by reference herein
are the property of their respective holders.
5
<PAGE> 7
RISK FACTORS
Prospective purchasers of the Offered Securities should carefully consider
the following risk factors in addition to the other information contained in
this Prospectus. Also see "Glossary of Terms" for definitions of certain terms
used in the Prospectus.
RISKS RELATING TO THE COMPANY
Uncertainty and Fluctuations of Operating Results. The Company has
experienced quarterly variability in revenues and profitability. There can be no
assurance that the Company will sustain profitability on a quarterly or annual
basis in the future. The Company's future results will depend in part on
continued success of its OmniTRACS operations; the timing and magnitude of
licensing fees and royalties from the Company's code division multiple access
("CDMA") licensees; the successful large-scale implementation of the Company's
CDMA technology and equipment; the continuation of the Globalstar development
contract; and the Company's ability to manufacture and sell commercial scale
quantities of CDMA infrastructure, subscriber and other equipment at competitive
prices on a timely and profitable basis, and to meet any applicable performance
guarantees. In particular, any delays in commencement of commercial operation of
CDMA-based cellular, personal communications systems ("PCS") or wireless local
loop ("WLL") systems, as well as a reduction in prices of CDMA subscriber
equipment due to competitive pressures, could have a material adverse effect on
product margins and quarterly and annual operating results. The Company has
experienced and may continue to experience fluctuations in quarterly and annual
operating results due to variations in the amount and timing of CDMA fees and
royalties. In addition, earnings in future periods could be adversely affected
in the event that the Company does not meet performance obligations relative to
scheduled delivery dates and performance specifications for CDMA equipment.
Ability to Manage Growth. The Company is experiencing a period of rapid
growth which has placed, and is expected to continue to place, significant
demands on the Company's managerial, operational and financial resources. The
management of such growth will require the Company to continue to improve and
expand the Company's management, operational and financial systems and controls,
including quality control and delivery and service capabilities, and to expand,
train and manage its employee base. In particular, the Company must carefully
manage production and inventory levels to meet increasing product demand and new
product introductions. Inaccuracies in the Company's demand forecasts could
quickly result in either insufficient or excessive inventories and
disproportionate overhead expenses. The Company must also continue to hire and
retain qualified technical, engineering and other personnel in the face of
strong demand from the Company's competitors and others for such individuals.
Any ineffective management of growth or unsuccessful recruitment and retention
of personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has experienced and may continue to experience significant
growth in connection with the commercial implementation of its CDMA technology,
including significant expansion of manufacturing, test and installation
capabilities, customer support capabilities, and marketing and sales personnel,
which requires significant expenditures to build the necessary organizations.
The Company is expanding its business into international markets which will
require it to establish, manage and control operations in countries where the
Company has limited or no operating experience. The Company's success will
depend in part upon the Company's ability to successfully manage such growth.
There can be no assurance that the Company's attempts to expand its
manufacturing, customer support and marketing and sales organizations will be
successful or will result in additional sales or profitability in any future
period. In order to accommodate planned growth, it is expected that the
Company's operating expenses will continue to increase. There can be no
assurance that expense growth will not exceed the rate of revenue growth.
Dependence on Equipment Sales. An important element of the Company's
strategy is to remain a major supplier of CDMA infrastructure and subscriber
equipment worldwide for cellular, PCS and WLL service providers, including
C-Block PCS licensees in North America. The Company's ability to generate
substantial revenues and profits from sales of its CDMA infrastructure and
subscriber equipment will require substantial capital investments by the Company
and is subject to risks and uncertainties. PCS systems have a limited operating
history in the United States, and the extent of demand for PCS is uncertain. WLL
systems in the
6
<PAGE> 8
U.S. and foreign countries are just beginning to be implemented, and their
cost-competitiveness with wireline and other wireless systems and market
acceptance is uncertain. The wireless telecommunications industry is
experiencing significant technological changes. As a result, the future
prospects of the industry and the success of PCS, WLL and other competing
services are uncertain. In order to commence operation, current PCS and WLL
operators have needed, and future operators will need, among other things, to
complete their system designs, acquire sites, purchase and install equipment,
hire personnel in each market and raise sufficient capital to finance the
construction costs and start-up operating losses of their commercial systems.
To complete system build-outs and implement their business plans, PCS and
WLL service providers will require substantial amounts of capital. The failure
of the Company's customers to design, construct and launch their systems would
have a material adverse effect on the Company's financial results. The Company
expects that a number of its potential infrastructure and subscriber equipment
customers will be C, D, E and F-Block licensees. These licensees are subject to
a number of risks in addition to those facing other wireless service providers.
Many of these licensees have limited financial resources, are highly leveraged
and will require large amounts of capital to complete the build-out of their
systems. There can be no assurance that these licensees will be able to raise
such capital. Many PCS and cellular service providers will have substantially
greater resources than these licensees, in particular the C and F-Block
licensees who were required to qualify as "small businesses" in order to bid in
the C and F-Block auctions. Further, there can be no assurance that future FCC
auctions of wireless spectrum will not reduce the competitiveness or
attractiveness of these licensees and their systems, or that such licenses will
not be sold at prices substantially less than those recorded in the prior FCC
auctions. In addition, the C, D, E and F-Block auctions were concluded over one
year following the conclusion of the A-Block and B-Block auctions, which have
provided the A-Block and B-Block licensees with a significant time-to-market
competitive advantage over such licensees.
Risks Related to Vendor Financing. Cellular, PCS and WLL systems operators
increasingly have required their suppliers to arrange or provide long-term
financing for them as a condition to obtaining or bidding on infrastructure
projects. These projects may require the Company to arrange or provide financing
of amounts ranging from modest sums to over a billion dollars on any particular
project. Internationally, potential service providers have limited governmental
or other financing sources and may have particular needs for vendor financing
offered or arranged by the Company. Such amounts financed may include "soft
costs" (such as software, cell site leases and permits), and thus the amount
financed may exceed 100% of infrastructure equipment costs. In February 1996,
the Company entered into an agreement to supply Northern Telecom ("Nortel") with
approximately $200 million of PCS infrastructure equipment and radio frequency
("RF") services as part of Nortel's estimated $1 billion equipment supply
agreement with Sprint Spectrum L.P. ("SPRINT PCS") PCS. In October 1996, Hughes
Network Systems ("Hughes") announced a strategic supply agreement with NextWave
Telecom Inc. ("NextWave") under which Hughes will supply up to $245 million of
CDMA infrastructure equipment for NextWave's network. Pursuant to an agreement
between the Company and Hughes, QUALCOMM will supply a percentage of the
infrastructure equipment to be shipped by Hughes to NextWave. In December 1996,
the Company and Chase Telecommunications, Inc. ("Chase") entered into an
agreement pursuant to which QUALCOMM will supply approximately $140 million of
PCS infrastructure equipment and services based on QUALCOMM'S CDMA technology to
Chase. QUALCOMM has agreed to provide up to $119 million of financing for
equipment purchased under the Chase agreement. Pursuant to an Equipment
Requirements Agreement with QUALCOMM, subject to the satisfaction of certain
conditions, NextWave is obligated to purchase approximately 50% of its
infrastructure equipment requirements from QUALCOMM. The agreement also provides
that QUALCOMM will offer 100% financing for equipment purchased under such
agreement on commercial terms. The terms of the equipment purchases, including
financing terms, will be established in a further agreement to be negotiated in
good faith between the parties. There can be no assurance that such an agreement
will be concluded.
The Company's ability to arrange or provide and be competitive with such
financing will depend on a number of factors, including the Company's capital
structure, level of available credit and ability to provide financing in
conjunction with third-party lenders. There can be no assurance that the Company
will be able to arrange or provide such financing on terms and conditions, and
in amounts, that will be satisfactory to such
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system operators. A number of the Company's competitors have substantially
greater resources than the Company, which may enable them to offer more
favorable financing terms and successfully compete against the Company for
infrastructure projects. The inability to arrange or provide such financing or
to successfully compete for infrastructure projects could have a material
adverse effect on the Company and its business and prospects.
In order to arrange or provide financing for cellular, PCS and WLL
projects, the Company may be required to expose itself to significant project,
market, political and credit risks. The Company may be required to provide such
financing directly, and/or guaranty such financing through third party lenders.
The amount of such financing could become significant and, if not repaid by the
network operator, could have a material adverse effect on the Company's
operating results and liquidity. The Company may be required to maintain any
such extensions of credit, or remain obligated under guarantees, until maturity,
which could have a material adverse effect on the Company's credit rating.
Although the Company may seek to have third parties assume some or all of any
such credit arrangements, there can be no assurance that the Company will be
able to do so. Many WLL and PCS network operators, including a number of C-Block
licensees, have limited or no operating histories, are faced with significant
capital requirements and are high credit risks. Pursuant to FCC regulations
applicable to C-Block licensees, the Company will not be permitted to retain a
security interest in any C-Block licenses, which initially will constitute the
primary asset of many C-Block licensees. C-Block licensees are faced with strict
regulatory requirements under applicable FCC regulations. Compliance with those
regulations is outside of the control of the Company. The failure of a C-Block
licensee to comply with any of those regulations could result in the revocation
of that licensee's FCC licenses.The Company has limited experience evaluating
the credit worthiness or commercial viability of potential purchasers of CDMA
equipment, and there can be no assurances that such customers will not default
on any financing arranged or provided by the Company for the purchase of its
CDMA equipment. The Company may be required to provide vendor financing for a
portion of the Globalstar system prior to its full scale implementation. See
"-- Dependence on Key Customers."
Future Capital Needs. The design, development, manufacture and marketing
of digital wireless communication products and services are highly capital
intensive. In addition, cellular, PCS and WLL systems operators increasingly
have required their suppliers to arrange or provide long-term financing for them
as a condition to obtaining or bidding on infrastructure products. To the extent
that such cash resources are insufficient to fund the Company's activities, the
Company may be required to raise additional funds from a combination of sources
including potential debt or equity issuances. There can be no assurance that
additional financing will be available on reasonable terms or at all. If
additional capital is raised through the sale of additional equity or
convertible debt securities, dilution to the Company's stockholders could occur.
Patents and Proprietary Information. The Company relies on a combination
of patents, copyrights, trade secrets, trademarks and proprietary information to
maintain and enhance its competitive position. As of April 30, 1997, the Company
has been granted approximately 133 patents and has approximately 312 patent
applications pending in the United States, of which 11 patents and 10 patent
applications relate to the Company's OmniTRACS products and approximately 122
patents and approximately 302 patent applications relate to the Company's CDMA
digital wireless technology. The Company also actively pursues patent protection
in other countries of interest to the Company. There can be no assurance that
the pending patent applications will be granted, that the Company's patents or
copyrights will provide adequate protection, or that the Company's competitors
will not independently develop or initiate technologies that are substantially
equivalent or superior to the Company's technologies. There can also be no
assurance that the confidentiality agreements upon which the Company relies to
protect its trade secrets and proprietary information will be adequate. From
time to time, certain companies may assert exclusive patent, copyright and other
intellectual proprietary rights to technologies which are claimed to be
important to the industry or to the Company. In addition, from time to time
third parties provide the Company with copies of their patents relating to
spread spectrum and other digital wireless technologies and offer licenses to
such technologies, and the Company evaluates such patents and the advisability
of such licenses. If any of the Company's products were found to infringe on
protected technology, the Company could be required to redesign such products,
license such technology, and/or pay damages to the infringed party. If the
Company is unable to license protected
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technology used in the Company's products or to redesign such products, the
Company could be prohibited from marketing such products.
Ericsson Inc., Motorola, Inc. ("Motorola") and InterDigital have each
advised the TIA that they hold patent rights in technology embodied in IS-95.
Lucent Technologies ("Lucent") and OKI Electric have claimed patent rights in
IS-96. In accordance with TIA guidelines, each company has confirmed to the TIA
that it is willing to grant licenses under its rights on reasonable and
nondiscriminatory terms. In connection with the settlement and dismissal of the
Company's patent litigation with InterDigital, the Company received, among other
rights, a fully-paid, royalty free license to use and to sublicense the use of
those patents claimed by InterDigital to be essential to IS-95. If the Company
and other equipment manufacturers are required to obtain additional licenses
and/or pay royalties to one or more patent holders, this could have an adverse
effect on the commercial implementation of the Company's CDMA technology and
could add substantially to the costs of manufacturing and selling products using
the Company's technology.
On September 23, 1996, Ericsson Inc. and Telefonaktiebolaget LM Ericsson
("Ericsson") filed suit against QCOM in the U.S. District Court for the Eastern
District of Texas, Civil Action No. 2-96CV183. On December 17, 1996, Ericsson
also filed suit against QPE in the U.S. District Court for the Northern District
of Texas, Civil Action No. 3-96CV3373P. Both complaints allege that various
elements of the Company's CDMA equipment system and components infringe one or
more patents owned by Ericsson. In December, QUALCOMM filed a countersuit in the
U.S. District Court for the Southern District of California. The complaint
alleges unfair competition by Ericsson based on a pattern of conduct intended to
impede the acceptance and commercial deployment of QUALCOMM's CDMA technology.
The complaint also charges that Ericsson's patent infringement claims against
the Company violate a 1989 agreement between the companies. Finally, the lawsuit
seeks a judicial declaration that certain of Ericsson's patents are not
infringed by QUALCOMM and are invalid. On April 9, 1997, the suit against
Ericsson in the U.S. District Court for the Southern District of California was
dismissed so that all claims in that case can be litigated in the action filed
by Ericsson in the U.S. District Court for the Eastern District of Texas.
Although there can be no assurances that an unfavorable outcome would not have a
material adverse effect on the Company's liquidity, financial position or
results of operations, the Company believes the named Ericsson patents are not
required to produce IS-95 compliant systems and that Ericsson's claims are
without merit. The Company will vigorously defend itself against such claims.
On November 8, 1996 the Company was served with a complaint in connection
with a lawsuit filed in the U.S. District Court for the Eastern District of
Pennsylvania by BTG USA Inc. The complaint alleges that the Company's Global
Positioning System, CDMA telecommunications products and the OmniTRACS system
components thereof infringe United States Patent No. Re. 34,004. The patent
expired in November 1996. Although there can be no assurances that an
unfavorable outcome would not have a material adverse effect on the Company's
liquidity, financial position or results of operations, the Company believes the
complaint has no merit and will vigorously defend the action.
On March 5, 1997, the Company filed a complaint against Motorola in the
U.S. District Court for the Southern District of California, Civil Action No.
CV00372. The complaint was filed in response to allegations by Motorola that the
Company's recently announced "Q" Phone infringes a design patent and certain
utility patents held by Motorola as well as trade dress and common law rights
relating to the appearance of certain Motorola wireless telephone products. The
complaint denies such allegations and seeks a judicial declaration that the
Company's products do not infringe any patents held by Motorola. The complaint
also states that, pursuant to certain patent and technology license agreements
entered into in 1990 between the companies, Motorola is precluded from asserting
infringement of the utility patents. On March 10, 1997, Motorola filed a
complaint against the Company in the U.S. District Court for the Eastern
Division of Illinois, Civil Action No. 97 C 1616 (the "Motorola Complaint"),
alleging claims based primarily on the above alleged infringement. The Company's
motion to transfer the Motorola Complaint to the U.S. District Court for the
Southern District of California was granted on April 3, 1997. On April 10, 1997
a temporary restraining order ("TRO") was entered against the Company
prohibiting QUALCOMM, among other things, from manufacturing, selling, offering
for sale or distributing its Q phone. The TRO was effective until April 24,
1997, on which date the court lifted the TRO and denied Motorola's motion for a
preliminary injunction. On April 25, 1997, Motorola appealed the denial of its
motion for a preliminary injunction. On June 4, 1997, Motorola filed
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an additional complaint in the Southern District of California alleging that
QUALCOMM subscriber products infringe four patents of Motorola -- three of which
were the subject of QUALCOMM's original complaint filed on March 5, 1997.
Although there can be no assurance that an unfavorable outcome of the dispute
would not have a material adverse effect on the Company's liquidity, financial
position or results of operations, the Company believes Motorola's complaints
have no merit and will vigorously defend the action.
On May 19, 1997 the Company filed a complaint in the United States District
Court for the Southern District of California seeking a judicial determination
that the Company does not infringe three patents held by U.S. Philips
Corporation ("Philips"). The Company's complaint states that a dispute has
arisen from Philips' contention that the three patents cover certain features of
the Company's products compatible with the Telecommunication Industry
Association's IS-95-A standard. The Company denies that its products infringe
any of the three patents and further asserts that the patents are invalid.
Philips has not yet responded to the complaint. Although there can be no
assurance that an unfavorable outcome of the dispute would not have a material
adverse effect on the Company's liquidity, financial position or results of
operations, the Company believes that Philips' contentions of infringement have
no merit and will vigorously contest such contentions.
Manufacturing of CDMA Equipment. QUALCOMM has received orders for CDMA
wireless communications infrastructure and subscriber equipment and application
specific integrated circuits ("ASICs") components for delivery in fiscal 1997
and expects to receive additional orders in the future. The Company is investing
substantial amounts in product development activities to maintain or improve its
competitive position. The Company may spend substantially more on such software
and hardware development than currently anticipated. The Company has
significantly expanded and may continue to significantly expand its
infrastructure and subscriber equipment manufacturing capabilities. Many of the
Company's competitors have greater resources and experience with such large
scale manufacturing. There can be no assurance that the Company will be able to
timely or effectively accomplish such increases in production volume.
Any delays or difficulties in connection with the planned increase in
manufacturing capacity could have a material adverse effect on the Company's
business and results of operations. If the Company is unable to manufacture CDMA
subscriber and infrastructure equipment at commercially acceptable costs, or if
the Company expands its manufacturing capacity but is unable to secure
sufficient orders for its CDMA equipment, the Company's competitive position and
the ability of the Company to achieve a profitable return on its CDMA research
and development expenditures could be materially impaired.
The manufacture of wireless communications equipment is a complex and
precise process involving specialized manufacturing and testing equipment and
processes. Defects or impurities in the components or materials used, equipment
failure or other difficulties could adversely affect the Company's ability to
meet planned production yields. There can be no assurance that the Company will
not encounter difficulties in achieving planned yields on its products, which
would adversely affect its margins and operating results.
The Company manufactures its CDMA cellular and PCS subscriber equipment
through QUALCOMM Personal Electronics ("QPE"), a joint venture between the
Company and a subsidiary of SONY Electronics. The risks associated with the
commercial manufacture of the Company's infrastructure and subscriber equipment
products which are described or incorporated by reference in this document also
apply to the manufacture of subscriber equipment by QPE. To the extent that QPE
experiences any of the complications, delays or interruptions described herein,
the Company's results of operations would be adversely affected.
Dependence on Suppliers. The Company has from time to time experienced
delays in obtaining quantities of specification compliant RF components and
other parts to meet the demands for its equipment. Several of the critical
products and services used in the Company's existing and proposed products,
including ASICs, flash memory chips and certain RF components used in the
Company's CDMA products and certain custom and semi-custom VLSI circuits and
other sophisticated electronic parts and major subassemblies used in the
OmniTRACS system, are currently available only from single or limited sources.
The reliance on sole or limited source vendors by the Company and its licensees
involves risks, including the possibility of shortages of certain key
components, product performance shortfalls, and reduced control over delivery
schedules, manufacturing capability, quality and costs. Business disruptions or
financial difficulties of a sole or limited source supplier of any particular
component could materially and adversely impact the Company by increasing
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the cost of goods sold or reducing the availability of such components. While
the Company believes that it could obtain necessary components from other
manufacturers, an unanticipated change in the source of supply of these
components could trigger performance guarantees or cause significant shipment
delays in the Company's products.
Unanticipated supply limitations could adversely affect the Company's
ability to meet its product orders. There can be no assurance that the supplier
commitments will be met. The Company is also working with its vendors to obtain
expanded volumes of specification compliant components. There may be significant
demand on the Company's suppliers from other manufacturers (including the
Company's licensees) for such components. Delays in the availability or reduced
quantities of these components could adversely affect the Company's ability to
manufacture subscriber equipment in the volumes and within the time frames
required by its customers, which could result in lost revenues and profits and
possible performance guarantee payments. See "--Performance Guarantees."
Certain components require an order lead time of six months or longer.
Other components that currently are readily available may become difficult to
obtain in the future. There can be no assurance that the Company will not
experience delays in the receipt of certain of its key components. Delays or the
failure of the Company to order sufficient quantities of these components in
advance could prevent the Company from meeting production requirements and could
result in the requirement to pay performance guarantees. To meet forecasted
production levels, the Company may be required to commit to certain long lead
time items prior to contract award. If forecasted orders are not awarded, the
Company may be faced with large inventories of slow moving or unusable parts
which could have an adverse affect on the Company's results of operations.
Rapid Technological Change and New Products. The market for the Company's
products is characterized by rapid technological advances, evolving industry
standards, changes in customer requirements and frequent new product
introductions and enhancements. The introduction of products embodying new
technologies and the emergence of new industry standards could render the
Company's existing products and products currently under development obsolete
and unmarketable. Accordingly, the Company's future success will depend upon its
ability to enhance its current products and develop and introduce new products
that keep pace with technological developments, satisfy varying customer
requirements and achieve market acceptance. Any failure by the Company to
anticipate or respond adequately to technological developments or customer
requirements, or any significant delays in product development or introduction,
could damage the Company's competitive position and have an adverse effect on
revenues and results of operations. There can be no assurance that the Company
will be successful in developing and marketing new equipment products on a
timely basis or that the Company will not experience significant delays in the
future, which could have a material adverse effect on the Company's business and
operations. In addition, there can be no assurance that new products developed
by the Company will achieve market acceptance.
Performance Guarantees. QUALCOMM and QPE have entered into contracts that
provide for performance guarantees to protect customers against late delivery or
failure to perform. These performance guarantees, and any future commitments for
performance guarantees, are obligations entered into separately, and in some
cases jointly, with partners to supply CDMA subscriber and infrastructure
equipment. Certain of these obligations provide for substantial performance
guarantees that accrue at a daily rate based on percentages of the contract
value to the extent the equipment is not delivered by scheduled delivery dates
or the systems fail to meet certain performance criteria by such dates. The
Company is dependent in part on the performance of its suppliers and strategic
partners in order to provide equipment which is the subject of the guarantees.
Thus, the ability to timely deliver such equipment may be outside of the
Company's control. If the Company and QPE are unable to meet their performance
obligations, the payment of the performance guarantees could amount to a
significant portion of the contract value and would have a material adverse
effect on product margins and the Company's results of operations.
Dependence on Key Customers. A significant portion of the Company's CDMA
subscriber and infrastructure equipment sales are, and are expected to continue
to be, concentrated with a limited number of customers. As a result, the
Company's performance will depend significantly on relatively large orders from
a limited number of customers, as well as gaining additional customers, both
within existing cellular, PCS and WLL markets and in new markets. The loss of
any existing customer for CDMA equipment or the failure of
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<PAGE> 13
the Company to gain additional customers could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company has entered into a four-year development agreement with
Globalstar, L.P. ("Globalstar") to design and develop subscriber equipment and
ground communications stations of the Globalstar system through 1998. Through
September 29, 1996, the Company had recognized revenues of approximately $213
million under the Globalstar agreement and expects to recognize significant
revenues under the contract during fiscal years 1997 and 1998. It is anticipated
that Globalstar will require capital of approximately $2.5 billion prior to full
scale commercial implementation of its system. As of March 30, 1997, Globalstar
had raised approximately $2.0 billion in capital. Such capital is being used, in
part, to fund the development agreement. There can be no assurance that
Globalstar will be successful in raising additional capital or that delays or
technical or regulatory developments will not arise which could adversely affect
Globalstar's ability to continue funding the development agreement and which
would have a material adverse effect on QUALCOMM's business and results of
operations. The Globalstar development agreement is terminable at the election
of Globalstar in the event that Globalstar abandons its efforts to develop the
satellite-based communications system.
CDMA Commercialization. The Company's CDMA technology has been launched
commercially for PCS and cellular applications in the U.S., Hong Kong, South
Korea and elsewhere. The successful implementation and operation of such systems
is a complex process requiring coordination of a number of factors, including
the successful interface between infrastructure and subscriber equipment from
multiple vendors and the public wireline network, as well as avoiding
interference from microwave and cellular systems. There can be no assurance that
unforeseen complications will not arise as more subscribers are added to these
systems or in the scale-up and operation of other commercial CDMA systems that
could materially delay or limit the commercial use of the Company's CDMA
technology. Further, if the Company's licensees are unable to deliver CDMA
equipment to the market on a timely basis, or if carriers which have adopted
CDMA fail to deploy their systems on a timely basis, the Company's business and
the reputation of the Company's CDMA technology could be adversely affected.
A number of companies with international operations are developing and
implementing competing cellular, PCS and WLL technologies. While the Company
strongly believes that CDMA is superior to competing digital technologies and is
actively promoting the benefits of its CDMA technology outside of the U.S.,
there can be no assurance that the Company will receive significant
international acceptance of its CDMA technology for cellular, PCS or WLL
applications due to the installed base of Global System for Mobile ("GSM")
telephone systems and competition from the U.S. and Japanese TDMA systems. In
some countries, the Company's CDMA products may be required to undergo extensive
testing and certification by government entities before CDMA can be approved for
commercial use in those countries.
Dependence on OmniTRACS. OmniTRACS systems, complementary software
products, related messaging service and maintenance services historically have
accounted for a significant portion of the Company's total revenues and margins.
The Company expects that margins from its OmniTRACS operations will continue to
represent a substantial portion of the Company's total margins. A significant
portion of the Company's OmniTRACS revenues is derived from the North American
trucking industry, particularly providers of long haul transportation of goods
and equipment. Any adverse events affecting the domestic trucking industry could
have a material adverse effect on the Company's OmniTRACS revenues. Although an
increasing portion of the Company's OmniTRACS revenues is derived from ongoing
messaging and maintenance revenues, new customer sales of the Company's
OmniTRACS systems are important to the Company to maintain continued growth. In
addition, the Company has been experiencing pricing pressure from competitors on
sales of its OmniTRACS products and messaging services, which could result in
further reduction of the margins for such products and services. There can be no
assurance that the Company's domestic or international OmniTRACS business will
continue to grow at the levels experienced in the past, which could have a
material adverse effect on the Company's results of operations.
Competition. Competition in the wireless communications industry is
intense. The industry consists primarily of major domestic and international
companies which have financial, technical, marketing, sales, manufacturing,
distribution and other resources substantially greater than those of the
Company. Many of
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these companies are licensees of the Company's technology, and have established
market positions, trade names, trademarks, patents, copyrights and intellectual
property rights and substantial technological capabilities.
The primary competition with respect to CDMA technology is from current
analog and digital TDMA-based systems, including GSM and DCS 1900, the GSM
implementation for PCS in the U.S. GSM has been adopted as the digital cellular
standard throughout Europe and has received substantial international acceptance
in other countries. Industry publications have reported that over 100 countries
have adopted or are deploying GSM. In Japan, the Ministry of Posts and
Telecommunications has adopted TDMA as its primary digital cellular standard,
which has been widely deployed throughout the country. Japan's proprietary TDMA
system is not compatible with either GSM or the U.S. IS-54 TDMA standard.
However, in 1996, two of the three largest cellular service providers in Japan
announced plans to offer commercial CDMA service in 1998. In addition, a number
of alternative radio systems are also being marketed for WLL applications. Many
of the major equipment suppliers have made substantial investments in TDMA and
GSM technology including Hughes, Lucent, Motorola, NOKIA, Nortel and Siemens
(all of whom are licensees of the Company), as well as Ericsson. The Company
also competes against its licensees in the sale of CDMA subscriber and
infrastructure equipment. There can be no assurance that the Company's
competitors will not devote their significantly greater financial, technical,
marketing and other resources to aggressively market competitive communications
systems or develop and adopt competitive digital cellular technologies, and that
such efforts will not have a materially adverse effect on the Company's results
of operations in the future. Moreover, certain equipment manufacturers may offer
extremely attractive financing terms as a means of gaining access to the U.S.
PCS market.
The Company's primary competition to its OmniTRACS system includes American
Mobile Satellite Corporation ("AMSC") and HighwayMaster Communications, Inc.
AMSC and its resellers are offering services through the AMSC satellite which
was launched in 1995. Recently Rockwell International, the primary reseller to
date of AMSC services, ceased acting as an AMSC reseller and transferred its
customers to AMSC, thereby increasing AMSC's market presence. These competitors
are aggressively pricing their products and could continue to do so in the
future. In addition, these competitors are offering new value-added products and
services similar to those developed or being developed by QUALCOMM. Emergence of
new competitors, particularly those offering low cost products and future low
earth orbiting ("LEO") satellite communications systems, may impact margins and
intensify competition in new markets. The Company also faces competition abroad
from numerous suppliers of equipment and services. These include Inmarsat and
its authorized resellers through its Inmarsat C geostationary satellite service.
In addition, the Company is facing competition abroad from various terrestrial
based systems and specifically in Europe from GSM-based terrestrial systems. All
of these competitors are aggressively pricing their products and services and
the Company can continue to expect pricing pressures. As with the U.S.
operations, the international business may also experience competition in the
future from LEO Satellite communications systems.
Equipment Sales by CDMA Licensees. Full commercial implementation of the
Company's CDMA technology requires that subscriber and infrastructure equipment
be made available in commercial quantities in a timely and cost effective
manner. Although the Company is a supplier of certain CDMA subscriber and
infrastructure equipment, the Company expects that a major portion of the
subscriber and infrastructure equipment that will be made commercially available
will be supplied by the Company's licensees. If CDMA subscriber and
infrastructure equipment is not delivered to the market on a timely basis,
customers could select other digital wireless technologies. Availability of
equipment and other factors are critical for CDMA technology to be chosen for
wireless applications. The amount and timing of resources devoted by licensees
to the development of CDMA subscriber and infrastructure equipment are
controlled by such licensees, and thus the timing of the availability of third
party equipment is not under the Company's control.
Reliance on Satellite and Other Facilities for OmniTRACS Service. The
Company's OmniTRACS system currently operates in the U.S. market on leased
Ku-band satellite transponders. The Company's data satellite transponder lease
runs through 2001. The Company's position reporting satellite transponder runs
through May 1997, with the rights to extend through May 1999. The Company
believes that its current domestic transponder capacity is adequate to support
over 180,000 OmniTRACS terminals, assuming current per unit message and position
reporting volumes. Future system enhancements may allow for increased
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utilization of transponder capacity. The Company believes that U.S. OmniTRACS
operations may require additional transponder capacity in fiscal year 1998 which
it believes will be available on acceptable terms. However, no assurance can be
given that the Company will be able to acquire additional transponder capacity
on acceptable terms on a timely basis. Any failure of the Company to maintain
adequate satellite capacity would have a material adverse effect on the
Company's financial results. The Company's network management facility ("NMF")
operations are subject to the risk that a failure or natural disaster could
interrupt the OmniTRACS service and have a material adverse effect on OmniTRACS
revenues. The Company maintains a fully operational NMF in Las Vegas, Nevada as
a backup to its primary NMF in San Diego, California.
Factors Affecting International Business. Revenues from international
customers accounted for approximately 36% of total revenues in fiscal 1996, 20%
of total revenues in fiscal 1995 and 23% of total revenues in fiscal 1994. Since
the Company is a relatively new entrant into some of these markets and its
competitors may have long-standing, entrenched positions, it may be difficult
for the Company to succeed in certain markets, thereby limiting international
sales. Other risks faced by the Company in its international business include
unexpected changes in regulatory requirements, export controls, national
standards, currency exchange rates, expropriation, tariffs or other barriers,
political risks, difficulties in staffing and managing foreign operations, and
potentially negative tax consequences. These factors could have an adverse
impact on the Company's operating results. In addition, because certain joint
ventures between the Company and foreign firms provide for a minority ownership
position by the Company in the joint venture, the Company may be limited in
taking actions it might otherwise wish to pursue. The Company is subject to U.S.
export control laws and regulations with respect to all of the Company's
products and technology that are exported from the United States. The Company is
subject to the risk that more stringent export control requirements could be
imposed in the future on product classes that include products exported by the
Company, which would result in additional compliance burdens on the Company or
could impair the enforceability of its contract rights. In addition, the laws of
certain foreign countries, including developing nations in Asia, South America,
Africa and Eastern Europe, may not protect the Company's intellectual property
rights or ensure the enforceability of its contract rights to the same extent as
do the laws of the United States.
Uncertainty of Government Regulation. The Company's products are subject
to various FCC regulations in the U.S. These regulations require that the
Company's products meet certain radio frequency emission standards and not cause
unallowable interference to other services. The Company is also subject to
government regulations and requirements by local and international standards
bodies outside the U.S., where the Company is less prominent than local
competitors and has less opportunity to participate in the establishment of
regulatory and standards policies. Changes in the regulation of the Company's
activities, including changes in the allocation of available spectrum by the
U.S. Government and other governments, or exclusion of its technology by a
standards body, could have a material adverse effect on the Company's results of
operations and its ability to market its products and services. The Company is
also subject to state and federal health, safety and environmental regulations
as well as regulations related to the handling of and access to classified
information.
Reliance on Key Personnel. The Company's success depends in a large part
upon its ability to retain highly qualified technical and management personnel,
the loss of one or more of whom could have a material adverse effect on the
business of the Company. As of June 13, 1997, none of these individuals had an
employment contract with the Company. The Company's success also depends upon
its ability to continue to attract and retain highly qualified personnel in all
disciplines. There can be no assurance that the Company will be successful in
hiring or retaining requisite personnel.
Product Liability. Testing, manufacturing, marketing and use of the
Company's products entail the risk of product liability. While the Company
currently has product liability insurance that it believes is adequate to
protect against product liability claims, no assurance can be given that the
Company will be able to continue to maintain such insurance at a reasonable cost
or in sufficient amounts to protect the Company against losses due to product
liability. An inability to maintain insurance at an acceptable cost or to
otherwise protect against potential product liability could prevent or inhibit
the commercialization of the Company's products. In addition, a product
liability claim or recall could have a material adverse effect on the business
or financial condition of the Company.
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News reports have asserted that power levels associated with hand-held
cellular telephones may pose certain health risks. The Company is not aware of
any study that has concluded that there are any significant health risks from
using hand-held cellular telephones. If it were determined that electromagnetic
waves carried through the antennas of cellular telephones create a significant
health risk, there could be a material adverse effect on the Company's ability
to market and sell its wireless telephone products.
Anti-Takeover Measures; Rights Plan. The Company's Certificate of
Incorporation provides for cumulative voting in the election of directors. In
addition, the Company's Certificate of Incorporation provides for a classified
Board of Directors and includes a provision (the "Fair Price Provision") that
requires the approval of the holders of at least 66 2/3% of the Company's voting
stock as a condition to a merger or certain other business transactions with, or
proposed by, a holder of more than 15% or more of the Company's voting stock,
except in cases where certain directors approve the transaction or certain
minimum price criteria and other procedural requirements are met. The Company's
Certificate of Incorporation also requires the approvals of holders of at least
66 2/3% of the Company's voting stock to amend or change the provisions relating
to the classified board, cumulative voting or the Fair Price Provision. The
Company's Certificate of Incorporation also requires that any action required or
permitted to be taken by stockholders of the Company must be effected at a duly
called annual or special meeting of stockholders of the Company and may not be
effected by any consent in writing.
The classified board, Fair Price Provision and other charter provisions may
discourage certain types of transactions involving an actual or potential change
in control of the Company, including transactions in which the stockholders
might otherwise receive a premium for their shares over then current market
prices, and may limit the ability of stockholders to approve transactions that
they may deem to be in their best interests. Further, pursuant to the terms of
its preferred share purchase rights plan, the Company has distributed a dividend
of one right for each outstanding share of Common Stock. In the event the
Convertible Preferred Securities are converted into Common Stock, each share of
such Common Stock will also be granted a right. These rights will cause
substantial dilution to the ownership of a person or group that attempts to
acquire the Company on terms not approved by the Board of Directors and may have
the effect of deterring hostile takeover attempts. In addition, the Board of
Directors has the authority to fix the rights and preferences of and issue
shares of Preferred Stock, which may have the effect of delaying or preventing a
change in control of the Company without action by the stockholders.
Volatility of Stock Price. Historically, the Company's stock price has
been volatile. The sales prices for the Company's Common Stock have ranged from
$35.38 to $63.75 during the 52-week period ended June 10, 1997. Future
announcements concerning the Company or its competitors, including the selection
of wireless technology by cellular, PCS and WLL service providers, the timing of
roll-out of those systems, the receipt of substantial orders for infrastructure
or subscriber equipment, quality deficiencies in services or products, results
of technological innovations, new commercial products, restrictions on the
Company's ability to manufacture or sell products, price reductions for products
of the Company or its competitors, changes in recommendations of securities
analysts, government regulations, proprietary rights or product or patent
litigation, may have a significant impact on the market price of the Company's
Common Stock. The Company's future earnings and stock price may be subject to
significant volatility, particularly on a quarterly basis. Any shortfalls in
revenues, product margins or earnings from the levels expected by securities
analysts could have an immediate and significant adverse effect on the trading
price of the Company's Common Stock in any given period.
RISKS RELATING TO THE SECURITIES
Ranking of Obligations under the Guarantee and Convertible Subordinated
Debt Securities. QCOM's obligations under the Guarantee are unsecured and
subordinate and junior in right of payment to all other liabilities of QCOM and
pari passu with the most senior preferred stock issued by QCOM from time to
time, if any, and with any guarantee that may be entered into by QCOM in respect
of any preferred stock of any subsidiary or affiliate of QCOM. The obligations
of QCOM under the Convertible Subordinated Debt Securities are subordinate and
junior in right of payment to all present and future Senior Indebtedness of
QCOM. No payment of principal (including redemption payments), premium, if any,
or interest on the Convertible Subordinated Debt Securities may be made if (a)
any Senior Indebtedness of QCOM is not paid
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<PAGE> 17
when due and any applicable grace period with respect to such default has ended
with such default not being cured or waived or ceasing to exist or (b) the
maturity of any Senior Indebtedness has been accelerated because of a default,
or the holders thereof have the ability to accelerate because of a default. At
March 30, 1997, QCOM had Senior Indebtedness of approximately $48 million
(excluding accrued interest), and QCOM and consolidated subsidiaries had
indebtedness and other liabilities of approximately $522 million. The ability of
the Trust to pay amounts due on the Convertible Preferred Securities is solely
dependent upon QCOM making payments on the Convertible Subordinated Debt
Securities as and when required. In addition, because QCOM's subsidiaries have
not guaranteed payment of the Convertible Subordinated Debt Securities, claims
of holders of Convertible Preferred Securities are effectively subordinate to
the claims of creditors of such subsidiaries, including trade creditors. There
are no terms in the Convertible Preferred Securities, the Convertible
Subordinated Debt Securities or the Guarantee that prohibit or limit the ability
of QCOM or its subsidiaries to incur additional indebtedness, including
indebtedness that ranks senior to the Convertible Subordinated Debt Securities
or the Guarantee. See "Description of the Guarantee" and "Description of the
Convertible Subordinated Debt Securities -- Subordination."
Rights under the Guarantee. The Guarantee guarantees to the holders of the
Convertible Preferred Securities the following payments, to the extent not paid
by the Trust: (i) any accrued and unpaid distributions which are required to be
paid on the Convertible Preferred Securities, to the extent the Trust shall have
funds available therefor, (ii) the Redemption Price, which includes all accrued
and unpaid distributions to the date of the redemption, to the extent the Trust
has funds available therefor, with respect to any Convertible Preferred
Securities called for redemption by the Trust and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Trust (unless the
Convertible Subordinated Debt Securities are distributed to the holders of
Convertible Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Convertible
Preferred Securities to the date of payment thereof, to the extent the Trust has
funds available therefor, and (b) the amount of assets of the Trust remaining
available for distribution to holders of Convertible Preferred Securities in
liquidation of the Trust.
The holders of not less than a majority in aggregate liquidation amount of
the Convertible Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Guarantee
Trustee (as defined herein) in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Guarantee Trustee under the
Guarantee. Holders of the Convertible Preferred Securities have the right to
proceed directly against QCOM to enforce QCOM's obligations to make payments
under the Guarantee, without first instituting a legal proceeding against the
Trust, the Guarantee Trustee or any other person or entity. If QCOM were to
default in its obligation to pay amounts payable on the Convertible Subordinated
Debt Securities, the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Convertible Preferred
Securities or otherwise, and, in such event, holders of the Convertible
Preferred Securities would not be able to rely upon the Guarantee for payment of
such amounts. Instead, holders of the Convertible Preferred Securities would
rely on the enforcement by the Property Trustee (as defined herein) of its
rights as registered holder of the Convertible Subordinated Debt Securities
against QCOM, pursuant to the terms of the Convertible Subordinated Debt
Securities. See "Description of the Guarantee -- Status of the Guarantee;
Subordination" and "Description of the Convertible Subordinated Debt
Securities -- Subordination." The Declaration provides that each holder of
Convertible Preferred Securities by acceptance thereof agrees to the provisions
of the Guarantee and the Indenture.
Enforcement of Certain Rights by Holders of Convertible Preferred
Securities. If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Convertible Preferred Securities would rely on
the enforcement by the Property Trustee of its rights as the holder of the
Convertible Subordinated Debt Securities against QCOM. In addition, the holders
of a majority in aggregate liquidation amount of the Convertible Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee to exercise the
remedies available to it as a holder of the Convertible Subordinated Debt
Securities. If a Declaration Event of Default occurs that results from the
failure of QCOM to pay principal of
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<PAGE> 18
or interest on the Convertible Subordinated Debt Securities when due, during the
continuance of such an event of default a holder of Convertible Preferred
Securities may institute a legal proceeding directly against QCOM to obtain
payment to such holder of such principal or interest on Convertible Subordinated
Debt Securities having a principal amount equal to the aggregate liquidation
amount of the Convertible Preferred Securities owned of record by such holder.
In addition, if the Property Trustee fails to enforce its rights as holder of
the Convertible Subordinated Debt Securities for 30 days after a request
therefor by a holder of Convertible Preferred Securities to the fullest extent
permitted by law, such holder may proceed to enforce such rights directly
against QCOM. The holders of Convertible Preferred Securities will not be able
to exercise directly against QCOM any other remedy available to the Property
Trustee unless the Property Trustee first fails to do so. See "Description of
the Convertible Preferred Securities -- Declaration Events of Default" and
"-- Voting Rights."
Option to Extend Interest Payment Period; Tax Consequences. QCOM has the
right under the Indenture to defer the payment of interest on the Convertible
Subordinated Debt Securities at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the stated maturity of the
Convertible Subordinated Debt Securities. Upon the termination of any Extension
Period and the payment of all amounts then due, QCOM may select a new Extension
Period and terminate the payments of all amounts then due, subject to the
requirements described herein. As a consequence of any such deferral, quarterly
Distributions on the Convertible Preferred Securities by the Trust will be
deferred (and the amount of Distributions to which holders of the Convertible
Preferred Securities are entitled will accumulate additional Distributions)
during any such Extension Period.
Should an Extension Period occur, a holder of Convertible Preferred
Securities will continue to accrue interest allocable to the Convertible
Subordinated Preferred Securities held by the Trust for United States federal
income tax purposes. As a result, a holder of Convertible Preferred Securities
will include such income in gross income for United States federal income tax
purposes in advance of the receipt of cash, and will not receive the cash
related to such income from the Trust if the holder disposes of the Convertible
Preferred Securities prior to the record date for the payment of Distributions.
Moreover, if a holder of Convertible Preferred Securities converts its
Convertible Preferred Securities into QCOM Common Stock during an Extension
Period, the holder will not receive any cash related to the deferred
distribution. Additionally, during the pendancy of any Extension Period, QCOM
will not be permitted, subject to certain exceptions set forth herein, to
declare or pay any cash distribution with respect to QCOM capital stock or debt
securities (including guarantees of indebtedness for money borrowed) that rank
pari passu with or junior to the Convertible Subordinated Debt Securities. See
"Description of the Convertible Preferred Securities -- Distributions."
QCOM has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Convertible
Subordinated Debt Securities. However, should QCOM elect to exercise such right
in the future, the market price of the Convertible Preferred Securities is
likely to be affected. A holder that disposes of its Convertible Preferred
Securities during an Extension Period, therefore, might not receive the same
return on its investment as a holder that continues to hold its Convertible
Preferred Securities. In addition, as a result of the existence of QCOM's right
to defer interest payments, the market price of the Convertible Preferred
Securities (which represent preferred undivided beneficial interest in the
Convertible Subordinated Debt Securities) may be more volatile than the market
prices of other securities on which original issue discount accrues that are not
subject to such deferrals.
Special Event Redemption or Distribution. Upon the occurrence of a Special
Event, the Trust may be terminated (with the consent of QCOM), except in the
limited circumstances described below, with the result that the Convertible
Subordinated Debt Securities would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. If QCOM declines to
consent to such termination and distribution, QCOM may incur an obligation to
pay Additional Interest. In the case of a Special Event that is a Tax Event, in
certain circumstances QCOM shall have the right to redeem the Convertible
Subordinated Debt Securities, in whole or in part, in which event the Trust will
redeem the Trust Securities on a pro rata basis to the same extent as the
Convertible Subordinated Debt Securities are redeemed. See "Description of
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<PAGE> 19
the Convertible Preferred Securities -- Special Event Redemption or
Distribution" and "Certain United States Federal Income Tax Consequences."
Under current United States federal income tax law, a distribution of the
Convertible Subordinated Debt Securities upon the termination of the Trust would
not be a taxable event to holders of the Convertible Preferred Securities.
Interest payments on Convertible Subordinated Debt Securities held by a United
States Alien Holder (as defined herein) would be subject to withholding for U.S.
income taxes at a rate of 30%. Upon occurrence of a Tax Event, however, a
termination of the Trust in which holders of the Convertible Preferred
Securities receive cash would be a taxable event to such holders. See "Certain
United States Federal Income Tax Consequences -- Receipt of Convertible
Subordinated Debt Securities or Cash upon Liquidation of the Trust."
There can be no assurance as to the market prices for the Convertible
Preferred Securities or Convertible Subordinated Debt Securities that may be
distributed in exchange for Convertible Preferred Securities if a termination of
the Trust were to occur. Accordingly, the Convertible Preferred Securities that
an investor may purchase, or the Convertible Subordinated Debt Securities that
the investor may receive on dissolution and liquidation of the Trust, may trade
at a discount to the price that the investor paid to purchase the Convertible
Preferred Securities offered hereby. Because holders of Convertible Preferred
Securities may receive Convertible Subordinated Debt Securities upon the
occurrence of a Special Event, prospective purchasers of Convertible Preferred
Securities also are making an investment decision with regard to the Convertible
Subordinated Debt Securities and should carefully review all the information
regarding the Convertible Subordinated Debt Securities and the Company contained
herein. See "Description of the Convertible Preferred Securities -- Special
Event Redemption or Distribution" and "Description of the Convertible
Subordinated Debt Securities."
Proposed Tax Legislation. On February 6, 1997, President Clinton announced
his Fiscal 1998 Budget Proposal (the "Budget Proposal") which, among other
things, would treat as equity and would eliminate interest deductions under
United States federal income tax laws for debt instruments with a maximum term
of more than 15 years that are not treated as indebtedness on the financial
statements of the issuer. This provision of the Budget Proposal is proposed to
be effective for debt instruments issued on or after the date of first
Congressional committee action. While the Company believes that the Convertible
Subordinated Debt Securities would not be affected by the Budget Proposal, there
can be no assurances that this proposed legislation or other proposals would not
be enacted in the future, and that such legislation would not have a retroactive
effective date that would prevent QCOM from deducting interest on the
Convertible Subordinated Debt Securities. See "Description of the Convertible
Preferred Securities -- Special Event Redemption or Distribution."
Limited Voting Rights. Holders of Convertible Preferred Securities
generally have limited voting rights primarily in connection with directing the
activities of the Property Trustee as the holder of the Convertible Subordinated
Debt Securities. Such holders are not entitled to vote to appoint, remove or
replace, or to increase or decrease the number of Company Trustees, which voting
rights are vested exclusively in QCOM as the holder of the Common Securities.
See "Description of the Convertible Preferred Securities -- Voting Rights."
Absence of Public Market for the Convertible Preferred Securities and
Restrictions on Resale. Although the Convertible Preferred Securities have been
approved for trading in the PORTAL market, there can be no assurance that any
market for the Convertible Preferred Securities will develop or, if one does
develop, that it will be maintained. If an active market for the Convertible
Preferred Securities fails to develop or be sustained, the trading price of the
Convertible Preferred Securities could be adversely affected. The Convertible
Preferred Securities could trade at prices that may be higher or lower than the
offering price hereunder depending on many factors, including prevailing
interest rates, the price of the Common Stock, QCOM's operating results, any
election by QCOM to extend interest payment periods and the market for similar
securities. However, there can be no assurance as to the liquidity of any
trading market for the Convertible Preferred Securities or that an active public
market for the Convertible Preferred Securities will develop.
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Trading Price of Convertible Preferred Securities. The Convertible
Preferred Securities may trade at a price that does not fully reflect the value
of accrued but unpaid interest with respect to the underlying Convertible
Subordinated Debt Securities. A holder disposing of Convertible Preferred
Securities between record dates for payments of distributions thereon will be
required to include accrued but unpaid interest on the Convertible Subordinated
Debt Securities through the date of disposition in income as ordinary income
(i.e., OID (as defined herein)), and to add such amount to the adjusted tax
basis in the holder's Convertible Preferred Securities. To the extent the
selling price is less than the holder's adjusted tax basis (which will include,
in the form of OID, all accrued but unpaid interest), a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
See "Certain United States Federal Income Tax Consequences -- Original Issue
Discount, Premium and Market Discount" and "-- Sale of Convertible Preferred
Securities."
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<PAGE> 21
THE COMPANY
QUALCOMM is a leading provider of digital wireless communications products,
technologies and services. The Company designs, develops, markets and
manufactures wireless communications, infrastructure and subscriber equipment
and ASICs based on its CDMA technology and has licensed its CDMA technology to
major telecommunications equipment suppliers for incorporation into their
wireless communications products. QUALCOMM designed and is manufacturing,
distributing and operating the OmniTRACS system, a satellite-based, two-way
mobile communications and tracking system that provides messaging, position
reporting and other services for transportation companies and other mobile and
fixed-site customers. The Company also provides contract development services,
including the design and development of subscriber and ground communications
equipment for the Globalstar satellite-based communications system. In addition,
the Company develops, markets and manufactures a variety of other communications
products, including Eudora, a leading Internet-based electronic mail software
application, for personal, commercial and government applications.
The Company's CDMA technology has been developed for implementation in
cellular, PCS and WLL systems as well as other wireless applications. Wireless
networks based on the Company's CDMA technology have been commercially deployed
and are under development in a number of markets around the world. CDMA has
emerged as the leading digital technology for cellular and PCS applications in
the U.S., having been adopted by a number of the largest cellular and PCS
carriers covering over 95% of the U.S. population. Internationally, CDMA has
been introduced in Hong Kong and South Korea and is being implemented in
numerous other markets worldwide. To support the deployment of CDMA equipment,
the Company has entered into a number of royalty-bearing license agreements with
major telecommunications companies throughout the world. These companies include
Alps Electric, DENSO, DSP Communications, Fujitsu, Hitachi Ltd. ("Hitachi"),
Hughes, Hyundai Electronics, Kenwood, Kyocera, LGIC, Lucent, Matsushita, Maxon,
Mitsubishi, Motorola, NEC, NOKIA, Nortel, OKI Electric, Samsung Electronics,
Sanyo, Siemens, Sony, Toshiba and VLSI Technology. The Company and its licensees
are developing, marketing and manufacturing CDMA wireless infrastructure and
subscriber equipment and ASICs for wireless networks worldwide. The Company has
entered into agreements with Hughes and Nortel to support the design and
manufacture of CDMA infrastructure equipment and a joint venture with Sony, QPE,
to develop, manufacture and market subscriber equipment.
The Company's OmniTRACS system provides two-way data messaging and position
reporting services to mobile users, primarily transportation operators in the
long haul trucking industry. As of March 30, 1997, the Company had sold over
194,000 OmniTRACS terminals worldwide in 33 countries, both directly and through
joint ventures and strategic alliances. The Company operates a network
management facility ("NMF") in the U.S. which, as of [May] 1997, processed over
4 million messages and position reports per weekday to over 700 customers. The
Company also develops and licenses complementary software products and services
which enhance the functionality of the OmniTRACS system and increase messaging
unit volume.
RECENT DEVELOPMENTS
A number of important milestones toward large-scale commercialization of
the Company's CDMA technology have been achieved. In the U.S., CDMA has emerged
as the leading digital technology for cellular and PCS applications. A number of
the largest domestic cellular carriers have selected CDMA as their digital
platform, including AirTouch Communications, ALLTEL Mobile, Ameritech, Comcast
Cellular Communications, GTE Mobilnet, Bell Atlantic Nynex Mobile, 360 degrees
Communications and US WEST. A significant number of the largest PCS carriers
have announced their selection of CDMA for use in their systems, including
PrimeCo Personal Communications, L.P. ("PrimeCo"), a partnership of AirTouch
Communications, Bell Atlantic Nynex Mobile and US WEST; Sprint PCS, a
partnership of Sprint Corporation, Tele-Communications Inc., Cox Communications
Inc. and Comcast Corp.; NextWave; Chase; and Centennial Cellular Corporation.
After extensive field testing, industry review and standardization, the
Company's CDMA technology is now being used in a number of markets around the
world. CDMA-based wireless systems were successfully
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<PAGE> 22
launched in South Korea, Hong Kong, and elsewhere. The Company believes the
South Korean system was serving over 1,000,000 subscribers as of January 1997.
Through May 1997, PrimeCo had launched PCS service in 23 major U.S. cities,
including Chicago, Dallas, Fort Lauderdale, Ft. Worth, Honolulu, Houston,
Jacksonville, Miami, Milwaukee, New Orleans, Norfolk, Orlando, Richmond, San
Antonio and Tampa. The launch represented the largest domestic multimarket
wireless system deployment to date, as well as the first commercial multimarket
launch of CDMA at 1900 MHz. In December 1996, Sprint PCS launched service in 47
major U.S. cities, including Albany, Fresno, Milwaukee, Pittsburgh, Portland,
San Diego, Spokane and Syracuse. Subscriber equipment for both the PrimeCo and
the Sprint PCS roll-outs was provided by QPE. Other CDMA networks are expected
to be commercially deployed in the U.S. and internationally in 1997, including a
number of U.S. cellular and PCS networks.
The Company has an agreement with Nortel providing for the production and
delivery of infrastructure equipment for CDMA wireless systems. Pursuant to the
agreement, Nortel has nonexclusive access to QUALCOMM's product designs for
digital cellular, PCS and WLL infrastructure products and in return purchases
from QUALCOMM a minimum percentage of CDMA infrastructure equipment for resale
to its customers. In February 1996, the Company announced its agreement to
supply Nortel with approximately $200 million of PCS infrastructure equipment
and RF services as part of Nortel's estimated $1 billion equipment supply
agreement with Sprint PCS. Other major customers under the agreement between
Nortel and QUALCOMM include BCTel Mobility Cellular and Bell Mobility. As of
December 31, 1996, the Company has shipped approximately 600 base stations and
related infrastructure equipment to PCS and cellular operators in North America.
In September 1996, the Company and Hughes entered into an agreement
providing for design and production of infrastructure equipment for CDMA
wireless systems. Pursuant to the agreement, Hughes will have nonexclusive
access to QUALCOMM's product designs for digital cellular, PCS and WLL
infrastructure products and in return will purchase a minimum percentage of CDMA
infrastructure equipment for resale to its customers. In October 1996, Hughes
announced a strategic supply agreement with NextWave under which Hughes will
supply up to $245 million of CDMA infrastructure equipment for NextWave's PCS
network, with an option to expand such amount to $1 billion over the next six
years under certain conditions. Pursuant to the agreement with Hughes, QUALCOMM
will supply a percentage of the infrastructure equipment to be shipped by Hughes
to NextWave.
In December 1996, the Company and Chase entered into an agreement pursuant
to which QUALCOMM will supply approximately $140 million of PCS infrastructure
equipment and services based on QUALCOMM's CDMA technology to Chase. QUALCOMM
has also agreed to provide up to $119 million of financing for equipment
purchased under the Chase agreement. Chase was awarded PCS licenses in 11 cities
covering approximately 6.3 million people throughout Tennessee and the
surrounding area in the FCC's C-Block auction.
During 1996 and early 1997, the Company significantly expanded its
manufacturing capacity for CDMA subscriber and infrastructure equipment. During
the period, QPE dedicated a new manufacturing facility and completed the
installation of eight production lines in order to support existing and future
orders for CDMA subscriber equipment. In June 1996, Sprint PCS and PrimeCo
announced awards approximating $500 million and $350 million, respectively, to
QPE for CDMA subscriber equipment. Shipments under the contracts began in 1996
and are scheduled to continue through 1998. As of January 1997, the Company had
produced over 1,000,000 handsets and achieved a production rate of over 200,000
units per month. In January 1997, the Company commenced operation of a 177,000
square foot facility in San Diego, California to expand its capacity to
manufacture its CDMA infrastructure equipment.
During 1996, the Company continued its international CDMA commercialization
efforts. As of May 1997 the Company's CDMA technology was in use or was approved
for use in 20 countries and 54 markets worldwide. In advance of commercial
rollout, the Company currently has systems undergoing certification in India and
Russia. The Company plans to pursue additional international opportunities for
the sale of CDMA infrastructure equipment, either as a primary contractor,
through its agreements with Nortel and/or Hughes or through international joint
venture partners.
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In September 1996, Globalstar completed an important milestone when forward
and reverse link calls using the Company's CDMA technology were successfully
completed in a laboratory environment. In December 1996, the Company entered
into a license with Telital S.r.l. ("Telital") to design and manufacture dual
mode Globalstar CDMA/GSM telephones. The dual mode Globalstar satellite
telephones will be designed to operate on either satellite or the local CDMA or
GSM cellular networks throughout the world. Globalstar has entered into a
four-year agreement for QUALCOMM to design and develop subscriber equipment and
ground communications equipment for the Globalstar system. Total revenues under
the contract to QUALCOMM are estimated to exceed $500 million at completion,
$213 million of which had been recognized by QUALCOMM as of September 29, 1996.
The Company shares in the management fee, and its ownership interest in
Globalstar is approximately 7%.
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<PAGE> 24
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to the filing of a certificate of trust with the Delaware Secretary of State on
February 7, 1997 and the entering into of a Declaration of Trust on February 7,
1997. The Trust's purpose is defined in an Amended and Restated Declaration of
Trust, dated February 25, 1997 (the "Declaration"), between QCOM, as sponsor,
and the Company Trustees (as defined herein) as of that date. QCOM directly has
acquired all of the Common Securities in an aggregate liquidation amount equal
to 3% of the total capital of the Trust. The Trust exists for the exclusive
purposes of (i) issuing the Trust Securities, representing undivided beneficial
interests in the assets of the Trust, (ii) investing the gross proceeds of the
Trust Securities in the Convertible Subordinated Debt Securities and (iii)
engaging in only those other activities necessary or incidental thereto. The
Trust has a term of approximately 55 years, but may terminate earlier as
provided in the Declaration.
The Trust's affairs are conducted by the trustees (the "Company Trustees")
appointed by QCOM, holder of the Common Securities. The duties and obligations
of the Company Trustees are governed by the Declaration. Pursuant to the
Declaration, the number of Company Trustees is initially five. Three of the
Company Trustees (the "Regular Trustees") are persons who are employees or
officers of, or affiliated with, QUALCOMM. A fourth trustee is a financial
institution unaffiliated with the Company that serves as property trustee (the
"Property Trustee") under the Declaration. Wilmington Trust Company is acting as
the Property Trustee until removed or replaced by the holder of the Common
Securities. Wilmington Trust Company also is acting as indenture trustee under
the Guarantee (the "Guarantee Trustee"). See "Description of the Guarantee." The
fifth trustee is a financial institution or an affiliate thereof which maintains
a principal place of business or residence in the State of Delaware (the
"Delaware Trustee"). Wilmington Trust Company is acting as the Delaware Trustee
until removed or replaced by the holder of the Common Securities.
The Property Trustee holds title to the Convertible Subordinated Debt
Securities for the benefit of the Trust and holders of the Trust Securities and
has the power to exercise all rights, powers and privileges under the Indenture
as the holder of the Convertible Subordinated Debt Securities. In addition, the
Property Trustee maintains exclusive control of a segregated non-interest
bearing bank account (the "Property Account") to hold all payments made in
respect of the Convertible Subordinated Debt Securities for the benefit of the
Trust and holders of the Trust Securities. The Property Trustee makes payments
of distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Guarantee Trustee holds the Guarantee for the benefit of the holders of the
Convertible Preferred Securities. QCOM, as the holder of all the Common
Securities, has the right to appoint, remove or replace any Company Trustee and
to increase or decrease the number of Company Trustees, provided that the number
of Company Trustees shall be at least three, a majority of which shall be
Regular Trustees. QCOM will pay all fees, expenses, debts and obligations (other
than the Trust Securities) related to the Trust and the offering of the Trust
Securities. QCOM has agreed that the Property Trustee and any person to whom
such fees, expenses, debts and obligations are owed will have the right to
enforce QCOM's obligations in respect of such fees, expenses, debts and
obligations directly against QCOM without first proceeding against the Trust.
See "Description of the Convertible Preferred Securities -- Expenses and Taxes."
The rights of the holders of the Convertible Preferred Securities,
including economic rights, rights to information and voting rights, are as set
forth in the Declaration and the Delaware Business Trust Act, as amended (the
"Trust Act"). See "Description of the Convertible Preferred Securities."
The principal place of business of the Trust is c/o QUALCOMM Incorporated,
6455 Lusk Boulevard, San Diego, California 92121; Telephone: (619) 587-1121.
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<PAGE> 25
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from any sale of the
Offered Securities. Neither QCOM nor the Trust will receive any proceeds from
the sale of the Offered Securities.
ACCOUNTING TREATMENT
The financial statements of the Trust are consolidated with the Company's
financial statements with the Convertible Preferred Securities shown on the
Company's consolidated financial statements as Company-obligated mandatorily
redeemable convertible preferred securities of a subsidiary trust holding solely
subordinated debt securities of QCOM. The sole asset of the Trust will be the
5 3/4% Convertible Subordinated Debentures due February 24, 2012 in the
aggregate principal amount of approximately $680,000,000.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis for each of the five fiscal years in the period
ended September 30, 1996 and for the six months ended March 30, 1996 and March
30, 1997:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEARS ENDED SEPTEMBER 30(1) MARCH 30(1)
------------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(1)......... -- 5.3x 5.4x 7.7x 3.1x 3.6x 4.2x
</TABLE>
- ---------------
(1) The Company's fiscal periods and on the last Sunday of each period. As a
result of this practice, fiscal 1996 includes 53 weeks.
(2) The ratio of earnings to fixed charges is computed by dividing income (loss)
before taxes, interest expense and other fixed charges by total fixed
charges, including interest expense and capitalized interest. In fiscal
1992, earnings were insufficient to cover fixed charges by $3,544,000.
DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities have been issued pursuant to the terms
of the Declaration. The terms of the Convertible Preferred Securities include
those stated in the Declaration. The following summary of the principal terms
and provisions of the Convertible Preferred Securities does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Declaration (a copy of which is available for inspection at the corporate trust
office of the Property Trustee in Wilmington, Delaware) and the Trust Act.
GENERAL
The Declaration authorizes the Regular Trustees, on behalf of the Trust, to
issue the Convertible Preferred Securities, which represent preferred undivided
beneficial interests in the assets of the Trust, and the Common Securities,
which represent common undivided beneficial interests in the assets of the
Trust. All of the Common Securities are owned directly by QCOM. The Common
Securities rank pari passu with the Convertible Preferred Securities, and
payments will be made on the Common Securities on a pro rata basis with the
Convertible Preferred Securities, except that upon the occurrence and during the
continuation of a Declaration Event of Default, the rights of the holders of the
Common Securities to receive payment of periodic distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights to
payment of the holders of the Convertible Preferred Securities. The Declaration
does not permit the issuance by the Trust of any securities other than the Trust
Securities or the incurrence of any indebtedness by the Trust. Pursuant to the
Declaration, the Property Trustee owns and holds the Convertible Subordinated
Debt Securities for the benefit of the Trust and the holders of the Trust
Securities. The payment of distributions out of money held by the Trust, and
payments upon redemption of the Convertible Preferred Securities or liquidation
of the Trust, are guaranteed by QCOM to the extent described under "Description
of the Guarantee."
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<PAGE> 26
The Guarantee Trustee holds the Guarantee for the benefit of the holders of
the Convertible Preferred Securities. The Guarantee does not cover payment of
distributions on the Convertible Preferred Securities when the Trust does not
have sufficient available funds in the Property Account to make such
distributions.
FORM, DENOMINATION AND REGISTRATION
The Convertible Preferred Securities have been issued in fully registered
form, without coupons.
Global Certificate; Book-Entry Form. Except as provided below, Convertible
Preferred Securities sold in the Original Offering to "qualified institutional
buyers," as defined in Rule 144A under the Securities Act ("QIBs"), otherwise
than in reliance on Regulation S, were evidenced by one or more global
certificates representing Convertible Preferred Securities (collectively, the
"Restricted Global Certificate"), which were deposited with the Property Trustee
as custodian for DTC and registered in the name of Cede & Co. ("Cede") as DTC's
nominee. Convertible Preferred Securities sold to persons who acquired such
Convertible Preferred Securities in compliance with Regulation S under the
Securities Act ("Non-U.S. Persons") were evidenced by one or more global
certificates (collectively, the "Regulation S Global Certificate" and together
with the Restricted Global Certificate, the "Global Certificates" or each
individually, a "Global Certificate"), which were registered in the name of a
nominee of DTC and deposited with the Property Trustee, for the accounts of the
Euroclear System ("Euroclear") or Cedel Bank, societe anonyme ("Cedel"). The
Global Certificates (and any Convertible Preferred Securities issued in exchange
therefor) are subject to certain restrictions on transfer set forth therein and
in the Declaration and bear the legend regarding such restrictions set forth
under "Transfer Restrictions." Until the end of the applicable restricted period
(such period, the "Restricted Period"), beneficial interests in the Regulation S
Global Certificate may be held only through Euroclear or Cedel, unless delivery
is made through the Restricted Global Certificate in accordance with the
certification requirements described herein. Restricted Period means, with
respect to the Convertible Preferred Securities, the one-year period and, with
respect to the Convertible Subordinated Debt Securities and Common Stock
issuable upon conversion thereof or of the Convertible Preferred Securities, the
40-day period, in either case following the latest of the commencement of the
Original Offering of the Convertible Preferred Securities and the last original
issue date of the Convertible Preferred Securities.
A QIB may hold its interests in the Restricted Global Certificate directly
through DTC if such QIB is a participant in DTC, or indirectly through
organizations which are participants in DTC (the "Participants"). Transfers
between Participants will be effected in the ordinary way in accordance with DTC
rules and will be settled in same-day funds. The laws of some states require
that certain persons take physical delivery of securities in definitive form.
Consequently, the ability to transfer beneficial interest in the Restricted
Global Certificate to such persons may be limited.
Prior to the expiration of the Restricted Period, a beneficial interest in
the Regulation S Global Certificate may be transferred to a person who takes
delivery in the form of an interest in the Restricted Global Certificate only
upon receipt by the Property Trustee of a written certification from the
transferor to the effect that such transfer is being made (i)(a) to a person
whom the transferor reasonably believes is purchasing for its own account or
accounts as to which it exercises sole investment discretion and that such
person and each such account is a QIB in a transaction meeting the requirements
of Rule 144A or (b) pursuant to another exemption from the registration
requirements under the Securities Act (in which case such certificate must be
accompanied by an opinion of counsel regarding the availability of such
exemption) and (ii) in accordance with all applicable securities laws of any
state of the United States or any other jurisdiction. After the expiration of
the Restricted Period, such certification requirements will no longer apply to
such transfers.
Beneficial interests in the Restricted Global Certificate may be
transferred to a person who takes delivery in the form of an interest in the
Regulation S Global Certificate, whether during or after the Restricted Period,
only upon receipt by the Property Trustee of a written certification from the
transferor to the effect that such transfer is being made in accordance with
Regulation S or Rule 144A under the Securities Act and that, if such transfer
occurs prior to the expiration of the Restricted Period, the interest
transferred will be held immediately thereafter through Euroclear or Cedel. Any
beneficial interest in one of the Global Certificates
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<PAGE> 27
will, upon transfer, cease to be an interest in such Global Certificate and
become an interest in such other Global Certificate and, accordingly, thereafter
will be subject to all transfer restrictions and other procedures applicable to
beneficial interest in such other Global Certificate for as long as it remains
such an interest.
Investors may hold their interests in the Regulation S Global Certificate
through Euroclear or Cedel, if they are participants in such systems, or
indirectly through organizations that are participants in such systems. After
the expiration of the Restricted Period (but no earlier), investors also may
hold such interests through organizations other than Euroclear or Cedel that are
Participants in DTC. Euroclear and Cedel will hold interests in the Regulation S
Global Certificate on behalf of their participants through customers' securities
accounts in their respective names on the books of DTC. All interests in a
Global Certificate, including those held through Euroclear or Cedel, may be
subject to the procedures and requirements of DTC. Those interests held through
Euroclear and Cedel also may be subject to the procedures and requirements of
such systems.
QIBs and Non-U.S. Persons who are not Participants may beneficially own
interests in a Global Certificate held by DTC only through Participants,
including Euroclear and Cedel, or certain banks, brokers, dealers, trust
companies and other parties that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). So long as Cede, as the nominee of DTC, is the registered owner
of a Global Certificate, except as provided below, owners of beneficial
interests in a Global Certificate will not be entitled to have certificates
registered in their names, will not receive or be entitled to receive physical
delivery of certificates in definitive form, and will not be considered holders
thereof.
Subject to compliance with the transfer restrictions applicable to the
Global Certificates described herein and in the Declaration, cross-market
transfers between holders of interests in the Restricted Global Certificate, on
the one hand, and direct or indirect account holders at a Euroclear or Cedel
participant (each, a "Member Organization") holding interests in the Regulation
S Global Certificate, on the other hand, will be effected through DTC in
accordance with DTC's rules and the rules of Euroclear or Cedel, as applicable.
Such cross-market transactions will require, among other things, delivery of
instructions by such Member Organization to Euroclear or Cedel, as the case may
be, in accordance with the rules and procedures and within deadlines (Brussels
time) established by Euroclear or Cedel, as the case may be. If the transaction
complies with all relevant requirements, Euroclear or Cedel, as the case may be,
will then deliver instructions to its depositary to take action to effect final
settlement on its behalf.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to owners of beneficial interests in the Global Certificate held by
DTC will be governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time. Redemption
notices shall be sent to Cede. If less than all of the Convertible Preferred
Securities are being redeemed, DTC will reduce the amount of the interest of
each Participant in such Convertible Preferred Securities in accordance with its
procedures.
Although voting with respect to the Convertible Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede will
itself consent or vote with respect to Convertible Preferred Securities. Under
its usual procedures, DTC would mail an Omnibus Proxy to the Trust as soon as
possible after the record date. The Omnibus Proxy assigns Cede's consenting or
voting rights to those Participants to whose accounts the Convertible Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy). QCOM and the Trust believe that the arrangements among DTC,
Participants and Indirect Participants, and owners of beneficial interests in
the Global Certificate held by DTC will enable such beneficial owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in the Trust.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
Distribution payments on the Global Certificates will be made to Cede, the
nominee for DTC, as the registered owner of the Global Certificates by wire
transfer of immediately available funds. Neither QCOM, the Property Trustee nor
any paying agent will have any responsibility or liability for any aspect of the
records
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<PAGE> 28
relating to or payments made on account of beneficial ownership interests in the
Global Certificates or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
QCOM has been informed by DTC that, with respect to any distribution
payments on the Global Certificates, DTC's practice is to credit Participants'
accounts on the payment date therefor with payments in amounts proportionate to
their respective beneficial interests in the Convertible Preferred Securities
represented by a Global Certificate, as shown on the records of DTC, unless DTC
has reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in Convertible
Preferred Securities represented by a Global Certificate held through such
Participants will be the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name."
Holders who desire to convert their Convertible Preferred Securities into
Common Stock pursuant to the terms of the Convertible Preferred Securities
should contact their brokers or other Participants or Indirect Participants to
obtain information on procedures, including proper forms and cut-off times, for
submitting such requests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Convertible Preferred Securities represented by
a Global Certificate to pledge such interest to persons or entities that do no
participate in the DTC system, or otherwise take actions in respect of such
interest, may be affected by the lack of physical certificate evidencing such
interest.
Neither QCOM nor the Property Trustee (or any registrar, paying agent or
conversion agent under the Declaration) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised QCOM that it will take any action permitted to be
taken by a holder of Convertible Preferred Securities (including, without
limitation, the presentation of Convertible Preferred Securities for exchange as
described below) only at the direction of one or more Participants to whose
account with DTC interests in the Global Certificate are credited and only with
respect to the number of Convertible Preferred Securities represented by the
Global Certificate as to which such Participant or Participants has or have
given such direction.
DTC has advised QCOM as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the United States Securities Exchange Act of 1934
(the "Exchange Act"). DTC was created to hold securities for its Participants
and to facilitate the clearance and settlement of securities transactions
between Participants through electronic book-entry changes to accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations
such as the Initial Purchasers. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Global Certificates among
Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to continue
as depositary and a successor depositary is not appointed by QCOM within 90
days, QCOM will cause the Convertible Preferred Securities to be issued in
definitive form in exchange for the Global Certificates. None of QCOM, the
Property Trustee nor any of their respective agents will have any responsibility
for the performance by DTC, Euroclear and Cedel, their Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Certificate.
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<PAGE> 29
Certificated Convertible Preferred Securities. Convertible Preferred
Securities sold in the Original Offering to investors that are neither QIBs nor
Non-U.S. Persons were issued in definitive registered form in minimum
denominations of 1,000 Convertible Preferred Securities and integral amounts in
excess thereof, and were not and may not be represented by the Global
Certificate. In addition, QIBs and Non-U.S. Persons may request that their
Convertible Preferred Securities be issued in certificated form, and may request
at any time that their interest in a Global Certificate be exchanged for
Convertible Preferred Securities in certificated form, upon compliance with
certain procedures set forth in the Declaration. Finally, certificated
Convertible Preferred Securities may be issued in exchange for Convertible
Preferred Securities represented by the Global Certificate if no successor
depositary is appointed by QCOM as set forth above under "-- Global Certificate;
Book-Entry Form" or in certain other circumstances set forth in the Declaration,
including the occurrence of a Declaration Event of Default.
DISTRIBUTIONS
Distributions on the Convertible Preferred Securities are fixed at a rate
per annum of 5 3/4% of the stated liquidation amount of $50 per Convertible
Preferred Security (equivalent to $2.875 per Convertible Preferred Security).
Distributions in arrears for more than one quarter will bear interest at the
rate of 5 3/4% per annum compounded quarterly (to the extent permitted by
applicable law). The term "distributions" as used herein includes any such
interest payable unless otherwise stated.
Distributions on the Convertible Preferred Securities are cumulative,
accrue from February 25, 1997, and are payable quarterly in arrears on March 1,
June 1, September 1 and December 1 of each year to the holders of record on the
applicable record date, commencing June 1, 1997, when, as and if available for
payment by the Property Trustee, except as otherwise described below. The amount
of distributions payable for any period will be computed on the basis of a
360-day year of twelve 30-day months. The initial distribution, payable on June
1, 1997, will be based on a period longer than a full quarter (February 25, 1997
to June 1, 1997), and will be in the amount of $0.7667 per Convertible Preferred
Security.
So long as no Indenture Event of Default (as defined herein) shall have
occurred and be continuing, QCOM has the right under the Indenture to defer
payments of interest (including any Additional Interest and Liquidated Damages
(as defined herein)) on the Convertible Subordinated Debt Securities by
extending the interest payment period from time to time on the Convertible
Subordinated Debt Securities which, if exercised, would defer quarterly
distributions on the Convertible Preferred Securities (though such distributions
would continue to accrue interest at the distribution rate, compounded
quarterly, since interest would continue to accrue on the Convertible
Subordinated Debt Securities) during any such extended interest payment period.
In the event that QCOM exercises this right, then (a) QCOM shall not declare or
pay any dividend on, make any distributions with respect to, or redeem, purchase
or make a liquidation payment with respect to, any of its capital stock (other
than (i) purchases or acquisitions of shares of Common Stock in connection with
the satisfaction by QCOM of its obligations under any employee benefit plans,
(ii) as a result of a reclassification of QCOM's capital stock or the exchange
or conversion of one class or series of QCOM's capital stock for another class
or series of QCOM's capital stock or the exchange or conversion of one class or
series of QCOM's capital stock for another class or series of QCOM's capital
stock or (iii) the purchase of fractional interests in shares of QCOM's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security of being converted or exchanged), (b) QCOM shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by QCOM which rank pari passu with or junior
to the Convertible Subordinated Debt Securities, and (c) QCOM shall not make any
guarantee payments (other than pursuant to the Guarantee) with respect to the
foregoing; provided, however, that the foregoing restrictions do not apply to
any dividend, redemption, liquidation, interest, principal or guarantee payments
by QCOM where the payment is made by way of securities (including capital stock)
that rank pari passu with or junior to the securities on which such dividend,
redemption, interest, principal or guarantee payment is being made. Prior to the
termination of any such Extension Period, QCOM may further extend the interest
payment period, provided that such Extension Period, together with all such
previous and further extensions thereof, may not exceed 20 consecutive quarters
or extend beyond the stated maturity of the Convertible Subordinated Debt
Securities. Upon termination of
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<PAGE> 30
any Extension Period and the payment of all amounts then due (including any
Additional Interest and Liquidated Damages), QCOM may commence a new Extension
Period as if no Extension Period had previously been declared, subject to the
above requirements. See "Voting Rights" below and "Description of the
Convertible Subordinated Debt Securities -- Interest" and "-- Option to Extend
Interest Payment Period." If distributions are deferred, the deferred
distributions and accrued interest thereon shall be paid to holders of record of
the Convertible Preferred Securities, if funds are available therefor, as they
appear on the books and records of the Trust on the record date next following
the termination of such Extension Period.
QCOM has no current intention to exercise its right to defer payments of
interest by extending the interest payment period on the Convertible
Subordinated Debt Securities.
Distributions on the Convertible Preferred Securities must be paid on the
dates payable to the extent that the Trust has funds available for the payment
of such distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Convertible Preferred Securities are limited
to payments received under the Convertible Subordinated Debt Securities. See
"Description of the Convertible Subordinated Debt Securities." The payment of
distributions out of moneys held by the Trust is guaranteed by the Company to
the extent set forth under "Description of the Guarantee."
Distributions on the Convertible Preferred Securities are payable to the
holders thereof as they appear on the books and records of the Trust on the
relevant record dates, which will be 15 days prior to the relevant payment
dates, which payment dates correspond to the interest payment dates on the
Convertible Subordinated Debt Securities. In the event that any Convertible
Preferred Security is redeemed after a record date and prior to (but not on) the
corresponding payment date, the accrued and unpaid distributions on such
Convertible Preferred Security as of the redemption date will be paid to the
holder thereof on the redemption date, not to the holder thereof on the record
date. In the event that a redemption date is also a payment date, then the
accrued and unpaid distributions will be paid to the holder of such Convertible
Preferred Security as of the record date. Such distributions will be paid
through the Property Trustee, who will hold amounts received in respect of the
Convertible Subordinated Debt Securities in the Property Account for the benefit
of the Trust and the holders of the Trust Securities. Subject to any applicable
laws and regulations and the provisions of the Declaration, each such payment
will be made as described under "-- Form, Denomination and Registration" above.
In the event that any date on which distributions are to be made on the
Convertible Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay) except that if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. A "Business
Day" shall mean any day other than a Saturday, Sunday or other day on which
banking institutions in New York, New York or Wilmington, Delaware are
authorized or required by law to close.
CONVERSION RIGHTS
General. The Convertible Preferred Securities are convertible at any time
beginning April 28, 1997 through the close of business on February 24, 2012 (or,
in the case of Convertible Preferred Securities called for redemption, prior to
the close of business on the Business Day prior to the redemption date) (the
"Conversion Expiration Date"), at the option of the holders thereof and in the
manner described below, into shares of Common Stock at an initial conversion
rate of 0.6882 shares of Common Stock for each Convertible Preferred Security
(equivalent to a conversion price of $72.6563 per share of Common Stock),
subject to adjustment as described under "-- Conversion Price
Adjustments -- General" and "-- Conversion Price Adjustments -- Merger,
Consolidation of Sale of Assets of QCOM" below. Whenever QCOM issues shares of
Common Stock upon conversion of Preferred Securities, under QCOM's Preferred
Share Purchase Rights Plan (the "Rights Plan"), or any other share purchase
rights agreement under which holders of Common Stock are issued rights (the
"Rights") entitling the holders under certain circumstances to purchase an
additional share or shares of Common Stock, QCOM will issue, together with each
such share of Common Stock, an appropriate number of rights. For a description
of the Rights Plan, see "Description of QCOM Capital Stock -- Rights; Junior
Preferred Stock."
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<PAGE> 31
The terms of the Convertible Preferred Securities provide that a holder of
a Convertible Preferred Security wishing to exercise its conversion right shall
surrender such Convertible Preferred Security, if it is in certificated form,
together with an irrevocable conversion notice, to the Property Trustee, as
conversion agent (the "Conversion Agent"), which shall, on behalf of such
holder, exchange such Convertible Preferred Security for a portion of the
Convertible Subordinated Debt Securities and immediately convert an equivalent
amount of Convertible Subordinated Debt Securities into Common Stock. Holders
may obtain copies of the required form of the conversion notice from the
Conversion Agent. So long as a book-entry system for the Convertible Preferred
Securities is in effect, however, the procedures for converting the Convertible
Preferred Securities that are in the form of Global Certificates into shares of
Common Stock will be as described under "-- Form, Denomination and
Registration."
Accrued distributions will not be paid on the Convertible Preferred
Securities that are converted, provided, however, that if any Convertible
Preferred Security is converted on or after a record date for payment of
distributions thereon, the distributions payable on the related payment date
with respect to such Convertible Preferred Security shall be distributed to the
holder, despite such conversion. Except as provided in the immediately preceding
sentence, neither the Trust nor QCOM shall make any payment, allowance or
adjustment for accumulated and unpaid distributions, whether or not in arrears,
on converted Convertible Preferred Securities. QCOM will make no payment or
allowance for distributions on the shares of Common Stock issued upon such
conversion, except to the extent that such shares of Common Stock are held of
record on the record date for any such distributions. Each conversion will be
deemed to have been made immediately prior to the close of business on the day
on which the related conversion notice is received by the Conversion Agent.
No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by QCOM in
cash based on the current market price of Common Stock on the date such
Convertible Preferred Securities are surrendered for conversion.
Conversion Price Adjustments -- General. The conversion price of the
Convertible Subordinated Debt Securities, and, accordingly, the conversion rate
on the Convertible Preferred Securities, are subject to adjustment in certain
events, including (a) the issuance of shares of Common Stock as a dividend or a
distribution with respect to Common Stock, (b) subdivisions, combinations and
reclassification of Common Stock, (c) the issuance to all holders of Common
Stock of rights or warrants entitling them to subscribe for shares of Common
Stock at less than the current market price, (d) the distribution to all holders
of Common Stock of evidences of indebtedness of QCOM, of capital stock (other
than Common Stock) or of assets (other than cash distributions covered by clause
(e) below), or rights or warrants to subscribe for or purchase any of its
securities (excluding rights or warrants to purchase Common Stock referred to in
clause (c) above), (e) distributions consisting of cash, excluding any quarterly
cash dividend on Common Stock to the extent that the aggregate cash dividend per
share of Common Stock in any quarter does not exceed the greater of (i) the
amount per share of Common Stock of the immediately preceding quarterly dividend
on Common Stock to the extent that such preceding quarterly dividend did not
require an adjustment of the conversion rate pursuant to this clause (e) (as
adjusted to reflect subdivisions or combinations of Common Stock), and (ii)
3.125% of the average of the last reported sales price of Common Stock during
the ten trading days immediately prior to the date of declaration of such
dividend, and excluding any dividend or distribution in connection with the
liquidation, dissolution or winding-up of QCOM, (f) payment to holders of Common
Stock in respect of a tender or exchange offer by QCOM or any subsidiary for
Common Stock (other than an odd lot tender offer) at a price in excess of the
current market price of Common Stock as of the trading day next succeeding the
last date tenders or exchanges may be made pursuant to such tender or exchange
offer, and (g) payment to holders of Common Stock in respect of a tender or
exchange offer by a person other than QCOM or a subsidiary thereof for Common
Stock at a price in excess of the current market price of Common Stock as of the
trading day next succeeding the last date tenders or exchanges may be made
pursuant to such tender or exchange offer in which, as of the closing date of
the offer, QCOM's Board of Directors is not recommending rejection of the offer.
If an adjustment is required to be made as set forth in clause (e) above as a
result of a distribution that is a quarterly dividend, such adjustment would be
based upon the amount by which such distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded pursuant
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to clause (e). If an adjustment is required to be made as set forth in clause
(e) above as a result of a distribution that is not a quarterly dividend, such
adjustment would be based upon the full amount of the distribution. No
adjustment is required to be made for a transaction referred to in clauses (a)
through (e) above if holders of the Convertible Preferred Securities are to
participate in the transaction on a basis and with notice that the Board of
Directors of QCOM determine to be fair and appropriate in light of the basis and
notice on which holders of Common Stock participate in the transaction. The
adjustment referred to in clause (g) above will only be made if the tender offer
or exchange offer is made for an amount which increases that person's ownership
of Common Stock to more than 25% of the total shares of Common Stock
outstanding. The adjustment referred to in clause (g) above will not be made,
however, if as of the close of the offer, the offering documents with respect to
such offer disclose a plan or an intention to cause QCOM to engage in a
consolidation or merger of QCOM or a sale of all of QCOM's assets.
If the distribution date for the Rights of QCOM provided in the Rights
Plan, as presently constituted or under any similar plan (see "Description of
QCOM Capital Stock -- Rights; Junior Preferred Stock"), occurs prior to the date
a Convertible Preferred Security is converted, holders of the Convertible
Preferred Securities who convert such Convertible Preferred Securities after the
distribution date are not entitled to receive the Rights that would otherwise be
attached (but for the date of conversion) to the shares of Common Stock received
upon such conversion. However, adjustment of the conversion price shall be made
under clause (ii) of the preceding paragraph as if the Rights were being
distributed to the common stockholders of QCOM immediately prior to such
conversion. If such an adjustment is made and the Rights are later redeemed,
invalidated or terminated, then a corresponding reversing adjustment shall be
made to the conversion price, on an equitable basis, to take account of such
event.
QCOM from time to time may elect to reduce the conversion price of the
Convertible Subordinated Debt Securities (and thus the conversion rate of the
Convertible Preferred Securities) by any amount selected by QCOM for any period
of at least 30 days, in which case QCOM shall give at least 15 days' notice of
such reduction. QCOM may exercise the option to make such reductions in the
conversion price if QCOM's Board of Directors deems such reductions advisable to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. See "Certain United States Federal
Income Tax Consequences -- Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on securities of QCOM and the
investment of additional optional amount in shares of Common Stock under any
such plan. No adjustment in the conversion price will be required unless such
adjustment would require a change of at least one percent (1%) in the price then
in effect; provided, however, that any adjustment that would not be required to
be made shall be carried forward and taken into account in any subsequent
adjustment. If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has the
highest absolute value to the holders of the Convertible Subordinated Debt
Securities and, accordingly, to the holders of the Convertible Preferred
Securities.
Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of
QCOM. In the event that QCOM is a party to any transaction (including, without
limitation, a merger other than a merger that does not result in a
reclassification, conversion, exchange or cancellation of Common Stock),
consolidation, sale of all or substantially all of the assets of QCOM,
recapitalization or reclassification of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination of Common Stock) or any compulsory
share exchange (each of the foregoing being referred to as a "Transaction"), in
each case, as a result of which shares of Common Stock shall be converted into
the right to receive, or shall be exchanged for, (i) in the case of any
Transaction other than a Transaction involving a Common Stock Fundamental Change
(as defined below) (and subject to funds being legally available for such
purpose under applicable law at the time of such conversion), securities, cash
or other property, each Convertible Preferred Security shall thereafter be
convertible into the kind and, in the case of a Transaction which does not
involve a Fundamental Change (as defined below), amount of securities,
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<PAGE> 33
cash and other property receivable upon the consummation of such Transaction by
a holder of that number of shares of Common Stock into which a Convertible
Preferred Security was convertible immediately prior to such Transaction, or
(ii) in the case of a Transaction involving a Common Stock Fundamental Change,
common stock, each Convertible Preferred Security shall thereafter be
convertible (in the manner described herein) into common stock of the kind
received by holders of Common Stock (but in each case after giving effect to any
adjustment discussed below relating to a Fundamental Change if such Transaction
constitutes a Fundamental Change). The holders of Convertible Preferred
Securities will have no voting rights with respect to any Transaction described
in this section.
If any Fundamental Change occurs, then the conversion price in effect will
be adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change, each Convertible
Preferred Security shall be convertible solely into common stock of the kind
received by holders of Common Stock as a result of such Common Stock Fundamental
Change.
The conversion price in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below),
the conversion price of the Convertible Preferred Securities will thereupon
become the lower of (A) the conversion price in effect immediately prior to
such Non-Stock Fundamental Change, but after giving effect to any other
prior adjustments effected pursuant to the preceding paragraphs, and (B)
the result obtained by multiplying the greater of the Applicable Price (as
defined below) or the then applicable Reference Market Price (as defined
below) by a fraction, the numerator of which is $50 and the denominator of
which is (x) the amount of the redemption price for Convertible Preferred
Security if the redemption date were the date of such Non-Stock Fundamental
Change (or, for the period commencing February 25, 1997 and through March
3, 1998, and the twelve-month periods commencing March 4, 1998 and March 4,
1999, the product of 102% multiplied by $50) plus (y) any then-accrued and
unpaid distributions on one Convertible Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Convertible Preferred Securities in effect immediately prior
to such Common Stock Fundamental Change, but after giving effect to any
other prior adjustments effected pursuant to the preceding paragraphs, will
thereupon be adjusted by multiplying such conversion price by a fraction of
which the numerator will be the Purchaser Stock Price (as defined below)
and the denominator will be the Applicable Price; provided, however, that
in the event of a Common Stock Fundamental Change in which (A) 100% of the
value of the consideration received by a holder of Common Stock is common
stock of the successor, acquiror, or other third party (and cash, if any,
is paid only with respect to any fractional interests in such common stock
resulting from such Common Stock Fundamental Change) and (B) all Common
Stock will have been exchanged for, converted into, or acquired for common
stock (and cash with respect to fractional interests) of the successor,
acquiror, or other third party, the conversion price of the Convertible
Preferred Securities in effect immediately prior to such Common Stock
Fundamental Change will thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator will be one and the
denominator will be the number of shares of common stock of the successor,
acquiror, or other third party received by a holder of one share of Common
Stock as a result of such Common Stock Fundamental Change.
In the absence of the Fundamental Change provisions, in the case of a
Transaction each Convertible Preferred Security would become convertible into
the securities, cash, or property receivable by a holder of the number of shares
of Common Stock into which such Convertible Preferred Security was convertible
immediately prior to such Transaction. A failure to apply the Fundamental Change
conversion price adjustments described above could substantially lessen or
eliminate the value of the conversion privilege associated with the Convertible
Preferred Securities. For example, if QCOM were acquired in a cash merger, each
Convertible Preferred Security would become convertible solely into cash and
would no longer be convertible into securities whose value would vary depending
on the future prospects of QCOM and other factors.
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The foregoing conversion price adjustments are designed, in certain
circumstances, to reduce the conversion price that would be applicable in
"Fundamental Change" Transactions where all or substantially all the Common
Stock is converted into securities, cash, or property and not more than 50% of
the value received by the holders of Common Stock consists of stock listed or
admitted for listing subject to notice of issuance on the NYSE or a national
securities exchange or quoted on the Nasdaq National Market (a Non-Stock
Fundamental Change, as defined below). Such reduction would result in an
increase in the amount of the securities, cash, or property into which each
Convertible Preferred Security is convertible over that which would have been
obtained in the absence of such conversion price adjustments.
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Common Stock (measured as described in the definition of
Applicable Price below) is lower than the then applicable conversion price of a
Convertible Preferred Security but greater than or equal to the "Reference
Market Price," the conversion price will be adjusted as described above with the
effect that each Convertible Preferred Security will be convertible into
securities, cash or property of the same type received by the holders of Common
Stock in the Transaction but in an amount per Convertible Preferred Security
that would at the time of the Transaction have had a value equal to the then
applicable redemption price per Convertible Preferred Security set forth below
under "-- Optional Redemption" (or, for periods prior to the date on and after
which QCOM may cause the conversion rights of holders of Convertible Preferred
Securities to expire).
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Common Stock (measured as described in the definition of
Applicable Price) is lower than both the conversion price of a Convertible
Preferred Security in effect prior to any adjustment described above and the
Reference Market Price, the conversion price will be adjusted as described above
but calculated as though such initial value had been the Reference Market Price.
In a Fundamental Change Transaction where all or substantially all the
Common Stock is converted into securities, cash, or property and more than 50%
of the value received by the holders of Common Stock consists of listed or
Nasdaq National Market traded common stock (a Common Stock Fundamental Change,
as defined below), the foregoing adjustments are designed to provide in effect
that (a) where Common Stock is converted partly into such common stock and
partly into other securities, cash, or property, each Convertible Preferred
Security will be convertible solely into a number of shares of such common stock
determined so that the initial value of such shares (measured as described in
the definition of "Purchaser Stock Price" below) equals the value of the shares
of Common Stock into which such Convertible Preferred Security was convertible
immediately before the Transaction (measured as aforesaid) and (b) where
Convertible Common Stock is converted solely into such common stock, each
Convertible Preferred Security will be convertible into the same number of
shares of such common stock receivable by a holder of the number of shares of
Common Stock into which such Convertible Preferred Security was convertible
immediately before such Transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock
Fundamental Change in which the holders of the Common Stock receive only cash,
the amount of cash received by the holder of one share of Common Stock and (ii)
in the event of any other Non-Stock Fundamental Change or any Common Stock
Fundamental Change, the average of the Closing Prices (as defined below) for the
Common Stock during the ten trading days prior to the record date for the
determination of the holders of Common Stock entitled to receive such
securities, cash, or other property in connection with such Non-Stock
Fundamental Change or Common Stock Fundamental Change or, if there is no such
record date, the date upon which the holders of the Common Stock shall have the
right to receive such securities, cash, or other property (such record date or
distribution date being hereinafter referred to as the "Entitlement Date"), in
each case as adjusted in good faith by QCOM to appropriately reflect any of the
events referred to in clauses (a) through (g) of the first paragraph under
"-- Conversion Price Adjustments -- General."
The term "Closing Price" means on any day the reported last sale price on
such day or in case no sale takes place on such day, the average of the reported
closing bid and asked prices in each case on the Nasdaq National Market or, if
the stock is not listed or admitted to trading on the Nasdaq National Market, on
the principal national securities exchange on which such stock is listed or
admitted to trading or, if not listed or
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<PAGE> 35
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices as furnished by any New York Stock Exchange member
firm, selected by the Debt Trustee for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of QCOM) of the consideration received by holders of Common Stock
consists of common stock that for each of the ten consecutive trading days prior
to the Entitlement Date has been admitted for listing or admitted for listing
subject to notice of issuance on a national securities exchange or quoted on the
Nasdaq National Market; provided, however, that a Fundamental Change shall not
be a Common Stock Fundamental Change unless either (i) QCOM continues to exist
after the occurrence of such Fundamental Change and the outstanding Convertible
Preferred Securities continue to exist as outstanding Convertible Preferred
Securities or (ii) not later than the occurrence of such Fundamental Change, the
outstanding Convertible Preferred Securities are converted into or exchanged for
shares of convertible preferred stock of an entity succeeding to the business of
QCOM or a subsidiary thereof, which convertible preferred stock has powers,
preferences, and relative, participating, optional, or other rights, and
qualifications, limitations, and restrictions, substantially similar to those of
the Convertible Preferred Securities.
The term "Fundamental Change" means the occurrence of any Transaction or
event in connection with a plan pursuant to which all or substantially all of
the Common Stock shall be exchanged for, converted into, acquired for, or
constitute solely the right to receive securities, cash, or other property
(whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, that, in the case of a plan involving more than one such
Transaction or event, for purposes of adjustment of the conversion price, such
Fundamental Change shall be deemed to have occurred when substantially all of
the Common Stock shall be exchanged for, converted into, or acquired for or
constitute solely the right to receive securities, cash, or other property, but
the adjustment shall be based upon the consideration that a holder of Common
Stock received in such Transaction or event as a result of which more than 50%
of the Common Stock shall have been exchanged for, converted into, or acquired
for or constitute solely the right to receive securities, cash, or other
property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date, as adjusted in good faith by
QCOM to appropriately reflect any of the events referred to in clauses (a)
through (g) of the first paragraph under "-- Conversion Price
Adjustments -- General."
The term "Reference Market Price" shall initially mean $38.79 (which is an
amount equal to 66 2/3% of the reported last sales price for Common Stock on the
Nasdaq National Market on February 19, 1997) and in the event of any adjustment
of the conversion price other than as a result of a Non-Stock Fundamental
Change, the Reference Market Price shall also be adjusted so that the ratio of
the Reference Market Price to the conversion price after giving effect to any
such adjustment shall always be the same as the ratio of the initial Reference
Market Price to the initial conversion price of the Convertible Preferred
Securities.
The company formed by such consolidation or resulting from such merger or
that acquires such assets or that acquires QCOM's shares, as the case may be,
shall make provisions in its certificates or articles of incorporation or other
constituent document to establish such right. Such certificate or articles of
incorporation or other constituent document shall provide for adjustments that,
for events subsequent to the effective date of such certificate or articles of
incorporation or other constituent documents shall be as nearly equivalent as
may be practicable to the relevant adjustments provided for in the preceding
paragraphs and in this paragraph.
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REDEMPTION
The Convertible Preferred Securities have no stated maturity but are
subject to mandatory redemption upon the repayment of the Convertible
Subordinated Debt Securities, whether at their stated maturity or upon
acceleration or redemption. The Convertible Subordinated Debt Securities mature
on February 24, 2012 and may be redeemed at the option of QCOM, in whole or in
part, at any time on or after March 4, 2000, or any time in certain
circumstances upon the occurrence of a Tax Event. See "Special Event Redemption
or Distribution." Upon the repayment of the Convertible Subordinated Debt
Securities, whether at maturity or upon acceleration, redemption or otherwise,
the proceeds from such repayment shall simultaneously be applied to redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Convertible Subordinated Debt Securities so repaid or
redeemed at a redemption price equal to the liquidation amount of the Trust
Securities or, in the case of a redemption of the Convertible Subordinated Debt
Securities, at the redemption price paid with respect to the Convertible
Subordinated Debt Securities, as described below, together with accrued and
unpaid distributions on the Trust Securities to the date of redemption;
provided, however, that holders of the Convertible Subordinated Debt Securities
shall be given not less than 20 nor more than 60 days notice of such redemption.
In the event QCOM elects to redeem the Convertible Subordinated Debt
Securities (other than in certain circumstances upon the occurrence of a Special
Event) the appropriate amount of the Convertible Preferred Securities shall be
redeemed at the following prices (expressed as percentages of the liquidation
amount of the Convertible Preferred Securities) together with accrued and unpaid
distributions to, but excluding, the redemption date, if redeemed during the
12-month period beginning March 4:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------------------------------- ----------------
<S> <C>
2000......................................................... 102%
2001......................................................... 101
</TABLE>
and 100% if redeemed on or after March 4, 2002.
In the event QCOM redeems the Convertible Subordinated Debt Securities in
certain circumstances upon the occurrence of a Tax Event as described under
"-- Special Event Redemption or Distribution," the appropriate amount of the
Convertible Preferred Securities will be redeemed at 100% of the liquidation
amount thereof together with accrued and unpaid distributions to the redemption
date.
Notwithstanding the foregoing, if Convertible Preferred Securities are
redeemed on any March 1, June 1, September 1, or December 1, accrued and unpaid
distributions with respect to the redeemed Convertible Preferred Securities
shall be payable to holders of record on the relevant record date, instead of
the holders on the redemption date.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
A "Tax Event" means that the Regular Trustees shall have received an
opinion from nationally recognized independent tax counsel experienced in such
matters (a "Dissolution Tax Opinion") to the effect that, on or after the date
of this Prospectus, as a result of (a) any amendment to, or change (including
any announced prospective change) in, the laws (or any regulations thereunder)
of the United States or any political subdivision or taxing authority thereof or
therein, (b) any judicial decision, official administrative pronouncement,
ruling, regulatory procedure, notice or announcement, including any notice or
announcement of intent to adopt such procedures or regulations (an
"Administrative Action"), or (c) any amendment to, clarification of, or change
in the official position or the interpretation of such Administrative Action or
judicial decision that differs from the theretofore generally accepted position,
in each case, by any legislative body, court, governmental authority or
regulatory body, irrespective of the manner in which such amendment,
clarification or change is made known, which amendment, clarification, or change
is effective or such pronouncement or decision is announced, in each case on or
after the date of this Prospectus (collectively, a "Change in Tax Law"), there
is the creation by such Change in Tax Law of more than an insubstantial risk
that (i) the Trust is or will be subject to United States federal income tax
with respect to income accrued or received on the Convertible Subordinated Debt
Securities, (ii) the Trust is or will be subject to more than a de
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<PAGE> 37
minimis amount of taxes, duties or other governmental charges, or (iii) interest
paid in cash by QCOM to the Trust on the Convertible Subordinated Debt
Securities is not, or will not be, deductible, in whole or in part, by QCOM for
United States federal income tax purposes. Notwithstanding the foregoing, a Tax
Event shall not include any Change in Tax Law that requires QCOM for United
States federal income tax purposes to defer taking a deduction for any original
issue discount ("OID") that accrues with respect to the Convertible Subordinated
Debt Securities until the interest payment related to such OID is paid by QCOM
in cash; provided that such Change in Tax Law does not create more than an
insubstantial risk that QCOM will be prevented from taking a deduction for OID
accruing with respect to the Convertible Subordinated Debt Securities at a date
that is no later than the date the interest payment related to such OID is
actually paid by QCOM in cash.
An "Investment Company Event" means that the Regular Trustees shall have
received an opinion from nationally recognized independent counsel experienced
in practice under the 1940 Act (as hereinafter defined) to the effect that, as a
result of the occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law
becomes effective on or after the date of this Prospectus.
If, at any time, a Tax Event or an Investment Company Event (each, as
described above, a "Special Event") shall occur and be continuing, the Trust
may, with the consent of QCOM, except in the circumstances described below, be
terminated and dissolved with the result that Convertible Subordinated Debt
Securities, with an aggregate principle amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution rate
of, and accrued and unpaid interest equal to accrued and unpaid distributions
on, the Trust Securities, would be distributed to the holders of the Trust
Securities, in liquidation of such holders' interests in the Trust on a pro rata
basis, within 90 days following the occurrence of such Special Event; provided,
however, that, as a condition of such termination, dissolution and distribution,
(i) in the case of the occurrence of a Tax Event, the Regular Trustees shall
have received an opinion from nationally recognized independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion may rely
on published revenue rulings of the Internal Revenue Service, to the effect that
neither the Trust nor the holders of the Trust Securities will recognize any
gain or loss for United States federal income tax purposes as a result of such
termination and dissolution of the Trust and the distribution of the Convertible
Subordinated Debt Securities and (ii) QCOM shall have given it prior written
consent to the dissolution and distribution; and provided, further, that if
there is available to the Trust the opportunity to eliminate, within such 90-day
period, the Special Event by taking some ministerial action, such as filing a
form or making an election, or pursuing some other similar reasonable measure,
which has no adverse effect on the Trust, QCOM or the holders of the Trust
Securities, the Trust will pursue such measure in lieu of termination and
dissolution.
If in the case of the occurrence of a Tax Event (i) QCOM has received an
opinion (a "Redemption Tax Opinion") from nationally recognized independent tax
counsel experienced in such matters that, as a result of a Tax Event, there is
more than an insubstantial risk that QCOM would be precluded from deducting the
interest on the Convertible Subordinated Debt Securities for United States
federal income tax purposes even if the Convertible Subordinated Debt Securities
were distributed to the holders of Trust Securities in liquidation of such
holders' interests in the Trust as described above, or (ii) the Regular Trustees
shall have been informed by nationally recognized independent tax counsel
experienced in such matters that a No Recognition Opinion cannot be delivered,
QCOM shall have the right, upon not less than 20 nor more than 60 days notice,
to redeem the Convertible Subordinated Debt Securities in whole or in part at
100% of the principal amount thereof plus accrued and unpaid interest thereon
for cash within 90 days following the occurrence of such Tax Event, and,
following such redemption, Trust Securities with an aggregate liquidation amount
equal to the aggregate principal amount of the Convertible Subordinated Debt
Securities so redeemed shall be redeemed by the Trust at the liquidation amount
thereof plus accrued and unpaid distributions thereon to the redemption date on
a pro rata basis; provided, however, that, if there is available to QCOM or
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the Trust the opportunity to eliminate, within such 90-day period, the Tax Event
by taking some ministerial action, such as filing a form or making an election,
or pursuing some other similar reasonable measure which has no adverse effect on
the Trust, QCOM or the holders of the Trust Securities, QCOM or the Trust will
pursue such measure in lieu of redemption. If QCOM declines to consent to the
dissolution and distribution, QCOM may incur an obligation to pay Additional
Interest. See "Description of the Convertible Subordinated Debt
Securities -- Additional Interest."
DISTRIBUTION OF CONVERTIBLE SUBORDINATED DEBT SECURITIES
At any time, QCOM has the right to terminate the Trust and, after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Convertible Subordinated Debt Securities to be
distributed to the holders of the Convertible Preferred Securities and Common
Securities in dissolution of the Trust. Under current United States federal
income tax law and interpretations and assuming, as expected, the Trust is
treated as a grantor trust, a distribution of the Convertible Subordinated Debt
Securities should not be a taxable event to the Trust and holders of the
Convertible Preferred Securities. Should there be a change in law, a change in
legal interpretation, a Special Event or other circumstances, however, the
distribution could be a taxable event to holders of the Convertible Preferred
Securities. See "Certain United States Federal Income Tax
Consequences -- Receipt of Convertible Subordinated Debt Securities or Cash Upon
Liquidation of the Trust."
After the date for any distribution of Convertible Subordinated Debt
Securities upon termination of the Trust, (i) the Convertible Subordinated Debt
Securities and the Guarantee will no longer be deemed to be outstanding, (ii)
the depository or its nominee, as a record holder of the Convertible Preferred
Securities, will receive one or more registered global certificates representing
the Convertible Subordinated Debt Securities to be delivered to the depository
or its nominee in connection with and upon such distribution and (iii) any
certificates representing Convertible Preferred Securities and the Guarantee not
held by the depository or its nominee will be deemed to represent Convertible
Subordinated Debt Securities having an aggregate principal amount equal to the
aggregate stated liquidated amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, such Convertible Subordinated Debt Securities, until
such certificates are presented to QCOM or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Convertible
Preferred Securities or the Convertible Subordinated Debt Securities that may be
distributed in exchange for the Convertible Preferred Securities if a
termination and liquidation of the Trust were to occur. Accordingly, the
Convertible Preferred Securities that an investor may purchase, or the
Convertible Subordinated Debt Securities that the investor may receive on
termination and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Convertible Preferred Securities.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all the outstanding Convertible
Preferred Securities unless all accrued and unpaid distributions have been paid
on all Trust Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Convertible
Preferred Securities (which notice will be irrevocable), then, by 12:00 noon,
New York City time, on the redemption date, provided that QCOM has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or other repayment of the Convertible Subordinated Debt Securities,
the Trust will irrevocably deposit with the depositary funds sufficient to pay
the applicable Redemption Price and will give the depositary irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Convertible Preferred Securities. See "-- Form, Denomination and Registration."
If notice of redemption shall have been given and funds deposited as required,
then immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue and all rights of holders of such Convertible
Preferred Securities so called for redemption will cease, except the right of
the holders of such Convertible Preferred Securities to receive the Redemption
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<PAGE> 39
Price, but without interest on such Redemption Price. In the event any date
fixed for redemption of Convertible Preferred Securities is not a Business Day,
then payment of the Redemption Price payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payments in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Convertible Preferred Securities is improperly withheld or refused
and not paid either by the Trust or by QCOM pursuant to the Guarantee,
distributions on such Convertible Preferred Securities will continue to accrue,
from the original redemption date to the actual date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Convertible Preferred
Securities are to be redeemed, the Convertible Preferred Securities will be
redeemed pro rata, provided that the distribution of redemption proceeds payable
to DTC, any other depositary, or their respective nominees shall be made in
accordance with the procedures of DTC or such other depositary. See "-- Form,
Denomination and Registration."
Subject to the foregoing, and to applicable law (including, without
limitation, United States federal securities laws), the Company or its
affiliates may, at any time and from time to time, purchase outstanding
Convertible Preferred Securities by tender, in the open market or by private
agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, termination,
dissolution or winding-up of the Trust (each, a "Liquidation"), the holders of
the Convertible Preferred Securities at that time will be entitled to receive
out of the assets of the Trust, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $50 per Convertible Preferred Security plus accrued and unpaid
distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Convertible Subordinated Debt
Securities in an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution rate
of, an accrued and unpaid interest equal to accrued and unpaid distributions on,
the Convertible Preferred Securities, have been distributed on a pro rata basis
to the holders of Convertible Preferred Securities in exchange for such
Convertible Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Convertible Preferred Securities shall be paid on a pro rata basis.
The holders of the Common Securities will be entitled to receive distributions
upon any such dissolution pro rata with the holders of the Convertible Preferred
Securities, except that if a Declaration Event of Default has occurred and is
continuing the Convertible Preferred Securities shall have a preference over the
Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on January 31,
2052, the expiration of the term of the Trust, (ii) upon the bankruptcy of QCOM
or the holder of the Common Securities, (iii) upon the filling of a certificate
of dissolution or its equivalent with respect to QCOM or the holder of the
Common Securities, the filing of a certificate of cancellation with respect to
the Trust, or the revocation of the charter of QCOM or the holder of the Common
Securities and the expiration of 90 days after the date of the Common Securities
and the expiration of 90 days after the date of revocation without a
reinstatement thereof, (iv) upon the distribution of the Convertible
Subordinated Debt Securities following the occurrence of a Special Event or if
QCOM, as sponsor, has given written notice to the Property Trustee to terminate
the Trust (which direction is optional and wholly within the discretion of QCOM,
as sponsor), (v) upon the entry of a decree of a judicial dissolution of QCOM or
the holder of the Common Securities or the Trust, (vi) upon the redemption of
all of the Trust Securities or (vii) upon the distribution of Common Stock to
all holders of Convertible Preferred Securities upon conversion of all
outstanding Convertible Preferred Securities.
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DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
(see "Description of the Convertible Subordinated Debt Securities -- Indenture
Events of Default") constitutes an event of default under the Declaration with
respect to the Trust Securities (a "Declaration Event of Default"); provided,
that pursuant to the Declaration, the holder of the Common Securities will be
deemed to have waived any Declaration Event of Default with respect to the
Common Securities or its consequences until all Declaration Events of Default
with respect to the Convertible Preferred Securities have been cured, waived or
otherwise eliminated. Until such Declaration Events of Default with respect to
the Convertible Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Convertible Preferred Securities and only the holders of the
Convertible Preferred Securities will have the right to direct the Property
Trustee with respect to certain matters under the Declaration, and therefore the
Indenture.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee, as the sole holder of the Convertible Subordinated Debt Securities,
will have the right under the Indenture to declare the principal of, and
interest on, the Convertible Subordinated Debt Securities to be immediately due
and payable. The Property Trustee shall notify all holders of the Convertible
Preferred Securities of any notice of default received from the Debt Trustee
with respect to the Convertible Subordinated Debt Securities. Such notice shall
state that such Indenture Event of Default also constitutes a Declaration Event
of Default. If a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of QCOM to pay interest or principal
on the Convertible Subordinated Debt Securities on the date such interest or
principal is otherwise payable (or in the case of redemption, on the redemption
date), then a holder of Convertible Preferred Securities may directly institute
a proceeding of reinforcement of payment to such holder of the principal of or
interest on the Convertible Subordinated Debt Securities having a principal
amount equal to the aggregate liquidation amount of the Convertible Preferred
Securities of such Holder (a "Direct Action") on or after the respective due
date specified in the Convertible Subordinated Preferred Securities. In
connection with such Direct Action, the rights of the holders of the Common
Securities will be subrogated to the rights of such holder of Convertible
Preferred Securities to the extent of any payment made by QCOM to such holder of
Convertible Preferred Securities in such Direct Action. In addition, if the
Property Trustee fails to enforce its rights under the Convertible Subordinated
Debt Securities (other than rights arising from an Indenture Event of Default
described in the immediately preceding sentence) for a period of 30 days after
any holder of Convertible Preferred Securities shall have made a written request
to the Property Trustee to enforce such right rights to the fullest extent
permitted by law, such holder of Convertible Preferred Securities may, to the
extent permitted by law, institute a Direct Action to enforce the Property
Trustee's rights as holder of the Convertible Subordinated Debt Securities,
without first instituting any legal proceeding against the Property Trustee or
any other Person. Except as provided in the preceding sentences, the holders of
Convertible Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Convertible Subordinated Debt Securities.
See "-- Voting Rights."
VOTING RIGHTS
Except as provided below and except as provided under the Trust Act and
under "Description of the Guarantee -- Amendments and Assignment" below, and
except as otherwise required by law and the Declaration, the holders of the
Convertible Preferred Securities will have no voting rights. In the event that
QCOM elects to defer payments of interest on the Convertible Subordinated Debt
Securities as described above under "-- Distributions," the holders of the
Convertible Preferred Securities do not have the right to appoint a special
representative or trustee or otherwise act to protect their interests.
Subject to the requirement of the Property Trustee obtaining a tax opinion
as set forth in the last sentence of this paragraph, the holders of a majority
in aggregate liquidation amount of the Convertible Subordinated Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as the holder
of the Convertible Subordinated Debt Securities, to (i) exercise the remedies
available under the Indenture with
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respect to the Convertible Subordinated Debt Securities, (ii) waive any past
Indenture Event of Default which is waivable under the Indenture, (iii) exercise
any right to rescind or annul a declaration that the principal of all the
Convertible Subordinated Debt Securities shall be due and payable, or (iv)
consent to any amendment, modification or termination of the Indenture or the
Convertible Subordinated Debt Securities, where such consent shall be required,
provided that where a consent or action under the Indenture would require the
consent or act of the holders of greater than a majority in principal amount of
Convertible Subordinated Debt Securities affected thereby (a "Super-Majority"),
only the holders of at least the proportion in liquidation amount of the
Convertible Preferred Securities which the relevant Super-Majority represents of
the aggregate principal amount of the Convertible Subordinated Debt Securities
may direct the Property Trustee to give such consent or take such action. The
Property Trustee shall not take any action described in clauses (i), (ii), (iii)
and (iv) above unless the Property Trustee has obtained an opinion of nationally
recognized independent tax counsel to the effect that, as a result of such
action, the Trust will not be classified as other than a grantor trust for
United States federal income tax purposes and each holder of Trust Securities
will be treated as owing an undivided beneficial interest in the Convertible
Subordinated Debt Securities.
In the event the consent of the Property Trustee, as the holder of the
Convertible Subordinated Debt Securities, is required under the Indenture with
respect to any amendment, modification or termination of the Indenture, the
Property Trustee shall request the direction of the holders of the Trust
Securities with respect to such amendment, modification or termination. The
Property Trustee shall vote with respect to such amendment, modification or
termination as directed by a majority in liquidation amount of the Convertible
Preferred Securities and, if no Declaration Event of Default has occurred and is
continuing, a majority in liquidation amount of the Common Securities, voting
together as a single class, provided that where a consent under the Indenture
would require the consent of a Super-Majority, the Property Trustee may only
give such consent at the direction of the holders of at least the proportion in
liquidation amount of the Convertible Preferred Securities and Common
Securities, respectively, which the relevant Super-Majority represents of the
aggregate principal amount of the Convertible Subordinated Debt Securities
outstanding. The Property Trustee shall not take any such action in accordance
with the directions of the holders of the Trust Securities unless the Property
Trustee has obtained an opinion of nationally recognized independent tax counsel
to the effect that, as a result of such action, the Trust will not be classified
as other than a grantor trust for United States federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Convertible Preferred
Securities may be given at a separate meeting of holders of Convertible
Preferred Securities convened for such purpose, at a meeting of all holders of
Trust Securities or pursuant to written consent. The Regular Trustees will cause
a notice of any meeting at which holders of Convertible Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be mailed to each holder of record of Convertible
Preferred Securities. Each such notice will include a statement setting forth
(i) the date of such meeting or the date by which such action is to be taken,
(ii) a description of any resolution proposed for adoption at such meeting on
which such holders are entitled to vote or of such matter upon which written
consent is sought and (iii) instructions for the delivery of proxies or
consents. No vote or consent of the holders of the Convertible Preferred
Securities will be required for the Trust to redeem and cancel Convertible
Preferred Securities or distribute Convertible Subordinated Debt Securities in
accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Convertible Preferred Securities that are owned at such time by QCOM or
any entity directly or indirectly controlling or controlled by, or under direct
or indirect common control with, QCOM, shall not be entitled to vote or consent
and shall, for purposes of such vote or consent, be treated as if such
Convertible Preferred Securities were not outstanding.
The procedures by which holders of Convertible Preferred Securities may
exercise their voting rights are described above. See "Form, Denomination and
Registration."
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Holders of the Convertible Preferred Securities have no rights to appoint
or remove the Company Trustees, who may be appointed, removed or replaced solely
by QCOM, as the direct or indirect holder of all the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and executed by a
majority of the Regular Trustees, provided that if any proposed amendment
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the Trust Securities, whether by way of amendment to the Declaration or
otherwise, or (ii) the dissolution, winding-up or termination of the Trust other
than pursuant to the terms of the Declaration, then the holders of the Trust
Securities as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the Trust Securities
affected thereby, provided that a reduction of the principal amount or the
distribution rate, or a change in the payment dates or maturity of the
Convertible Preferred Securities, shall not be permitted without the consent of
each holder of Convertible Preferred Securities. In the event any amendment or
proposal referred to in clause (i) above would adversely affect only the
Convertible Preferred Securities or the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Property Trustee or (iii) cause the Trust to be deemed to be an "investment
company" which is required to be registered under the 1940 Act.
EXPENSES AND TAXES
In the Declaration, QCOM has agreed to pay for all obligations (other than
with respect to the Trust Securities) and all costs and expenses of the Trust
(including costs and expenses relating to the organization of the Trust, the
fees and expenses of the Company Trustees and the costs and expenses relating to
the operation of the Trust) and to pay any and all taxes and all costs and
expenses with respect thereto (other than United States withholding taxes) to
which the Trust might become subject. The foregoing obligations of the Trust
under the Declaration are for the benefit of, and shall be enforceable by, the
Property Trustee and any person to whom any such debts, obligations, costs,
expenses and taxes are owed (a "Creditor"), whether or not such Creditor has
received notice thereof. The Property Trustee and any such Creditor may enforce
such obligations of the Trust directly against QCOM, and QCOM has irrevocably
waived any right or remedy to require that the Property Trustee or any such
Creditor take any action against the Trust or any other person before proceeding
against QCOM. QCOM also has agreed in the Declaration to execute such additional
agreements as may be necessary or desirable to give full effect to the foregoing
agreement of QCOM.
PROPOSED TAX LEGISLATION
On February 6, 1997, President Clinton announced his Fiscal 1998 Budget
Proposal (the "Budget Proposal") which, among other things, would treat as
equity and would eliminate interest deductions under United States federal
income tax laws for debt instruments with a maximum term of more than 15 years
that are not treated as indebtedness on the financial statements of the issuer.
This provision of the Budget Proposal is proposed to be effective for debt
instruments issued on or after the date of first Congressional committee action.
While the Company believes that the Convertible Subordinated Debt Securities
would not be affected by the Budget Proposal, there can be no assurances that
this proposed legislation or other proposals would not be enacted in the future,
and that such legislation would not have a retroactive effective date that would
prevent QCOM from deducting interest on the Convertible Subordinated Debt
Securities. See "Description of the Convertible Preferred Securities -- Special
Event Redemption or Distribution."
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If the Budget Proposal or any similar legislation changed the tax treatment
of the Convertible Subordinated Debt Securities and the Convertible Preferred
Securities, the United States federal income tax consequences of the purchase,
ownership and disposition of Convertible Preferred Securities would differ from
those described herein. If legislation were enacted that would constitute a Tax
Event, there could be a distribution of Convertible Subordinated Debt Securities
to holders of the Convertible Preferred Securities or, in certain circumstances,
at QCOM's option, redemption of the Convertible Subordinated Debt Securities by
QCOM. There can be no assurances as to whether or in which form the Budget
Proposal may be enacted into law or whether other legislation will be enacted
that otherwise adversely affects the tax treatment of the Convertible
Subordinated Debt Securities. The discussion herein assumes that the Budget
Proposal, if enacted, will not apply to the Convertible Subordinated Debt
Securities and the Convertible Preferred Securities.
MERGERS, CONSOLIDATIONS OR AMALGAMATION
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any entity, except as described below and as
described in "Description of the Convertible Preferred Securities -- Special
Event Redemption or Distribution." The Trust may, with the consent of a majority
of the Regular Trustees and without the consent of the holders of the Trust
Securities or the other Company Trustees, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (x) expressly assumes all of the
obligations of the Trust with respect to the Trust Securities or (y) substitutes
for the Trust Securities other securities having substantially the same terms as
the Trust Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Trust Securities rank in priority with respect
to distributions and payments upon termination, liquidation, redemption,
maturity and otherwise, (ii) QCOM expressly acknowledges a trustee of such
successor entity which possesses the same powers and duties as the Property
Trustee as the holder of the Convertible Subordinated Debt Securities, (iii) the
Convertible Preferred Securities or any Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Convertible
Preferred Securities are then listed, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Convertible Preferred Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (vi) such successor entity has a
purpose substantially identical to that of the Trust, (vii) prior to such
merger, consolidation, amalgamation or replacement, QCOM has received an opinion
from nationally recognized independent counsel to the Trust experienced in such
matters to the effect that (A) such merger, consolidation, amalgamation, or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will be
required to register as an investment company under the 1940 Act and (C)
following such merger, consolidation, amalgamation or replacement, the Trust (or
such successor entity) will be treated as a grantor trust for United States
federal income tax purposes, and (viii) QCOM guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except
with the consent of the holders of 100% in liquidation amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified for
United States federal income tax purposes as other than a grantor trust and any
holder of Trust Securities not to be treated as owning an undivided beneficial
interest in the Convertible Subordinated Debt Securities.
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REGISTRATION RIGHTS
In connection with the Original Offering, the Company and the Trust entered
into a Registration Rights Agreement with the Initial Purchasers dated February
25, 1997 (the "Registration Rights Agreement") pursuant to which the Company and
the Trust agreed, at the Company's expense, for the benefit of the holders of
the Convertible Preferred Securities, the Guarantee, the Convertible
Subordinated Debt Securities and the Common Stock issuable upon conversion of
the Convertible Preferred Securities and the Convertible Subordinated Debt
Securities (together, the "Registrable Securities"), to (i) file with the
Commission on or prior to the date 90 days after the Original Closing Date a
shelf registration statement (the "Shelf Registration Statement") on such form
as QCOM deems appropriate covering resales of the Registrable Securities, (ii)
use all reasonable efforts to cause the Shelf Registration Statement to be
declared effective as promptly as practicable and in no event later than 180
days after the Original Closing Date and (iii) use all reasonable efforts to
keep effective the Shelf Registration Statement until three years after the
latest date of original issuance of the Convertible Preferred Securities (or
such earlier date as the holders of Registrable Securities are able to sell all
Registrable Securities immediately without restriction pursuant to Rule 144(k)
under the Securities Act or any successor rule thereto or otherwise) (such
period, the "Effectiveness Period"). The Trust and QCOM will be permitted to
suspend the use of the prospectus (which is a part of the Shelf Registration
Statement) in connection with sales of Registrable Securities by holders during
certain periods of time under certain circumstances relating to pending
corporate developments relating to the Company and public filings with the
Commission and similar events. The Trust and QCOM will provide to each
registered holder copies of such prospectus, notify each registered holder when
the Shelf Registration Statement has become effective, and take certain other
actions as are required to permit unrestricted sales of the Registrable
Securities. A holder that sells Registrable Securities pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to the
purchaser and will be bound by the provisions of the Registration Rights
Agreement referred to below that are applicable to such holder (including
certain indemnification provisions).
In the Registration Rights Agreement, the Trust and QCOM agreed to
indemnify the holders of Registrable Securities against certain liabilities,
including liabilities under the Securities Act, subject to certain customary
limitations, and each holder of Registrable Securities included in the Shelf
Registration Statement will be obligated to indemnify the Trust and QCOM, any
other holder and any underwriters participating in the offering of Registrable
Securities against any liability with respect to information furnished by such
holder in writing to the Trust and QCOM (including the information in a Selling
Securityholder's Questionnaire) expressly for use in the Shelf Registration
Statement.
If (i) on or prior to the date 90 days after the Original Closing Date, a
Shelf Registration Statement has not been filed with the Commission or (ii) on
or prior to the date 180 days after the Original Closing Date such Shelf
Registration Statement has not been declared effective (each such event, a
"Registration Default"), additional interest ("Liquidated Damages") will accrue
on the Convertible Subordinated Debt Securities and, accordingly, additional
distributions will accrue on the Convertible Preferred Securities, in each case
from and including the date following the Registration Default until such date
as such Registration Default is cured (i.e., the date the Shelf Registration
Statement is filed or declared effective, as the case may be). Liquidated
Damages will be paid quarterly in arrears, with the first quarterly payment due
on the first interest or distribution date, as applicable, following the date on
which such Liquidated Damages begin to accrue, and will accrue at a rate per
annum equal to an additional one-quarter of one percent (0.25%) of the principal
amount or liquidation amount, as applicable, to and including the 90th day
following such Registration Default and one-half of one percent (0.50%) thereof
from and after the 91st day following such Registration Default.
This summary of certain provisions of the Registration Agreement does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Registration Rights Agreement, a copy of
which is available to holders of Convertible Preferred Securities (i) for
inspection at the offices of QCOM specified above or at the office of the
Property Trustee in Wilmington, Delaware or (ii) upon request to QCOM.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities and after the curing of all such defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Convertible Preferred Securities, unless offered reasonable indemnity
by such holder against the costs, expenses and liabilities which might be
incurred thereby; but the foregoing shall not relieve the Property Trustee, upon
the occurrence of a Declaration Event of Default, from its obligation to
exercise the rights and powers vested in it by the Declaration. The Property
Trustee also serves as the Debt Trustee under the Indenture and as the Guarantee
Trustee under the Guarantee.
CONVERSION AGENT; REGISTRAR AND TRANSFER AGENT
Wilmington Trust Company shall act as Conversion Agent, Registrar and
Transfer Agent for the Convertible Preferred Securities. In the event that the
Convertible Preferred Securities do not remain in book-entry only form, the
Property Trustee will act as paying agent and may designate an additional or
substitute paying agent at any time. Registration of transfers of Convertible
Preferred Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the Regular
Trustees may require) in respect of any tax or other governmental charges which
may be imposed in relation to it. The Trust will not be required to register or
cause to be registered the transfer of Convertible Preferred Securities after
such Convertible Preferred Securities have been called for redemption.
GOVERNING LAW
The Declaration and the Convertible Preferred Securities are governed by,
and construed in accordance with, the internal law of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act or characterized for United States
federal income tax purposes as other than a grantor trust. QCOM is authorized
and directed to conduct its affairs so that the Convertible Subordinated Debt
Securities will be treated as indebtedness of QCOM for United States federal
income tax purposes. In this connection, the Regular Trustees and QCOM are
authorized to take any action, not inconsistent with applicable law, the
Declaration or the Certificate of Incorporation of QCOM, that each of the
Regular Trustees and QCOM determines in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially and
adversely affect the interests of the holders of the Convertible Preferred
Securities.
Holders of the Convertible Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of the information concerning the Guarantee
for the benefit of the holders from time to time of the Convertible Preferred
Securities. Wilmington Trust Company is acting as the Guarantee Trustee. The
terms of the Guarantee are those set forth therein. The following summary does
not purport to be complete and is subject in all respects to the provisions of,
and is qualified in its entirety by reference to, the Guarantee (a copy of which
is available at the corporate trust office of the Guarantee Trustee in
Wilmington, Delaware.) The Guarantee is held by the Guarantee Trustee for the
benefit of the holders of the Convertible Preferred Securities.
GENERAL
Pursuant to the Guarantee, QCOM irrevocably and unconditionally has agreed,
to the extent set forth therein, to pay in full to the holders of the
Convertible Preferred Securities the Guarantee Payments (as defined herein)
without duplication of amounts theretofore paid by the Trust, to the extent not
paid by the Trust, regardless of any defense, right of set-off or counterclaim
that the Trust may have or assert. The following payments or distributions with
respect to the Convertible Preferred Securities, to the extent not paid or made
by the Trust (the "Guarantee Payments"), are subject to the Guarantee (without
duplication): (i) any accrued and unpaid distributions that are required to be
paid on the Convertible Preferred Securities, to the extent the Trust has funds
available therefore, (ii) the Redemption Price, which includes all accrued and
unpaid distributions to the date of the redemption, to the extent the Trust has
funds available therefor, with respect to any Convertible Preferred Securities
called for redemption by the Trust, and (iii) upon a voluntary or involuntary
termination, dissolution or winding-up of the Trust (other than in connection
with the distribution of Convertible Subordinated Debt Securities to the holders
of the Convertible Preferred Securities in exchange for Convertible Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Convertible Preferred Securities to the
date of payment, to the extent the Trust has funds available therefor, and (b)
the amount of assets of the Trust remaining available for distribution to
holders of Convertible Preferred Securities in liquidation of the Trust. QCOM's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by QCOM to the holders of Convertible Preferred Securities or
by causing the Trust to pay such amounts to such holders.
The Guarantee is a full and unconditional guarantee of the Guarantee
Payments with respect to the Convertible Preferred Securities from time of
issuance of the Convertible Preferred Securities, but will not apply to the
payment of distributions and other payments on the Convertible Preferred
Securities when the Property Trustee does not have sufficient funds in the
Property Account to make such distributions or other payments. If QCOM does not
make interest payments on the Convertible Subordinated Debt Securities held by
the Property Trustee, the Trust will not make distributions on the Convertible
Preferred Securities issued by the Trust and will not have funds available
therefor. See "Risk Factors -- Rights under the Guarantee" and "Description of
the Convertible Subordinated Debt Securities -- Certain Covenants."
QCOM also agreed separately to guarantee the obligations of the Trust with
respect to the Common Securities (the "Common Securities Guarantee") to the same
extent as the Guarantee, except that upon the occurrence and during the
continuation of an Indenture Event of Default, holders of Convertible Preferred
Securities shall have priority over holders of Common Securities with respect to
distributions and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, QCOM has covenanted that, so long as the Convertible
Preferred Securities remain outstanding, if there shall have occurred and is
continuing any event that would constitute an event of default under the
Guarantee or the Declaration, then (a) QCOM shall not declare or pay any
dividend on, or make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock,
(b) QCOM shall not make any payment or interest, principal or premium, if any,
on or repay, repurchase or redeem any debt securities issued by QCOM which rank
pari passu with or junior to the Convertible Subordinated Debt Securities and
(c) QCOM shall not make any guarantee payments (other
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than pursuant to the Guarantee) with respect to the foregoing. However, the
foregoing restriction will not apply to any dividend, redemption, liquidation,
interest, principal or guarantee payments of QCOM where the payment is made by
way of securities (including capital stock) that rank pari passu with or junior
to the securities on which such dividend, redemption, interest, principal or
guarantee payment is being made.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of Convertible Preferred Securities (in which case no vote
will be required), the Guarantee may be amended only with the prior approval of
the holders of not less than 66 2/3% in liquidation amount of the outstanding
Convertible Preferred Securities. The manner of obtaining any such approval of
holders of the Convertible Preferred Securities is set forth under "Description
of the Convertible Preferred Securities -- Voting Rights." All guarantees and
agreements contained in the Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of QCOM and shall inure to the benefit
of the holders of the Convertible Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect as to
the Convertible Preferred Securities upon full payment of the Redemption Price
of all Convertible Preferred Securities or upon distribution of the Convertible
Subordinated Debt Securities to the holder of the Convertible Preferred
Securities, and will terminate completely upon full payment of the amounts
payable upon liquidation of the Trust. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Convertible Preferred Securities must repay to the Trust or QCOM, or their
successors, any sums paid to them under such Convertible Preferred Securities or
the Guarantee.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of QCOM
to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Convertible
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee with
respect to the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee. If the Guarantee
Trustee fails to enforce the Guarantee any holder of Convertible Preferred
Securities may institute a legal proceeding directly against QCOM to enforce the
Guarantee Trustee's rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee or any other person or
entity. In addition, any record holder of Convertible Preferred Securities shall
have the absolute and unconditional right to proceed directly against QCOM to
obtain Guarantee Payments, without first determining if the Guarantee Trustee
has enforced the Guarantee or instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity. QCOM has waived any right
or remedy to require that any action be brought first against the Trust or any
other person or entity before proceeding directly against QCOM.
STATUS OF THE GUARANTEE; SUBORDINATION
The Company's obligations under the Guarantee to make the Guarantee
Payments constitute an unsecured obligation of QCOM and rank (i) subordinate and
junior in right of payment to all other liabilities of QCOM, including the
Convertible Subordinated Debt Securities, except those liabilities of QCOM made
pari passu or subordinate by their terms, (ii) pari passu with the most senior
preferred stock issued from time to time by QCOM, if any, and with any guarantee
now or hereafter entered into by QCOM with respect to any preferred stock of any
subsidiary or affiliate of QCOM, and (iii) senior to the Common Stock. The terms
of the Convertible Preferred Securities provide that each holder of Convertible
Preferred Securities by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee.
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The Guarantee constitutes a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the guarantor to enforce its rights under the guarantee without instituting a
legal proceeding against any other person or entity). The Guarantee has been
deposited with the Guarantee Trustee to be held for the benefit of the holders
of the Convertible Preferred Securities. Subject to the rights of holders of
Convertible Preferred Securities to institute proceedings directly against QCOM
to enforce their rights under the Guarantee, the Guarantee Trustee has the right
to enforce the Guarantee on behalf of the holders of the convertible Preferred
Securities.
QCOM's obligations under the Guarantee, taken together with its obligations
under the Declaration, the Convertible Subordinated Debt Securities and the
Indenture, in the aggregate provide a full and unconditional guarantee by QCOM
of payments due on the Convertible Preferred Securities.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default with respect to
the Guarantee and after the curing of all such defaults that may have occurred,
undertakes to perform only such duties as are specifically set forth in the
Guarantee and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisos, the Guarantee Trustee is under no obligation to
exercise any of the powers vested in it by the Guarantee at the request of any
holder of Convertible Preferred Securities, unless offered reasonable indemnity
against the costs, expenses and liabilities which might be incurred thereby; but
the foregoing shall not relieve the Guarantee Trustee, upon the occurrence of
any event of default under the Guarantee, from its obligation to exercise the
rights and powers vested in it by the Guarantee.
GOVERNING LAW
The Guarantee is governed by, and construed in accordance with, the
internal law of the State of New York.
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DESCRIPTION OF THE CONVERTIBLE SUBORDINATED DEBT SECURITIES
Set forth below is a description of the terms of the Convertible
Subordinated Debt Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture, dated February 25, 1997 (the "Indenture"), between QCOM and
Wilmington Trust Company, as Trustee (the "Debt Trustee"), copies of which are
available for inspection at the corporate trust office of the Debt Trustee in
Wilmington, Delaware. The terms of the Convertible Subordinated Debt Securities
include those stated in the Indenture. Certain capitalized terms used herein are
defined in the Indenture.
Under certain circumstances involving the termination of the Trust
following the occurrence of a Special Event, Convertible Subordinated Debt
Securities may be distributed to the holders of Trust Securities in liquidation
of the Trust. See "Description of the Convertible Preferred
Securities -- Special Event Redemption or Distribution."
GENERAL
The Convertible Subordinated Debt Securities have been issued as unsecured
subordinated debt securities under the Indenture. The Convertible Subordinated
Debt Securities are limited in aggregate principal amount to approximately $680
million, such amount being the sum of the aggregate stated liquidation amount of
the Convertible Preferred Securities and the capital contributed by QCOM in
exchange for the Common Securities.
The Convertible Subordinated Debt Securities are not subject to any sinking
fund provision. The entire principal amount of the Convertible Subordinated Debt
Securities will mature and become due and payable, together with any accrued and
unpaid interest thereon, including additional interest, if any, on February 24,
2012.
If Convertible Subordinated Debt Securities are distributed to holders of
the Convertible Preferred Securities in liquidation of such holders' interests
in the Trust, such Convertible Subordinated Debt Securities will initially be
issued in the same form as the Convertible Preferred Securities that such
Convertible Subordinated Debt Securities replace. Any Global Certificate will be
replaced by one or more Global Securities (as defined under "Book-Entry and
Settlement"). As described herein, under certain circumstances, Convertible
Subordinated Debt Securities may be issued in certificated form in exchange for
a Global Security. See "Book-Entry and Settlement" below. In the event
Convertible Subordinated Debt Securities are issued in certificated form, such
Convertible subordinated Debt Securities issued as a Global Security will be
made to the depositary for the convertible Subordinated Debt Securities. In the
event Convertible Subordinated Debt Securities are issued in certificated form,
such Convertible Subordinated Debt Securities will be in denominations of $50
and integral multiples thereof and may be transferred or exchanged at the
offices described below. Payments on Convertible Subordinated Debt Securities
issued as a Global Security will be made to the Depositary for the Convertible
Subordinated Debt Securities. In the event Convertible Subordinated Debt
Securities are issued in certificated form, principal and interest will be
payable, the transfer of the Convertible Subordinated Debt Securities will be
registrable and Convertible Subordinated Debt Securities will be exchangeable
for convertible Subordinated Debt Securities of other denominations of a like
aggregate principal amount at the corporate trust office of the Debt Trustee in
Wilmington, Delaware; provided, that payment of interest may be made at the
option of QCOM by check mailed to the address of the persons entitled thereto.
The Indenture does not contain provisions that afford holders of the
Convertible Subordinated Debt Securities protection in the event of a highly
leveraged transaction involving the Company or a decline in the credit quality
of the Company resulting from a change of control transaction.
SUBORDINATION
The Indenture provides that the Convertible Subordinated Debt Securities
are subordinated and junior in right of payment to all Senior Indebtedness of
QCOM, whether now existing or hereafter incurred. No
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payment of principal of (including redemption payments, if any), premium, if
any, or interest on, the Convertible Subordinated Debt Securities may be made if
(a) any Senior Indebtedness of QCOM is not paid when due and any applicable
grace period with respect to such default has ended with such default not being
cured or waived or ceasing to exist or (b) the maturity of any Senior
Indebtedness has been accelerated because of a default. Upon any distribution of
assets of QCOM to creditors upon any dissolution, winding-up, liquidation or
reorganization, whether voluntary or involuntary, or in a bankruptcy,
insolvency, receivership or other proceedings, all principal of, premium, if
any, and interest due or to become due on, all Senior Indebtedness must be paid
in full before the holders of the Convertible Subordinated Debt Securities are
entitled to receive or retain any payment. Upon satisfaction of all claims of
all Senior Indebtedness then outstanding, the rights of the holders of the
Convertible Subordinated Debted Securities will be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or distributions
applicable to such Senior Indebtedness until all amounts owing on the
Convertible Subordinated Debt Securities are paid in full.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest on, and any other payment due pursuant to, any of the following,
whether outstanding on the Original Offering Date or thereafter incurred or
created: (a) all indebtedness of QCOM for money borrowed or evidenced by notes,
debentures, bonds or other securities (including, but not limited to, those
which are convertible or exchangeable for securities of QCOM and indebtedness
owed to subsidiaries and affiliates of QCOM); (b) all indebtedness of QCOM due
and owing with respect to letters of credit (including, but not limited to,
reimbursement obligations with respect thereto); (c) all obligations of QCOM due
and owing with respect to reimbursement agreements under any surety bond,
insurance policy, bankers' acceptance, security purchase facility, or similar
agreement or arrangement; (d) all indebtedness or other obligations of QCOM due
and owing with respect to interest rate and currency swap agreements, cap, floor
and collar agreements, currency spot and forward contracts and other similar
agreements and arrangements; (e) all indebtedness consisting of commitment or
standby fees due and payable to lending institutions with respect to credit
facilities or letters of credit available to QCOM; (f) all obligations of QCOM
under leases required or permitted to be capitalized under generally accepted
accounting principles; (g) all obligations of QCOM issued or assumed as the
deferred purchase price of property or services, all conditional sale
obligations of QCOM, and all obligations of QCOM under any title retention
agreement; (h) all obligations of QCOM under agreements or arrangements with
respect to deferred compensation due its employees or employees of its
subsidiaries and its obligations under employee benefit plans; (i) all
indebtedness or obligations of others of the kinds described in any of the
preceding clauses (a)-(h) that are (x) assumed by or guaranteed in any manner by
QCOM, or in effect guaranteed (directly or indirectly) by QCOM through an
agreement to purchase, contingent or otherwise, or in its capacity as a general
partner of any entity, and all obligations of QCOM, under any such guarantee or
other arrangements or (y) secured by a lien on any property or asset of QCOM
(whether or not such obligation is assumed by QCOM); and (j) all renewals,
extensions, refundings, deferrals, amendments, or modifications or indebtedness
or obligations of the kinds described in any of the preceding clauses (a)-(i);
unless in the case of any particular indebtedness, obligation, renewal,
extension, refunding, amendment, modification or supplement is subordinate to,
or is not superior to, or is pari passu with, the Convertible Subordinated Debt
Securities; provided that Senior Indebtedness shall not included indebtedness
for trade payables or constituting the deferred purchase price of assets or
services incurred in the ordinary course of business.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which may be issued by QCOM. As of March 30, 1997, Senior Indebtedness of QCOM
aggregated approximately $48 million (excluding accrued interest), and QCOM and
its consolidated subsidiaries had indebtedness and other liabilities of
approximately $522 million to which the Convertible Subordinated Debt Securities
are effectively subordinated.
CERTAIN COVENANTS
If (i) there shall have occurred and be continuing any event that would
constitute an Indenture Event of Default, (ii) QCOM shall be in default with
respect to its payment of any obligations under the Guarantee or the Common
Securities Guarantee, and such default shall be continuing or (iii) QCOM shall
have given
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notice of its election to defer payments of interest on the Convertible
Subordinated Debt Securities as provided in the Indenture and any Extension
Period shall be continuing, then, in each case, (a) QCOM shall not declare or
pay any dividend on, make any distributions with respect to, or redeem, purchase
or make a liquidation payment with respect to, any of its capital stock (other
than (A) purchases or acquisitions of shares of Common Stock in connection with
the satisfaction of QCOM of its obligations under any employee benefit plans,
(B) as a result of a reclassification of capital stock of QCOM or the exchange
or conversion of one class or series of QCOM's capital stock for another class
or series of capital stock of QCOM or (C) the purchase of fractional interests
in shares of QCOM's capital stock pursuant to the conversion or exchange
provisions of such capital stock of QCOM or the security being converted or
exchanged), (b) QCOM shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by QCOM which rank pari passu with or junior to
the Convertible Subordinated Debt Securities and (c) QCOM shall not make any
guarantee payments (other than pursuant to the Guarantee) with respect to the
foregoing.
Notwithstanding the foregoing restrictions, QCOM is permitted, in any
event, to make dividend, redemption, liquidation and guarantee payments on
capital stock of QCOM, and interest, principal, redemption and guarantee
payments on debt securities issued by QCOM ranking pari passu with or junior to
Convertible Subordinated Debt Securities, where the payment is made by way of
securities (including capital stock) that rank pari passu with or junior to the
securities on which such payment is being made.
For as long as the Trust Securities remain outstanding, QCOM has covenanted
(i) to maintain 100% direct or indirect ownership of the Common Securities of
the Trust; provided, however, that any permitted successor of QCOM under the
Indenture may succeed to QCOM's ownership of such Common Securities, (ii) not to
cause, as sponsor of the Trust, or to permit, as holder of the Common
Securities, the termination, dissolution or winding-up of the Trust, except in
connection with a distribution of the Convertible Subordinated Debt Securities
as provided in the Declaration and in connection with certain mergers,
consolidations or amalgamations, (iii) to use its reasonable efforts, consistent
with the terms of the Declaration, to cause the Trust (a) to remain a statutory
business trust, except in connection with the distribution of Convertible
Subordinated Debt Securities to the holders of Trust Securities in liquidation
of the Trust, the redemption of all of the Trust Securities of the Trust, or
certain mergers, consolidations or amalgamations, each as permitted by the
Declaration, and (b) to otherwise continue to be classified as a grantor trust
for United States federal income tax purposes and (iv) to use reasonable efforts
to cause each holder of Trust Securities to be treated as owning an undivided
beneficial interest in the Convertible Subordinated Debt Securities.
OPTIONAL REDEMPTION
QCOM has the right to redeem the Convertible Subordinated Debt Securities,
in whole or in part, from time to time, on or after March 4, 2000, upon not less
than 20 nor more than 60 days notice to the holders thereof, at the following
prices (expressed as percentages of the principal amount of the Subordinated
Debt Securities) together with accrued and unpaid interest, including Additional
Interest (as defined herein) to, but excluding, the redemption date, if redeemed
during the 12-month period beginning March 4:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---------------------------------------------------------- ----------------
<S> <C>
2000...................................................... 102%
2001...................................................... 101
</TABLE>
and 100% if redeemed on or after March 4, 2002.
QCOM also has the right to redeem the Convertible Subordinated Debt
Securities at any time in certain circumstances upon the occurrence of a Tax
Event as described under "Description of Convertible Preferred
Securities -- Special Event Redemption or Distribution" at 100% of the principal
amount thereof together accrued and unpaid interest (including Additional
Interest) to the redemption date.
Notwithstanding the foregoing, if Convertible Subordinated Debt Securities
are redeemed on any March 1, June 1, September 1 or December 1, accrued and
unpaid interest with respect to the Convertible
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Subordinated Debt Securities shall be payable to holders of record on the
relevant record date, instead of the holders on the redemption date.
So long as the corresponding Convertible Preferred Securities are
outstanding, the proceeds from the redemption of any of the Convertible
Subordinated Debt Securities will be used to redeem Convertible Preferred
Securities.
INTEREST
Each Convertible Subordinated Debt Security shall bear interest at the rate
of 5 3/4% per annum from February 25, 1997, payable quarterly in arrears on
March 1, June 1, September 1 or December 1 of each year (each, an "Interest
Payment Date,") commencing on June 1, 1997, to the person in whose name such
Convertible Subordinated Debt Security is registered, subject to certain
exceptions, at the close of business on the Business Day next preceding such
Interest Payment Date. In the event the Convertible Subordinated Debt Securities
are distributed to holders of Convertible Preferred Securities in liquidation of
such holders' interests in the Trust and such Convertible Subordinated Debt
Securities shall not thereafter continue to remain in book-entry only form, QCOM
shall have the right to select record dates which shall be not less than fifteen
days prior to each Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Convertible Subordinated Debt Securities is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect to any such delay), except that, if such Business Day
is the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Indenture Event of Default shall have occurred and be
continuing, QCOM has the right at any time, and from time to time, during the
term of the Convertible Subordinated Debt Securities to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive quarters, at the end of which Extension Period QCOM shall pay all
interest then accrued and unpaid (including any Additional Interest and
Liquidated Damages), together with interest thereon at the rate specified for
the Convertible Subordinated Debt Securities to the extent permitted by
applicable law; provided that, during any such Extension Period, (a) QCOM shall
not declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase or make a liquidation payment with respect to, any of its
capital stock (other than (A) purchases or acquisitions of shares of Common
Stock in connection with the satisfaction by QCOM of its obligations under any
employee benefit plans, (B) as a result of a reclassification of capital stock
of QCOM or the exchange or conversion of one class or series of QCOM's capital
stock for another class or series of capital stock of QCOM or (C) the purchase
of fractional interests in shares of QCOM's capital stock pursuant to the
conversion or exchange provisions of such capital stock of QCOM or the security
being converted or exchanged), (b) QCOM shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by QCOM which rank pari passu with or junior to the
Convertible Subordinated Debt Securities and (c) QCOM shall not make any
guarantee payments (other than pursuant to the Guarantee)with respect to the
foregoing; provided, however, the foregoing restriction will not apply to any
dividend, redemption, liquidation, interest or principal or guarantee payments
by QCOM where the payment is made by way of securities (including capital stock)
that rank junior to the securities on which such dividend, redemption, interest,
principal or guarantee payment is being made. Prior to the termination of any
such Extension Period, QCOM may further defer payment of interest by extending
the interest payment period, provided that such Extension Period together with
all such previous and further extensions thereof may not exceed 20 consecutive
quarters or extend beyond the maturity of the Convertible Subordinated Debt
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, QCOM may select a new Extension Period, as if no Extension
Period had previously been declared, subject to the above requirements. No
interest during an Extension Period, except at the end thereof, shall be due and
payable. QCOM has no present intention of exercising its rights to defer
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payments of interest by extending the interest payment period on the Convertible
Subordinated Debt Securities. If the Property Trustee shall be the sole holder
of the Convertible Subordinated Debt Securities, QCOM shall give the Regular
Trustees and the Property Trustees notice of its selection of an Extension
Period one Business Day prior to the earlier of (i) the next succeeding date on
which distributions on the Convertible Preferred Securities are payable or (ii)
the date the Trust is required to give notice of the New York Stock Exchange or
other applicable self-regulatory organization or to holders of the Convertible
Preferred Securities of the record date or the date such distribution is
payable, but in any event not less than ten Business Days prior to such record
date. The Regular Trustees shall give notice of QCOM's selection of such
Extension Period to the holders of the Convertible Preferred Securities. If the
Property Trustee shall not be the sole holder of the Convertible Subordinated
Debt Securities, QCOM shall give the holders of the Convertible Subordinated
Debt Securities notice of its selection of such Extension Period ten Business
Days prior to the earlier of (i) the relevant Interest Payment Date or (ii) the
date QCOM is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Convertible
Subordinated Debt Securities or the record of the record or payment date of such
related interest payment, but in any event at least two Business Days before
such record date.
CONVERSION OF THE SUBORDINATED DEBT SECURITIES
The Convertible Subordinated Debt Securities are convertible into Common
Stock at the option of the holders of the Convertible Subordinated Debt
Securities at any time beginning 60 days following the first date that any
Convertible Preferred Securities are issued and prior to the close of business
on February 24, 2012 (or, in the case of Convertible Subordinated Debt
Securities called for redemption, the close of business on the Business Day
prior to the redemption date) at the initial conversion rate of 0.6882 shares of
Common Stock for each Convertible Preferred Security (equivalent to a conversion
price of $72.6563 per share of Common Stock) subject to the conversion price
adjustments described under "Description of Convertible Preferred
Securities -- Conversion Rights." The Trust has agreed not to convert
Convertible Subordinated Debt Securities held by it except pursuant to a notice
of conversion delivered to the Conversion Agent by a holder of Convertible
Preferred Securities. Upon surrender of a Convertible Preferred Security to the
Conversion Agent for conversion, the Trust will distribute Convertible
Subordinated Debt Securities to the Conversion Agent on behalf of the holder of
the Convertible Preferred Securities so converted, whereupon the Conversion
Agent will convert such Convertible Subordinated Debt Securities to Common Stock
on behalf of such holder. The Company's delivery to the holders of the
Convertible Subordinated Debt Securities (through the Conversion Agent) of the
fixed number of shares of Common Stock into which the Convertible Subordinated
Debt Securities are convertible (together with the cash payment, if any, in lieu
of fractional shares) will be deemed to satisfy QCOM's obligation to pay the
principal amount of the Convertible Subordinated Debt Securities so converted,
and the accrued and unpaid interest thereon attributable, to the period from the
last date to which interest has been paid or duly provided for; provided,
however, that if any Convertible Subordinated Debt Securities are converted
after a record date for payment of interest, the interest payable on the related
interest payment date with respect to such Convertible Subordinated Debt
Securities shall be paid to the Trust (which will distribute such interest to
the converting holder) or other holder of Convertible Subordinated Debt
Securities, as the case may be, despite such conversion.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by United States, or any other taxing authority, then, in any
such case, QCOM will pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying any such taxes, duties, assessments, or other
governmental charges will be equal to the amounts the Trust would have received
had no such taxes, duties, assessments or other governmental charges been
imposed.
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INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Convertible Subordinated Debt Securities:
(a) failure for 30 days to pay interest on the Convertible
Subordinated Debt Securities, including any Additional Interest and
Liquidated Damages in respect thereof, when due; provided, however, that a
valid extension of the interest payment period by QCOM shall not constitute
a default in the payment of interest for this purpose; or
(b) failure to pay principal or premium, if any, on the Convertible
Subordinated Debt Securities when due whether at maturity, upon earlier
redemption or otherwise; or
(c) failure to issue and deliver shares of Common Stock upon an
election by a holder of Convertible Subordinated Debt Securities to convert
such Convertible Subordinated Debt Securities; or
(d) failure to observe or perform any other covenant contained in the
Indenture for 90 days after written notice to QCOM from the Debt Trustee or
the holders of at least 25% in principal amount of the outstanding
Convertible Subordinated Debt Securities; or
(e) certain events of bankruptcy, insolvency or reorganization of
QCOM; or
(f) the voluntary or involuntary termination, dissolution or
winding-up of the Trust, except in connection with the distribution of
Convertible Subordinated Debt Securities to the holders of Convertible
Preferred Securities in liquidation of the Trust, the redemption of all
outstanding Trust Securities of the Trust and certain mergers,
consolidations or amalgamations permitted by the Declaration.
The holders of a majority in aggregate outstanding principal amount of the
Convertible Subordinated Debt Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debt Trustee. The Debt Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Subordinated Debt Securities may
declare the principal due and payable immediately on default, but the holders of
a majority in aggregate outstanding principal amount may rescind and annul such
declaration and its consequences if the default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration and any applicable premium has been deposited
with the Debt Trustee. So long as the Property Trustee is the holder of the
Convertible Subordinated Debt Securities, it will have the right to accelerate
the maturity of the indebtedness thereunder and to exercise the other rights of
the holder of the convertible Subordinated Debt Securities described above.
The holders of a majority in aggregate outstanding principal amount of the
Convertible Subordinated Debt Securities affected thereby may, on behalf of the
holders of all the Convertible Subordinated Debt Securities, waive any past
default, except (i) a default in the payment of principal, premium, if any, or
interest, including Additional Interest and Liquidated Damages (unless such
default has been cured and a sum sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration and any applicable
premium has been deposited with the Debt Trustee), or (ii) a default in the
covenant of QCOM described under "Certain Covenants" above, or (iii) in respect
of a covenant or provision of the Indenture that cannot be modified or amended
without the consent of the holder of each outstanding Convertible Subordinated
Debt Security affected thereby (see "Modification of the Indenture").
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Convertible Preferred Securities in certain
circumstances have the right to direct the Property Trustee to exercise its
rights as the holder of the Convertible Subordinated Debt Securities. See
"Description of the Convertible Preferred Securities -- Declaration Events of
Default" and "Voting Rights."
In addition, if an Indenture Event of Default results from the failure of
QCOM to pay principal of or interest on the Convertible Subordinated Debt
Securities when due, during the continuance of such an event of default a holder
of Convertible Preferred Securities may immediately institute a legal proceeding
directly against QCOM to obtain payment of such principal or interest on
Convertible Subordinated Debt Securities
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having a principal amount equal to the aggregate liquidation amount of the
Convertible Preferred Securities owned of record by such holder. Also, if the
Property Trustee fails to enforce its rights as holder of the Convertible
Subordinated Debt Securities for 30 days after a request therefor by a holder of
Convertible Preferred Securities, such holder may proceed to enforce such rights
directly against QCOM to the fullest extent permitted by law.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Convertible Preferred Securities in connection
with the voluntary or involuntary termination, dissolution or winding-up of the
Trust as a result of the occurrence of a Special Event, the Convertible
Subordinated Debt Securities will be issued in the same form as the Convertible
Preferred Securities that such Convertible Subordinated Debt Securities replace.
Any Convertible Preferred Securities evidenced by a Global Certificate will be
replaced by Convertible Subordinated Debt Securities in the form of one or more
global certificates (each, a "Global Security") registered in the name of the
depositary or its nominee. Convertible Subordinated Debt Securities represented
by the Global Security will be exchangeable for Convertible Subordinated Debt
Securities in certificated form and will be transferable, on terms and
conditions generally the same as those applicable to the Convertible Preferred
Securities prior to such distribution. See "Description of the Convertible
Preferred Securities -- Form, Denomination and Registration." The Global
Securities described above may not be transferred except by the depositary to a
nominee of the depositary or by a nominee of the depositary to the depositary or
another nominee of the depositary or to a successor depositary or its nominee.
THE DEPOSITARY
If Convertible Subordinated Debt Securities are distributed to holders of
Convertible Preferred Securities in liquidation of such holders' interest in the
Trust, DTC will act as securities depositary for the Convertible Subordinated
Debt Securities. For a description of DTC and the specific terms of the
depository arrangements in effect as of the date of this Prospectus, see
"Description of the Convertible Preferred Securities -- Form, Denomination and
Registration." The description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Convertible Preferred Securities apply in all material respects
to any debt obligations represented by one or more Global Securities held by
DTC. QCOM may appoint a successor to DTC or any successor depositary in the
event DTC or such successor depositary is unable or unwilling to continue as
depositary.
None of QCOM, the Trust, the Debt Trustee, any payment agent and any other
agent of QCOM or the Debt Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in a Global Security for such Convertible Subordinated Debt
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICE
A Global Security shall be exchangeable for Convertible Subordinated Debt
Securities registered in the names of persons other than the depositary or its
nominee if (i) the depositary notifies QCOM that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, or if at any time the depositary ceases to be a
clearing agency registered or in good standing under the Exchange Act (or other
applicable statute or regulation) at a time when the depositary is required to
be so registered to act as such depositary and no successor depositary shall
have been appointed by QCOM within 90 days after QCOM receives such notice or
becomes aware of such condition, (ii) QCOM in its sole discretion determines
that such Global Security shall be so exchangeable or (iii) there shall have
occurred an Indenture Event of Default with respect to such Convertible
Subordinated Debt Securities. Any Global Security that is exchangeable pursuant
to the preceding sentence shall be exchangeable for Convertible Subordinated
Debt Securities registered in such names as the depositary shall direct. It is
expected that such instructions will be based upon directions received by the
depositary from its Participants with respect to ownership of beneficial
interests in such Global Security.
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In the event the Convertible Subordinated Debt Securities are not
represented by one or more Global Securities, certificates evidencing
Convertible Subordinated Debt Securities may be presented for registration of
transfer (with the form of transfer endorsed thereon duly executed) or exchange,
at the office of the Debt Registrar (as defined in the Indenture) or at the
office of any transfer agent designated by QCOM for such purpose with respect to
the Convertible Subordinated Debt Securities, without service charge and upon
payment of any taxes and other governmental charges as described in the
Indenture. Such transfer or exchange will be effected upon the Debt Registrar or
such transfer agent, as the case may be, being satisfied with the documents of
title and identity of the person making the request. QCOM has appointed the Debt
Trustee as Debt Registrar with respect to the Convertible Subordinated Debt
Securities. QCOM may at any time rescind the designation of any such transfer
agent or approve a change in the location through which any such transfer agent
acts, except QCOM will be required to maintain a transfer agent at the place of
payment. QCOM may at any time designate additional transfer agents with respect
to the Convertible Subordinated Debt Securities.
In the event of any redemption in part, QCOM shall not be required to (i)
issue, exchange or register the transfer of Convertible Subordinated Debt
Securities during a period beginning at the opening of business 15 days before
the day of the mailing of a notice of redemption of less than all of the
Convertible Subordinated Debt Securities and ending at the close of business on
the date of such mailing or (ii) register the transfer of or exchange any
Convertible Subordinated Debt Securities so selected for redemption, in whole or
in part, except the unredeemed portion of any Convertible Subordinated Debt
Securities being redeemed in part.
CONVERSION AND PAYING AGENTS
Wilmington Trust Company is acting as Conversion Agent for the Convertible
Subordinated Debt Securities. Payment of principal of and premium, if any, on
the Convertible Subordinated Debt Securities will be made only against surrender
to the Paying Agent (as defined in the Indenture) of the Convertible
Subordinated Debt Securities. Principal of and premium, if any, and interest on
Convertible Subordinated Debt Securities will be payable, subject to any
applicable laws and regulations, at the office of such Paying Agent or Paying
Agents as QCOM may designate from time to time, except that at the option of
QCOM payment of any interest may be made by check mailed to the address of the
person entitled thereto as such address shall appear in the Debt Register with
respect to the Convertible Subordinated Debt Securities. Payment of interest on
the Convertible Subordinated Debt Securities on any Interest Payment Date will
be made to the person in whose name the Convertible Subordinated Debt Security
(or predecessor security) is registered at the close of business on the Regular
Record Date (as defined in the Indenture) for such interest payment.
QCOM initially is acting as Paying Agent with respect to the Convertible
Subordinated Debt Securities except that, if the Convertible Subordinated Debt
Securities are distributed to the holders of the Convertible Preferred
Securities in liquidation of such holders' interests in the Trust, the Debt
Trustee will act as the Paying Agent. QCOM at any time may designate additional
Paying Agents or rescind the designation of any Paying Agent or approve a change
in the office through which any Paying Agent acts, except that QCOM will be
required to maintain a Paying Agent at the place of payment.
All monies paid by QCOM to a Paying Agent for the payment of the principal
of, premium, if any, or interest, if any, on the Convertible Subordinated Debt
Securities which remain unclaimed at the end of two years after such principal,
premium or interest shall have become due and payable will be repaid to QCOM,
and the holder of such Convertible Subordinated Debt Securities will thereafter
look only to QCOM for payment thereof.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting QCOM and the Debt Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Convertible Subordinated Debt Securities, to modify the Indenture or any
supplemental indenture affecting that series or the rights of the holders of the
Convertible Subordinated Debt Securities; provided that no such modification
may, without the consent of the holder of each outstanding Convertible
Subordinated Debt Security affected thereby, (i) change the stated maturity of
the Convertible Subordinated Debt Securities, reduce the principal amount
thereof, reduce the
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rate or extend the time of payment of interest (including any Additional
Interest or Liquidated Damages) thereon, or reduce any premium payable upon the
redemption thereof, adversely affect the right to convert any Convertible
Subordinated Debt Security, decrease the conversion rate or increase the
conversion price of any Convertible Subordinated Debt Security, or change the
subordination provisions of the Indenture in a manner that adversely affects the
rights of any holders of Convertible Subordinated Debt Securities or (ii) reduce
the percentage of Convertible Subordinated Debt Securities the holders of which
are required to consent to any such supplemental indenture or to waive defaults,
without the consent of the holders of each Convertible Subordinated Debt
Security then outstanding and affected thereby.
In addition, QCOM and the Debt Trustee may execute, without the consent of
holders of the Convertible Subordinated Debt Securities, any supplemental
indenture for certain other usual purposes.
SUCCESSOR CORPORATION
QCOM may not consolidate with or merge into, or transfer its properties and
assets substantially or as an entirety to, another corporation, and another
corporation may not consolidate with or merge into, or transfer its properties
and assets substantially or as an entity to QCOM, unless (i) in the case QCOM
consolidates with or merges into another corporation or transfers its properties
and assets substantially or as an entirety to another corporation, the successor
corporation, which shall be a corporation organized under the laws of the United
States or a State thereof, assumes by supplemental indenture all the obligations
of QCOM under the Convertible Subordinated Debt Securities and the Indenture,
(ii) immediately after giving effect to such transaction, no Indenture Event of
Default shall have occurred and be continuing, and (iii) such transition is
permitted under the Declaration and Guarantee and does not give rise to any
breach or violation of the Declaration or Guarantee. Except for the conversion
price adjustments described under "Description of Convertible Preferred
Securities -- Conversion Rights," the Indenture does not otherwise contain any
covenant which restricts the ability of QCOM to merge or consolidate with or
into any other corporation, sell or convey all or substantially all of its
assets to any person, firm or corporation or otherwise engage in restructuring
transactions.
GOVERNING LAW
The Indenture and the Convertible Subordinated Debt Securities are governed
by, and construed in accordance with, the internal law of the State of New York.
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Debt Trustee
is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Subordinated Debt
Securities, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby; but the
foregoing shall not relieve the Debt Trustee, upon the occurrence of an
Indenture Event of Default, from its obligation to exercise the rights and
powers vested in it by the Indenture. The Debt Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Debt Trustee reasonably believes that repayment
or adequate indemnity is not reasonably assured to it. The Debt Trustee also
serves as Property Trustee under the Declaration and as the Guarantee Trustee
under the Guarantee.
MISCELLANEOUS
QCOM has the right at all times to assign any of its rights or obligations
under the Indenture to a direct or indirect wholly-owned subsidiary of QCOM;
provided, that in the event of any such assignment, QCOM will remain liable for
all of the obligations of such subsidiary. Subject to the foregoing, the
Indenture is binding upon and inure to the benefit of the parties thereto and
their respective successors and assigns. The Indenture provides that it may not
otherwise be assigned by the parties thereto.
The Indenture provides that QCOM will pay all costs, expenses, debts and
obligations of the Trust other than with respect to the Trust Securities.
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EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE SUBORDINATED
DEBT SECURITIES AND THE GUARANTEE
As set forth in the Declaration, the exclusive purposes of the Trust are to
(i) issue the Trust Securities, (ii) invest the proceeds thereof in the
Convertible Subordinated Debt Securities and (iii) engage in only those other
activities necessary or incidental thereto.
As long as payments of interest and other payments are made when due on the
Convertible Subordinated Debt Securities, such payments will be sufficient to
cover distributions and payments due on the Trust Securities primarily because
(i) the aggregate principal amount of the Convertible Subordinated Debt
Securities will be equal to the sum of the aggregate stated liquidation amount
of the Trust Securities; (ii) the interest rate and interest and other payment
dates on the Convertible Subordinated Debt Securities will match the
distribution rate and distribution and other payment dates for the Convertible
Preferred Securities; (iii) QCOM shall pay for all costs, expenses, debts and
obligations of the Trust (other than with respect to the Trust Securities); and
(iv) the Declaration provides that Regular Trustees shall not cause or permit
the Trust to, among other things, engage in any activity that is not consistent
with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Convertible Preferred Securities (to the extent funds
therefor are available) are guaranteed by QCOM as and to the extent set forth
under "Description of the Guarantee." If QCOM does not make interest payments on
the Convertible Subordinated Debt Securities purchased by the Trust, it is
expected that the Trust will not have sufficient funds to pay distributions on
the Convertible Preferred Securities. The Guarantee does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions. The Guarantee covers the payment of distributions
and other payments on the Convertible Preferred Securities only if and to the
extent that QCOM has made a payment of interest or principal on the Convertible
Subordinated Debt Securities held by the Trust as its sole asset. The Guarantee,
when taken together with QCOM's obligations under the Convertible Subordinated
Debt Securities, the Indenture and the Declaration, including its obligations to
pay costs, expenses, debts and liabilities of the Trust (other than with respect
to the Trust Securities), provides a full and unconditional guarantee of amounts
on the Convertible Preferred Securities.
If QCOM fails to make interest or other payments on the Convertible
Subordinated Debt Securities when due (taking into account any Extension
Period), the Declaration provides a mechanism whereby the holders of the
Convertible Preferred Securities, using the procedures described in "Description
of the Convertible Preferred Securities -- Voting Rights," may direct the
Property Trustee to enforce its rights under the Convertible Subordinated Debt
Securities, including proceeding directly against QCOM to enforce the
Convertible Subordinated Debt Securities. If the Property Trustee fails to
enforce its rights under the Indenture or the Convertible Subordinated Debt
Securities, a holder of Convertible Preferred Securities may, to the extent
permitted by law, institute a legal proceeding directly against QCOM to enforce
the Property Trustee's rights under the Indenture and the Convertible
Subordinated Debt Securities without first instituting any legal proceeding
against the Property Trustee or any other person or entity, including the Trust.
In addition, during the continuance of a Declaration Event of Default that
results from the failure of QCOM to pay principal of or interest on the
Convertible Subordinated Debt Securities when due, a holder may proceed directly
against QCOM, without first waiting to determine if the Property Trustee has
enforced its rights under the Declaration, to obtain payment of such principal
or interest on Convertible Subordinated Debt Securities having a principal
amount equal to the aggregate liquidation amount of the Convertible Preferred
Securities owned of record by such holder.
If QCOM fails to make payments under the Guarantee, the Guarantee provides
a mechanism whereby the holders of the Convertible Preferred Securities may
direct the Guarantee Trustee to enforce its rights thereunder. If the Guarantee
Trustee fails to enforce the Guarantee, any holder of convertible Preferred
Securities may institute a legal proceeding directly against QCOM to enforce the
Guarantee Trustee's rights under the Guarantee, without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. In addition, any record holder of Convertible Preferred Securities shall
have the right, which is absolute and unconditional, to proceed directly against
QCOM to obtain Guarantee Payments,
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without first waiting to determine if the Guarantee Trustee has enforced the
Guarantee or instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
DESCRIPTION OF CAPITAL STOCK
As of April 25, 1997, the authorized capital stock of QCOM consisted of
150,000,000 shares of Common Stock, $0.0001 par value ("Common Stock"), and
8,000,000 shares of Preferred Stock, $0.0001 par value ("Preferred Stock"), of
which 1,500,000 shares have been designated Series A Junior Participating
Preferred Stock ("Series A").
COMMON STOCK
As of June 10, 1997, there were 67,607,549 shares of Common Stock
outstanding held of record by 2,233 stockholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of the stockholders. Subject to preferences that may be applicable to
any then outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. In the event of a liquidation, dissolution
or winding up of QCOM, holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation preference
of any then outstanding Preferred Stock. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are, and all shares of
Common Stock issuable upon conversion of the Convertible Preferred Securities,
when and if issued, will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 8,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the stockholders. The issuance of Preferred Stock could adversely affect the
voting power of holders of Common Stock and could have the effect of delaying,
deferring or preventing a change in control of the Company.
RIGHTS; JUNIOR PREFERRED STOCK
QCOM has adopted a stockholder rights plan as set forth in a Rights
Agreement dated as of September 26, 1995, between QCOM and First Interstate Bank
of California, as rights agent (the "Rights Agreement"). The following is a
summary of the Rights Agreement.
Rights. Each right (a "Right" and, collectively, the "Rights") entitles
the registered holder to purchase from QCOM one one-hundredth of a share of
Series A at a price of $250.00 per one one-hundredth of a share of Series A (the
"Purchase Price"), subject to adjustment. Each one one-hundredth of a share of
Series A has designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions which makes its value approximately
equal to the value of one share of Common Stock. The description and terms of
the Rights are set forth in the Rights Agreement.
The Rights are evidenced by the stock certificates representing the Common
Stock then outstanding, and no separate Right Certificates (as defined herein)
have been distributed. Until the earlier to occur of (i) 10 days following a
public announcement that a person, entity or group of affiliated or associated
persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more
of the outstanding Common Stock or (ii) 10 business days (or such later date as
may be determined by action of the Board of Directors of QCOM prior to such time
as any person, entity or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person, entity or group of 15% or more of such outstanding
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Common Stock (the earlier of such dated being called the "Distribution Date"),
the Rights will be evidenced, with respect to any of the Common Stock
certificates outstanding, by such Common Stock certificate.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the Distribution
Date (or earlier redemption or expiration of the Rights), new Common Stock
certificates issued upon transfer or new issuance of Common Stock will contain a
notation incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender or
transfer of any certificates for Common Stock will also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
As soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Stock as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on September 25, 2005 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by the
Company, in each case as described below.
The Purchase Price payable, and the number of shares of Series A or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Series A,
(ii) upon the grant to holders of the Series A of certain rights or warrants to
subscribe for or purchase shares of Series A at a price, or securities
convertible into shares of Series A with a conversion price, less than the then
current market price of the Series A shares or (iii) upon the distribution to
holders of the shares of Series A of evidences of indebtedness or assets
(excluding regular periodic cash dividends paid out of earnings or retained
earnings or dividends payable in shares of Series A) or of subscription rights
or warrants (other than those referred to above). The exercise of Rights for
shares of Series A is at all times subject to the availability of a sufficient
number of authorized but unissued shares of Series A.
The number of outstanding Rights and the number of one one-hundredths of a
share of Series A issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or subdivisions, consolidation or
combinations of the Common Stock occurring, in any case, prior to the
Distribution Date.
Series A shares purchasable upon exercise of the Rights will not be
redeemable. Each share of Series A will be entitled to a minimum preferential
quarterly dividend payment of $1.00 but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Stock. In the event of
liquidation, the holders of Series A will be entitled to a minimum preferential
liquidation payment of $100 but will be entitled to an aggregate payment of 100
times the payment made per Common Stock. Each share of Series A will have 100
votes, voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which Common Stock is exchanged,
each share of Series A will be entitled to receive 100 times the amount of
consideration received per share of Common Stock. These rights are protected by
customary anti-dilution provisions. Because of the nature of the dividend and
liquidation rights of the Series A, the value of one one-hundredth of a share of
Series A should approximate the value of one share of Common Stock.
In the event that any person, entity or group becomes an Acquiring Person,
proper provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
for a 60-day period have the right to receive upon exercise that number of
shares of Common Stock having a market value of two times the exercise price of
the Right (or, if such number of shares is not and cannot be authorized, the
Company may issue Preferred Stock, cash, debt, stock or a combination thereof in
exchange for the Rights). This right will terminate 60 days after the date on
which the Rights become nonredeemable (as described below), unless there is an
injunction or similar obstacle to exercise of the Rights, in which event this
right will terminate 60 days after the date on which the Rights again become
exercisable.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder
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of a Right will thereafter have the right to receive, upon the exercise thereof
at the then current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right.
At any time after the acquisition by a person, entity or group of
affiliated or associated persons of beneficial ownership of 15% or more of the
Company's outstanding Common Stock and prior to the acquisition by such person,
entity or group of 50% or more of QCOM's outstanding Common Stock, the Board of
Directors of QCOM may exchange the Rights (other than Rights owned by such
person, entity or group which have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, or one one-hundredth of a share of
Series A, per Right (or, if the number of shares is not and cannot be
authorized, the Company may issue cash, debt, stock or a combination thereof in
exchange for the Rights), subject to adjustment.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A will be issued (other than
fractions which are integral multiples of the number of one one-hundredths of a
share of Series A issuable upon the exercise of one Right, which may, at the
option of QCOM, be evidenced by depository receipts), and in lieu thereof, an
adjustment in cash will be made based on the market price of the Series A on the
last trading day prior to the date of exercise
At any time prior to the earliest of (i) the close of business on the day
of the first public announcement that a person, entity or group has become an
Acquiring Person or (ii) the Final Expiration Date, the Board of Directors of
QCOM may redeem the Rights in whole, but not in part, at a price of $.01 per
Right (the "Redemption Price"). Following the expiration of the above periods,
the Rights will be nonredeemable. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of QCOM
without the consent of the holders of the Rights, including an amendment to
lower the threshold for exercisability of the Rights from 15% to any percentage
which is (i) greater than the largest percentage of the outstanding Common Stock
then known to QCOM to be beneficially owned by any person, entity or group
(other than QCOM, any subsidiary of QCOM, any employee benefit plan of QCOM or
any subsidiary, or any person, entity or group holding Common Shares pursuant to
the terms of any such plan) and (ii) not less than 10%, except that from and
after such time as any person, entity or group becomes an Acquiring Person no
such amendment may adversely affect the interest of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person, entity or group that attempts to acquire the
Company on terms not approved by QCOM's Board of Directors. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors since the Rights may be redeemed by QCOM at $.01 per Right
prior to the earliest of (i) the date that a person, entity or group has
acquired beneficial ownership of 15% or more of the Common Stock (unless
extended for one or more 10 day periods by the Board of Directors), (ii) a
Change in Control or (iii) the final expiration date of the rights.
Series A Junior Participating Preferred Stock. In connection with the
Rights Agreement, 1,500,000 shares of Series A are authorized and reserved for
issuance by the Board. No shares of Series A are currently outstanding. The
material terms of the Series A are summarized herein; however, such summary is
subject to the terms of QCOM's Certificate of Incorporation and the Certificate
of Designation relating to the Series A.
Subject to the prior payment of cumulative dividends on any class of
preferred stock ranking senior to the Series A, a holder of Series A will be
entitled to cumulative dividends out of funds legally available therefor, when,
as and if declared by the Board at a quarterly rate per share of Series A equal
to the greater of (a) $1.00 or (b) 100 times (subject to adjustment upon certain
dilutive events) the aggregate per share amount of all cash dividends and 100
times (subject to adjustment upon certain dilutive events) the aggregate per
share
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amount (payable in kind) of all noncash dividends or other distributions (other
than dividends payable in Common Stock or a sub-division the outstanding share
of Common Stock) declared on Common Stock, since the immediately preceding
quarterly dividend payment date for the Series A (or since the date of issuance
of the Series A if not such dividend payment date has occurred).
A holder of Series A is entitled to 100 votes (subject to adjustment upon
certain dilutive events) per share of Series A on all matters submitted to a
vote of QCOM stockholders. Such holders will vote together with the holders of
the Common Stock as a single class on all matters submitted to a vote of QCOM
stockholders.
In the event of a merger or consolidation of QCOM which results in Common
Stock being exchanged or changed for other stock, securities, cash and or other
property, the shares of Series A shall similarly be exchanged or changed in an
amount per share equal to 100 times (subject to adjustment upon certain dilutive
events) the aggregate amount of stock, securities, cash and/or other property,
as the case may be, into which each share of Common Stock has been exchanged or
changed.
In the event of liquidation, dissolution or winding up of the Company, a
holder of Series A will be entitled to receive $100 per share, plus accrued and
unpaid dividends and distributions thereon, before any distribution may be made
to holders of shares of stock of QCOM ranking junior to the Series A, and the
holders of Series A are entitled to receive an aggregate amount per share equal
to 100 times (subject to adjustment upon certain dilutive events) the aggregate
amount to be distributed per share to holders of Common Stock.
The Series A is not subject to redemption. The terms of the Series A
provide that the Company is subject to certain restrictions with respect to
dividends and distributions on and redemptions and purchases of shares of stock
of QCOM ranking junior to or on a parity with the Series A in the event that
payments of dividends or other distributions payable on the Series A are in
arrears.
WARRANTS
In November 1991, the Company issued to PacTel Corporation warrants to
purchase an aggregate of 782,000 shares of Common Stock at a price of $5.50 per
share exercisable for a period of 7 years. As of June 10, 1997, none of these
warrants had been exercised.
TRANSFER AGENT AND REGISTRAR
Harris Trust Company of California has been appointed as the transfer agent
and registrar for the Common Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation form engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
QCOM's Certificate of Incorporation contains a provision (the "Fair Price
Provision") that requires the approval of the holders of at least 66 2/3% of
QCOM voting stock as a condition to a merger or certain other business
transactions with, or proposed by, a holder of 15% or more of QCOM's voting
stock (an "Interested Stockholder"), except in cases where the Continuing
Directors (as hereinafter defined) approve the transaction or certain minimum
price criteria and other procedural requirements are met. A "Continuing
Director" is a director originally elected upon incorporation of QCOM or a
director who is not an Interested Stockholder or affiliated with an Interested
Stockholder or whose nomination or election to the Board of Directors is
recommended or approved by a majority of the Continuing Directors. The minimum
price criteria
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generally require that, in a transaction in which stockholders are to receive
payments, holders of Common Stock must receive a value equal to the highest
price paid by the Interested Stockholder for Common Stock during the prior two
years, and that such payment be made in cash or in the type of consideration
paid by the Interested Stockholder for the greatest portion of its shares.
QCOM's Board of Directors believes that the Fair Price Provision will help
assure that all of QCOM's stockholders will be treated similarly if certain
kinds of business combinations are effected. However, the Fair Price Provision
may make it more difficult to accomplish certain transactions that are opposed
by the incumbent Board of Directors and that could be beneficial to
stockholders.
QCOM's Certificate of Incorporation also requires that any action required
or permitted to be taken by stockholders of QCOM must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, special meetings of stockholders of QCOM may be
called only by the Board of Directors, the Chairman of the Board or the
President of QCOM or by any person or persons holding shares representing at
least 10% of the outstanding Common Stock. The Certificate of Incorporation also
provides for a classified Board of Directors consisting of three classes of
directors. In addition, the Certificate of Incorporation provides that the
authorized number of directors may be changed only by resolution of the Board of
Directors. These provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal United States
federal income tax consequences to a holder of Convertible Preferred Securities
(a "Holder") of the purchase, ownership and disposition of the Convertible
Preferred Securities. Unless otherwise stated, this summary deals only with the
tax considerations applicable to purchasers of the Convertible Preferred
Securities that hold the Convertible Preferred Securities as capital assets.
This summary is based on the United States federal income tax laws, regulations,
United States Treasury Regulations ("Treasury Regulations") and rulings and
decisions now in effect, all of which are subject to change, possibly on a
retroactive basis. This summary does not address the tax consequences applicable
to investors that may be subject to special tax rules such as banks, thrifts,
real estate investment trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors or persons
that will hold the Convertible Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than capital
asset. This summary also does not address the tax consequences to persons that
have a functional currency other than the U.S. dollar or the tax consequences to
shareholders, partners or beneficiaries of a Holder. Further, it does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to a Holder.
CLASSIFICATION OF THE CONVERTIBLE SUBORDINATED DEBT SECURITIES
The Company intends to take the position that the Convertible Subordinated
Debt Securities will be classified for United States federal income tax purposes
as indebtedness of the Company under current law, and, by acceptance of a
Convertible Preferred Security, each Holder covenants to treat the Convertible
Subordinated Debt Securities as indebtedness and the Convertible Preferred
Securities as evidence of an indirect beneficial ownership interest in the
convertible Subordinated Debt Securities. No assurance can be given, however,
that such position of the Company will not be challenged by the Internal Revenue
Service. The remainder of this discussion assumes that the Convertible
Subordinated Debt Securities will be classified for United States income tax
purposes as indebtedness of the Company.
CLASSIFICATION OF QUALCOMM FINANCIAL TRUST I
In connection with the issuance of the Convertible Preferred Securities,
Cooley Godward LLP, special counsel to the Trust, has rendered its opinion that,
under current law and assuming full compliance with the terms of the Indenture
and the Declaration (and certain other documents), based upon certain facts and
62
<PAGE> 64
assumptions contained in such opinion, the Trust will be classified as a
"grantor trust" for United States federal income tax purposes and not as a
partnership or an association taxable as a corporation. Each Holder will be
treated for United States federal income tax purposes as owning an undivided
beneficial interest in the Convertible Subordinated Debt Securities.
Accordingly, each Holder will be required to include in its gross income the OID
accrued with respect to its allocable share of Convertible Subordinated Debt
Securities. Investors should be aware that the opinion of Cooley Godward LLP
does not address any other tax issue and is not binding on the Internal Revenue
Service or the courts.
ORIGINAL ISSUE DISCOUNT, PREMIUM AND MARKET DISCOUNT
Because QCOM has the option, under the terms of the Convertible
Subordinated Debt Securities, to defer payments of interest by extending
interest payment periods for up to 20 consecutive quarters, the Convertible
Subordinated Debt Securities will be treated as issued with OID equal to the
total amount of the stated interest payments on the Convertible Subordinated
Debt Securities. Holders must include the OID attributable to the Convertible
Subordinated Debt Securities in income on an economic accrual basis, regardless
of their method of tax accounting. The amount of OID that accrues in any month
will approximately equal the amount of interest that accrues in that month at
the stated interest rate. In the event that the interest payment period is
extended, Holders will continue to accrue OID approximately equal to the amount
of the interest payment due at the end of the extended interest payment period
on an economic accrual basis over the length of the extended interest period.
Corporate Holders will not be entitled to a dividends-received deduction with
respect to any income earned with respect to the Convertible Preferred
Securities.
To the extent a subsequent Holder acquires its Convertible Preferred
Securities at a price that is greater or less than the adjusted issue price of
such Holder's share of the Convertible Subordinated Debt Securities (which
generally should approximate par plus accrued but unpaid interest), the Holder
will be deemed to have acquired its interest in the Convertible Preferred
Securities with acquisition premium or with market discount, as the case may be.
Such Holders are advised to consult their tax advisors as to the income tax
consequences of the acquisition, ownership and disposition of the Convertible
Preferred Securities. A Holder acquiring Convertible Preferred Securities with
acquisition premium will be permitted to reduce the amount of OID required to be
included in income to reflect such premium. A Holder acquiring Convertible
Preferred Securities at a market discount will include the amount of such
discount in income in accordance with the market discount rules described below.
A Holder acquiring Convertible Preferred Securities at a market discount
generally will be required to recognize ordinary income to the extent of accrued
market discount upon the retirement of the underlying Convertible Subordinated
Debt Securities or, to the extent of any gain, upon the disposition of the
Convertible Preferred Securities. Such market discount would accrue ratably, or,
at the election of the Holder, under a constant yield method, over the remaining
term of the Convertible Subordinated Debt Securities. A Holder also will be
required, in the absence of the election described in the next sentence, to
defer the deduction of a portion of the interest paid or accrued on indebtedness
incurred to purchase or carry Convertible Preferred Securities acquired with
market discount. In lieu of the foregoing, a Holder may elect to include market
discount in income currently as it accrues on all market discount instruments
acquired by such Holder in the taxable year of the election or thereafter, in
which case the interest deduction deferral rule will not apply.
A Holder may elect in lieu of applying the market discount or premium rules
described above, to account for all income under the Convertible Preferred
Securities as if it were OID.
LIQUIDATED DAMAGES
QCOM intends to take the position that the Liquidated Damages described
above under "Description of the Preferred Securities -- Registration Rights"
will be taxable to a holder as ordinary income in accordance with the holder's
usual method of income tax accounting. The IRS may take a different position,
however, which could affect both the timing of the holder's income and the time
and amount of QCOM's deduction with respect to the Liquidated Damages.
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<PAGE> 65
RECEIPT OF CONVERTIBLE SUBORDINATED DEBT SECURITIES OR CASH UPON LIQUIDATION OF
THE TRUST
Under certain circumstances, as described under the caption "Description of
the Convertible Preferred Securities -- Special Event Redemption or
Distribution" and "Redemption of Convertible Preferred Stock -- Distribution of
Convertible Subordinated Debt Securities," Convertible Subordinated Debt
Securities may be distributed to Holders in exchange for the Convertible
Preferred Securities and in liquidation of the Trust. Such a distribution would
be treated as a non-taxable event to each Holder, and each Holder would receive
an aggregate tax basis in the Convertible Subordinated Debt Securities equal to
such Holder's aggregate tax basis in the Convertible Preferred Securities. A
Holder's holding period in the Convertible Subordinated Debt Securities so
received in liquidation of the Trust would include the period during which the
Convertible Preferred Securities were held by such Holder. If, however, the
exchange is caused by a Tax Event which results in the Trust being treated as an
association taxable as a corporation, the distribution would likely be a taxable
event to Holders; the distribution may also be taxable to the Trust which could
reduce the amount of the distributions to the Holders.
Under certain circumstances, as described under the caption "Description of
the Convertible Preferred Securities -- Special Event Redemption or
Distribution," upon the occurrence of a Tax Event, Holders may receive cash in
redemption of their Convertible Preferred Securities. Such a redemption would be
taxable disposition of the redeemed Convertible Preferred Securities, and a
Holder would recognize gain or loss as if it sold such redeemed Convertible
Preferred Securities for cash. See "-- Sale of Convertible Preferred
Securities."
SALE OF CONVERTIBLE PREFERRED SECURITIES
A Holder that sells Convertible Preferred Securities will recognize gain or
loss equal to the difference between its adjusted tax basis in the Convertible
Preferred Securities and the amount realized on the sale. A Holder's adjusted
tax basis in the Convertible Preferred Securities generally will be its initial
purchase price increased by OID (and accrued market discount, if any) previously
includable in such Holder's gross income to the date of disposition and
decreased by payments received on the Convertible Preferred Securities. Subject
to the market discount rules described above, any such gain or loss generally
will be capital gain or loss and generally will be long-term capital gain or
loss if the Convertible Preferred Securities have been held for more than one
year.
The Convertible Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying Convertible Subordinated Debt Securities. A Holder disposing of its
Convertible Preferred Securities between record dates for payments of
distributions thereon will be required to include accrued but unpaid interest
through the date of disposition in income as ordinary income (i.e., OID), and to
add such amount to its adjusted tax basis in its Convertible Preferred
Securities. To the extent the selling price is less than the Holder's adjusted
tax basis (which will include, in the form of OID, all accrued but unpaid
interest), a Holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
CONVERSION OF CONVERTIBLE PREFERRED SECURITIES TO COMMON STOCK
Except possibly to the extent attributable to accrued and unpaid interest
on the Convertible Subordinated Debt Securities, a Holder will not recognize
income, gain or loss upon the conversion, through the Conversion Agent, of
Convertible Subordinated Debt Securities into Common Stock. A Holder will,
however, recognize gain upon the receipt of cash in lieu of a fractional share
of Common Stock equal to the amount of cash received less such Holder's tax
basis in such fractional share. Such a Holder's tax basis in the Common Stock
received upon conversion generally should be equal to such Holder's tax basis in
the Convertible Preferred Securities delivered to the Conversion Agent for
exchange less the basis allocated to any fractional share for which cash is
received, and such Holder's holding period in the Common Stock received upon
conversion generally should begin on the date such Holder acquired the
Convertible Preferred Securities delivered to the Conversion Agent for exchange.
64
<PAGE> 66
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the United States
Internal Revenue Code of 1986, as amended (the "Code"), would treat Holders as
having received a constructive distribution from QCOM in the event the
conversion ratio of the Convertible Subordinated Debt Securities were adjusted,
or were not adjusted, if (i) as a result of such adjustment, or lack thereof,
the proportionate interest (measured by the quantum of Common Stock into or for
which the Convertible Subordinated Debt Securities are Convertible or
exchangeable) of the Holders in the assets or earnings and profits of the
company were increased and (ii) the adjustment, or failure to adjust, was not
pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the
conversion ratio would not be considered made pursuant to such a formula if the
adjustment was made to compensate for certain taxable distributions with respect
to the Common Stock. Thus, under certain circumstances, a reduction in the
conversion price for the Holders may result in deemed dividend income to Holders
to the extent of the current or accumulated earnings and profits of the Company.
Holders would be required to include their allocable share of such deemed
dividend in gross income but will not receive any cash related thereto.
Corporate Holders may, however, be eligible for a dividend-received deduction
with respect to such amounts.
PROPOSED TAX LEGISLATION
Please refer to discussion above under the heading "Description of the
Convertible Preferred Securities -- Proposed Tax Legislation."
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
Holder that is either (a) not treated as a resident of the United States for
purposes of Section 7701(b) of the Code or the terms of any applicable tax
treaty, or (b) not a "U.S. person." A U.S. person means a citizen or resident of
the United States, a corporation, partnership, or other entity created or
organized in or under the laws of the United States, an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source, and any other person included within the definition of United
States person under the Code and the regulations thereunder.
As discussed above, QCOM intends to take the position that the Convertible
Preferred Securities will be classified for United States federal income tax
purposes as indebtedness of QCOM under current law; no assurance can be given,
however, that such position of QCOM will not be challenged by the Internal
Revenue Service. See "-- Classification of the Convertible Subordinated Debt
Securities."
As discussed above, the Convertible Preferred Securities will be treated as
evidence of an indirect beneficial ownership interest in the Convertible
Subordinated Debt Securities. See "-- Classification of the Convertible
Subordinated Debt Securities." Thus, assuming the Convertible Subordinated Debt
Securities are classified for United States federal income tax purposes as
indebtedness of the Company, distributions of interest on the Convertible
Subordinated Debt Securities by the Trust or any of its paying agents to the
Holders will be treated as payments of interest, and such payments to a United
States Alien Holder will not be subject to United States withholding tax,
provided that (1) the beneficial owner of the Convertible Preferred Securities
("Beneficial Owner") does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (2) the Beneficial Owner is not a controlled foreign corporation with
respect to which the Company is a "related person" within the meaning of the
Code, and (3) either (i) the Beneficial Owner certifies, under penalties of
perjury, to the Trust or its agent that it is not a U.S. person and provides its
name and address or (ii) any securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution"), holding the Convertible
Preferred Securities in such capacity on behalf of the Beneficial Owner,
certifies, under penalties of perjury, to the Trust or its agent that such
statement has been received from the Beneficial Owner by it (or another
financial institution), and furnishes the Trust or its agent with a copy
thereof. The certification may be made on IRS Form W-8, and a United States
Alien Holder must inform the Trust or its agent or any change in information on
the form within 30 days of the change. Note that,
65
<PAGE> 67
in April 1996, the United States Internal Revenue Service issued proposed
Treasury Regulations that, if finalized in their current form, would change the
withholding and portfolio interest rules set forth in this section, possibly on
a retroactive basis.
A United States Alien Holder generally will not be subject to United States
withholding tax or United States federal income tax on any gain recognized upon
the sale or other disposition of Convertible Preferred Securities or upon
receipt of cash in lieu of a fractional share of Common Stock upon the
conversion of Convertible Subordinated Debt Securities into Common Stock,
unless: (i) the gain is effectively connected with a United States trade or
business or, depending on the terms of any applicable tax treaty, is
attributable to a permanent establishment maintained by the United States Alien
Holder within the United States; (ii) the United States Alien Holder is an
individual who is present in the United States for 183 days or more in the
taxable year of sale or other disposition; (iii) the gain is attributable to an
office or other fixed place of business maintained in the United States by a
United States Alien Holder that is an individual, or the gain is otherwise
considered U.S. source income for United States federal income tax purposes;
(iv) the United States Alien Holder is subject to tax pursuant to the provisions
of the United States federal tax law applicable to certain United States
expatriates; or (v) the Company is or becomes a United States real property
holding corporation ("USRPHC") within the meaning of Section 897(c) of the Code
and certain other requirements are met, as described below. The Company believes
that it is not a USRPHC and does not expect to become such a corporation.
United States federal withholding tax at a rate of 30% (or such lower rate
as may be provided by an applicable tax treaty, if any) may apply to the
following payments received by a United States Alien Holder (i) a deemed
dividend as a result of an adjustment of, or failure to adjust, the conversion
ratio of the Convertible Subordinated Debt Securities, as described under
"-- Adjustment of Conversion Price," and (ii) certain payments made by the Trust
or any of its paying agents, if the Convertible Subordinated Debt Securities
were not classified for United States federal income tax purposes as
indebtedness of the Company. Under recently proposed Treasury Regulations
(generally effective, if adopted, for payments made after December 31, 1997), a
claim for a reduced rate of withholding based upon an income tax treaty would
require certification on IRS Form W-8 (or an acceptable substitute) of certain
information regarding the beneficial owner of the dividends, including its
non-U.S. status and residence in the relevant treaty country.
INFORMATION REPORTING TO HOLDERS
The Trust will report the OID that accrued during the year with respect to
the Convertible Subordinated Debt Securities and any gross proceeds received by
the Trust from the retirement or redemption of the Convertible Subordinated Debt
Securities, annually to the Holders of record of the Convertible Preferred
Securities and to the Internal Revenue Service. The Trust currently intends to
deliver such reports to Holders of record prior to January 31 following each
calendar year. It is anticipated that persons who hold Convertible Preferred
Securities as nominees for beneficial holders will report the required tax
information to beneficial holders on Form 1099.
BACKUP WITHHOLDING
Payments made on, and proceeds for the sale of, the Convertible Preferred
Securities may be subject to a "backup" withholding tax of 31% if the Holder
fails to comply with certain identification requirements. Any withheld amounts
will be allowed as a credit against the Holder's United States federal income
tax, provided that required information is furnished to the Internal Revenue
Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
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<PAGE> 68
SELLING HOLDERS
The Preferred Convertible Securities were originally issued and sold by the
Trust to Lehman Brothers, Bear, Stearns & Co. Inc., Alex. Brown & Sons
Incorporated, Goldman, Sachs & Co. and Merrill Lynch & Co. (the "Initial
Purchasers"), and simultaneously sold by the Initial Purchasers in transactions
exempt from the registration requirements of the Securities Act, in the United
States to persons reasonably believed by such Initial Purchasers to be
"qualified institutional buyers" as defined in Rule 144A under the Securities
Act, in the United States to a limited number of other institutional "accredited
investors" (as defined in Rule 501(A)(1), (2), (3) or (7) under the Securities
Act) and outside the United States to non-U.S. persons in offshore transactions
in reliance on Regulation S under the Securities Act. The Selling Holders may
from time to time offer and sell pursuant to this Prospectus any or all of the
Convertible Preferred Securities and shares of Common Stock issued upon
conversion thereof. The term "Selling Holder" includes the holders listed below
and the beneficial owners of the Convertible Preferred Securities and their
transferees, pledgees, donees or other successors.
The following table sets forth information with respect to the Selling
Holders of the Convertible Preferred Securities and the respective number of
Convertible Preferred Securities beneficially owned by each Selling Holder that
may be offered pursuant to this Prospectus. Such information has been obtained
from the Selling Holders and the Property Trustee.
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDERS SECURITIES
- -------------------------------------------------------------------------- --------------------
<S> <C>
Aim Balanced Fund......................................................... 75,000
Aim High Yield Fund....................................................... 160,000
Aim Income Fund........................................................... 40,000
Allstate Insurance Company................................................ 160,000
Amalgamated Gadget, L.P., as Agent for Highbridge Capital Corporation..... 40,000
Ann D. Kusch.............................................................. 1,500
Arkansas PERS............................................................. 25,000
Associated Electric and Gas Insurance Services Ltd........................ 20,000
Austin Firefighters....................................................... 3,000
Baptist Hosp. of Miami.................................................... 2,600
Bear Stearns Securities Corp.(1).......................................... 238,200
Black Diamond Ltd......................................................... 23,490
Black Diamond Partners, L.P............................................... 19,805
Boston Museum of Fine Art................................................. 1,100
California Public Employee's Retirement System............................ 70,000
Carrigaholt Capital (Bermuda) L.P......................................... 28,700
CEDE & Co................................................................. 50,000
Cede & Co. FBO Fleet Bank of Massachusetts N.A............................ 281,100
Champion International Corporation Master Retirement Trust................ 21,300
Coalinga Invest Partners.................................................. 1,000
Colonial Penn Insurance Co................................................ 2,500
Colonial Penn Life Insurance Co........................................... 2,500
Combined Insurance Company of America..................................... 60,000
Commonwealth Life Insurance - Stock TRAC (TEAMSTERS I).................... 27,500
Commonwealth Life Insurance Company (TEAMSTERS/CAMDEN
Non-Enhances)........................................................... 77,500
D.E. Shaw Investments, L.P................................................ 57,000
D.E. Shaw Portfolios International, L.L.C................................. 40,000
D.E. Shaw Securities, L.P................................................. 38,000
</TABLE>
67
<PAGE> 69
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDERS SECURITIES
- -------------------------------------------------------------------------- ---------
<S> <C>
David Lipscomb University................................................. 2,800
De Moss Foundation........................................................ 3,000
Delaware State Retirement Fund - Froley, Revy............................. 22,000
Delta Air Lines Master Trust.............................................. 47,650
Delta Air Lines Master Trust.............................................. 55,400
Deutsche Morgan Grenfell Inc.............................................. 167,506
Dunham & Assoc. Ser. III.................................................. 300
Dunham & Associates Fund II............................................... 700
Engineers Joint Pension Fund.............................................. 4,100
Enterprise Accum TR HY.................................................... 7,000
Enterprise H/Y Bond Fd.................................................... 12,000
Equitable Life Assurance Separate Account Balanced........................ 6,200
Equitable Life Assurance Separate Account Convertibles.................... 92,700
Evergreen Foundation Fund................................................. 50,000
Forest Fulcrum Fd L.P..................................................... 168,000
Forest Fulcrum Fd Ltd..................................................... 110,000
Forest Performance Fd..................................................... 3,000
Forest Performance Greyhound.............................................. 3,500
Forest Performance Ltd.................................................... 3,500
Galaxy Equity Growth Fund................................................. 300,000
Genesee County Employees' Retirement System............................... 5,650
Glen Eagles Fund, Ltd..................................................... 20,000
Global Series Fund II - Prudential Inconvertible.......................... 50,000
Golden Rule Ins HY........................................................ 6,000
Goldman, Sachs & Co....................................................... 17,000
Grace Brothers LTD........................................................ 15,000
Hawaiian Airlines IAM..................................................... 2,000
Hawaiian Airlines Pilots Retirement....................................... 3,000
Hawaiian Airlines Salaried Employees...................................... 500
Hicks Investment Ltd...................................................... 3,000
Highbridge Capital Corp................................................... 2,240
Highbridge International LDC.............................................. 205,000
Hudson River Trust Balanced Portfolio..................................... 36,800
Hudson River Trust Growth & Income Account................................ 28,800
Hudson River Trust Growth Investors....................................... 29,400
Hughes Aircraft Company Master Retirement Trust........................... 27,500
Husic Capital Management as a Discretionary Asset Manager................. 125,000
ICI American Holdings Pension............................................. 9,000
III N Hedge Fund.......................................................... 1,000
III N Investments HY...................................................... 1,000
JMG Capital Partners, L.P................................................. 11,250
JMG Convertible Investments, L.P.......................................... 10,000
Kapiolani Medical Center.................................................. 5,000
Kemper Technology Fund.................................................... 204,000
Kettering Medical Center Funded Depreciation Account...................... 1,700
</TABLE>
68
<PAGE> 70
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDERS SECURITIES
- -------------------------------------------------------------------------- ---------
<S> <C>
Laterman & Co............................................................. 5,000
Laterman Strategies 90's LLC.............................................. 15,000
LDG Limited Fund.......................................................... 14,375
Lincoln National Convertible Securities................................... 34,450
Lincoln National Life Insurance........................................... 88,925
Lipper Convertible, L.P................................................... 395,000
LLT Limited............................................................... 12,000
MainStay Convertible Fund................................................. 180,000
Massachusetts Mutual Life Insurance Company............................... 44,150
MassMutual Corporate Investors............................................ 7,720
MassMutual Corporate Value Partners Limited............................... 11,030
MassMutual High Yield Partners LLC........................................ 13,240
MassMutual Participation Investors........................................ 3,860
McMahan Securities Company, L.P........................................... 9,500
Memphis Light, Water & Gas Retirement Fund................................ 36,600
Merrill Lynch Pierce Fenner & Smith Inc. ................................. 600,000
Merrill Lynch Pierce Fenner & Smith Inc. ................................. 55,000
Millennium Trading Co., L.P............................................... 25,000
N-A Income & Growth Fund.................................................. 26,500
Nalco Chemical Retirement................................................. 3,250
NatWest Securities Corp................................................... 209,850
Norwest Bank Minnesota, N.A............................................... 5,000
Occidental College........................................................ 2,400
OCM Convertible Limited Partnership....................................... 4,200
OCM Convertible Trust..................................................... 86,900
Offshore Strategies Ltd................................................... 35,000
Oppenheimer Variable Account Funds........................................ 20,000
Oregon Equity Fund........................................................ 125,000
Pacific Mutual Life Insurance Company..................................... 30,000
Paloma Securities L.L.C................................................... 260,000
Phoenix Duff & Phelps..................................................... 106,600
Port Authority of Allegheny County Retirement and Disability Allowance.... 25,200
PRIM Board................................................................ 34,000
Provident Life and Accident Insurance Company............................. 70,000
Publix Supermarkets Inc. Profit Sharing Plan & Trust...................... 6,000
R2 Investments, LDC....................................................... 20,000
Ramius Fund, Ltd.......................................................... 20,000
Rhode Island Hospital Trust NB Agent for Providence College............... 5,000
Rhode Island Hospital Trust NB Rhode Island School of Design
Unrestricted............................................................ 5,000
Rhode Island Hospital Trust NB Trustee Under Agmt Rhode Island Hospital
Employees............................................................... 10,000
RJR Nabisco, Inc., Defined Benefit Master Trust........................... 20,500
Robertson Stephens & Co., LLP............................................. 18,200
Royal Bank of Canada...................................................... 298,180
SAIF Corporation.......................................................... 75,000
San Diego City Retirement................................................. 8,100
</TABLE>
69
<PAGE> 71
<TABLE>
<CAPTION>
NUMBER OF
CONVERTIBLE
PREFERRED
SELLING HOLDERS SECURITIES
- -------------------------------------------------------------------------- --------------------
<S> <C>
San Diego County.......................................................... 34,800
Saudi International Bank London........................................... 10,000
SBC Warburg Inc........................................................... 91,500
Shepard Investments International, Ltd.................................... 509,890
Silverton International Fund Limited...................................... 10,000
South Dakota Retirement System............................................ 30,000
Stark International....................................................... 166,530
Starvest Discretionary.................................................... 12,500
State Employees' Retirement Fund of the State of Delaware................. 22,000
State of Connecticut Combined Investment Funds............................ 60,500
Swiss Bank Corporation - London Branch.................................... 215,000
The Bank of New York as Trustee........................................... 30,000
The Cecil S. Harrell Revocable Trust...................................... 3,000
The Class 1C Company, Ltd................................................. 28,800
The Columbia/HCA Money Purchase Plan...................................... 27,600
The Dow Chemical Company Employees' Retirement Plan....................... 29,700
The Fondren Foundation.................................................... 1,700
The Frist Foundation...................................................... 9,500
The Hotel Union - ILWU Pension Trust...................................... 4,200
The Hotel Union and Industry of Hawaii.................................... 12,100
The Northwestern Mutual Life Insurance Company............................ 310,000
TQA Arbitrage Fund, L.P................................................... 19,375
TQA Vantage Fund, Ltd..................................................... 28,750
Tr FBO Wm. M. Keck, Jr. Fdn............................................... 1,000
Triton Capital Investments, LTD........................................... 21,250
Unifi, Inc. Profit Sharing Plan and Trust................................. 3,500
United Food and Commercial Workers Local 1262 and Employers Pension
Fund.................................................................... 10,400
United National Life Insurance............................................ 1,595
Vanguard Convertible Securities Fund, Inc................................. 48,500
Wake Forest University.................................................... 6,400
Weirton Trust............................................................. 10,035
Wm. M. Keck, Jr. Foundation............................................... 2,000
Worldwide Transactions Ltd................................................ 2,925
Zeneca Holdings Pension................................................... 9,000
--------------------
Total........................................................... 8,310,771
================
</TABLE>
- ---------------
(1) Within the past three years Bear Stearns & Co. Inc., or one of its
affiliates, was the manager or co-manager of a public offering of securities
of Qualcomm and/or has performed other banking services for which it has
received a fee.
Except as set forth above and in the following sentence, none of the
Selling Holders has, or within the past three years has had, any position,
office or other material relationship with the Trust or the Company or any of
their predecessors or affiliates. From time to time, certain broker-dealers and
their affiliates in the ordinary course of business may have acquired or
disposed of, or may in the future acquire or dispose of certain securities of
QUALCOMM and the Trust or their affiliates, for their own accounts or for the
accounts of others. Because the Selling Holders may, pursuant to this
Prospectus, offer all or some portion of the Convertible Preferred Securities,
the Convertible Subordinated Debt Securities or the Common Stock
70
<PAGE> 72
issuable upon conversion of the Convertible Preferred Securities, no estimate
can be given as to the amount of the Convertible Preferred Securities, the
Convertible Subordinated Debt Securities or the Common Stock issuable upon
conversion of the Convertible Preferred Securities that will be held by the
Selling Holders upon termination of any such sales. In addition, the Selling
Holders identified above may have sold, transferred or otherwise disposed of all
or a portion of their Convertible Preferred Securities since the date on which
they provided the information regarding their Convertible Preferred Securities
included herein in transactions exempt from the registration requirements of the
Securities Act. See "Plan of Distribution."
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, which may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders, and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities, may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing of options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be distributed
which will set forth the aggregate amount and type of Offered Securities being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any discounts,
commissions or concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Offered Securities by the
Selling Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, the Company shall bear all
reasonable fees and expenses customarily borne by issuers in a non-underwritten
secondary offering by selling security holders or in an underwritten offering,
as the case may be, incurred in connection with the performance of its
obligations under the Registration Rights Agreement; provided, however, that the
Selling Holders will pay all underwriting discounts and selling commissions, if
any. The Selling Holders will be indemnified by the Company and the Trust,
jointly and severally, against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution in
connection therewith.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended September 30,
1996 have been so incorporated in reliance on the report of
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<PAGE> 73
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
LEGAL OPINIONS
The validity of the Convertible Preferred Securities will be passed upon on
behalf of the Trust by Richards, Layton & Finger, Wilmington, Delaware, special
Delaware counsel to the Trust. The validity of the Convertible Subordinated Debt
Securities and the Guarantee will be passed upon on behalf of the Company by
Reed Smith Shaw & McClay, New York, New York. The validity of the Common Stock
issuable upon conversion of the Convertible Preferred Securities, and certain
matters relating thereto, will be passed upon on behalf of the Company by Cooley
Godward, LLP, San Diego, California.
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<PAGE> 74
GLOSSARY OF TERMS
CDMA DIGITAL TECHNOLOGY
"ASICs" -- Application Specific Integrated Circuits.
"Analog" -- The representation of information as a continuously varying
signal.
"Base Station" -- A fixed site with network equipment that is used for
communicating with mobile stations; may also refer to a cell, a sector within a
cell, an MTSO, or other part of a cellular system.
"CDMA" -- Code Division Multiple Access is QUALCOMM's proprietary
application of a digital wireless transmission technology for use in cellular
telephone communications, personal communications services, and other wireless
communications systems. CDMA is a spread spectrum technology in which calls are
assigned a code to encode analog voices signals that have been converted by a
vocoder into digital bit streams. The coded signals are then transmitted over
the air on a spread spectrum of 1.25 MHz to a cell site, where they are
processed by a channel unit or a modem.
"Cellular System" -- A wireless phone system based on a grid of "cells."
Each cell contains transmitters, receivers, antennas, switching gear and control
equipment located at a base station.
"Channel" -- A single path for transmitting electric signals.
"CTIA" -- The Cellular Telecommunications Industry Association is an
industry group in North America comprised primarily of cellular telephone
service companies.
"Digital" -- The representation of information as discrete values, for
example, a stream of digits in the form of 1's and 0's. Modern electronic
equipment uses digital rather than analog techniques so that computer technology
may be employed.
"Error Correction" -- a technique used to encode data before transmission
in order to permit recovery of the original data in the event transmission
errors.
"Frequency" -- The number of identical cycles per second, measured in
hertz, of a periodic oscillation or wave in radio propagation.
"GSM" -- Global System for Mobile Communications is the European version of
TDMA technology.
"Hand-off" -- the act of transferring communication with a mobile station
from one base station to another. A hard hand-off temporarily disconnects a call
from the current cell before connecting it to the new cell before terminating
communications with the old cell.
"Infrastructure Equipment" -- The fixed infrastructure equipment in a base
system that receives, transmits, and processes signals from and to subscriber
equipment and/or between the wireless system and the public switched telephone
network.
"MTSO" -- A Mobile Telephone Switching Office is the switch for a cellular
system and handles call processing and database query, supports maintenance
activity, monitors mobile telephone signal strength, and automatically switches,
or "hands-off," calls in progress as a mobile telephone moves from cell to cell
within the designated service area.
"PBX"--A Private Branch Exchange is a telephone system designed for use in
buildings. QUALCOMM's CDMA technology is being tested as a wireless PBX for
in-building applications.
"PCS"-- Personal Communications Services is a digital wireless
communications system using cellular wireless technologies operating at
frequencies ranging from 1800 MHz to 2000 MHz.
"Service Provider" -- A company that provides cellular phone services to
end users.
"Spectrum" -- The range of electromagnetic radio frequencies.
"Subscriber Equipment" -- Mobile or portable wireless telephone handsets.
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<PAGE> 75
"TDMA" -- Time Division Multiple Access is a digital wireless transmission
technology which converts analog voice signals into digital data and in U.S.
IS-54 assigns the data to two of six time slots on each frame on a 30 KHz
frequency channel.
"TIA" -- The Telephone Industry Association is an industry group in North
America comprised primarily of telephone equipment manufacturers.
"Vocoder" -- A speech compression device which encodes voice signals to
reduce the transmission capacity of a voice transmission.
"Wireless Local Loop or WLL" -- A system that eliminates need for a wire
(loop) connecting the public switched network, which is used in the conventional
wired telephone systems, by transmitting voice messages over radio waves for the
"last mile" connection between the location of the fixed telephone and a radio
connected by a cable to the public switched network.
OMNITRACS
"NMF" -- The Network Management Facility is the operations center of the
OmniTRACS system which controls the transmission and formatting of messages to
and from customers, fleet vehicles, and dispatch centers.
"QASPR" -- The QUALCOMM Automatic Satellite Position Reporting System is a
proprietary method used to determine and report the position of OmniTRACS units
in the U.S. and Europe.
OTHER COMMUNICATIONS SYSTEMS
"LEO" -- Low Earth Orbit satellite systems have been proposed for worldwide
telecommunications services. QUALCOMM and Loral Corporation have formed a joint
venture called GLOBALSTAR to design, develop, deploy and operate a low earth
orbit, global satellite communications system based on CDMA digital wireless
technology.
"VLSI" -- Very Large Scale Integrated circuits are used by communications
system developers throughout the world in many different applications. The
Company's VLSI products include Viterbi and trellis decoders, speech coders,
direct digital synthesizers, phase locked loop and voltage-controlled
oscillators.
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======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR THE
INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION. UNDER NO CIRCUMSTANCES
SHALL THE DELIVERY OF THIS PROSPECTUS, OR ANY SALE MADE PURSUANT TO THIS
OFFERING, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Note Regarding Forward-Looking
Statements........................... 4
Available Information.................. 4
Documents Incorporated by Reference.... 5
Risk Factors........................... 6
The Company............................ 20
The Trust.............................. 23
Use of Proceeds........................ 24
Accounting Treatment................... 24
Ratio of Earnings to Fixed Changes..... 24
Description of the Convertible
Preferred Securities................. 24
Description of the Guarantee........... 45
Description of the Convertible
Subordinated Debt Securities......... 48
Debt Securities and the Guarantee...... 57
Description of Capital Stock........... 58
Certain United States Federal Income
Tax Consequences..................... 62
Selling Holders........................ 67
Plan of Distribution................... 71
Experts................................ 71
Legal Opinions......................... 72
Glossary of Terms...................... 73
</TABLE>
======================================================
======================================================
13,200,000 CONVERTIBLE
PREFERRED SECURITIES
QUALCOMM
FINANCIAL TRUST I
5 3/4% TRUST CONVERTIBLE
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
AND CONVERTIBLE INTO
THE COMMON STOCK OF
[QUALCOMM LOGO]
$50 PER
TRUST CONVERTIBLE
PREFERRED SECURITY
------------------------------
PROSPECTUS
------------------------------
JUNE , 1997
======================================================
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of expenses in connection with the
issuance and distribution of the securities registered hereby. All the amounts
shown are estimates except for the registration fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $188,000
NASDAQ NMS fee.................................................... 17,500
Blue sky fees and expenses........................................ 75
Printing and engraving expenses................................... 60,000
Legal fees and expenses........................................... 100,000
Accounting fees and expenses...................................... 12,000
Miscellaneous..................................................... 425
-------
Total................................................... $378,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
INDEMNIFICATION BY THE COMPANY OF ITS DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act").
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company believes
that indemnification under its Bylaws covers at least negligence and gross
negligence by indemnified parties, and may require the Company to advance
litigation expenses in the case of stockholder derivative actions or other
actions, against and undertaking by the indemnified party to repay such advances
if it is ultimately determined that the indemnified party is not entitled to
indemnification.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of nonmonetary 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 Company for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
The Company has entered into separate indemnification agreements with its
directors. These agreements may require the Company, among other things, to
indemnify the directors against certain liabilities that may arise by reason of
their status or service as directors (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified
and to obtain directors' insurance if available on reasonable terms.
The Company maintains insurance policies covering officers and directors
under which the insurers agree to pay, subject to certain exclusions, including
certain violations of securities laws, for any claim made against the directors
and officers of the Company for a wrongful act that they may become legally
obligated to pay or for which the Company is required to indemnify the officers
or directors. The policies have limits of up to $25,000,000 in the aggregate,
subject to retentions of up to $350,000 in the aggregate. The Company believes
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<PAGE> 78
that its Certificate of Incorporation and Bylaw provisions, indemnification
agreements and insurance policies are necessary to attract and retain qualified
persons as directors and officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company as to which
indemnification is being sought nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
INDEMNIFICATION OF TRUSTEES AND OFFICERS OF THE TRUST
The Amended and Restated Declaration of the Trust ("Declaration of the
Trust") provides that no Regular Trustee, affiliate of any Regular Trustee, or
any officers, directors, stockholders, members, partners, employees,
representatives or agents of any Regular Trustee, or any officer, employees,
representatives or agents of the Trust or its Affiliates, or any officer,
employee or agent of the Trust or its affiliates (each an "Indemnified Person")
shall be liable, responsible or accountable in damages or otherwise to the Trust
or any officer, director, stockholder, partner, member, representative, employee
of agent of the Trust or its affiliates or any holder of Convertible Preferred
Securities for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by the
Declaration or by law, except that an Indemnified Person by the Declaration or
by law, shall be liable for any such loss, damage or claim incurred by reason of
such Indemnified Person's gross negligence or willful misconduct with respect to
such acts or omissions. The Declaration of the Trust also provides that, to the
fullest extent permitted by law, QCOM shall indemnify and hold harmless the (i)
Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property
Trustee and the Delaware Trustee, and (iv) any officers, directors,
stockholders, members, partners, employees, representatives, custodians,
nominees or agents of the Property Trustee and the Delaware Trustee from and
against any loss, liability or expense (including reasonable legal fees and
expenses) incurred without gross negligence (in the case, of the Property
Trustee, negligence) or bad faith on its part, arising out of or in connection
with the acceptance or administration or the Trust under the Declaration.
The Declaration of the Trust further provides that, to the full extent
permitted by applicable law, QCOM, shall indemnify any Indemnified Person
against expenses (including attorneys' fees, judgments, fines and amounts paid
in settlement) reasonably incurred by him in connection with any party if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceedings, had no reasonable cause to believe his conduct was
unlawful.
The Declaration of the Trust further provides that QCOM shall indemnify, to
the full extent permitted by law, any Indemnified Person who was or is or is
threatened to be made a party to any action or suit by or in the rights of the
Trust to procure a judgment in its favor by reason of the fact that he is or was
an Indemnified Person against expenses (including attorneys' fees) reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Trust and except that no such
Indemnified Person shall have been adjudged to be liable to the Trust (with
certain exceptions).
The directors and officers of QCOM and the Regular Trustees are covered by
insurance policies indemnifying them against certain liabilities, including
certain liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), which might be incurred by them in such capacities and
against which they may not be indemnified by QCOM or the Trust.
The Selling Holders have been indemnified by QCOM and the Trust, jointly
severally, against certain civil liabilities, including certain liabilities
under the Securities Act, or will be entitled to contribution in connection
therewith. QCOM and the Trust have been indemnified by the Selling Holders
severally against certain civil liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection therewith.
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<PAGE> 79
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
4.1* Certificate of Trust of QUALCOMM Financial Trust I, filed with the Delaware
Secretary of State on February 7, 1997.
4.2* Declaration of Trust of QUALCOMM Financial Trust I, dated as of February 7,
1997, among QUALCOMM Incorporated, as Sponsor, Wilmington Trust Company, as
Delaware Trustee and Property Trustee, and Irwin Mark Jacobs, Harvey P.
White, and Anthony Thornley, as Regular Trustees.
4.3* Amended and Restated Declaration of Trust of QUALCOMM Financial Trust I,
dated as of February 25, 1997, among QUALCOMM Incorporated, as Sponsor,
Wilmington Trust Company, as Delaware Trustee and Property Trustee, and
Irwin Mark Jacobs, Harvey P. White, and Anthony Thornley, as Regular
Trustees.
4.4* Indenture for the 5 3/4% Convertible Subordinated Debt Securities, dated as
of February 25, 1997, among QUALCOMM Incorporated and Wilmington Trust
Company, as Indenture Trustee.
4.5* Form of 5 3/4% Convertible Preferred Securities (Included in Annex 1 to
Exhibit 4.3 above).
4.6* Form of 5 3/4% Convertible Subordinated Debt Securities (Included in Annex 1
to Exhibit 4.3 above).
4.7* Preferred Securities Guarantee Agreement, dated as of February 25, 1997,
between QUALCOMM Incorporated, as Guarantor, and Wilmington Trust Company,
as Guarantee Trustee.
5.1* Opinion of Cooley Godward LLP, as to the validity of the Common Stock of
QUALCOMM Incorporated issuable upon conversion of the Convertible Preferred
Securities being registered hereby.
5.2* Opinion of Reed Smith Shaw & McClay, as to the validity of the Convertible
Subordinated Debt Securities and Convertible Preferred Securities Guarantee
of the Company being registered hereby.
5.3* Opinion of Richards, Layton & Finger, as to the validity of the Convertible
Preferred Securities of QUALCOMM Financial Trust I being registered hereby.
8.1* Opinion of Cooley Godward LLP, special United States tax counsel to QUALCOMM
Incorporated and QUALCOMM Financial Trust I, as to certain tax matters.
10.1* Registration Rights Agreement, dated February 25, 1997, between QUALCOMM
Financial Trust I and Lehman Brothers, Bear Stearns & Co., Inc., Alex. Brown
& Sons Incorporated, Goldman, Sachs & Co. and Merrill Lynch & Co., as
Initial Purchasers
12.1* Statement re: Computation of Ratio of Earnings to Fixed Charges of QUALCOMM
Incorporated.
23.1* Consent of Cooley Godward LLP (Included in Exhibit 5.1).
23.2* Consent of Reed Smith Shaw & McClay (Included in Exhibit 5.2).
23.3* Consent of Richards, Layton & Finger (Included in Exhibit 5.3).
23.4 Consent of Price Waterhouse LLP.
24.1* Power of Attorney for QUALCOMM Incorporated. Reference is made to page II-6.
25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of Wilmington Trust Company, as Indenture Trustee under the 5 3/4%
Convertible Subordinated Indenture.
25.2* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of Wilmington Trust Company, as Property Trustee under the
Declaration of Trust.
</TABLE>
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<PAGE> 80
<TABLE>
<C> <S>
25.3* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as
amended, of Wilmington Trust Company, as Convertible Preferred Securities
Guarantee Trustee under the Convertible Preferred Securities Guarantee.
</TABLE>
- ---------------
* Previously filed
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registration
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants 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 Registrants 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 of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
II-4
<PAGE> 81
(d) The Company hereby undertakes that:
(1) 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 Registrants 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; and
(2) For purposes 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.
(e) To the extent either Registrant intends to rely on Section 305(b)(2) of
the Trust Indenture Act of 1939 (the "Trust Act") for determining the
eligibility of the Trustee under indentures for securities to be used, offered
or sold on a delayed basis by or on behalf of such registrants, each of the
undersigned Registrants hereby undertake to file an application for the purpose
of determining the eligibility of the trustee to act under subsection (a) of
Section 310 of such Trust Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of such Trust Act.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
below named Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 1 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on June 18, 1997.
QUALCOMM Financial Trust I
/s/ IRWIN MARK JACOBS
--------------------------------------
Irwin Mark Jacobs
Regular Trustee
Attorney-In-Fact
*
--------------------------------------
Harvey P. White
Regular Trustee
*
--------------------------------------
Anthony Thornley
Regular Trustee
Pursuant to the requirements of the Securities Act of 1933, the below named
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California on June
18, 1997.
QUALCOMM INCORPORATED
By: /s/ IRWIN MARK JACOBS
------------------------------------
Irwin Mark Jacobs
Title: Chairman of the Board of
Directors, President and Chief
Executive Officer
POWER OF ATTORNEY FOR
QUALCOMM INCORPORATED
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints IRWIN MARK JACOBS, HARVEY P. WHITE and
ANTHONY THORNLEY, and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) 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 or she 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 substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
II-6
<PAGE> 83
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- ----------------
<S> <C> <C>
/s/ IRWIN MARK JACOBS Chief Executive Officer and June 18, 1997
- --------------------------------------------- Chairman of the Board (Principal
Irwin Mark Jacobs Executive Officer)
* Vice Chairman of the Board June 18, 1997
- ---------------------------------------------
Andrew S. Viterbi
* President and Director June 18, 1997
- ---------------------------------------------
Harvey P. White
* Senior Vice President and Chief June 18, 1997
- --------------------------------------------- Financial Officer (Principal
Anthony Thornley Financial and Accounting
Officer)
* Director June 18, 1997
- ---------------------------------------------
Richard C. Atkinson
* Director June 18, 1997
- ---------------------------------------------
Adelia A. Coffman
* Director June 18, 1997
- ---------------------------------------------
Neil Kadisha
* Director June 18, 1997
- ---------------------------------------------
Robert E. Kahn
* Director June 18, 1997
- ---------------------------------------------
Jerome S. Katzin
* Director June 18, 1997
- ---------------------------------------------
Duane A. Nelles
* Director June 18, 1997
- ---------------------------------------------
Peter M. Sacerdote
* Director June 18, 1997
- ---------------------------------------------
Frank Savage
* Director June 18, 1997
- ---------------------------------------------
Brent Scowcroft
* Director June 18, 1997
- ---------------------------------------------
Marc I. Stern
* By: /s/ IRWIN MARK JACOBS
- ---------------------------------------------
Irwin Mark Jacobs
Attorney-In-Fact
</TABLE>
II-7
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
23.4 Consent of Price Waterhouse LLP........................................
</TABLE>
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
November 8, 1996 appearing on page F-1 of QUALCOMM Incorporated's Annual Report
on Form 10-K for the year ended September 30, 1996. We also consent to the
reference to us under the heading "Experts".
PRICE WATERHOUSE LLP
San Diego, California
June 17, 1997
