EXHIBIT 2.2
LATHAM & WATKINS LLP
Michael S. Lurey (State Bar #048235)
Robert A. Klyman (State Bar #142723)
Eric D. Brown (State Bar #211512)
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Counsel for
Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF CALIFORNIA
In re Chapter 11 Case No.: 03-3470-All
through 03-3535-All
LEAP WIRELESS INTERNATIONAL, INC., and
CRICKET COMMUNICATIONS, INC., et al., (Jointly Administered)
Debtors. Chapter 11
DISCLOSURE STATEMENT
ACCOMPANYING FIFTH AMENDED
JOINT PLAN OF REORGANIZATION
DATED AS OF JULY 30, 2003
Fed. Tax Id. Nos. 33-0811062 and 33-0879924
HEARING
Date: September 29, 2003
Time: 10:00 a.m.
Place: Courtroom 2
Judge: The Honorable Louise DeCarl
Adler
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TABLE OF CONTENTS
PAGE
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INTRODUCTION............................................................................................................. ii
OVERVIEW OF THE PLAN..................................................................................................... vii
A. HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO VOTE....................................................... xxiii
B. VOTING PROCEDURES...................................................................................... xxvi
C. CONFIRMATION HEARING................................................................................... xxvii
D. IDENTITY OF PERSON TO CONTACT FOR MORE INFORMATION REGARDING THE PLAN.................................. xxvii
E. DISCLAIMER............................................................................................. xxvii
SECTION I. OVERVIEW OF CHAPTER 11........................................................................................ 1
SECTION II. DESCRIPTION OF THE DEBTORS' BUSINESS......................................................................... 1
SECTION III. SIGNIFICANT PREPETITION TRANSACTIONS........................................................................ 3
A. LEAP WIRELESS INTERNATIONAL, INC....................................................................... 3
B. CRICKET COMMUNICATIONS, INC............................................................................ 8
C. OTHERS................................................................................................. 10
SECTION IV. KEY EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES............................................... 10
A. PRE-PETITION PLAN NEGOTIATIONS......................................................................... 10
SECTION V. THE CHAPTER 11 CASES.......................................................................................... 12
A. DISCLOSURE STATEMENT AND PLAN CONFIRMATION HEARINGS.................................................... 12
B. SIGNIFICANT MOTIONS DURING THE CHAPTER 11 CASES........................................................ 12
C. DEADLINE TO FILE PROOF OF CLAIMS AND INTERESTS......................................................... 14
D. ASSUMPTION AND REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................... 14
E. PARTIES IN INTEREST AND PROFESSIONALS.................................................................. 16
SECTION VI. THE FUTURE BUSINESS OF REORGANIZED DEBTORS................................................................... 17
A. CAPITALIZATION AND STRUCTURE OF REORGANIZED DEBTORS.................................................... 17
B. CERTAIN INFORMATION REGARDING THE VALUES OF FCC WIRELESS LICENSES...................................... 20
C. COMPOSITION OF MANAGEMENT AND THE DIRECTORS OF REORGANIZED DEBTORS..................................... 23
i
D. ISSUANCE OF NEW SENIOR NOTES AND NEW LEAP COMMON STOCK................................................. 24
SECTION VII. SUMMARY OF THE PLAN OF REORGANIZATION....................................................................... 25
A. INTRODUCTION........................................................................................... 25
B. CLASSIFICATION AND TREATMENT OF ADMINISTRATIVE CLAIMS, CLAIMS AND INTERESTS UNDER THE PLAN............. 25
C. INDEBTEDNESS OF REORGANIZED LICENSE HOLDING COMPANIES AND REORGANIZED CRICKET.......................... 36
D. DISTRIBUTIONS UNDER THE PLAN........................................................................... 36
E. GENERAL INFORMATION CONCERNING THE PLAN................................................................ 42
F. ADDITIONAL INFORMATION REGARDING TREATMENT OF CERTAIN CLAIMS........................................... 45
G. ALLOCATION OF CONSIDERATION............................................................................ 46
H. CANCELLATION OF OLD LEAP NOTES; CERTAIN PROVISIONS IN RESPECT OF THE OLD
LEAP NOTES, AND THE OLD INDENTURE TRUSTEE.............................................................. 47
I. CANCELLATION OF OLD LEAP COMMON STOCK AND OTHER OLD SECURITIES......................................... 47
J. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS............................................................. 48
K. CERTAIN CORPORATE GOVERNANCE MATTERS................................................................... 48
L. EFFECT OF CONFIRMATION OF THE PLAN..................................................................... 48
M. RETENTION OF JURISDICTION.............................................................................. 50
N. MISCELLANEOUS PROVISIONS............................................................................... 51
SECTION VIII. PROJECTIONS................................................................................................ 54
SECTION IX. CONFIRMATION PROCEDURE....................................................................................... 55
A. SOLICITATION OF VOTES.................................................................................. 55
B. THE CONFIRMATION HEARING............................................................................... 59
C. CONFIRMATION........................................................................................... 59
SECTION X. CONFIRMATION AND EFFECTIVE DATE CONDITIONS.................................................................... 63
A. CONDITIONS TO CONFIRMATION............................................................................. 63
B. CONDITIONS TO INITIAL DISTRIBUTION DATE................................................................ 63
C. CONDITIONS TO EFFECTIVE DATE........................................................................... 64
D. WAIVER OF CONDITIONS................................................................................... 64
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E. EFFECT OF FAILURE OF CONDITIONS........................................................................ 64
F. ORDER DENYING CONFIRMATION............................................................................. 65
SECTION XI. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.................................................... 65
A. LIQUIDATION UNDER CHAPTER 7............................................................................ 65
B. ALTERNATIVE PLANS OF REORGANIZATION.................................................................... 66
C. POST-CONFIRMATION CONVERSION/DISMISSAL................................................................. 66
D. FINAL DECREE........................................................................................... 66
SECTION XII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................................................... 66
SECTION XIII. LIMITATION OF LIABILITY................................................................................... 77
iii
INTRODUCTION
Leap Wireless International, Inc. ("Leap"), its indirect
wholly owned subsidiary Cricket Communications, Inc. ("Cricket") and their
respective 64 subsidiaries and/or affiliates(1) (collectively, the "Debtors")
hereby submit this disclosure statement (the "Disclosure Statement") pursuant to
Section 1125 of the Bankruptcy Code, for use in the solicitation of votes on
their Fifth Amended Joint Plan of Reorganization (as it may be amended, modified
or supplemented, the "Plan"), filed with the United States Bankruptcy Court for
the Southern District of California on or about July 30, 2003.
On April 13, 2003 (the "Petition Date"), each of the Debtors
filed with the Clerk of the United States Bankruptcy Court for the Southern
District of California (the "Court") a voluntary petition for relief under
chapter 11 of the Bankruptcy Code. The Debtors have also filed with the Court
the Plan, which sets forth the manner in which Claims against, and Interests in,
the Debtors will be treated. The Plan is attached to the Disclosure Statement as
Exhibit A. This Disclosure Statement describes certain aspects of the Plan, the
Debtors' businesses, and related matters. UNLESS OTHERWISE DEFINED HEREIN, EACH
CAPITALIZED TERM CONTAINED HEREIN HAS THE MEANING ASCRIBED THERETO IN THE PLAN.
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(1) Cricket Communications Holdings, Inc., a Delaware corporation;
Backwire.com, Inc., a Delaware corporation; Telephone Entertainment
Network, Inc., a Delaware corporation; Chasetel Licensee Corporation, a
Delaware corporation; Cricket Licensee (Albany), Inc., a Delaware
corporation; Cricket Licensee (Columbus), Inc., a Delaware corporation;
Cricket Licensee (Denver), Inc., a Delaware corporation; Cricket Licensee
(Lakeland), Inc., a Delaware corporation; Cricket Licensee (Macon), Inc., a
Delaware corporation; Cricket Licensee (North Carolina), Inc., a Delaware
Corporation; Cricket Licensee (Pittsburgh), Inc., a Delaware corporation;
Cricket Licensee (Reauction), Inc., a Delaware corporation; Cricket
Licensee I, Inc., a Delaware corporation; Cricket Licensee II, Inc., a
Delaware corporation; Cricket Licensee III, Inc., a Delaware corporation;
Cricket Licensee IV, Inc., a Delaware corporation; Cricket Licensee V,
Inc., a Delaware corporation; Cricket Licensee VI, Inc., a Delaware
corporation; Cricket Licensee VII, Inc., a Delaware corporation; Cricket
Licensee VIII, Inc., a Delaware corporation; Cricket Licensee IX, Inc., a
Delaware corporation; Cricket Licensee X, Inc., a Delaware corporation;
Cricket Licensee XI, Inc., a Delaware corporation; Cricket Licensee XII,
Inc., a Delaware corporation; Cricket Licensee XIII, Inc., a Delaware
corporation; Cricket Licensee XIV, Inc., a Delaware corporation; Cricket
Licensee XV, Inc., a Delaware corporation; Cricket Licensee XVI, Inc., a
Delaware corporation; Cricket Licensee XVII, Inc., a Delaware corporation;
Cricket Licensee XVIII, Inc., a Delaware corporation; Cricket Licensee XIX,
Inc., a Delaware corporation; Cricket Licensee XX, Inc., a Delaware
corporation; Cricket Holdings Dayton, Inc., a Delaware corporation; MCG PCS
Licensee Corporation, Inc., a Delaware corporation; Chasetel Real Estate
Company, Inc., a Tennessee corporation; Cricket Alabama Property Company, a
Delaware corporation; Cricket Arizona Property Company, a Delaware
corporation; Cricket Arkansas Property Company, a Delaware corporation;
Cricket California Property Company, a Delaware corporation; Cricket
Colorado Property Company, a Delaware corporation; Cricket Florida Property
Company, a Delaware corporation; Cricket Georgia Property Company, inc., a
Delaware corporation; Cricket Idaho Property Company, a Delaware
corporation; Cricket Illinois Property Company, a Delaware corporation;
Cricket Indiana Property Company, a Delaware corporation; Cricket Kansas
Property Company, a Delaware corporation; Cricket Kentucky Property
Company, a Delaware corporation; Cricket Michigan Property Company, a
Delaware corporation; Cricket Minnesota Property Company, a Delaware
corporation; Cricket Mississippi Property Company, a Delaware corporation;
Cricket Nebraska Property Company, a Delaware corporation; Cricket Nevada
Property Company, a Delaware corporation; Cricket New Mexico Property
Company, a Delaware corporation; Cricket New York Property Company, Inc., a
Delaware corporation; Cricket North Carolina Property Company, a Delaware
corporation; Cricket Ohio Property Company, a Delaware corporation; Cricket
Oklahoma Property Company, a Delaware corporation; Cricket Oregon Property
Company, a Delaware corporation; Cricket Pennsylvania Property Company, a
Delaware corporation; Cricket Texas Property Company, a Delaware
corporation; Cricket Utah Property Company, a Delaware corporation; Cricket
Washington Property Company, a Delaware corporation; Cricket Wisconsin
Property Company, a Delaware corporation; Leap PCS Mexico, Inc., a
California corporation.
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The Plan represents a global settlement of all Intercompany
Claims and Litigation Claims between the Debtors and their Estates, the current
and former Holders of Old Vendor Debt (in their capacity as such Holders), the
current and former administrative agents under the Vendor Debt Facilities (in
their capacity as such agents), and Holders of Leap General Unsecured Claims (in
their capacity as such Holders), and is the product of months of investigation
and negotiations among the foregoing parties (and the Leap Informal Noteholder
Committee prior to the appointment of the Leap Official Committee of Unsecured
Creditors). As a result of the foregoing settlement, the Debtors have been able
to file the Plan - which provides for the preservation of the Debtors as viable
going-concern businesses - and expect to confirm the Chapter 11 Cases on an
expedited timetable. Without the settlement memorialized in the Plan, the
Chapter 11 Cases could deteriorate into free-fall chapter 11 cases and Holders
of Allowed Claims and Interests would receive distributions (if any) only after
the conclusion of lengthy and expensive complex litigation. Those distributions,
moreover, would be reduced substantially due to the likely deterioration of the
value of the Debtors during prolonged Chapter 11 Cases and the millions of
dollars in legal and expert fees which would be incurred to litigate the
Intercompany Claims and Litigation Claims.
THE OFFICIAL COMMITTEE HAS INFORMED THE DEBTORS THAT A
SUBSTANTIAL DELAY IN CONFIRMING THE PLAN COULD JEOPARDIZE THE CAREFULLY CRAFTED
GLOBAL SETTLEMENT DESCRIBED ABOVE. IN ADDITION, THE DEBTORS BELIEVE THAT THE
BANKRUPTCY FILINGS HAVE ADVERSELY AFFECTED THE DEBTORS' BUSINESS. FOR EXAMPLE,
AS OF JUNE 30, 2003, CRICKET HAD 1,459,707 SUBSCRIBERS, DOWN 53,770 SUBSCRIBERS
FROM MARCH 31, 2003. THE DEBTORS ALSO BELIEVE THAT PROLONGED BANKRUPTCY
PROCEEDINGS WILL REDUCE THE RECOVERY AVAILABLE TO CREDITORS AND WILL CONTINUE TO
ADVERSELY AFFECT THE CRICKET BUSINESS. SEE THE DISCUSSION UNDER THE HEADING
"STATEMENT REGARDING FINANCIAL PERFORMANCE OF CRICKET FOR SECOND QUARTER 2003."
SEE ALSO THE DEBTORS' PROJECTIONS FOR REORGANIZED LEAP ATTACHED HERETO AS
EXHIBIT G. ACCORDINGLY, TO EXPEDITE THE DEBTORS' EMERGENCE FROM BANKRUPTCY, THE
DEBTORS URGE HOLDERS OF CLAIMS AND INTERESTS TO READ THE DISCLOSURE STATEMENT
AND TO VOTE IN FAVOR OF THE PLAN.
In sum, the Plan provides for a reorganization of the Debtors
under Reorganized Leap. Specifically, the means of executing and implementing
the Plan are as follows:
On the Effective Date, (i) the Old License Holding Company
Common Stock will be cancelled and each Reorganized License Holding Company will
issue to Reorganized Leap 100% of the issued and outstanding shares of New
License Holding Company Common Stock, (ii) the Old Other Subsidiary Common Stock
will be cancelled and each Reorganized Other Subsidiary will issue to
Reorganized Leap 100% of the issued and outstanding shares of New Other
Subsidiary Common Stock, and (iii) the Old Property Holding Company Common Stock
will be cancelled and each Reorganized Property Holding Company will issue to
Reorganized Cricket 100% of the issued and outstanding shares of New Property
Holding Company Common Stock.
Also on the Effective Date, (i) the Old Leap Common Stock will
be cancelled, (ii) Reorganized Leap will issue and contribute 96.5% of the
issued and outstanding shares of New Leap Common Stock to CCH, (iii) Reorganized
Leap will contribute all of the New License Holding Company Common Stock to CCH,
and (iv) CCH will contribute all of such New Leap Common Stock and New License
Company Common Stock to Reorganized Cricket. Following such contributions, on
the Effective Date, CCH will be merged with and into Reorganized Cricket in a
"tax-free" reorganization in compliance with Section 368(a)(1)(G) of the
Internal Revenue Code, pursuant to which the Old CCH Common Stock will be
converted into 100% of the issued and outstanding shares of New Cricket Common
Stock. As a result, Reorganized Leap will own 100% of the issued and outstanding
shares of Reorganized Cricket and each of the Reorganized Other Subsidiaries,
and Reorganized Cricket will own 100% of the issued and outstanding shares of
each of the Reorganized License Holding Companies, 100% of the issued and
outstanding shares of each of the Reorganized Property Holding Companies and,
temporarily until the distribution thereof to the Holders of Old Vendor Debt
Claims, 96.5% of the New Leap Common Stock.
ii
On the Effective Date, or as soon thereafter as practicable,
the Holders of Old Vendor Debt Claims will receive from Cricket, on a Pro Rata
basis, 96.5% of the issued and outstanding shares of New Leap Common Stock and
New Senior Notes aggregating $350 million in principal amount.
On the Initial Distribution Date, and notwithstanding the
occurrence of the Effective Date: (a) Holders of Allowed Leap General Unsecured
Claims, including the Holders of Old Leap Notes, will receive, on a Pro Rata
basis, beneficial interests in the Leap Creditor Trust; (b) the Leap Creditor
Trust will receive the Leap General Unsecured Claim Cash Distribution
(approximately $80.0 million, minus a reserve in the approximate amount of $5
million for Administrative Claims against Leap, the actual amount of which may
vary materially; the amount initially withheld in reserve for Administrative
Claims and Priority Claims will be subject to negotiation between the Debtors
and the Official Committee); and (c) Holders of Allowed 12 1/2% Senior Secured
Claims will receive, on a Pro Rata basis, the 12 1/2% Senior Secured Claim
Distribution (approximately $200,000).
In addition, on the later of the Effective Date and the
Initial Distribution Date, Reorganized Leap will issue and transfer to the Leap
Creditor Trust: (a) 3.5% of the issued and outstanding shares of New Leap Common
Stock as of the Effective Date for Distribution to the Leap General Unsecured
Creditors and (b) the Leap Creditor Trust Assets (comprised of other assets that
have a value estimated to be approximately $30.0 million-$50.0 million)(2) for
subsequent sale and Distribution of the proceeds to the Leap General Unsecured
Creditors. The "Leap Creditor Trust Assets" to be transferred to the trust are
the following assets:
(i) the PCS licenses in the Bemidji, Minnesota (10 MHz);
Brainerd, Minnesota (10 MHz); Escanaba, Michigan (10
MHz); Pueblo, Colorado (10 MHz); and Salem, Oregon
(10 MHz) Basic Trading Areas ("BTAs") and any
cause(s) of action resulting from the proposed sale
thereof pursuant to a previously executed agreement;
(ii) Leap's stake in the Idaho joint venture with NTCH;
(iii) any Leap cause(s) of action listed in Leap's
Schedules, including the cause of action related to
the Endesa note receivable, together with any Leap
causes of action that are not otherwise released
under the Plan and that do not have, or could
reasonably be expected to have, a material adverse
effect on the Debtors or the Reorganized Debtors or
their respective businesses or prospects, as
reasonably determined by the Debtors or the
Reorganized Debtors, with the prior approval Informal
Vendor Debt Committee (if such committee has not
disbanded) in accordance with the Plan;
(iv) any cause of action that is part of the Leap Estate
arising from Bankruptcy Code sections 542, 543, 544,
545, 547, 548, 549 or 550, that is not otherwise
released under the Plan and that is not against a
potential defendant that is a vendor, customer or
other party with whom the Debtors or the Reorganized
Debtors have, or reasonably expect to have, a
material business relationship, as reasonably
determined by the Debtors or the Reorganized Debtors,
with the prior approval of the Informal Vendor Debt
Committee (if such committee has not disbanded) in
accordance with the Plan;
(v) any and all Tax Refunds that are to be delivered to
the Leap Creditor Trust in accordance with the Plan;
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(2) This range has been estimated by the Debtors based on prior testimony in
the Chapter 11 Cases that these assets had an aggregate value of
approximately $30 million, which the Debtors then increased to reflect what
the Debtors believe is an appropriate range of values for these assets
including the Endesa note receivable.
iii
(vi) Cash in an amount equal to the Leap Deposits
(estimated to be approximately $2.5 million, but if
all such deposits are assumed by the Reorganized
Debtors and corresponding amounts are paid by
Cricket, the maximum amount would be approximately
$3.3 million); and
(vii) the PCS licenses in the Bozeman, Montana (20 MHz);
Casper, Wyoming (15 MHz); Lewiston, Idaho (15 MHz);
and Redding, California (15 MHz) BTAs and any
cause(s) of action resulting from the proposed sale
thereof pursuant to a previously executed agreement.
IN ACCORDANCE WITH THE NEGOTIATED SETTLEMENT BETWEEN THE LEAP INFORMAL
NOTEHOLDER COMMITTEE AND THE INFORMAL VENDOR DEBT COMMITTEE LEADING TO THE PLAN,
ALL OTHER ASSETS OF LEAP THAT ARE NOT SPECIFICALLY LISTED ABOVE AND DEFINED AS
LEAP CREDITOR TRUST ASSETS IN THE PLAN WILL NOT BE TRANSFERRED TO THE LEAP
CREDITOR TRUST AND WILL REMAIN WITH REORGANIZED LEAP, INCLUDING FOR EXAMPLE
ONLY, OFFICE FURNITURE, FIXTURES, EQUIPMENT AND SUPPLIES; LEAP INTELLECTUAL
PROPERTY, INCLUDING THE "LEAP" TRADEMARK; RETIREMENT PLAN ASSETS; AND AN
INTER-COMPANY PAYABLE FROM CRICKET WHICH IS BEING RELEASED UNDER THE PLAN.
Following the Effective Date, after the satisfaction of all
Allowed Administrative Claims and Allowed Priority Claims against Leap and the
resolution of all Disputed Administrative Claims and Disputed Priority Claims
against Leap, any remaining Cash held in reserve by Leap will be distributed to
the Leap Creditor Trust. Notwithstanding anything set forth herein, if any Leap
Creditor Trust Assets are converted to Cash on or after the Initial Distribution
Date but prior to the Effective Date, the Cash proceeds shall be transferred to
the Leap Creditor Trust as soon as practicable upon such monetization,
notwithstanding the fact that the Effective Date has not occurred.
Holders of Old Leap Common Stock will receive nothing on
account of their Interests.
FOR AN ILLUSTRATION THAT DEPICTS THE GENERAL CORPORATE
STRUCTURE OF THE DEBTORS BEFORE AND AFTER THE REORGANIZATION UNDER THE PLAN AND
THAT SUMMARIZES THE DISTRIBUTIONS UNDER THE PLAN TO LEAP'S GENERAL UNSECURED
CREDITORS AND THE HOLDERS OF OLD VENDOR DEBT CLAIMS, PLEASE SEE THE CHARTS
ATTACHED HERETO AS EXHIBIT O.
The Holders of Old Vendor Debt hold valid, perfected and duly
enforceable security interests in all of the stock and assets of the License
Holding Companies, the assets of CCH, the stock and assets of Cricket and the
stock and assets of the Property Holding Companies. The only assets available to
Holders of Old Leap Notes under the Plan are the Leap General Unsecured Claim
Cash Distribution and those assets that will be transferred to the Leap Creditor
Trust for the benefit of such Holders pursuant to the Plan. There are no
material assets available for any Holders of Unsecured Claims against Cricket,
the License Holding Companies, the Property Holding Companies or the Other
Subsidiaries under the Plan (and in a chapter 7 liquidation such holders would
receive nothing). As a result, 96.5% of the New Leap Common Stock will be
distributed for the benefit of the Holders of Old Vendor Debt. All New Cricket
Common Stock and New Other Subsidiary Common Stock will be held directly by
Reorganized Leap for the benefit of the Holders of New Leap Common Stock.
Reorganized Cricket will hold directly all New License Holding Company Common
Stock and New Property Holding Company Common Stock. The issuance of all of the
aforementioned stock does not reflect any so-called "new value" plan or
substantive consolidation of the Debtors; instead, such issuance reflects the
economic realities of these Chapter 11 Cases. In other words, if the Holders of
Old Vendor Debt foreclosed on their collateral, such Holders would own the Old
License Holding Company Common Stock (and the assets of the License Holding
Companies, subject to the FCC Claim), the Old Cricket Common Stock (and the
assets of Cricket) and the Old Property Holding Company Common Stock (and the
assets of the Property Holding Companies). Moreover, the Intercompany Releases
provided on account of Intercompany Claims do not take any value away from any
Holder of a Claim against or Interest in Cricket, the License Holding Companies
or the Property Holding Companies because any
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such Intercompany Claims are pledged to the Holders of Old Vendor Debt and any
recovery thereon would inure solely to the benefit of such Holders.
THE PLAN IS THE PRODUCT OF NEGOTIATIONS AMONG THE DEBTORS, THE
INFORMAL VENDOR DEBT COMMITTEE, THE INFORMAL NOTEHOLDER COMMITTEE (PRIOR TO THE
APPOINTMENT OF THE OFFICIAL COMMITTEE) AND THE OFFICIAL COMMITTEE. THE DEBTORS
BELIEVE THE PLAN REPRESENTS THE BEST POSSIBLE RETURN TO HOLDERS OF CLAIMS AND
INTERESTS AND URGE SUCH HOLDERS TO VOTE IN FAVOR OF THE PLAN.
THE INFORMAL VENDOR DEBT COMMITTEE URGES HOLDERS OF OLD VENDOR
DEBT TO READ THE DISCLOSURE STATEMENT AND VOTE IN FAVOR OF THE PLAN.
THE OFFICIAL COMMITTEE URGES HOLDERS OF LEAP GENERAL UNSECURED
CLAIMS TO READ THE DISCLOSURE STATEMENT AND VOTE IN FAVOR OF THE PLAN.
* * * * *
MCG PCS, INC., A CREDITOR OF LEAP AND LEAP'S LARGEST
STOCKHOLDER, HAS SUBMITTED A COUNTERPOINT TO THE DEBTORS' DISCLOSURE STATEMENT.
MCG RECOMMENDS THAT EVERY CREDITOR WHO HAS A VOTE CAST ITS BALLOT TO REJECT THE
PROPOSED PLAN. THE COUNTERPOINT IS ATTACHED AS EXHIBIT 1 TO THIS DISCLOSURE
STATEMENT.
* * * * *
THE DEBTORS DISAGREE WITH MCG'S COUNTERPOINT. THE DEBTORS'
RESPONSE TO MCG'S COUNTERPOINT IS ATTACHED AS EXHIBIT 2 TO THIS DISCLOSURE
STATEMENT.
ALL HOLDERS OF CLAIMS AND INTERESTS ARE ENCOURAGED TO READ THE
PLAN AND THE DISCLOSURE STATEMENT IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR
REJECT THE PLAN. NO MATERIALS, OTHER THAN THE DISCLOSURE STATEMENT AND THE
EXHIBITS AND SCHEDULES ATTACHED THERETO OR REFERENCED THEREIN, HAVE BEEN
APPROVED BY THE DEBTORS FOR USE IN SOLICITING ACCEPTANCES OR REJECTIONS OF THE
PLAN.
This Disclosure Statement is submitted pursuant to Section
1125 of the Bankruptcy Code to holders of Interests or Claims against the
Debtors in connection with (i) the solicitation of acceptances of the Plan and
(ii) the hearing to consider confirmation of the Plan, scheduled for September
29, 2003 at 10:00 a.m.
Attached as Exhibits to this Disclosure Statement are copies
of the following:
- Counterpoint to Debtors' Disclosure Statement from MCG
PCS, Inc. (Exhibit 1);
- Response of the Debtors to Counterpoint to Debtors'
Disclosure Statement from MCG PCS, Inc. (Exhibit 2);
- The Plan (Exhibit A);
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- An Order of the Court dated July 31, 2003 (the
"Disclosure Statement Order") approving the Disclosure
Statement and establishing certain procedures with
respect to the solicitation and tabulation of votes to
accept or reject the Plan (Exhibit B);
- Leap Wireless International, Inc. Organizational Chart
(Exhibit C);
- Leap Wireless International, Inc. Annual Report on Form
10-K/A for the year ending December 31, 2002 (excluding
exhibits) (Exhibit D);
- Leap Wireless International, Inc. Quarterly Report on
Form 10-Q for the quarter ending March 31, 2003
(excluding exhibits) (Exhibit E);
- Liquidation Analyses (Exhibit F);
- Projections for Reorganized Leap (Exhibit G);
- Leap Budget (Exhibit H);
- Cricket Budget (Exhibit I),
- Description of New Leap Common Stock and Related Risk
Factors, New Cricket Common Stock, New License Holding
Company Common Stock, New Property Holding Company Common
Stock and New Other Subsidiary Common Stock (Exhibit J);
- Description of New Senior Notes and Related Risk Factors
(Exhibit K);
- Schedule of Litigation Claims (Exhibit L);
- Valuation of Reorganized Leap from UBS Securities LLC
(Exhibit M);
- Reconciliation of Total Liabilities Reported in Leap's
Petition, Form 10-Q and Schedules (Exhibit N); and
- Charts depicting Pre- and Post-Reorganization Corporate
Structure of the Debtors (Exhibit O).
If you did not receive a copy of the Exhibits to the
Disclosure Statement, you may obtain the Exhibits by logging on to the Debtors'
website for the Chapter 11 Cases, www.leapreorganization.com, or by contacting
the Debtors' counsel (IN WRITING) as follows: Robert A. Klyman, Esq., Latham &
Watkins LLP, 633 W. Fifth St., Suite 4000, Los Angeles, California 90071; (213)
891-8763 (facsimile).
In addition, a Ballot for the acceptance or rejection of the
Plan is enclosed with the Disclosure Statement submitted to the holders of
Claims and Interests that the Debtors believe are entitled to vote to accept or
reject the Plan. You also may obtain a Ballot by logging on to the Debtors'
website, www.leapreorganization.com, or by contacting the Voting Agent,
Poorman-Douglas at:
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If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Tel: (800) 517-7475
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc., Cricket
Communications Inc. and Affiliated Entities Claims
Agent
If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (800) 517-7475
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc., Cricket
Communications Inc. and Affiliated Entities Claims
Agent
On July 31, 2003, after notice and hearings, the Court entered
the Disclosure Statement Order approving this Disclosure Statement as containing
adequate information of a kind and in sufficient detail to enable hypothetical,
reasonable investors typical of Holders of Claims against and Interests in the
Debtors to make an informed judgment as to whether to accept or reject the Plan.
Approval of the Disclosure Statement does not constitute a determination by the
Court as to the fairness or merits of the Plan.
The Disclosure Statement Order sets forth in detail the
deadlines, procedures and/or instructions for, inter alia, (a) voting to accept
or reject the Plan, (b) filing objections to Confirmation of the Plan, (c) the
Record Date, and (d) the applicable standards for tabulating votes. In addition,
detailed voting instructions accompany each Ballot. Each holder of a Claim or
Interest entitled to vote on the Plan should read the Disclosure Statement, the
Plan, the Disclosure Statement Order and the instructions accompanying the
Ballots in their entirety before voting on the Plan.
OVERVIEW OF THE PLAN
The following table briefly summarizes the classification and
treatment of Claims and Interests under the Plan.(3)
The following is a designation of the Classes of Claims and
Interests under the Plan. In accordance with section 1123(a)(1) of the
Bankruptcy Code, Administrative Claims and Priority Tax Claims have not been
classified and are excluded from the following Classes. A Claim or Interest is
classified in a particular Class only to the extent that the Claim or Interest
qualifies within the description of that Class, and is classified in another
Class or Classes to the extent that any remainder of the Claim or Interest
qualifies within the description of such other Class or Classes. A Claim or
Interest is classified in a particular Class only to the extent that the Claim
or Interest is an Allowed Claim or Allowed Interest in that Class and has not
been paid, released or otherwise satisfied before the Effective
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(3) As this table merely provides a summary of the classification and treatment
of Claims and Interests under the Plan, reference should be made to the
entire Disclosure Statement and the Plan for a complete description of the
classification and treatment of Claims and Interests.
vii
Date; a Claim or Interest which is not an Allowed Claim or Allowed Interest is
not in any Class. A Disputed Claim or Disputed Interest, to the extent that it
subsequently becomes an Allowed Claim or Allowed Interest, shall be included in
the Class for which it would have qualified had it not been disputed.
Notwithstanding anything to the contrary contained in the Plan, no distribution
shall be made on account of any Claim or Interest which is not an Allowed Claim
or an Allowed Interest. Unless otherwise specified herein, each Debtor shall
assume responsibility for paying, satisfying or otherwise discharging all
Allowed Claims against it and shall not be responsible for paying, satisfying or
otherwise discharging any Claim against any other Debtor.
CLAIMS AGAINST AND INTERESTS IN LEAP
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
- - Administrative Paid in full in Cash by Leap on the 100%
Claims Effective Date or as soon as practicable
thereafter (unless the Holder of a
particular Claim and Leap agree to less
favorable treatment), or in accordance with
the terms and conditions of transactions or
agreements relating to obligations incurred
in the ordinary course of business during
the pendency of the Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by Leap on the 100%
Effective Date or as soon as practicable
thereafter.
SECURED CLAIMS:
1A GLH Claim Impaired; on the Effective Date or as soon 100%
as practicable thereafter, GLH shall receive
the GLH Collateral.
1B 12 1/2% Senior Unimpaired; on the Initial Distribution Date 100%
Secured Claim or as soon as practicable thereafter, each
Holder of an Allowed 12 1/2% Senior Secured
Claim shall receive, on a Pro Rata basis, the
12 1/2% Senior Secured Claim Distribution
(approximately $200,000 remaining in a
pledged account).
viii
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
1C Old Vendor Debt Impaired; on the Initial Distribution Date, 30-37%
Claim each Holder of an Allowed Old Vendor Debt
Claim shall receive in full satisfaction,
settlement, release and discharge of and in
exchange for its Claim against Leap and its
Estate, the benefit of the Intercompany
Releases, and on the Effective Date or as
soon as practicable thereafter, on a Pro
Rata basis, the Old Vendor Debt
Distribution.
2A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon
as practicable thereafter; Impaired if
Holder of Allowed Class 2A et seq. Claim
receives alternative treatment. Each Holder
of an Allowed Class 2A et seq. Claim shall,
in the discretion of the Debtor with the
consent of the Informal Vendor Debt
Committee, receive any one or a combination
of any of the following: (i) Cash in an
amount equal to such Allowed Class 2A et
seq. Claim; (ii) deferred Cash payments
totaling at least the Allowed amount of such
Allowed Class 2A et seq. Claim, of a value,
as of the Effective Date, of at least the
value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing
such Holder's Allowed Class 2A et seq.
Claim; (iv) payments or Liens amounting to
the indubitable equivalent of the value of
such Holder's interest in the Collateral
securing the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Allowed Class 2A
et seq. Claim; or (vi) such other treatment
as the Debtor and such Holder shall have
agreed upon in writing. The Debtor will make
the foregoing election and provide notice of
such election to the applicable Holder of an
Allowed Class 2A et seq. Claim no later than
14 days prior to the Voting Deadline. To the
extent the Debtor elects clause (i), (ii),
(iv), (v) or (vi) above, any liability
associated with such treatment shall be
satisfied with funds from Cricket.
ix
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by Leap on or 100%
before the later of (i) the Effective Date
or as soon as practicable thereafter, (ii)
the date such Claim becomes an Allowed Claim
and (iii) the date that such Claim would be
paid in accordance with the terms and
conditions of any agreements or
understandings relating thereto between Leap
and the Holder of such Claim.
4 General Unsecured Impaired; each Holder of an Allowed Class 4 13-14% (4)
Claims Claim to receive a Pro Rata distribution of
beneficial interests in the Leap Creditor
Trust.
4A Subordinated Impaired; each Holder of an Allowed Class 4A 0%
General Unsecured Claim to receive no Cash or property on
Claims account of such Claim.
5 Intercompany Impaired; each Holder of an Allowed Class 5 0%
Claims Claim to receive the Intercompany Release as
of the Initial Distribution Date.
6 Old Leap Common Impaired; each Holder of an Allowed Class 6 0%
Stock and Securities Interest to receive no Cash or property on
Claims against Leap account of such Interest.
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
Leap and All Claims Interest to receive no Cash or property on
Arising Out of Such account of such Interest.
Old Stock Rights
- ----------------------
(4) The lower range of recovery assumes total General Unsecured Claims against
Leap of $749 million, including an estimated $17 million of rejection
damages for leases and contracts that may be rejected. The amount of
rejection damages could vary materially from this estimate. The upper range
of recovery assumes total General Unsecured Claims against Leap of $732
million and no rejection damages. See discussion under the subheading
"Rejection and Damages" at pp. 16-17.
x
CLAIMS AGAINST AND INTERESTS IN CCH
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
- - Administrative Paid in full in Cash by CCH on the Effective 100%
Claims Date or as soon as practicable thereafter
(unless the Holder of a particular Claim and
CCH agree to some other treatment), or in
accordance with the terms and conditions of
transactions or agreements relating to
obligations incurred in the ordinary course
of business during the pendency of the
Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by CCH on the Effective 100%
Date or as soon as practicable thereafter.
SECURED CLAIMS:
1A Old Vendor Debt Impaired; on the Effective Date or as soon 30-37%
Claim as practicable thereafter, each Holder of an
Allowed Old Vendor Debt Claim shall receive,
on a Pro Rata basis, the Old Vendor Debt
Distribution.
xi
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
2A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon
as practicable thereafter; Impaired if
Holder of Allowed Class 2A et seq. Claim
receives alternative treatment. Each Holder
of an Allowed Class 2A et seq. Claim shall,
in the discretion of the Debtor with the
consent of the Informal Vendor Debt
Committee, receive any one or a combination
of any of the following: (i) Cash in an
amount equal to such Allowed Class 2A et
seq. Claim; (ii) deferred Cash payments
totaling at least the Allowed amount of such
Allowed Class 2A et seq. Claim, of a value,
as of the Effective Date, of at least the
value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing
such Holder's Allowed Class 2A et seq.
Claim; (iv) payments or Liens amounting to
the indubitable equivalent of the value of
such Holder's interest in the Collateral
securing the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed
upon in writing. The Debtor will make the
foregoing election and provide notice of
such election to the applicable Holder of an
Allowed Class 2A et seq. Claim no later than
14 days prior to the Voting Deadline. To the
extent the Debtor elects clause (i), (ii),
(iv), (v) or (vi) above, any liability
associated with such treatment shall be
satisfied with funds from Cricket.
xii
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by CCH on or before 100%
the later of (i) the Effective Date or as
soon as practicable thereafter, (ii) the
date such Claim becomes an Allowed Claim and
(iii) the date that such Claim would be paid
in accordance with the terms and conditions
of any agreements or understandings relating
thereto between CCH and the Holder of such
Claim.
4 General Unsecured Impaired; each Holder of an Allowed Class 4 0%
Claims Claim shall receive no Cash or property on
account of such Claim.
5 Intercompany Impaired; each Holder of an Allowed Class 5 0%
Claims Claim to receive the Intercompany Release as
of the Initial Distribution Date.
6 Old CCH Common Impaired; on the Effective Date, CCH shall 0%
Stock and Securities be merged into Cricket.
Claims against CCH
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
CCH and All Claims Interest shall receive no Cash or property
Arising Out of Such on account of such Interest.
Old Stock Rights
xiii
CLAIMS AGAINST AND INTERESTS IN CRICKET
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
- - Administrative Paid in full in Cash by Reorganized Cricket 100%
Claims on the Effective Date or as soon as
practicable thereafter (unless the Holder of
a particular Claim and Cricket agree to some
other treatment), or in accordance with the
terms and conditions of transactions or
agreements relating to obligations incurred
in the ordinary course of business during
the pendency of the Chapter 11 Case.
- - Priority Tax Claims At the option of Reorganized Cricket either 100%
(i) Reinstated, (ii) paid in full in Cash by
Reorganized Cricket on the Effective Date or
as soon as practicable thereafter, or (iii)
paid over a six-year period from the date of
assessment, as provided in Section
1129(a)(9)(C) of the Bankruptcy Code with
interest payable at a rate of 8 1/4% per
annum or as otherwise established by the
Court.
SECURED CLAIMS:
1A Old Vendor Debt Impaired; on the Effective Date or as soon 30-37%
Claims as practicable thereafter, each Holder of an
Allowed Old Vendor Debt Claim shall receive,
on a Pro Rata basis, the Old Vendor Debt
Distribution.
2A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon
as practicable thereafter; Impaired if
Holder of Allowed Class 2A et seq. Claim
receives alternative treatment. Each Holder
of an Allowed Class 2A et seq. Claim shall,
in the discretion of the Debtor with the
consent of the Informal Vendor Debt
Committee, receive any one or a combination
of any of the following: (i) Cash in an
amount equal to such Allowed Class 2A et
seq. Claim; (ii) deferred Cash payments
totaling at least the Allowed amount of such
Allowed Class 2A et seq. Claim, of a value,
as of the Effective Date, of at least the
value of such Holder's interest in the
Collateral securing the Allowed
xiv
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
Class 2A et seq. Claim; (iii) the Collateral
securing such Holder's Allowed Class 2A et
seq. Claim; (iv) payments or Liens amounting
to the indubitable equivalent of the value
of such Holder's interest in the Collateral
securing the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed
upon in writing. The Debtor will make the
foregoing election and provide notice of
such election to the applicable Holder of an
Allowed Class 2A et seq. Claim no later than
14 days prior to the Voting Deadline.
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by Reorganized 100%
Cricket on or before the later of (i) the
Effective Date or as soon as practicable
thereafter, (ii) the date such Claim becomes
an Allowed Claim and (iii) the date that
such Claim would be paid in accordance with
the terms and conditions of any agreements
or understandings relating thereto between
Cricket and the Holder of such Claim.
4 General Unsecured Impaired; each Holder of an Allowed Class 4 0%
Claims Claim shall receive on a Pro Rata basis its
share of the Cricket General Unsecured
Creditor Distribution.
5 Intercompany Impaired; each Holder of an Allowed Class 5 0%
Claims Claim shall receive the Intercompany Release
as of the Initial Distribution Date.
6 Old Common Stock Impaired; each Holder of an Allowed Class 6 0%
of Cricket and Interest shall receive no Cash or property
Securities Claims on account of such Interest.
against Cricket
xv
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
Cricket and All Interest shall receive no Cash or property
Claims Arising Out on account of such Interest.
of Such Old Stock
Rights
CLAIMS AGAINST AND INTERESTS IN LICENSE HOLDING COMPANIES (APPLICABLE TO EACH
LICENSE HOLDING COMPANY)
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
- - Administrative Paid in full in Cash by the applicable 100%
Claims Reorganized License Holding Company on the
Effective Date or as soon as practicable
thereafter (unless the Holder of a
particular Claim and the applicable License
Holding Company agree to some other
treatment), or in accordance with the terms
and conditions of transactions or agreements
relating to obligations incurred in the
ordinary course of business during the
pendency of the Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by the applicable 100%
Reorganized License Holding Company on the
Effective Date or as soon as practicable
thereafter.
SECURED CLAIMS:
1A Old Vendor Debt Impaired; on the Effective Date or as soon 30-37%
Claim as practicable thereafter, each Holder of an
Allowed Old Vendor Debt Claim shall receive,
on a Pro Rata basis, the Old Vendor Debt
Distribution.
1B FCC Claims On the Effective Date or as soon thereafter 100%
as practicable, the Holder of the FCC Claims
shall be Reinstated. The Holder of the FCC
Claims will be deemed Unimpaired.
xvi
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
2A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon
as practicable thereafter; Impaired if
Holder of Allowed Class 2A et seq. Claim
receives alternative treatment. Each Holder
of an Allowed Class 2A et seq. Claim shall,
in the discretion of the Debtor with the
consent of the Informal Vendor Debt
Committee, receive any one or a combination
of any of the following: (i) Cash in an
amount equal to such Allowed Class 2A et
seq. Claim; (ii) deferred Cash payments
totaling at least the Allowed amount of such
Allowed Class 2A et seq. Claim, of a value,
as of the Effective Date, of at least the
value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing
such Holder's Allowed Class 2A et seq.
Claim; (iv) payments or Liens amounting to
the indubitable equivalent of the value of
such Holder's interest in the Collateral
securing the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed
upon in writing. The Debtor will make the
foregoing election and provide notice of
such election to the applicable Holder of an
Allowed Class 2A et seq. Claim no later than
14 days prior to the Voting Deadline. To the
extent the Debtor elects clause (i), (ii),
(iv), (v) or (vi) above, any liability
associated with such treatment shall be
satisfied with funds from Cricket.
xvii
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by the applicable 100%
Reorganized License Holding Company on or
before the later of (i) the Effective Date
or as soon as practicable thereafter, (ii)
the date such Claim becomes an Allowed Claim
and (iii) the date that such Claim would be
paid in accordance with the terms and
conditions of any agreements or
understandings relating thereto between the
applicable License Holding Company and the
Holder of such Claim.
4 General Unsecured Impaired; each Holder of an Allowed Class 4 0%
Claims Claim to receive no Cash or property on
account of such Claims.
5 Intercompany Impaired; each Holder of an Allowed Class 5 0%
Claims Claim to receive the Intercompany Release as
of the Initial Distribution Date.
6 Old License Holding Impaired; each Holder of an Allowed Class 6 0%
Company Common Interest shall retain no Cash or property on
Stock and Securities account of such Interest.
Claims Against
License Holding
Company
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
License Holding Interest shall receive no Cash or property
Company and All on account of such Interest.
Claims Arising Out
of Such Old Stock
Rights
xviii
CLAIMS AGAINST AND INTERESTS IN PROPERTY HOLDING COMPANIES (APPLICABLE TO EACH
PROPERTY HOLDING COMPANY)
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
- - Administrative Paid in full in Cash by the applicable 100%
Claims Reorganized Property Holding Company on the
Effective Date or as soon as practicable
thereafter (unless the Holder of a
particular Claim and the applicable Property
Holding Company agree to some other
treatment), or in accordance with the terms
and conditions of transactions or agreements
relating to obligations incurred in the
ordinary course of business during the
pendency of the Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by the applicable 100%
Reorganized Property Holding Company on the
Effective Date or as soon as practicable
thereafter.
SECURED CLAIMS:
1A Old Vendor Debt Impaired; on the Effective Date or as soon 30-37%
Claims as practicable thereafter, each Holder of an
Allowed Old Vendor Debt Claim shall receive,
on a Pro Rata basis, the Old Vendor Debt
Distribution.
xix
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
2A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon
as practicable thereafter; Impaired if
Holder of Allowed Class 2A et seq. Claim
receives alternative treatment. Each Holder
of an Allowed Class 2A et seq. Claim shall,
in the discretion of the Debtor with the
consent of the Informal Vendor Debt
Committee, receive any one or a combination
of any of the following: (i) Cash in an
amount equal to such Allowed Class 2A et
seq. Claim; (ii) deferred Cash payments
totaling at least the Allowed amount of such
Allowed Class 2A et seq. Claim, of a value,
as of the Effective Date, of at least the
value of such Holder's interest in the
Collateral securing the Allowed Class 2A et
seq. Claim; (iii) the Collateral securing
such Holder's Allowed Class 2A et seq.
Claim; (iv) payments or Liens amounting to
the indubitable equivalent of the value of
such Holder's interest in the Collateral
securing the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed
upon in writing. The Debtor will make the
foregoing election and provide notice of
such election to the applicable Holder of an
Allowed Class 2A et seq. Claim no later than
14 days prior to the Voting Deadline.
UNSECURED CLAIMS:
3 Priority Claims Unimpaired; paid in full by the applicable 100%
Reorganized Property Holding Company on or
before the later of (i) the Effective Date
or as soon as practicable thereafter, (ii)
the date such Claim becomes an Allowed Claim
and (iii) the date that such Claim would be
paid in accordance with the terms and
conditions of any agreements or
understandings relating thereto between the
applicable Property Holding Company and the
Holder of such Claim.
xx
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
4 General Unsecured Impaired; each Holder of an Allowed Class 4 0%
Claims Claim to receive no Cash or property on
account of such Claim.
5 Intercompany Impaired; each Holder of an Allowed Class 5 0%
Claims Claim to receive the Intercompany Release as
of the Initial Distribution Date.
6 Old Property Impaired; each Holder of an Allowed Class 6 0%
Holding Company Interest shall receive no Cash or property
Common Stock and on account of such Interest.
Securities Claims
Against Property
Holding Company
7 Old Stock Rights in Impaired; each Holder of an Allowed Class 7 0%
Property Holding Interest shall receive no Cash or property
Company and All on account of such Interest.
Claims Arising Out
of Such Old Stock
Rights
CLAIMS AGAINST AND INTERESTS IN OTHER SUBSIDIARIES (APPLICABLE TO EACH OTHER
SUBSIDIARY)
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
- - Administrative Paid in full in Cash by the applicable 100%
Claims Reorganized Other Subsidiary on the
Effective Date or as soon as practicable
thereafter (unless the Holder of a
particular Claim and the applicable Other
Subsidiary agree to some other treatment),
or in accordance with the terms and
conditions of transactions or agreements
relating to obligations incurred in the
ordinary course of business during the
pendency of the Chapter 11 Cases.
- - Priority Tax Claims Paid in full in Cash by the applicable 100%
Reorganized Other Subsidiary on the
Effective Date or as soon as practicable
thereafter.
xxi
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
SECURED CLAIMS:
1A et Other Secured Unimpaired if paid in full in Cash or 100%
seq. Claims Reinstated on the Effective Date or as soon
as practicable thereafter; Impaired if
Holder of Allowed Class 1A et seq. Claim
receives alternative treatment. Each Holder
of an Allowed Class 1A et seq. Claim shall,
in the discretion of the Debtor with the
consent of the Informal Vendor Debt
Committee, receive any one or a combination
of any of the following: (i) Cash in an
amount equal to such Allowed Class 1A et
seq. Claim; (ii) deferred Cash payments
totaling at least the Allowed amount of such
Allowed Class 1A et seq. Claim, of a value,
as of the Effective Date, of at least the
value of such Holder's interest in the
Collateral securing the Allowed Class 1A et
seq. Claim; (iii) the Collateral securing
such Holder's Allowed Class 1A et seq.
Claim; (iv) payments or Liens amounting to
the indubitable equivalent of the value of
such Holder's interest in the Collateral
securing the Allowed Class 1A et seq. Claim;
(v) Reinstatement of such Class 1A et seq.
Claim; or (vi) such other treatment as the
Debtor and such Holder shall have agreed
upon in writing. The Debtor will make the
foregoing election and provide notice of
such election to the applicable Holder of an
Allowed Class 1A et seq. Claim no later than
14 days prior to the Voting Deadline. To the
extent the Debtor elects clause (i), (ii),
(iv), (v) or (vi) above, any liability
associated with such treatment shall be
satisfied with funds from Cricket.
xxii
TYPE OF ALLOWED ESTIMATED
CLASS CLAIM OR INTEREST TREATMENT RECOVERY
- ----- ----------------- -------------------------------------------- --------
UNSECURED CLAIMS:
2 Priority Claims Unimpaired; paid in full by the applicable 100%
Reorganized Other Subsidiary on or before
the later of (i) the Effective Date or as
soon as practicable thereafter, (ii) the
date such Claim becomes an Allowed Claim and
(iii) the date that such Claim would be paid
in accordance with the terms and conditions
of any agreements or understandings relating
thereto between the applicable Other
Subsidiary and the Holder of such Claim.
3 General Unsecured Impaired; each Holder of an Allowed Class 3 0%
Claims Claim to receive no Cash or property on
account of such Claims.
4 Intercompany Impaired; each Holder of an Allowed Class 4 0%
Claims Claim to receive the Intercompany Release as
of the Initial Distribution Date.
5 Old Other Impaired; each Holder of an Allowed Class 5 0%
Subsidiary Common Interest shall receive no Cash or property
Stock and Securities on account of such Interest.
Claims Against
Other Subsidiary
6 Old Stock Rights in Impaired; each Holder of an Allowed Class 6 0%
Other Subsidiary Interest shall receive no Cash or property
and All Claims on account of such Interest.
Arising Out of Such
Old Stock Rights
A. HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only
holders of Allowed Claims and Allowed Interests in Classes of Claims and
Interests, respectively, that are Impaired are entitled to vote to accept or
reject a proposed chapter 11 plan. Holders of Claims and Interests in classes
that are Unimpaired under a chapter 11 plan are deemed to accept the Plan and
are not entitled to vote. Holders of Claims and Interests in classes that will
receive no Cash or property under the Plan are deemed to have rejected the Plan
and are not entitled to vote.
1. LEAP
With respect to Leap, Class 1B (12 1/2% Senior Secured Claim
against Leap), certain of the Class 2A et seq. Claims (Other Secured Claims
against Leap) and Class 3 (Priority Claims) are Unimpaired and are presumed to
have accepted the Plan.
xxiii
With respect to Leap, Class 1A (GLH Claim against Leap), Class
1C (Old Vendor Debt Claims), certain of the Class 2A et seq. Claims (Other
Secured Claims against Leap), Class 4 (General Unsecured Claims against Leap),
and Class 5 (Intercompany Claims against Leap) are Impaired and will receive
distributions under the Plan. To the extent Claims and Interests in such classes
are Allowed Claims and Allowed Interests, the Holders of such Claims and
Interests are entitled to vote to accept or reject the Plan.
With respect to Leap, Class 4A (Subordinated General Unsecured
Claims against Leap), Class 6 (Old Leap Common Stock and Securities Claims
against Leap) and Class 7 (Old Stock Rights in Leap and All Claims Arising Out
of Such Old Stock Rights) are Impaired, but the votes of the Class 4A Claim and
the Class 6 and Class 7 Interests are not being solicited. Holders of the Class
4A Claim and the Class 6 and 7 Interests are not receiving any distributions
under the Plan and therefore are deemed to have rejected the Plan.
2. CCH
With respect to CCH, certain of the Class 2A et seq. Claims
(Other Secured Claims against CCH), and Class 3 (Priority Claims) are Unimpaired
and are presumed to have accepted the Plan.
With respect to CCH, Class 1A (Old Vendor Debt Claims),
certain of the Class 2A et seq. Claims (Other Secured Claims against CCH), and
Class 5 (Intercompany Claims against CCH) are Impaired and will receive
distributions under the Plan. To the extent Claims in such classes are Allowed
Claims, the Holders of such Claims are entitled to vote to accept or reject the
Plan.
With respect to CCH, Class 4 (General Unsecured Claims against
CCH), Class 6 (Old CCH Common Stock and Securities Claims against CCH) and Class
7 (Old Stock Rights in CCH and All Claims Arising Out of Such Old Stock Rights)
are not being solicited. Holders of Class 4 Claims and Class 6 and 7 Interests
are not receiving any distributions under the Plan and therefore are deemed to
have rejected the Plan.
3. CRICKET
With respect to Cricket, certain of the Class 2A et seq.
Claims (Other Secured Claims against Cricket) and Class 3 (Priority Claims) are
Unimpaired and are presumed to have accepted the Plan.
With respect to Cricket, Class 1A (Old Vendor Debt Claims),
certain of the Class 2A et seq. Claims (Other Secured Claims against Cricket),
Class 4 (General Unsecured Claims against Cricket) and Class 5 (Intercompany
Claims) are Impaired and will receive distributions under the Plan. To the
extent Claims in such classes are Allowed Claims, the Holders of such Claims are
entitled to vote to accept or reject the Plan.
With respect to Cricket, Class 6 (Old Cricket Common Stock and
Securities Claims against Cricket) and Class 7 (Old Stock Rights in Cricket and
All Claims Arising Out of Such Old Stock Rights) are Impaired, but the votes of
Classes 6 and 7 are not being solicited. Holders of Class 6 and 7 Interests are
not receiving any distributions under the Plan and therefore are deemed to have
rejected the Plan.
4. LICENSE HOLDING COMPANIES
With respect to License Holding Companies, Class 1B (FCC
Claims), certain of the Class 2A et seq. Claims (Other Secured Claims against
License Holding Companies) and Class 3 (Priority Claims) are Unimpaired and are
presumed to have accepted the Plan.
xxiv
With respect to License Holding Companies, Class 1A (Old
Vendor Debt Claims), certain of the Class 2A et seq. Claims (Other Secured
Claims against License Holding Companies) and Class 5 (Intercompany Claims) are
Impaired and will receive distributions under the Plan. To the extent Claims in
such classes are Allowed Claims, the Holders of such Claims are entitled to vote
to accept or reject the Plan.
With respect to License Holding Companies, Class 4 (General
Unsecured Claims), Class 6 (Old License Holding Company Common Stock and
Securities Claims Against License Holding Company) and Class 7 (Old Stock Rights
in License Holding Company and All Claims Arising Out of Such Old Stock Rights)
are Impaired, but the votes of Classes 4, 6 and 7 are not being solicited.
Holders of Class 4 Claims and Class 6 and 7 Interests are not receiving any
distributions under the Plan and therefore are deemed to have rejected the Plan.
5. PROPERTY HOLDING COMPANIES
With respect to Property Holding Companies, certain of the
Class 2A et seq. Claims (Other Secured Claims against Property Holding
Companies) and Class 3 (Priority Claims) are Unimpaired and are presumed to have
accepted the Plan.
With respect to Property Holding Companies, Class 1A (Old
Vendor Debt Claims), certain of the Class 2A et seq. Claims (Other Secured
Claims against Property Holding Companies) and Class 5 (Intercompany Claims) are
Impaired and will receive distributions under the Plan. To the extent Claims in
such classes are Allowed Claims, the Holders of such Claims are entitled to vote
to accept or reject the Plan.
With respect to Property Holding Companies, Class 4 (General
Unsecured Claims), Class 6 (Old Property Holding Company Common Stock and
Securities Claims) and Class 7 (Old Stock Rights in Property Holding Company and
All Claims Arising Out of Such Old Stock Rights) are Impaired, but the votes of
Classes 4, 6 and 7 are not being solicited. Holders of Class 4 Claims and Class
6 and 7 Interests are not receiving any distributions under the Plan and
therefore are deemed to have rejected the Plan.
6. OTHER SUBSIDIARIES
With respect to Other Subsidiaries, certain of the Class 1A et
seq. Claims (Other Secured Claims against Other Subsidiaries) and Class 2
(Priority Claims) are Unimpaired and are presumed to have accepted the Plan.
With respect to Other Subsidiaries, certain of the Class 1A et
seq. Claims (Other Secured Claims against Other Subsidiaries) and Class 4
(Intercompany Claims) are Impaired and will receive distributions under the
Plan. To the extent Claims in such class are Allowed Claims, the Holders of such
Claims are entitled to vote to accept or reject the Plan.
With respect to Other Subsidiaries, Class 3 (General Unsecured
Claims), Class 5 (Old Other Subsidiary Common Stock and Securities Claims
Against Other Subsidiary) and Class 6 (Old Stock Rights in Other Subsidiary and
All Claims Arising Out of Such Old Stock Rights) are Impaired, but the votes of
Classes 5 and 6 are not being solicited. Holders of Class 3 Claims and Class 3,
5 and 6 Interests are not receiving any distributions under the Plan and
therefore are deemed to have rejected the Plan.
Generally, for the Plan to be confirmed by the Court with
respect to each Debtor, two-thirds in dollar amount, and one-half in number of
the Allowed Claims, or with respect to the Allowed Interests two-thirds of the
Interests, in each Impaired Class of Claims, or Interests, that actually are
voted must vote to accept the Plan. The Plan may be confirmed under certain
circumstances, despite dissent by one or more Impaired Classes, and the Debtors
reserve the right to seek such non-consensual
xxv
confirmation of the Plan. However, a Holder of a Claim or Interest will be
deemed to have rejected the Plan if such plan provides that the Claims or
Interests of such class do not entitle such Holders to receive or retain any
property under the Plan. For voting and distribution purposes, the Plan
contemplates separate classes for each of the Debtors. Accordingly, the voting
and other confirmation requirements of the Bankruptcy Code must be satisfied for
each Debtor.
If a Class of Claims or Interests rejects the Plan, the Plan
may be confirmed by the Court pursuant to Section 1129(b) of the Bankruptcy
Code. Section 1129(b) permits the confirmation of a plan of reorganization
notwithstanding the non-acceptance of the Plan by one or more impaired classes
of claims or interests, so long as the Court finds that the Plan does not
"discriminate unfairly" and is "fair and equitable" with respect to each
non-accepting class.
B. VOTING PROCEDURES
If you are entitled to vote to accept or reject the Plan, a
Ballot is enclosed for the purpose of voting on the Plan. If you are entitled to
vote Claims or Interests in more than one Class, you will receive a separate
Ballot for each such Class of Claims or Interests. Each Ballot has been coded to
reflect the Class of Claims and Interests it represents. Accordingly, in voting
to accept or reject the Plan, you must use only the coded Ballot or Ballots sent
to you with this Disclosure Statement. Please complete and sign your original
Ballot (copies, facsimiles and oral votes will not be accepted), and return it
to the Voting Agent at the address set forth on the Ballot.
TO BE COUNTED, YOUR COMPLETED BALLOT MUST BE RECEIVED BY THE
VOTING AGENT NO LATER THAN 4:00 P.M., PACIFIC TIME, ON SEPTEMBER 8, 2003. ANY
EXECUTED BALLOT RECEIVED BY THE VOTING AGENT THAT DOES NOT INDICATE EITHER AN
ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE
OF THE PLAN.
Any Claim or Interest in an Impaired Class that otherwise is
entitled to vote on the Plan, and as to which an objection or request for
estimation is pending or that is Scheduled by the Debtors as unliquidated,
disputed or contingent, is not entitled to vote on the Plan unless the holder of
such Claim or Interest has obtained an order of the Court temporarily allowing
such Claim or Interest for the purpose of voting on the Plan.
Pursuant to the Disclosure Statement Order, the Court set July
25, 2003 as the record date for voting on the Plan and for receiving
distributions under the Plan. Accordingly, only holders of record as of July 25,
2003 that otherwise are entitled to vote under the Plan will receive a Ballot
and may vote on the Plan.
If you are the holder of a Claim or Interest entitled to vote
on the Plan, but did not receive a Ballot, received a damaged Ballot, or lost
your Ballot, or if you have any questions regarding the procedures for voting
your Claims or Interests, please contact the Voting Agent at:
If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Attn: Leap Wireless International, Inc., Cricket
Communications, Inc. and
Affiliated Entities Claims Agent
xxvi
If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (800) 517-7475
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc., Cricket
Communications, Inc. and Affiliated Entities Claims
Agent
C. CONFIRMATION HEARING
Pursuant to Section 1128 of the Bankruptcy Code, the
Confirmation Hearing has been scheduled for September 29, 2003 at 10:00 a.m.,
Pacific Time, before the Hon. Louise DeCarl Adler in the United States
Bankruptcy Court for the Southern District of California, Jacob Weinberger U.S.
Courthouse, 325 West F Street, San Diego, California 92101. The Court may
adjourn the Confirmation Hearing from time to time without further notice except
for the announcement of the adjournment date made at the Confirmation Hearing or
at any subsequently adjourned Confirmation Hearing.
Objections to the Confirmation of the Plan must be Filed with
the Court and served upon the following parties so as to be received by such
parties before 4:00 p.m., Pacific Time, on September 8, 2003:
Latham & Watkins LLP Kramer Levin Naftalis & Frankel LLP
Attorneys for the Debtors Attorneys for the Official Committee
633 West Fifth Street, Suite 4000 919 Third Avenue
Los Angeles, California 90071 New York, New York 10022
Attn: Robert A. Klyman Attn: Robert T. Schmidt
Andrews & Kurth L.L.P. Office of the United States Trustee
Attorneys for Informal Vendor Debt 402 West Broadway, Suite 600
Committee San Diego, CA 92101
805 Third Avenue Attn: Tiffany L. Carroll
New York, New York 10022
Attn: Paul N. Silverstein
THE DEBTORS, THE INFORMAL VENDOR DEBT COMMITTEE AND THE
OFFICIAL COMMITTEE BELIEVE THAT THE PLAN WILL ENABLE THE DEBTORS TO SUCCESSFULLY
REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11, AND THAT ACCEPTANCE OF
THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS.
D. IDENTITY OF PERSON TO CONTACT FOR MORE INFORMATION REGARDING THE PLAN
Any interested party desiring more information about the Plan
should contact (IN WRITING) counsel to the Debtors, Robert A. Klyman, Latham &
Watkins LLP, 633 West Fifth Street, Suite 4000, Los Angeles, California, (213)
891-8763 (facsimile), or log on to the Debtors' website for the Chapter 11
Cases, www.leapreorganization.com.
E. DISCLAIMER
ALL HOLDERS OF CLAIMS AND INTERESTS AND OTHER PARTIES IN
INTEREST ARE ADVISED AND ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND THE
ACCOMPANYING PLAN OF REORGANIZATION IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR
REJECT THE PLAN. PLAN SUMMARIES AND STATEMENTS MADE
xxvii
IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
PLAN, OTHER EXHIBITS ANNEXED HERETO AND OTHER DOCUMENTS REFERENCED AS FILED WITH
THE COURT PRIOR TO OR CONCURRENT WITH THE FILING OF THIS DISCLOSURE STATEMENT.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE
HEREOF, AND THERE CAN BE NO ASSURANCE THAT THE STATEMENTS CONTAINED HEREIN WILL
BE CORRECT AT ANY TIME AFTER THE DATE HEREOF.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND RULE 3016 OF THE FEDERAL RULES OF
BANKRUPTCY PROCEDURE. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
PERSONS OR ENTITIES TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING
SECURITIES OF LEAP SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN
LIGHT OF THE PURPOSES FOR WHICH THEY WERE PREPARED.
CERTAIN STATEMENTS CONTAINED HEREIN OR ATTACHED HERETO,
INCLUDING PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING STATEMENTS,
ARE BASED ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH
STATEMENTS WILL REFLECT ACTUAL OUTCOMES.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED
SOLELY FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN. NO PERSON OR ENTITY
MAY USE ANYTHING IN THIS DISCLOSURE STATEMENT FOR ANY OTHER PURPOSE. THE FACTUAL
INFORMATION CONTAINED HEREIN, INCLUDING THE DESCRIPTION OF THE DEBTORS, THEIR
BUSINESSES, AND EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES, HAS
BEEN OBTAINED FROM VARIOUS DOCUMENTS, AGREEMENTS AND OTHER WRITINGS RELATING TO
THE DEBTORS, AND FROM DISCUSSIONS WITH AND VARIOUS WRITINGS PREPARED BY THE
DEBTORS, THE INFORMAL VENDOR DEBT COMMITTEE, THE OFFICIAL COMMITTEE AND THEIR
RESPECTIVE LEGAL COUNSEL AND FINANCIAL ADVISORS.
THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY
WITH THE SUMMARIES HEREIN. ALL EXHIBITS HERETO ARE INCORPORATED INTO, AND ARE A
PART OF, THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
ACTIONS OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT SHALL NOT CONSTITUTE OR
BE CONSTRUED AS AN ADMISSION OF ANY FACT, LIABILITY, STIPULATION OR WAIVER BUT
RATHER AS A STATEMENT MADE WITHOUT PREJUDICE SOLELY FOR SETTLEMENT PURPOSES,
WITH FULL RESERVATION OF RIGHTS. THIS DISCLOSURE STATEMENT SHALL NOT BE USED FOR
ANY LITIGATION PURPOSE WHATSOEVER, AND SHALL NOT BE ADMISSIBLE IN ANY PROCEEDING
INVOLVING THE DEBTORS, THE INFORMAL VENDOR DEBT COMMITTEE, THE OFFICIAL
COMMITTEE OR ANY OTHER PARTY IN INTEREST, NOR SHALL IT BE CONSTRUED TO BE
CONCLUSIVE ADVICE ON THE TAX, SECURITIES LAW OR OTHER LEGAL EFFECTS OF THE PLAN
AS TO HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE DEBTORS.
xxviii
SECTION I
OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of
the Bankruptcy Code. Under chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business and capital structure for the benefit of
its estate, creditors and stockholders. In addition to permitting rehabilitation
of a debtor, another goal of chapter 11 is to promote equality of treatment for
similarly situated creditors and interest holders with respect to the
distribution of a debtor's assets.
The commencement of a chapter 11 case creates an estate
containing all of the debtor's property as of the filing date. Generally, the
debtor remains in possession of its property and continues to operate its
business as a "debtor-in-possession."
The consummation of a plan of reorganization is the principal
objective of a chapter 11 case. A plan of reorganization sets forth the means
for treating claims against, and interests in, a debtor. Confirmation of a plan
of reorganization by the bankruptcy court makes the plan binding upon the
debtor, any issuer of securities under the plan, any person acquiring property
under the plan and any creditor or interest holder of the debtor. Subject to
certain limited exceptions, an order of the bankruptcy court confirming a plan
of reorganization discharges the debtor from any debt that arose prior to the
date of confirmation of the plan, and substitutes therefor the obligations
specified under the confirmed plan.
A claim or interest is impaired under a plan of reorganization
if the plan provides that such claim will not be repaid in full or that the
legal, equitable or contractual rights of the holder of such claim or interest
are altered. A holder of an impaired claim or interest that is receiving a
distribution under a plan is entitled to vote to accept or reject the plan of
reorganization. Chapter 11 does not require that every holder of a claim or
interest to vote in favor of a plan of reorganization in order for the
bankruptcy court to confirm the plan. However, the bankruptcy court must find
that the plan meets a number of statutory tests before it may confirm the plan.
Many of these tests are designed to protect the interests of holders of claims
or interests who do not vote to accept the plan, but who nonetheless will be
bound by the plan's provisions if it is confirmed by the bankruptcy court.
Before soliciting acceptances of the proposed plan, a plan
proponent must prepare and distribute to its creditors and interest holders
entitled to vote on the plan a detailed disclosure statement. Section 1125 of
the Bankruptcy Code requires that the disclosure statement contain adequate
information of a kind, and in sufficient detail, to enable a hypothetical
reasonable investor to make an informed judgment about the plan. The Debtors
have prepared this Disclosure Statement in accordance with the requirements of
Section 1125 of the Bankruptcy Code.
SECTION II.
DESCRIPTION OF THE DEBTORS' BUSINESS
Leap conducts operations through its subsidiaries. Leap has no
independent operations or sources of operating revenue other than through
dividends, if any, from its operating subsidiaries. Cricket is Leap's subsidiary
that operates the Cricket business, together with subsidiaries of Cricket and
Leap that hold assets that are used in the Cricket business or that hold assets
pledged as security under Cricket's senior secured vendor debt facilities. The
Cricket companies operate together as a wireless communications carrier that
provides innovative, affordable, simple wireless services designed to accelerate
the transformation of wireless service into a mass consumer product.
The Cricket companies offer wireless service in the U.S. under
the brand "Cricket(R)," which is marketed as "Comfortable Wireless(R)." The
innovative Cricket strategy is designed to extend
1
the benefits of mobility to the mass market by offering wireless service that is
as simple to use and understand as, and is a competitive mobile alternative to,
traditional landline service. In each Cricket market, the Cricket companies are
deploying 100% digital, CDMA networks that Cricket believes provide higher
capacity and more efficient deployment of capital than competing technologies.
CDMA technology, combined with Cricket's efforts to streamline operations and
distribution, allows the Cricket companies to be a low-cost provider of wireless
services in each Cricket market.
Cricket service allows customers to make virtually unlimited
calls within a local calling area and receive virtually unlimited calls from any
area for a flat monthly rate. Cricket customers can also make long distance
calls on a per-minute basis or as part of a packaged offering. The simplicity of
the Cricket service allows Cricket to sustain lower operating costs per customer
compared to traditional wireless providers. Cricket's networks are designed and
built to provide coverage in the local calling area where its target customers
live, work and play. As a result, Cricket believes that Cricket's per minute
network operating costs are lower than, or comparable to the lowest costs
incurred by traditional wireless providers.
As of the Petition Date, Cricket offered service in 40 markets
covering a total population of approximately 25.2 million potential customers
(2002 POPs). As of June 30, 2003, Cricket:
- had approximately 1,459,700 customers in its markets
across the U.S.; and
- owned wireless licenses covering approximately 53.1
million potential customers in 33 states.
As of March 31, 2003, Cricket employed approximately 1,383
full time employees, and Leap had no employees.
An organizational chart for the Debtors is attached to this
Disclosure Statement as Exhibit C.
In addition to the disclosures made herein, please refer to
the attached Exhibit D, Leap's most recent Annual Report on Form 10-K/A, and
Exhibit E, Leap's most recent Quarterly Report on Form 10-Q, for additional
disclosures concerning the Debtors' business, operations, management and
structure. For a description of various risks and uncertainties applicable to
the Debtors and their business, please see "Risk Factors" in Exhibit E, Leap's
most recent Quarterly Report on Form 10-Q. For a reconciliation of total
liabilities reported in Leap's Petition, most recent Quarterly Report on Form
10-Q and Schedules, please see the attached Exhibit N and the notes thereto.
The Debtors have filed voluminous Schedules and Statements of
Financial Affairs with the Office of the United States Trustee. The Debtors
generally have reported their assets and liabilities on these Schedules at "net
book value," meaning the original cost of acquiring such assets less accumulated
depreciation. The Schedules and Statements of Financial Affairs filed for the
Cricket companies reported total assets having a net book value that exceeded
the total liabilities for such companies by approximately $51.3 million.
However, based upon the projections for Reorganized Leap (which will be the
holding company for the Cricket companies following the Effective Date of the
Reorganization) attached hereto as Exhibit G, the going concern enterprise
valuation of Reorganized Leap prepared by UBS Securities LLC and attached hereto
as Exhibit M, the recent prices that potential secondary purchasers are willing
to pay for the Old Vendor Debt and Old Leap Notes in the market, and other
factors, the Debtors believe the Cricket companies are completely insolvent.
STATEMENT REGARDING FINANCIAL PERFORMANCE OF CRICKET FOR SECOND QUARTER
2003
As of June 30, 2003, Cricket had 1,459,707 subscribers, down
53,770 subscribers from March 31, 2003. The Debtors believe that a significant
portion of the decline in subscribers since March
2
31, 2003 is due to the reaction of the market and subscribers to Cricket's
bankruptcy filing. The Debtors' financial projections anticipate that Cricket
will have 1,430,184 subscribers at September 30, 2003.
Total service revenue for the second quarter of 2003 was
$161.1 million compared to $162.0 million in the Cricket Cash Budget. Total
equipment revenue during such period was $23.2 million compared to $19.5 million
in the Cricket Cash Budget for the same period.
Cricket's unrestricted cash and short-term investments for the
period increased by $53.4 million (rising to $171.0 million as of June 30, 2003)
compared to the Cricket Cash Budget, which projected an increase of $4.2 million
over the same period. Generally, the additional cash was generated through (i)
changes in working capital (excluding cash and short-term investments,
inter-company payables and current maturities of long-term debt) of $37.3
million resulting primarily from an increase in accounts payable and accrued
liabilities generally arising from the impact of the bankruptcy filing on the
Debtors' ability to pay pre-petition obligations, and (ii) net income, adjusted
for non-cash items, of $16.9 million, offset by cash capital expenditures. Net
income for the period was higher than projected primarily as a result of adding
fewer than the projected number of new subscribers for the period.
Cricket's EBITDA for the second quarter of 2003 was $23.7
million, an increase of $8.7 million from the $15.0 million of EBITDA recorded
in the first quarter of 2003. Approximately $4.8 million of this increase
resulted from the reclassification of restructuring expenses in the second
quarter from "General and Administrative Expenses" to "Other Expenses." ("Other
Expenses" are not included in the calculation of EBITDA). The remaining $3.9
million increase in EBITDA resulted from several factors, including decreased
expenses (handset subsidies, dealer commissions, etc.) associated with the
slow-down in customer acquisitions. Although a reduction in customer
acquisitions tends to increase EBITDA in the short-term (because of reduced
customer acquisition costs), it is bad for the company's business in the long
term because it decreases the company's revenue and EBITDA streams.
The Projections attached to this Disclosure Statement as
Exhibit G were prepared as of July 16, 2003 and include updates by the Debtors
to reflect the declines in subscribers being experienced by the Debtors while in
bankruptcy, their post-petition financial performance and other factors.
The results described above for Cricket for the three months
ended June 30, 2003 are not necessarily indicative of future results.
SECTION III.
SIGNIFICANT PREPETITION TRANSACTIONS
A. LEAP WIRELESS INTERNATIONAL, INC.
Units Offering. In February 2000, Leap completed an offering
of 225,000 senior units, each senior unit consisting of one 12 1/2% Senior Note
and one warrant to purchase Old Leap Common Stock, and 668,000 senior discount
units, each senior discount unit consisting of one 14 1/2% Senior Discount Note
and one warrant to purchase Old Leap Common Stock. The total gross proceeds from
the sale of the senior units and senior discount units were $225.0 million and
$325.1 million, respectively. Leap used the net proceeds of the offering for
capital expenditures, acquisitions of wireless licenses, strategic investments,
repayment of debt and general corporate purposes. The warrants issued in the
units offering are exercisable for an aggregate of 2,829,854 shares of Old Leap
Common Stock at an exercise price of $96.80 per share from February 23, 2001 to
before April 15, 2010.
Leap has outstanding 225,000 Senior Notes and 668,000 Senior
Discount Notes. Each note has a principal amount at maturity of $1,000. Interest
on the 12 1/2% Senior Notes is payable semi-annually. The 14 1/2% Senior
Discount Notes begin accruing Cash interest on April 15, 2005, with the
3
first semi-annual interest payment due October 15, 2005. At March 31, 2003, the
effective interest rates on the 12 1/2% Senior Notes and 14 1/2% Senior Discount
Notes were 15.8% and 16.3% per annum, respectively. Each 14 1/2% Senior Discount
Note has an initial accreted value of $486.68 and a principal amount at maturity
of $1,000.
At the time the 12 1/2% Senior Notes were issued, Leap
purchased a portfolio of U.S. government debt securities and pledged such
securities to provide for the payment of scheduled interest payments on Leap's
12 1/2% Senior Notes through April 2003. Under the terms of the pledge
agreement, amounts in the pledged account also secure the repayment of all other
obligations under the 12 1/2% Senior Notes, if the notes are accelerated before
the first seven interest payments on the notes are paid in full. Leap filed its
Chapter 11 petition on April 13, 2003, prior to the payment of the seventh
interest payment secured by the pledged account. By order entered by the Court
on April 18, 2003, the holders of 12 1/2% Senior Notes received approximately
$14.1 million reflecting the amount of interest owing as of April 15, 2003.
Approximately $200,000 remains in the pledged account for the benefit of the
holders of the 12 1/2% Senior Notes. Thus, the holders of the 12 1/2% Senior
Notes have secured Claims in the aggregate amount of approximately $200,000
(Leap Class 1B Claims) and General Unsecured Claims for the remaining amounts
owing under the notes (Leap Class 4 Claims).
Leap may redeem any of the Old Leap Notes beginning April 15,
2005. The initial redemption price of the 12 1/2% Senior Notes is 106.25% of
their principal amount plus accrued interest. The initial redemption price of
the 14 1/2% Senior Discount Notes is 107.25% of their principal amount at
maturity plus accrued interest. In addition, before April 15, 2003, Leap may
redeem up to 35% of both the 12 1/2% Senior Notes and the 14 1/2% Senior
Discount Notes using proceeds from certain qualified equity offerings at 112.5%
of their principal amount and 114.5% of their accreted value, respectively. The
Old Leap Notes are guaranteed by CCH, Backwire.com, Inc. and Telephone
Entertainment Network, Inc. The terms of the Old Leap Notes include covenants
that restrict Leap's ability to, among other things, incur additional
indebtedness, create liens, pay dividends, make investments, sell assets, issue
or sell stock of some of Leap's subsidiaries, and effect a consolidation or
merger. These limitations are subject to a number of important qualifications
and exceptions contained in the Indenture.
Upon the occurrence of events constituting a change in control
of Leap, holders of the Old Leap Notes had the right to require Leap to
repurchase all or part of the Old Leap Notes for Cash at an aggregate purchase
price of 101% of the principal amount of the 12 1/2% Senior Notes or the
accreted value of the 14 1/2% Senior Discount Notes to be repurchased, as
applicable, plus accrued and unpaid interest thereon. In addition, in some cases
if Leap sold assets and did not use the net proceeds of the sale either to
retire senior debt or to reinvest in other assets that are used in the business
of Leap and its subsidiaries, Leap was required to offer to repurchase the notes
at a purchase price equal to 100% of the principal amount of the 12 1/2% Senior
Notes or accreted value of the 14 1/2% Senior Discount Notes, plus accrued and
unpaid interest thereon.
Events which would constitute an event of default under the
Old Leap Notes if they occurred included, among others, Leap's failure to make
payments under the Old Leap Notes and certain other debt when due, Leap's
failure to comply with covenants or other provisions of the Indenture, an event
of default occurs in respect of more than $5.0 million of other indebtedness of
Leap or its subsidiaries that results in the acceleration of such indebtedness
before its maturity, or bankruptcy or insolvency of Leap or some of its
subsidiaries. In the case of an event of default arising from bankruptcy or
insolvency, all outstanding Old Leap Notes would become due and payable
immediately. No event of default under the Old Leap Notes existed prior to the
commencement of the Chapter 11 Cases.
Equity Offerings. In February 2000, Leap completed a public
equity offering of 4,000,000 shares of Old Leap Common Stock at a price of
$88.00 per share. Net of underwriters' discounts and commissions and offering
expenses, Leap received $330.0 million. Leap used the net proceeds of this
offering for capital expenditures, acquisitions of wireless licenses, strategic
investments, repayment of debt and general corporate purposes. In May 2001, Leap
completed an underwritten public offering of
4
3,000,000 shares of Old Leap Common Stock at a price of $33.50 per share. Net of
underwriting discounts and commissions and offering expenses, Leap received
$97.9 million. Leap used the net proceeds of this offering for acquisitions,
spectrum purchases and for general corporate purposes.
Chase Telecommunications Holdings. In March 2000, Leap
completed the acquisition of substantially all of the assets of Chase
Telecommunications Holdings, Inc., including wireless licenses. The purchase
price included $6.3 million in Cash, the assumption of principal amounts of
liabilities that totaled $138.0 million (with a fair value of $131.3 million), a
warrant exercisable to purchase 202,566 shares of Old Leap Common Stock at an
aggregate exercise price of $1.0 million (which had a fair value of $15.3
million at the acquisition date), and contingent earn out payments of up to
$41.0 million (plus certain expenses) based on the earnings of the business
acquired during the fifth full year following the closing of the acquisition. In
July 2001, Chase Telecommunications Holdings received 89,345 shares of Old Leap
Common Stock upon exercising a portion of the warrant by surrendering 107,567
shares in payment of the exercise price.
Smartcom. From April 1999 to the date of sale on June 2, 2000,
Leap owned 100% of Smartcom, S.A. ("Smartcom"), a Chilean corporation that
operates a nationwide wireless network in Chile. On June 2, 2000, Leap completed
the sale of Smartcom to Endesa S.A. in exchange for gross consideration of
approximately $381.5 million, consisting of $156.8 million in Cash, three
promissory notes totaling $143.2 million, subject to post closing adjustments,
the repayment of intercompany debt due to Leap by Smartcom totaling $53.3
million, and the release of cash collateral posted by Leap securing Smartcom
indebtedness of $28.2 million. Leap recognized a gain on sale of Smartcom of
$313.4 million before related income tax expense of $34.5 million during the
quarter ended June 30, 2000. In February 2001, Leap sold one of the promissory
notes, with an original principal amount of $58.2 million plus accrued interest,
to a third party for $60.7 million. In June 2001, Endesa repaid $47.5 million of
principal and accrued interest for the second promissory note. The remaining
promissory note of $35.0 million is subject to a right of set-off to secure
indemnification claims under the purchase agreement. Endesa has asserted claims
of up to approximately $48.7 million against Leap for breach of representations
and warranties under the purchase agreement and has notified Leap that it is
offsetting the claims against the unpaid balance of the note. The note matured
on June 2, 2001 and Leap expects it to remain unpaid until the issues related to
the claims are resolved. Leap has caused its wholly owned Chilean subsidiary to
be merged with and into Leap. Therefore, the $35.0 million note is owned by
Leap, and the claims of Endesa are against Leap. Leap believes that Endesa's
claims are without merit, and Leap is contesting Endesa's claims. Management of
Leap believes that the ultimate outcome of this matter will not have a material
adverse effect on its consolidated financial position, results of operations or
cash flows.
Cricket Communications Holdings. On June 15, 2000, through a
subsidiary merger, Leap acquired the remaining 5.11% of CCH that it did not
already own. These shares were owned by individuals and entities, including
directors and employees of Leap and CCH. Each issued and outstanding share of
Old CCH Common Stock not held by Leap was converted into the right to receive
0.315 of a fully paid and non-assessable share of Old Leap Common Stock. As a
result, 1,048,635 shares of Old Leap Common Stock were issued. Leap also assumed
Chase Telecommunications Holdings' warrant to purchase 1% of Old CCH Common
Stock, which was converted into a warrant to acquire 202,566 shares of Old Leap
Common Stock, at an aggregate exercise price of $1.0 million. In addition, Leap
assumed all unexpired and unexercised CCH stock options outstanding at the time
of the merger, whether vested or unvested, which upon conversion amounted to
options to purchase 407,784 shares of Old Leap Common Stock.
Common Stock Purchase Agreement. In December 2000, Leap
entered into a common stock purchase agreement with Acqua Wellington North
American Equities Fund, Ltd. ("Acqua Wellington") under which Leap may, at its
discretion, sell up to a maximum of $125.0 million of registered Old Leap Common
Stock from time to time over the succeeding 28-month period. Under the
agreement, Leap may require Acqua Wellington to purchase between $10.0 and $25.0
million of Old
5
Leap Common Stock, depending on the market price of Old Leap Common Stock,
during each of one or more 18 trading day periods. Leap cannot require Acqua
Wellington to purchase Old Leap Common Stock if the market price of Old Leap
Common Stock is less than $15 per share. Under the purchase agreement, Leap may
grant to Acqua Wellington an option to purchase up to an equal amount of Old
Leap Common Stock that Leap requires it to purchase during the same 18 trading
day period. Acqua Wellington purchases the Old Leap Common Stock at a discount
to its then current market price, ranging from 4.0% to 5.5%, depending on Leap's
market capitalization at the time Leap requires Acqua Wellington to purchase Old
Leap Common Stock. A special provision in the agreement (as amended and
restated) allowed the first sale of Old Leap Common Stock under the agreement to
be up to $55.0 million. In January 2001, Leap completed the first sale of Old
Leap Common Stock under the agreement, issuing 1,564,336 shares to Acqua
Wellington in exchange for $55.0 million. In July 2001, Leap completed the
second sale of Old Leap Common Stock under the agreement, issuing 521,396 shares
of Old Leap Common Stock to Acqua Wellington in exchange for $15.0 million. Leap
used the proceeds of these sales for acquisitions and wireless license purchases
and for general corporate purposes.
Qualcomm Term Loan. In January 2001, Leap entered into a
secured loan agreement with Qualcomm Incorporated under which Qualcomm agreed to
loan Leap approximately $125.3 million to finance its acquisition of wireless
licenses in the FCC's broadband PCS auction completed in January 2001 ("Auction
35"). In March 2001, Qualcomm funded borrowings of the full amount available
under the agreement by transferring to Leap an FCC auction discount voucher, and
Leap issued promissory notes in favor of Qualcomm for an aggregate principal
amount of $126.6 million, representing $125.3 million for the value of the
auction discount voucher and $1.3 million for a commitment fee due to Qualcomm
at the initial borrowing. In August 2001, at the request of Qualcomm, Leap
agreed to return the auction discount voucher to Qualcomm, cancel the $125.3
million loan and reestablish the availability for either a cash loan or a
re-borrowing of the auction discount voucher in the future, however Leap does
not expect to be able to satisfy the conditions precedent to make any further
draws under this facility. Leap must repay any loans, including the $1.5 million
of fees due under the loan at March 31, 2003, and accrued interest to Qualcomm
in a single payment no later than March 2006. Loans under the agreement bear
interest at a variable rate, depending on the collateral Leap provides, equal to
LIBOR plus 7.5% to 12.5% per annum.
Auction 35. Leap was the winning bidder for 22 wireless
licenses covering approximately 24.1 million potential customers in the FCC's
Auction 35. The former holder of the licenses challenged the validity of Auction
35 in court, and the licenses were never granted to Leap. In December 2002, Leap
accepted an offer from the FCC and withdrew from its commitment and right to
purchase the licenses on which it was the successful bidder in Auction 35. In
connection with that withdrawal, Leap received a refund of $10.5 million in
payments it had made to the FCC relating to Auction 35, which was in addition to
the $74.2 million received earlier in the year. Leap has applied for a refund of
the remaining approximately $268,000 of payments it made to the FCC in
connection with Auction 35.
MCG. In June 2001, Leap acquired wireless licenses in Buffalo
and Syracuse, New York from MCG PCS, Inc. for an aggregate of $18.3 million in
Cash and an $18.0 million convertible promissory note with interest at the rate
of 8.5% per annum, with principal and interest payable at maturity on June 15,
2002. The note was secured by a pledge of the outstanding stock of a wholly
owned subsidiary of Leap that owns the Buffalo, New York wireless license. The
$18.0 million promissory note was repaid in full in June 2002. In connection
with the acquisitions of wireless licenses in Buffalo and Syracuse, MCG asserted
that, based on the prices of certain wireless licenses auctioned by the FCC in
Auction 35, it was entitled to a purchase price adjustment pursuant to the terms
of the purchase agreement for such licenses. The matter was submitted to binding
arbitration and in August 2002 the arbitrator determined that the seller was
entitled to a purchase price adjustment of $39.8 million payable immediately in
Cash, or, in Leap's sole discretion, approximately 21 million shares of Old Leap
Common Stock. In August 2002, Leap paid the purchase price adjustment to MCG
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by issuing 21,020,431 shares of Old Leap Common Stock, representing
approximately 36% of the outstanding Old Leap Common Stock, and approximately
28% of Old Leap Common Stock on a fully diluted basis, following such issuance.
The issuance of Old Leap Common Stock to the seller without the consent of the
Holders of Old Vendor Debt constituted an event of default under the Vendor Debt
Facilities. In addition, because the award was payable immediately, Leap did not
obtain stockholder approval of the issuance as required by the rules of the
Nasdaq National Market. Old Leap Common Stock was delisted from the Nasdaq
National Market on December 11, 2002 and began trading on the OTC Bulletin
Board. In December 2002, Leap paid approximately $1.4 million to MCG in
satisfaction of the arbitration award regarding attorneys' fees, expenses and
costs.
Pegaso. Leap was a founding shareholder and made investments
in and loans to Pegaso Telecomunicaciones, S.A. de C.V. ("Pegaso"), a company
providing wireless service in Mexico, totaling $120.5 million. In the fourth
quarter of fiscal 2001, Leap discontinued its use of the equity method of
accounting for Pegaso and ceased recognizing its share of Pegaso's losses
because its investment in and loans to Pegaso had been reduced to zero on its
books of account. In September 2002, Leap completed the sale of its 20.1%
interest in Pegaso to Telefonica Moviles, S.A. At the closing, Leap received
cash proceeds of approximately $22.2 million for the sale of its shares. In
October 2002, Leap received approximately $15.8 million of additional cash from
a loan repayment related to the sale. In connection with the sale, Leap was
released from its obligations under a $33 million guarantee to Qualcomm
Incorporated ("Qualcomm") of Pegaso's outstanding capital loans from Qualcomm,
by delivering to Qualcomm its rights under the warrants it acquired in
connection with the guarantee. Pursuant to Cricket's Vendor Debt Facilities,
Leap was obligated to set aside or contribute to the Cricket companies
approximately $25.8 million of the proceeds from the sale of Pegaso. Because of
the financial condition and expected restructuring of Leap and Cricket, however,
Leap did not make the set asides and contributions and instead retained the
funds at Leap. Leap's failure to contribute or set aside those amounts was a
breach of contract by Leap and an additional event of default under the Vendor
Debt Facilities.
Securities Class Action Litigation. Between December 5, 2002
and February 7, 2003, nine securities class action lawsuits were filed against
Leap, Harvey P. White, Leap's Chairman and Chief Executive Officer ("White"),
Susan G. Swenson, Leap's President, Chief Operating Officer and director
("Swenson"), and Manford Leonard, Leap's Vice President and Controller
("Leonard"), in the United States District Court for the Southern District of
California on behalf of all persons who purchased or otherwise acquired Old Leap
Common Stock from February 11, 2002 through July 24, 2002 (the "Class Period").
The nine lawsuits are captioned: (1) Solomon Schechter v. Leap, White, Swenson
and Leonard, Case No. 02-CV-02385-J (JAH); (2) James Threkeld v. Leap, White,
Swenson and Leonard, Case No. 2455-J (POR); (3) Jack Hearn v. Leap, White,
Swenson and Leonard, Case No. 02-CV-2515-BTM (LSP); (4) Jonathan Crowell,
Trustee of the Cornelia I. Crowell Trust v. Leap, White, Swenson and Leonard,
Case No. 02-CV-2514-JM (LAB); (5) Bridget Gillen v. Leap, White, Swenson and
Leonard, Case No. 02-CV-2545-J (JFS); (6) Andrew Bennet v. Leap, White, Swenson
and Leonard, Case No. 02-CV-2563-IEG (JFS); (7) Reginald J. Hudson v. Leap,
White, Swenson and Leonard, Case No. 03-CV-0072-K (JAH); (8) Cyril Marsden v.
Leap, White, Swenson and Leonard, Case No. 03-CV-0158-H (JAH); and (9) Gary
Kissinger v. Leap, White, Swenson and Leonard, Case No. 03-CV-0257-JM (RBB).
These lawsuits are virtually identical and each alleges that the defendants
violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and
Rule 10b-5 promulgated thereunder, by issuing a series of material
misrepresentations to the market during the Class Period, thereby artificially
inflating the price of Old Leap Common Stock. Plaintiffs allege that defendants
concealed the deteriorated value of Leap's wireless licenses by relying upon a
fraudulent impairment test of those assets, which resulted in a gross and
material overstatement of the value of Leap's assets in its financial
statements. The actions seek an unspecified amount of damages, plus costs and
expenses related to bringing the actions. On March 14, 2003, the Court entered
plaintiffs' stipulation and order for the appointment of lead plaintiffs and
approval of lead plaintiffs' selection of lead counsel and ordered the cases
consolidated under the caption In re Leap Wireless International, Inc.
Securities Litigation, Case No. 02-CV-2388J (AJB). On May 23, 2003,. the
plaintiffs filed an amended complaint that only
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named White and Swenson as defendants.
Derivative Action. On February 24, 2003, plaintiff Steven
Zawalick filed a purported derivative action on behalf of Leap against Morgan
Stanley & Co., Inc., Donaldson Lufkin Jenrette Securities Corporation, Bear
Stearns & Co., Inc., ABN AMRO Incorporated and Credit Suisse First Boston Corp.,
each of whom were initial purchasers in the private placement of Old Leap Notes
on February 23, 2000, and nominally against Leap, in the Supreme Court of the
State of New York, Case
No. 03600591. The complaint alleges that the sales were disguised loan brokerage
transactions and that the investment banking firms charged excessive brokerage
fees in violation of New York General Obligations Law Section 5-531, which
limits the fees payable to loan brokers. The complaint seeks compensatory
damages, costs and fees in connection with bringing suit, and other remedies.
Leap believes the plaintiff lacked a right to bring the claim, that the
complaint violates the automatic stay and that the claim is without merit and
intends to defend the case vigorously.
Nasdaq Delisting. On December 11, 2002, Old Leap Common Stock
was delisted from the Nasdaq National Market and began trading on the OTC
Bulletin Board.
B. CRICKET COMMUNICATIONS, INC.
Purchase Agreements. Cricket has entered into purchase
agreements with each of Lucent, Nortel and Ericsson for the purchase of network
infrastructure products and services. Prior to filing the Petition, consistent
with the terms and conditions of the purchase agreements, Cricket transferred
equipment, software, licenses and certain contract rights under the Lucent,
Nortel and Ericsson purchase agreements to each of Cricket Performance I, Inc.,
Cricket Performance II, Inc. and Cricket Performance III, Inc., respectively.
Each of these transferees is a Delaware corporation and wholly-owned subsidiary
of Cricket. None of Cricket Performance I, Inc., Cricket Performance II, Inc. or
Cricket Performance III, Inc. have filed for bankruptcy.
Cricket and Lucent are currently negotiating the terms under
which Cricket may assume its purchase agreement with Lucent, if at all. In
connection with those negotiations, Lucent has challenged the validity of the
pre-petition transfers of equipment, software, licenses and contract rights to
Cricket Performance I, Inc. However, Cricket believes the transfers were valid.
Lucent and Cricket continue to negotiate with respect to outstanding disputes
under the purchase agreement and a possible assumption of the purchase
agreement. If the parties do not reach agreement, their disputes concerning the
purchase agreement may be brought before the Bankruptcy Court for resolution.
Failure to reach an agreement could eventually lead to Cricket's rejection of
the Lucent purchase agreement, and to a decision by Lucent not to sell products
and services to Reorganized Cricket, including software enhancements and
upgrades. A FAILURE BY CRICKET AND LUCENT TO RESOLVE THEIR CURRENT DISPUTES
CONCERNING THE PURCHASE AGREEMENT COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
REORGANIZED DEBTORS AND CRICKET PERFORMANCE I AND THEIR BUSINESSES FOLLOWING THE
EFFECTIVE DATE.
Nortel Networks disputes the validity of Cricket's purported
transfer of the RTU License and the RTM License for the software furnished
Cricket under the Amended and Restated System Equipment Purchase Agreement dated
as of December 23, 2002, between Cricket and Nortel Networks, as well as
Cricket's purported transfer of any other equipment, software, licenses or other
contract rights, to Cricket Performance II or any other entity. Among other
things, Nortel Networks asserts that its contract expressly states that it may
not be assigned by Cricket without the express prior written consent of Nortel
Networks, which consent was not given. However, Cricket believes that the
transfers were valid. Notwithstanding the foregoing, Cricket and Nortel Networks
currently are negotiating the terms under which Reorganized Cricket may assume
Cricket's purchase agreement with Nortel Networks, if at all. If the parties do
not reach agreement, their disputes concerning, among other things, the purchase
agreement and the assignment of portions thereof may be brought before the
Bankruptcy Court for resolution. A failure by Cricket and Nortel Networks to
resolve their disputes concerning the purchase agreement could eventually lead
to Cricket's rejection of the Nortel Networks purchase
8
agreement, and to a decision by Nortel Networks not to sell products and
services to Reorganized Cricket, including software enhancements and upgrades. A
FAILURE BY CRICKET AND NORTEL NETWORKS TO RESOLVE THEIR CURRENT DISPUTES
CONCERNING THE PURCHASE AGREEMENT COULD HAVE A MATERIAL ADVERSE EFFECT ON THE
REORGANIZED DEBTORS AND CRICKET PERFORMANCE II, INC. AND THEIR BUSINESSES
FOLLOWING THE EFFECTIVE DATE.
Vendor Financing. In connection with the purchase agreements
described above, Cricket entered into Vendor Debt Facilities with each of
Lucent, Nortel and Ericsson to finance purchases of network infrastructure
products and services plus interest expense and other costs and origination and
commitment fees related to the credit facilities. As of the Petition Date,
Cricket was in default under each of its Vendor Debt Facilities. As of March 31,
2003, Cricket had approximately $1,614.3 million outstanding under its Vendor
Debt Facilities. Substantially all of the indebtedness originally issued under
the Vendor Debt Facilities has been resold to approximately 100 institutional
investors by each of Lucent, Nortel and Ericsson and their transferees. These
institutional investors now constitute almost all of the Holders of the Old
Vendor Debt, and several of these institutional investors now comprise the
Informal Vendor Debt Committee. In addition, as of March 31, 2003, Cricket had
$49.9 million payable to Lucent, Nortel and Ericsson for the purchase of
equipment and services.
Because of the events of default under the Vendor Debt
Facilities, each of the lenders under those facilities terminated their
commitments under the Vendor Debt Facilities. The defaults also provide the
lenders under such facilities with various rights under their Vendor Debt
Facilities and related security agreements, including the right to foreclose on
the collateral pledged to secure the outstanding loans, subject to the requisite
approval of the Bankruptcy Court. The loans to Cricket under the Old Vendor Debt
facilities were guaranteed by CCH, the License Holding Companies and the
Property Holding Companies. The Collateral pledged to secure the Old Vendor Debt
includes all of the stock of Cricket, substantially all of the License Holding
Companies and the Property Holding Companies, and all of their respective
assets, and all of the assets of CCH. Thus, the holders of Old Vendor Debt
Claims have secured claims against CCH, Cricket, substantially all of the
License Holding Companies and the Property Holding Companies equal to the value
of the Collateral and general unsecured claims against such entities to the
extent of any deficiency. As noted above, Leap pledged the stock of
substantially all of the License Holding Companies owned by Leap to secure the
outstanding loans to Cricket under the Old Vendor Debt facilities, but Leap did
not expressly guarantee the loans. Thus, the holders of the Old Vendor Debt
Claims also have secured claims against Leap equal to the value of the stock
pledged by Leap as Collateral and General Unsecured Claims against Leap,
including any undersecured Claim that could be asserted by operation of the
Bankruptcy Code.
Lucent, Nortel and Ericsson originally agreed to share
collateral and limit total loans secured thereunder to $1,845.0 million.
Borrowings under each of the Vendor Debt Facilities accrued interest at a rate
equal to LIBOR plus 3.5% to 4.25% or a bank base rate plus 2.5% to 3.25%, in
each case with the specific rate based on the ratio of total indebtedness to
EBITDA, as defined in the Vendor Debt Facilities. If an event of default has
occurred and is continuing, the administrative agent under a Vendor Debt
Facility, at the request of the lenders under the Vendor Debt Facility, may
restrict Cricket's ability to choose LIBOR interest rates for outstanding
borrowings. Any rate that is not paid when due under a Vendor Debt Facility will
bear interest after the due date at the rate then applicable to base rate loans
plus 2%. The Vendor Debt Facilities provide that principal payments under each
of the Vendor Debt Facilities were scheduled to begin in December 2002 for
Lucent and in December 2003 for Nortel and Ericsson, with a final maturity in
June 2007 for Lucent and in September 2008 for Nortel and Ericsson. Repayment of
principal is required in 20 quarterly payments, with the annual principal
repayments totaling 10%, 15%, 20%, 25% and 30% of the principal outstanding at
the end of the availability period, respectively, during the first through fifth
years following the end of the availability period. Cricket did not make the
first principal payment due in December 2002 under the Lucent Vendor Debt
Facility, which constituted an event of default under the agreement. Borrowings
under the Vendor Debt Facilities at March 31, 2002 had a weighted-average
effective interest rate of 10.1% per annum. The Vendor Debt Facilities require
that Cricket maintain interest rate cap agreements so that 50% of the
9
long-term indebtedness of Cricket either bears interest at a fixed rate or is
covered by interest rate cap agreements.
Remaining fees currently due Nortel, Lucent, Ericsson and
others under the Vendor Debt Facilities (which fees also constitute Old Vendor
Debt secured by the Collateral described above) include origination, commitment
and administrative agent fees totaling approximately $40.5 million.
Each of the Vendor Debt Facilities contain various covenants
and conditions, including minimum levels of customers and covered potential
customers that must increase over time, minimum revenues, minimum EBITDA, limits
on annual capital expenditures, dividend restrictions (other than the Nortel
Facility) and other financial ratio tests.
C. OTHERS
Debt Obligations to the FCC and Note Payable. As of the
Petition Date, certain of the License Holding Companies had assumed an aggregate
of approximately $78 million in debt obligations to the FCC as part of the
purchase price for wireless licenses. The terms of the notes include interest
rates ranging from 6.25% to 9.75% per annum and quarterly principal and interest
payments until maturity through July 2007. The notes were discounted using
management's best estimate of the prevailing market interest rate at the time of
purchase of the wireless licenses ranging from 9.75% to 10.75% per annum. At
March 31, 2003, the weighted-average effective interest rate for the License
Holding Companies' debt obligations to the FCC and GLH was 9.9% per annum.
In April 2002, Leap completed the exchange of certain wireless
licenses with GLH. Pursuant to the agreement, GLH assumed FCC debt totaling $8.4
million related to certain of the wireless licenses transferred to GLH in the
exchange. In consideration for GLH's assumption of the FCC debt, Leap provided
to GLH a note payable totaling $8.4 million, which is secured by a pledge of the
stock of Cricket Licensee XI, Inc., a Leap subsidiary that owns certain wireless
licenses that are not used in the Cricket business. In January 2003, Leap chose
not to make a payment of principal and accrued interest that was due on the
note, which constituted an event of default. Leap has received a notice of
default from GLH and a notice of acceleration of the principal and accrued
interest balance. GLH has also notified Leap that it intends to foreclose on the
collateral.
SECTION IV.
KEY EVENTS LEADING TO THE
COMMENCEMENT OF THE CHAPTER 11 CASES
A. PRE-PETITION PLAN NEGOTIATIONS
To address the Debtors' long-term financial needs, the
Debtors' management began developing plans to improve the Debtors' capital
structure. In order to maximize the recovery for their stakeholders, the
Debtors, with the assistance of their financial advisor, determined that this
could be achieved best through a restructuring. As such, in the Fall of 2002,
the Debtors facilitated the organization of the Informal Vendor Debt Committee
and the Informal Noteholder Committee and paid for financial and legal advisors
to such committees. Thereafter, the Debtors began negotiations with each of the
Informal Vendor Debt Committee and the Informal Noteholder Committee to develop
and consummate a consensual restructuring of the Old Leap Notes and the Old
Vendor Debt.
The major issue to be resolved between the Informal Vendor
Debt Committee and the Informal Noteholder Committee arose from the March 2002
amendments to the Vendor Debt Facilities. On March 18, 2002, Cricket and the
Holders of the Old Vendor Debt amended the Vendor Debt Facilities to revise
certain covenants dealing with EBITDA. Concurrently with those amendments, Leap
agreed to (a) transfer additional FCC licenses to License Holding Companies (and
thereby make such
10
licenses part of the Vendors' collateral pool) and (b) transfer Cash from Leap
to both Cricket and the License Holding Companies (the latter primarily to fund
obligations owing to the FCC with respect to licenses) (the "March Agreement").
Through August 2002, Leap made a variety of downstream transfers in accordance
with the March Agreement. For example:
- In March 2002, Leap transferred approximately $86.6
million to CCH as a capital contribution, and caused
CCH to transfer such amounts to Cricket as a capital
contribution.
- In May 2002, Leap transferred a refund from the FCC
(in the approximate amount of $34.5 million) to CCH
as a capital contribution, and caused CCH to transfer
such amounts to Cricket as a capital contribution.
- Between March and August 2002, Leap transferred 28
licenses to Cricket Licensee (Reauction), Inc.
Cricket Licensee (Reauction), Inc. had previously
executed a security agreement and guarantee in favor
of the Vendors. Also between March and August 2002,
Leap pledged the stock and assets of Cricket Licensee
(Albany), Inc., Cricket Licensee (Columbus), Inc. and
Cricket Licensee (Macon), Inc. to secure the
obligations of Cricket under the Vendor Debt
Facilities. Each of the foregoing License Holding
Companies executed security agreements and guarantees
in favor of the Vendors in connection with such
pledge.
If Leap had not executed the March Agreement and the Holders
of Old Vendor Debt had terminated the Vendor Debt Facilities and exercised
remedies, the entire Leap/Cricket corporate enterprise could have been
threatened. Moreover, a default and acceleration under the Vendor Debt
Facilities would have caused an Event of Default under the Indenture.
The Informal Noteholder Committee alleged that the March
Agreement (and related downstream transfers and/or pledges of Cash and assets by
Leap) constituted a fraudulent transfer. The Debtors and the Informal Vendor
Debt Committee disputed those allegations. The Informal Vendor Debt Committee
alleged that Leap breached its obligations under the March Agreement by failing
to make certain additional downstream contributions required thereunder. In
order to avoid litigation and expense, the Debtors, the Informal Noteholder
Committee and the Informal Vendor Debt Committee agreed to resolve any dispute
arising from the March Agreement (and any other intercompany transfer between
the Debtors). That resolution is reflected in the terms and conditions of the
Plan. In essence, the Holders of Leap General Unsecured Claims will receive
their beneficial interests in the Leap Creditor Trust and the Leap General
Unsecured Claim Cash Distribution and, upon the occurrence of the Effective
Date, will receive the Leap General Unsecured Claim Equity Distribution
(representing 3.5% of the issued and outstanding shares of New Leap Common Stock
on the Effective Date), in exchange for a full settlement and mutual release of
any and all Litigation Claims and Intercompany Claims that could have been
asserted pre-petition (and any Litigation Claims arising out of any alleged
preference or fraudulent transfer) by any Debtor, its Estate, the Holders of
General Unsecured Claims against Leap and Holders of Old Vendor Debt as follows:
The Plan implements a compromise of any and all claims,
whether known or unknown, liquidated or contingent, asserted
or unasserted, for recoveries for fraudulent transfers,
preferences, breach of contract or any other actual or
potential cause of action, between and for the benefit of each
of the Debtors and their Estates (and their respective
officers, directors, professionals and agents), the Informal
Vendor Debt Committee and the Official Committee (and each
committee's respective members, professionals and agents in
such capacity) and, to the maximum extent permitted by law,
all current and former Holders of Old Vendor Debt (in the
capacity as such Holder) and current and former administrative
agents under the Vendor Debt Facilities (in the capacity as
such agent) and
11
Holders of Leap General Unsecured Claims, in each case with
respect to any and all transfers between the Debtors (other
than as expressly provided in the Plan). The occurrence of the
Confirmation Date is conditioned upon, among other matters,
the entry of a Confirmation Order describing and implementing
mutual general releases by each of the Debtors, the Official
Committee, the Informal Vendor Debt Committee, the Holders of
General Unsecured Claims against Leap and the Holders of Old
Vendor Debt in form and substance satisfactory to such
parties. The effectiveness of these releases to former Holders
of Old Vendor Debt (in the capacity as such Holder) and former
administrative agents under the Vendor Debt Facilities (in the
capacity as such agent) is expressly conditioned upon the
granting of mutual releases by such parties to Leap, its
Estate and
the Holders of Leap General Unsecured Claims. If a former
Holder of Old Vendor Debt (in the capacity as such Holder) or
former administrative agent under the Vendor Debt Facilities
(in the capacity as such agent) asserts any claim released
hereunder against Leap, its Estate and the Holders of Leap
General Unsecured Claims, such former Holder of Old Vendor
Debt (in the capacity as such Holder) or former administrative
agent under the Vendor Debt Facilities (in the capacity as
such agent) shall not be entitled to the benefits of the
releases described herein.
In April 2003, the Debtors and members of the Informal Vendor
Debt Committee and the Informal Noteholder Committee agreed to the general
business terms of the Plan.
SECTION V.
THE CHAPTER 11 CASES
A. DISCLOSURE STATEMENT AND PLAN CONFIRMATION HEARINGS
The Debtors filed this Disclosure Statement and the Plan with
the Court on July 30, 2003. The Court considered the adequacy of the Disclosure
Statement and the Plan at hearings on June 17, 2003 and July 22, 2003. The
Confirmation Hearing in respect of the Plan has been scheduled for September 29,
2003 at 10:00 a.m., Pacific Time, before the Honorable Louise DeCarl Adler in
the United States Bankruptcy Court for the Southern District of California,
Jacob Weinberger U.S. Courthouse, 325 West F Street, San Diego, California
92101.
B. SIGNIFICANT MOTIONS DURING THE CHAPTER 11 CASES(5)
Simultaneous with the filing of their Petitions, the Debtors
filed numerous "first day" motions seeking orders from the Court authorizing the
Debtors to retain professionals and providing the Debtors certain relief from
certain administrative requirements imposed by the Bankruptcy Code. On April 14,
2003 and at various dates thereafter as reflected on the Docket, the Court
entered orders granting the Debtors the various forms of relief requested. In
particular, the Debtors obtained orders approving, inter alia, the following
motions and applications:
(a) MOTIONS RELATING TO ADMINISTRATION OF CASES:
(i) Motion for Order Directing the Joint Administration
of the Chapter 11 Cases;
(ii) Emergency Application for Order Under 28
U.S.C. Section 156(c) Authorizing the Retention of
Poorman-Douglas Corporation as Notice, Claims and
Data Management Agent for the Debtors;
- ------------------------
(5) For copies of motions filed by the Debtors, please log on to the Debtors'
website, www.leapreorganization.com.
12
(iii) Motion for Order Authorizing Debtors to Employ and to
Compensate Certain Professionals in the Ordinary
Course of Business;
(iv) Application to Retain and Employ and Compensate
Latham & Watkins LLP as General Bankruptcy Counsel
for the Debtors;
(v) Application to Retain UBS Securities LLC as Financial
Advisor to the Debtors; and
(vi) Motion for Order Establishing Notice and Service
Requirements in Debtors' Chapter 11 Cases and
Authorizing Debtors to Give Limited Notice.
(b) MOTIONS RELATING TO FINANCING:
(i) Motions for Interim (granted) and Final (pending)
Order Authorizing the Use of Cash Collateral and
Granting Replacement Liens.
(c) MOTIONS RELATING TO EMPLOYEES AND THE OPERATION OF THE
BUSINESS:
(i) Motion for Order (A) Authorizing Debtors to (1) Pay
Prepetition Employee Wages, Salaries, Bonuses and
Related Items, (2) Reimburse Prepetition Employee
Business Expenses, (3) Make Payments for Which
Payroll Deductions Were Made, (4) Make Prepetition
Contributions and Pay Benefits Under Employee Benefit
Plans and (5) Pay All Costs Incidental to the
Foregoing Payments and Contributions, and (B)
Authorizing and Directing Applicable Banks and Other
Financial Institutions to Receive, Process, Honor and
Pay Any and All Checks Drawn on Debtors' Accounts for
Such Purposes;
(ii) Motion for Order Authorizing Implementation of
Retention Plan;
(iii) Motion for Order Authorizing Implementation of
Severance Agreements for Senior Management; and
(iv) Motion for Order (I) Authorizing Continued Use of
Existing Business Forms and Records and Maintenance
of Existing Corporate Bank Accounts and Cash
Management Systems, (II) Approving Investment
Guidelines and (III) Authorizing Continuation of
Intercompany Transactions.
(d) MOTIONS RELATING TO VENDORS AND SUPPLIERS:
(i) Motion for Authority to Pay Certain Critical
Prepetition Trade Creditors in the Ordinary Course;
and
(ii) Motion for Order Pursuant to 11 U.S.C. Sections 105,
503(b), 507(a) and 366 (I) Prohibiting Utilities from
Altering, Refusing or Discontinuing Services on
Account of Prepetition Invoices and (II) Establishing
Procedures For Determining Requests for Additional
Adequate Assurance.
The Debtors have paid Allowed pre-petition amounts owing to the critical vendors
that the Debtors intend to pay pursuant to these motions; provided, however, the
Debtors are dealing separately with utilities pursuant to the Court Order with
respect to adequate assurance for utilities. The Debtors do not intend to make
any further payments to critical vendors based on prepetition amounts
outstanding.
13
(e) MOTIONS RELATING TO CUSTOMERS:
(i) Motion for an Order Pursuant to 11 U.S.C. Section
105(a) Authorizing, but not Directing, Debtors to
Honor Certain Prepetition Obligations to Consumer
Customers and to Continue Certain Consumer Customer
Programs and Practices.
(f) OTHER MOTIONS:
(i) Motion for Order Pursuant to Sections 105(a) and 541
of the Bankruptcy Code Authorizing the Debtors to Pay
Prepetition Sales and Use Taxes, Regulatory Fees and
Business License Fees and Directing Wells Fargo Bank
to Honor Prepetition Checks for Payment of
Prepetition Sales and Use Taxes, Regulatory Fees and
Business License Fees; and
(ii) Motion for Order Authorizing the Debtors to Reject
Certain Executory Contracts and Non-Residential Real
Property Leases Nunc Pro Tunc to the Petition Date.
C. DEADLINE TO FILE PROOF OF CLAIMS AND INTERESTS
On April 13, 2003, the Debtors also filed a motion seeking an
order (the "Bar Date Order") from the Court requiring any person or entity
holding or asserting a claim against the Debtors to file a written proof of
claim with Poorman-Douglas Corporation at the following address: Leap Wireless
International, Inc. c/o Poorman-Douglas Corporation, 10300 SW Allen Boulevard,
Beaverton, Oregon 97005, Attention: Leap Wireless International Claims
Processing, on or before 4:00 p.m. (Pacific Time) on June 28, 2003 (the "Bar
Date"). The motion requested that any person or entity that fails to timely file
a proof of claim will be barred, estopped and enjoined forever from voting on,
or receiving a distribution under, the Plan, and will be barred, estopped and
enjoined forever from asserting a Claim against the Debtors, their Estates,
Reorganized Debtors, and any of their successors or assigns. On April 14, 2003,
the Court entered the Bar Date Order and pursuant to such order, June 28, 2003
was established as the Bar Date.
The Debtors subsequently discovered that a number of parties
in interest who may hold claims against the Debtors were not served by mail with
the notice of the Bar Date by the Debtors (the "Additional Parties").
Accordingly, on June 30, 2003, the Debtors filed an ex parte motion for an order
fixing a supplemental Bar Date. By order dated July 28, 2003, the Court fixed
September 2, 2003 as the supplemental Bar Date with respect to the Additional
Parties.
The Bar Date for governmental entities was established by the
Court as July 28, 2003.
D. ASSUMPTION AND REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. ASSUMPTION AND CURE
The Debtors are parties to thousands of executory contracts
and non-residential real property leases. On or before 17 days prior to the
Voting Deadline, the Debtors will File a schedule of such contracts and leases
that they intend to assume or assign to another Debtor, along with proposed cure
amounts that will be paid by the Reorganized Debtors (the "Assumption
Schedule"). Within one business day following the Filing of the Assumption
Schedule, the Debtors will serve the Assumption Schedule on the non-debtor
parties to the contracts and leases set forth on the Assumption Schedule, the
Official Committee and the Informal Vendor Debt Committee. Any party to a
contract or lease who objects to the listed cure amounts must File and serve an
objection on counsel no later than thirty (30) days after the Debtors File and
serve the Assumption Schedule. Failure to File and serve a timely objection
shall be deemed consent to the cure amounts listed on the Assumption Schedule.
Any cure amounts shall be the responsibility of Reorganized Cricket.
14
Any monetary amount by which each executory contract and
unexpired lease to be assumed pursuant to the Plan is in default, if any, will
be satisfied, pursuant to Section 365(b)(1) of the Bankruptcy Code, at the
option of the applicable Reorganized Debtor: (a) by payment of the default
amount in Cash on the Effective Date or (b) on such other terms as are agreed to
by the parties to such executory contract or unexpired lease. All such payments
will be made by Reorganized Cricket. If there is a dispute regarding: (i) the
amount of any cure payment; (ii) the ability of a Reorganized Debtor to provide
"adequate assurance of future performance" (within the meaning of Section 365 of
the Bankruptcy Code) under the contract or lease to be assumed or assigned; or
(iii) any other matter pertaining to assumption, the cure payments required by
Section 365(b)(1) of the Bankruptcy Code will be made following the entry of a
Final Order resolving the dispute and approving the assumption.
The Confirmation Order will constitute an Order of the Court
approving the assumptions described on the Assumption Schedule, pursuant to
Section 365 of the Bankruptcy Code, as of the Effective Date. Notwithstanding
the foregoing, if, as of the date the Bankruptcy Court enters the Confirmation
Order, there is pending before the Bankruptcy Court a dispute concerning the
cure amount or adequate assurance for any particular contract or lease (or if
the time period for a non-Debtor to object to the cure amount has not yet
lapsed), the assumption of such contract or lease shall be effective as of the
date the Bankruptcy Court enters an order resolving any such dispute and
authorizing assumption by the applicable Debtor. Moreover, the assumption of the
Lucent System Equipment Purchase Agreement is conditioned upon payment by
Cricket of the applicable cure amount and Cricket demonstrating adequate
assurance of future performance.
Any executory contract or lease not listed on the Assumption
Schedule or that is not the subject of a motion to assume that is pending on the
Confirmation Date shall be deemed rejected as of the Confirmation Date. The
Debtors reserve the right to amend the Assumption Schedule at or prior to the
Confirmation Hearing. If the Debtors add a contract or lease to the Assumption
Schedule after the Assumption Schedule is originally Filed (as described above),
the Debtor party to the applicable contract or lease shall serve the non-Debtor
party to such contract or lease with notice (a) that the contract or lease has
been added to the Assumption Schedule and (b) of the Debtor's proposed cure
amount (the "Amended Assumption Schedule Notice"). The non-Debtor party shall
have 30 days after service of the Amended Assumption Schedule Notice to File and
serve an objection to the cure amount. To the extent the parties have a dispute
with respect to the cure amount, the Debtors shall create a reserve for the full
amount of the cure amount pending resolution of such dispute (either by
stipulation or court order). The reserve described in the preceding sentence
shall not be reduced by any other reserve established pursuant to the Plan.
The Debtors are early in their review of which contracts and
leases are to be assumed and which are to be rejected. Based on their review to
date, including a review of amounts currently shown as outstanding for such
leases and contracts in the Debtors' accounts payable system, the Debtors
currently believe that the total amount of cure payments for assumed leases and
contracts will not exceed $65 million. The Debtors have not yet finalized their
list of contracts and leases to be assumed, and the foregoing estimate could
vary materially after the Debtors have finally determined which contracts and
leases to accept and have negotiated or resolved any disputed cure amounts. All
such cure payments will be made by Reorganized Cricket.
2. REJECTION AND DAMAGES
On or before 17 days prior to the Voting Deadline, the Debtors
will File a schedule of executory contracts and non-residential real property
leases that they intend to reject (the "Rejection Schedule"). Within one
business day following the Filing of the Rejection Schedule, the Debtors will
serve the Rejection Schedule on the non-debtor parties to the contracts and
leases, the Official Committee and the Informal Vendor Debt Committee. The
Rejection Schedule will indicate those contracts and leases that will be
rejected as of the Confirmation Date, and which will be rejected on or before
the Effective Date. The Debtors reserve the right to amend the Rejection
Schedule at or prior to
15
the Confirmation Hearing. All Claims for damages arising from the rejection of
executory contracts or unexpired leases must be Filed with the Court in
accordance with the terms of the order authorizing such rejection, or, if not
rejected by separate order, within sixty (60) days from the entry of the
Confirmation Order. Any Claims not Filed within such time will be forever barred
from assertion against the Debtors, the Estates, the Reorganized Debtors and the
Leap Creditor Trust, unless a stipulation has been entered into with respect to
the rejection of such executory contract or unexpired lease by the applicable
Debtor and non-Debtor party, with the approval of the Official Committee or the
Leap Creditor Trust Trustee, as applicable, for executory contracts and
unexpired leases to which Leap is a party or with the approval of the Informal
Vendor Debt Committee for all other executory contracts and unexpired leases.
Each of the Allowed Claims arising from the rejection of executory contracts or
unexpired leases shall be treated as a General Unsecured Claim of the applicable
Debtor that was party to such contract or lease.
The Debtors are early in their review of which contracts and
leases are to be assumed and which are to be rejected. Based on that review to
date, the Debtors currently believe that the total amount of rejection damages
solely for Leap will not exceed $17 million. Leap has not yet finalized its list
of contracts and leases to be rejected, and the foregoing estimate could vary
materially after Leap has finally determined which contracts and leases to
reject, rejection damage claims have been filed by the other parties to
contracts and leases that are rejected, and such claims have been settled
between Leap and such parties or otherwise have been resolved. Any such
rejection damages will be classified as Class 4 General Unsecured Claims against
Leap, and such damages could materially impact the recoveries to Holders of
General Unsecured Claims against Leap.
Whether or not listed on the Rejection Schedule, any executory
contract or lease not listed on the Assumption Schedule or that is not the
subject of a motion to assume that is pending on the Confirmation Date shall be
deemed rejected as of the Confirmation Date. The Confirmation Order shall
constitute an Order of the Court approving such rejections described herein,
pursuant to Section 365 of the Bankruptcy Code.
E. PARTIES IN INTEREST AND PROFESSIONALS
1. THE DEBTORS' PROFESSIONALS
During the course of the Chapter 11 Cases, the Court has
approved the Debtors' retention of the following professionals to advise the
Debtors in a variety of areas: Latham & Watkins LLP (bankruptcy counsel) and UBS
Securities LLC (the Debtors' financial advisor). Moreover, pre- and postpetition
the Debtors investigated the potential of obtaining a third party equity
investment. At the request of the Informal Vendor Debt Committee, the Debtors
intend to file an application for Cricket to retain an investment banker to
continue the Debtors' efforts to solicit new equity investments from third
parties and to evaluate proposals regarding the same.
2. THE COMMITTEES AND THEIR PROFESSIONALS
On April 25, 2003, the United States Trustee for the Southern
District of California, pursuant to Section 1102 of the Bankruptcy Code,
appointed the Official Committee to represent the interests of all holders of
unsecured claims in Leap's Chapter 11 Case. The Official Committee currently
consists of the following creditors: Goldman Sachs & Co., Aspen Advisors LLC,
QUALCOMM Inc., Aquitania Partners, LP, Royal Bank of Canada and US Bank National
Assoc.
The Official Committee retained Kramer Levin Naftalis &
Frankel LLP and Irell & Manella as legal counsel and Chanin Capital Partners,
LLC as financial advisors. The Court has entered an order approving the
foregoing retentions. The Official Committee has employed no other professionals
during the pendency of the Chapter 11 Cases.
16
The Informal Vendor Debt Committee retained Andrews & Kurth
LLP and Pyle Sims Duncan & Stevenson as legal counsel, Goldberg, Godles, Wiener
& Wright as special FCC counsel, and Communications Technology Advisors (CTA),
as financial advisors.
SECTION VI.
THE FUTURE BUSINESS OF REORGANIZED DEBTORS
A. CAPITALIZATION AND STRUCTURE OF REORGANIZED DEBTORS
Except as otherwise provided in any provision of the Plan, on
the Effective Date, the Leap Creditor Trust Assets shall vest in the Leap
Creditor Trust and all property of the other Estates will vest in the
Reorganized Debtors, as applicable, free and clear of all Liens, Claims,
encumbrances and Interests. From and after the Effective Date, each Reorganized
Debtor may operate its business and use, acquire and dispose of property and
settle and compromise Claims or Interests arising post-Confirmation without
supervision by the Court and free of any restrictions of the Bankruptcy Code,
the Bankruptcy Rules or the Local Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and the Confirmation Order.
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Reorganized Debtors to make payments pursuant
to the Plan will be obtained from the Reorganized Debtors' Cash balances or
borrowings and the operations of the Reorganized Debtors. Notwithstanding the
foregoing, all Cash necessary for the Leap Creditor Trust Trustee to make
payments pursuant to the Plan will be obtained from Leap Creditor Trust Assets.
In sum, the Plan provides for a reorganization of the Debtors
under Reorganized Leap. Specifically, the means of executing and implementing
the Plan are as follows:
On the Effective Date, (i) the Old License Holding Company
Common Stock will be cancelled and each Reorganized License Holding Company will
issue to Reorganized Leap 100% of the issued and outstanding shares of New
License Holding Company Common Stock, (ii) the Old Other Subsidiary Common Stock
will be cancelled and each Reorganized Other Subsidiary will issue to
Reorganized Leap 100% of the issued and outstanding shares of New Other
Subsidiary Common Stock, and (iii) the Old Property Holding Company Common Stock
will be cancelled and each Reorganized Property Holding Company will issue to
Reorganized Cricket 100% of the issued and outstanding shares of New Property
Holding Company Common Stock.
Also on the Effective Date, (i) the Old Leap Common Stock will
be cancelled, (ii) Reorganized Leap will issue and contribute 96.5% of the
issued and outstanding shares of New Leap Common Stock to CCH, (iii) Reorganized
Leap will contribute all of the New License Holding Company Common Stock to CCH,
and (iv) CCH will contribute all of such New Leap Common Stock and New License
Company Common Stock to Reorganized Cricket. Following such contributions, on
the Effective Date, CCH will be merged with and into Reorganized Cricket in a
"tax-free" reorganization in compliance with Section 368(a)(1)(G) of the
Internal Revenue Code, pursuant to which the Old CCH Common Stock will be
converted into 100% of the issued and outstanding shares of New Cricket Common
Stock. As a result, Reorganized Leap will own 100% of the issued and outstanding
shares of Reorganized Cricket and each of the Reorganized Other Subsidiaries,
and Reorganized Cricket will own 100% of the issued and outstanding shares of
each of the Reorganized License Holding Companies, 100% of the issued and
outstanding shares of each of the Reorganized Property Holding Companies and,
temporarily until the distribution thereof to the Holders of Old Vendor Debt
Claims, 96.5% of the New Leap Common Stock.
17
On the Effective Date, or as soon thereafter as practicable,
the Holders of Old Vendor Debt Claims will receive from Cricket, on a Pro Rata
basis, 96.5% of the issued and outstanding shares of New Leap Common Stock and
New Senior Notes aggregating $350 million in principal amount.
On the Initial Distribution Date, and notwithstanding the
occurrence of the Effective Date: (a) Holders of Allowed Leap General Unsecured
Claims, including the Holders of Old Leap Notes, will receive, on a Pro Rata
basis, beneficial interests in the Leap Creditor Trust; (b) the Leap Creditor
Trust will receive the Leap General Unsecured Claim Cash Distribution
(approximately $80.0 million, minus a reserve in the approximate amount of $5
million for Administrative Claims against Leap, the actual amount of which may
vary materially; the amount initially withheld in reserve for Administrative
Claims and Priority Claims will be subject to negotiation between the Debtors
and the Official Committee); and (c) Holders of Allowed 12 1/2% Senior Secured
Claims will receive, on a Pro Rata basis, the 12 1/2% Senior Secured Claim
Distribution (approximately $200,000).
In addition, on the later of the Effective Date and the
Initial Distribution Date, Reorganized Leap will issue and transfer to the Leap
Creditor Trust: (a) 3.5% of the issued and outstanding shares of New Leap Common
Stock as of the Effective Date for Distribution to the Leap General Unsecured
Creditors and (b) the Leap Creditor Trust Assets (comprised of other assets that
have a value estimated to be approximately $30.0 million-$50.0 million(6)) for
subsequent sale and Distribution of the proceeds to the Leap General Unsecured
Creditors. The Leap Creditor Trust Trustee will be selected by the Official
Committee, and the identity of the Leap Creditor Trust Trustee will be submitted
to the Court no later than 10 days prior to the Confirmation Hearing. The "Leap
Creditor Trust Assets" to be transferred to the trust are the following assets:
(i) the PCS licenses in the Bemidji, Minnesota (10 MHz);
Brainerd, Minnesota (10 MHz); Escanaba, Michigan (10
MHz); Pueblo, Colorado (10 MHz); and Salem, Oregon
(10 MHz) BTAs and any cause(s) of action resulting
from the proposed sale thereof pursuant to a
previously executed agreement;
(ii) Leap's stake in the Idaho joint venture with NTCH;
(iii) any Leap cause(s) of action listed in Leap's
Schedules, including the cause of action related to
the Endesa note receivable, together with any Leap
causes of action that are not otherwise released
under the Plan and that do not have, or could
reasonably be expected to have, a material adverse
effect on the Debtors or the Reorganized Debtors or
their respective businesses or prospects, as
reasonably determined by the Debtors or the
Reorganized Debtors, with the prior approval of the
Informal Vendor Debt Committee (if such committee has
not disbanded) in accordance with the Plan;
(iv) any cause of action that is part of the Leap Estate
arising from Bankruptcy Code sections 542, 543, 544,
545, 547, 548, 549 or 550, that is not otherwise
released under the Plan and that is not against a
potential defendant that is a vendor, customer or
other party with whom the Debtors or the Reorganized
Debtors have, or reasonably expect to have, a
material business relationship, as reasonably
determined by the Debtors or the Reorganized Debtors,
with the prior approval of the Informal Vendor Debt
Committee (if such committee has not disbanded) in
accordance with the Plan;
- ------------------
(6) This range has been estimated by the Debtors based on prior testimony in
the Chapter 11 Cases that these assets had an aggregate value of
approximately $30 million, which the Debtors then increased to reflect what
the Debtors believe is an appropriate range of values for these assets
including the Endesa note receivable.
18
(v) any and all Tax Refunds that are to be delivered to
the Leap Creditor Trust in accordance with the Plan;
(vi) Cash in an amount equal to the Leap Deposits
(approximately $2.5 million, but if all such deposits
are assumed by the Reorganized Debtors and
corresponding amounts paid by Cricket, the maximum
amount would be approximately $3.3 million); and
(vii) the PCS licenses in the Bozeman, Montana (20 MHz);
Casper, Wyoming (15 MHz); Lewiston, Idaho (15 MHz);
and Redding, California (15 MHz) BTAs and any
cause(s) of action resulting from the proposed sale
thereof pursuant to a previously executed agreement.
IN ACCORDANCE WITH THE NEGOTIATED SETTLEMENT BETWEEN THE LEAP INFORMAL
NOTEHOLDER COMMITTEE AND THE INFORMAL VENDOR DEBT COMMITTEE LEADING TO THE PLAN,
ALL OTHER ASSETS OF LEAP THAT ARE NOT SPECIFICALLY LISTED ABOVE AND DEFINED AS
LEAP CREDITOR TRUST ASSETS IN THE PLAN WILL NOT BE TRANSFERRED TO THE LEAP
CREDITOR TRUST AND WILL REMAIN WITH REORGANIZED LEAP, INCLUDING FOR EXAMPLE
ONLY, OFFICE FURNITURE, FIXTURES, EQUIPMENT AND SUPPLIES; LEAP INTELLECTUAL
PROPERTY, INCLUDING THE "LEAP" TRADEMARK; RETIREMENT PLAN ASSETS; AND AN
INTER-COMPANY PAYABLE FROM CRICKET WHICH IS BEING RELEASED UNDER THE PLAN.
Following the Effective Date, after the satisfaction of all
Allowed Administrative Claims and Allowed Priority Claims against Leap and the
resolution of all Disputed Administrative Claims and Disputed Priority Claims
against Leap, any remaining Cash held in reserve by Leap will be distributed to
the Leap Creditor Trust. Notwithstanding anything set forth herein, if any Leap
Creditor Trust Assets are converted to Cash on or after the Initial Distribution
Date but prior to the Effective Date, the Cash proceeds shall be transferred to
the Leap Creditor Trust as soon as practicable upon such monetization,
notwithstanding the fact that the Effective Date has not occurred.
Holders of Old Leap Common Stock will receive nothing on
account of their Interests.
Subject to the provisions of the Plan, and except as otherwise
provided herein, property to be distributed hereunder to each Unimpaired Class
shall be distributed on the later of (i) the Effective Date and (ii) the date on
which the distribution to a Holder of a Claim in such Class would have been due
and payable in the ordinary course of business or under the terms of the Claim
in the absence of the Chapter 11 Cases. Notwithstanding any other provision of
the Plan, the Debtors, the Reorganized Debtors and the Leap Creditor Trust shall
not be obligated to make any distribution with respect to any unclassified
Claim, or any Allowed Claim, other than those in the hands of the Holders shown
on the books and records of the Debtors as of the Confirmation Hearing unless
otherwise identified on a Filed proof of claim.
FOR AN ILLUSTRATION THAT DEPICTS THE GENERAL CORPORATE
STRUCTURE OF THE DEBTORS BEFORE AND AFTER THE REORGANIZATION UNDER THE PLAN AND
THAT SUMMARIZES THE DISTRIBUTIONS UNDER THE PLAN TO LEAP'S GENERAL UNSECURED
CREDITORS AND THE HOLDERS OF OLD VENDOR DEBT CLAIMS, PLEASE SEE THE CHARTS
ATTACHED HERETO AS EXHIBIT O.
Notwithstanding the foregoing, the Debtors reserve the right
to merge, on or prior to the Effective Date with the consent of the Informal
Vendor Debt Committee, (a) one or more License Holding Companies into another
License Holding Company or into Cricket or Reorganized Cricket, and/or (b) one
or more Property Holding Companies into another Property Holding Company or into
Cricket or Reorganized Cricket.
19
B. CERTAIN INFORMATION REGARDING THE VALUES OF FCC WIRELESS LICENSES
One of Leap's stockholders, MCG PCS, Inc., has asserted that
the Debtors could fully repay all of their debt and still return substantial
value to Leap's stockholders. The Debtors strongly disagree with this assertion.
In attempting to advance its argument, MCG PCS, Inc. has raised questions about
the values of one of the principal assets held by the Debtors, their FCC
wireless licenses. Information concerning the value of the Debtors' wireless
licenses (much of which is presented in greater detail elsewhere in this
Disclosure Statement and the exhibits hereto) is set forth below.
The Debtors' wireless licenses are not mass commodities
purchased and sold at a fixed price. Instead, there is a limited demand for
these licenses and there is no formal trading market or quotation system for
proposed license sales. While over the last year a number of FCC wireless
licenses have been either sold, transferred or swapped, the Debtors believe that
only three of these transactions disclosed enough public information to infer
the valuation of the spectrum transferred in the transaction. Furthermore, the
Debtors believe that over the same time period, only one transaction was
completed where the licenses transferred were comparable to the Debtors'
wireless licenses.
Estimates of the value of the Debtors' wireless licenses may
span a fairly broad range depending on the time at which the licenses are valued
and the assumptions made in valuing the licenses. For example, a valuation that
considers a forced sale of the Debtors' licenses over a period of one year or
less would be substantially lower than a valuation that assumes the Debtors'
business was continuing successfully and the Debtors could, if they chose, sell
all or a portion of their licenses over a multi-year period in orderly sales
between a willing buyer and a willing seller. However, even though different
assumptions and valuation techniques may produce a broad range of values for the
Debtors' licenses, there are no reasonable prospects for any return to Leap's
stockholders because of the significant outstanding debt of the Debtors.
Each of the Debtors' wireless licenses has been granted by the
FCC and any transfer of a license requires the prior approval of the FCC. Each
wireless license covers a specific amount of spectrum or bandwidth (usually 10
megahertz, or MHz, 15 MHz or 30 MHz) for service to a particular geographic
region (one of 493 basic trading areas, or BTAs, categorized by the FCC).
Generally, there are at least six separate PCS wireless licenses covering each
BTA. Wireless licenses covering large metropolitan areas such as New York or
Chicago typically are substantially more valuable than licenses covering smaller
cities or rural areas such as Roswell, New Mexico or Casper, Wyoming. The values
of PCS wireless licenses generally have fluctuated dramatically over the past
several years. In addition, most of the Debtors' wireless licenses were issued
under FCC regulations designed to assist certain small businesses (known as
"designated entities") in the development of their wireless businesses (i.e.,
C-Block and F-Block licenses). These licenses may not be transferred to anyone
other than another "designated entity" until certain buildout requirements have
been met.
The Debtors have presented information about the values of
their wireless licenses in this Disclosure Statement and other filings in
connection with their bankruptcy proceedings:
- In the Schedules and Statements of Financial Affairs
filed with the United States Trustee, the Debtors
have presented the net book values of their licenses.
The net book value represents the costs of acquiring
such licenses less accumulated depreciation.
- In their liquidation analyses attached to this
Disclosure Statement as Exhibit F, the Debtors have
presented their best estimates of the liquidation
values of their wireless licenses, assuming that they
were sold in a distressed-sale environment over a
12-month period.
20
- In connection with the preparation of Leap's
consolidated financial statements, Standard & Poor's
Corporate Value Consulting previously delivered to
Leap valuations containing a range of values for the
entire portfolio of wireless licenses held by Leap
and the License Holding Companies in the aggregate,
but did not value each license individually. See
discussion under the heading "S&P Appraisals" set
forth below.
- The Debtors' financial advisor, UBS, performed a
going concern enterprise valuation for the entire
business of Reorganized Leap as of an assumed
Effective Date of September 30, 2003, which is
attached as Exhibit M. The valuation establishes a
range of estimated values for Reorganized Leap as an
operating business, which reflects the ongoing use of
its assets including its wireless licenses. (The UBS
going concern enterprise valuation did not reflect
the value of the wireless licenses held by Leap or
held by Leap subsidiaries whose stock has been
pledged as security to specific creditors other than
the Old Vendor Debt, and that will not be retained by
Reorganized Leap.)
The following table summarizes the results of the information
described above. Substantially all of the Debtors' wireless licenses are owned
by direct subsidiaries of Leap, referred to as the License Holding Companies.
The stock of most of the License Holding Companies and their wireless licenses
are used in the Cricket business and/or pledged for the benefit of the Holders
of Old Vendor Debt. Accordingly, these licenses are included as "Cricket
Licenses" in the table below (and will remain under the control of Reorganized
Leap following the Effective Date of the Plan). The licenses held by Leap are
included as "Leap Licenses" in the table below.
- -----------------------------------------------------------------------------------------------------------------
Standard & Poor's
Valuation as of Going Concern
Net Book Liquidation 12/31/02 (3) (as Enterprise
Value (1) Value (2) allocated by Leap) Value (4)
- -----------------------------------------------------------------------------------------------------------------
Cricket Licenses $723.6 million $258.2 million - $817.6 million - N/A
$336.9 million $1,184.9 million
- -----------------------------------------------------------------------------------------------------------------
Leap Licenses $4.6 million (5) $4.8 million - $23.4 million - N/A
$6.2 million $33.9 million (5)
- -----------------------------------------------------------------------------------------------------------------
Going Concern N/A N/A N/A $560 million -
$683 million
- -----------------------------------------------------------------------------------------------------------------
- -------------------
(1) Amounts shown reflect the costs of acquiring the
licenses, net of accumulated depreciation.
(2) Amounts shown reflect the repayment of the
outstanding purchase money secured debt attributable to certain of these
licenses as of the Petition Date, and exclude all wind-down costs and
transaction costs that would likely be associated with a liquidation of all of
such licenses.
(3) See discussion under the heading "S&P Appraisals" set
forth below. In connection with the preparation of Leap's consolidated financial
statements, Standard & Poor's Corporate Value Consulting previously delivered to
Leap a valuation containing a range of values for the entire portfolio of
wireless licenses held by Leap and the License Holding Companies as of December
31, 2002 in the aggregate, but did not value each such license individually.
Solely for purposes of this Disclosure Statement, Leap has apportioned the
aggregate value range as of December 31, 2002 set forth in the S&P report
between the Cricket Licenses and Leap
21
Licenses, entirely on the basis of the relative aggregate MHz-Pops (i.e., the
MHz of spectrum of a license multiplied by the aggregate population covered by
such license) for each such grouping of licenses. The Debtors believe that this
apportionment likely allocates excessive value to the Leap Licenses, as Leap
holds licenses covering smaller population sizes compared to the Debtors'
aggregate wireless license portfolio generally. Typically, wireless licenses
covering smaller populations are substantially less valuable per MHz-Pop than
licenses covering larger populations.
(4) See Exhibit M attached hereto. This going concern
enterprise valuation, performed by UBS as of July 17, 2003, is for the entire
business of Reorganized Leap as a going concern, including the use of its assets
(including wireless licenses) and assumes an Effective Date under the Plan of
September 30, 2003. This valuation is subject to the assumptions, limitations
and qualifications described in Exhibit M.
(5) Excludes three licenses held by Cricket Licensee XI,
Inc., a wholly owned subsidiary of Leap. The stock of Cricket Licensee XI, Inc.
has been pledged to secure the GLH Note.
S&P APPRAISALS
Leap and its subsidiaries are required to prepare financial
statements in accordance with generally accepted accounting principles (GAAP),
including Statement of Financial Accounting Standard No. 142 "Goodwill and Other
Intangible Assets" ("SFAS No. 142"). SFAS No. 142 requires wireless licenses
classified as indefinite-lived intangible assets to be tested for impairment as
of January 1, 2002 and at least annually thereafter. In connection with the
preparation of its consolidated financial statements, Leap previously obtained
valuations of the entire portfolio of wireless licenses held by Leap and the
License Holding Companies from Standard & Poor's Corporate Value Consulting, an
independent third party appraiser, as of June 30, 2002 and December 31, 2002.
The independent valuations of the portfolio of wireless licenses were made on
the assumption that the existing business of Leap and its subsidiaries would be
ongoing and that an orderly sale of the licenses could be achieved, and assumed
that the wireless licenses would change hands between willing buyers and willing
sellers, neither being under any compulsion to buy or to sell.
Standard & Poor's utilized the "market comparable method" to
estimate the value of the wireless licenses. This method indicates the fair
value of an asset by comparing it to publicly available information regarding
the pricing of similar assets, generally through transactions, and applying
appropriate discounts or premiums based upon subsequent market and industry
developments. Standard & Poor's developed a range of estimates of values per
megahertz/pop (a license valuation metric frequently used in the wireless
telecommunications industry) using several different analytical processes,
including references to the median and mean successful bids of comparable
licenses auctioned by the FCC in Auction 35, less a 30% discount, and (for the
December valuation only) the average selling price of wireless licenses in a
December 19, 2002 acquisition of wireless licenses by Verizon Wireless, less a
30% discount. Based on the assumptions described above, Standard & Poor's
valuation report indicated that the range of values of the wireless license
portfolio was between $906.1 million and $1,136.4 million as of June 30, 2002.
Based on the assumptions described above, Standard & Poor's second valuation
report indicated that the range of values of the wireless license portfolio was
between $860.0 million and $1,246.3 million as of December 31, 2002.
The Debtors have furnished this information from the Standard
& Poor's valuation reports as additional data for Holders of Claims and
Interests to consider in evaluating the Plan. Management procured the valuation
reports solely to obtain information the Debtors needed to prepare financial
statements in accordance with SFAS No. 142 and generally accepted accounting
principles (GAAP). THE DEBTORS DO NOT BELIEVE THEY COULD GENERATE PROCEEDS AT
ALL COMPARABLE TO THE AMOUNTS REFLECTED IN THE STANDARD & POOR'S VALUATION
REPORTS IF THE DEBTORS SOLD THEIR WIRELESS LICENSE PORTFOLIO AT THIS TIME.
22
C. COMPOSITION OF MANAGEMENT AND THE DIRECTORS OF REORGANIZED DEBTORS
The Informal Vendor Debt Committee has informed the Debtors
that they expect the existing senior management team to continue as the
executive officers and senior management of the Debtors through the Effective
Date of the Plan, and that following the Effective Date, these officers will
serve at the pleasure of the Board of Directors of Reorganized Leap. The names,
titles and current annual salary and target annual bonus for the existing senior
management team are set forth below:
- ------------------------------------------------------------------------------------------------
TARGET ANNUAL
BONUS AS A
PERCENTAGE OF
NAME TITLE ANNUAL SALARY ANNUAL SALARY
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Harvey P. White Chairman and Chief $502,125 80%
Executive Officer
- ------------------------------------------------------------------------------------------------
Susan G. Swenson President and Chief $386,250 80%
Operating Officer
- ------------------------------------------------------------------------------------------------
S. Douglas Hutcheson Senior Vice President and $298,700 50%
Chief Financial Officer
- ------------------------------------------------------------------------------------------------
Leonard C. Stephens Senior Vice President, $272,950 50%
Human Resources
- ------------------------------------------------------------------------------------------------
David B. Davis Senior Vice President, $242,050 50%
Operations
- ------------------------------------------------------------------------------------------------
Glenn Umetsu Senior Vice President, $270,000 50%
Eng., Ops. and Launch
- ------------------------------------------------------------------------------------------------
Robert J. Irving Senior Vice President, $240,000 50%
General Counsel
- ------------------------------------------------------------------------------------------------
The senior management executives also receive customary
employee benefits, including life insurance, medical, disability and other
benefits. On May 15, 2003, the Court entered an Order Authorizing Implementation
of Severance Agreements, authorizing Cricket to implement severance agreements
with each of the senior management executives (an application to implement a
severance agreement with Mr. Irving is pending before the Court). Pursuant to
the Severance Agreements, if a senior management executive is terminated without
cause by Cricket within one year after the Effective Date of the Plan, or during
the same period such executive terminates his or her employment with Cricket for
"good reason" (e.g., material diminution in employment duties, reduction in
salary or material reduction in benefits, etc.) as provided in more detail in
the form of Severance Agreement filed with the Court, then such executive is
entitled to (a) nine months of such executive's annual base salary at the date
of termination, and (b) COBRA benefits paid by the Debtors for nine months.
The directors of each of the Debtors will continue to serve in
such capacities until and through the Effective Date. As of the Effective Date,
the new board of directors of Reorganized Leap initially shall consist of seven
directors to be designated by the Informal Vendor Debt Committee. As of the date
hereof, the Informal Vendor Debt Committee does not yet know who will be serving
as directors of Reorganized Leap or any of the other Reorganized Debtors after
the Effective Date. However, the Reorganized Debtors will identify those
individuals who initially will serve as directors of the Reorganized Debtors
from and after the Effective Date in a Schedule filed with the Court at least 5
days prior to the Confirmation Hearing.
A majority of the Board of Directors of Reorganized Leap shall
select the Board of Directors and senior management of the other Reorganized
Debtors.
23
Reorganized Leap may authorize appropriate compensation and
bonus plans for senior management employed by the Reorganized Debtors
post-Effective Date. After the Effective Date, Reorganized Leap may adopt a new
incentive plan for the grant to officers, employees and directors of the Company
and its subsidiaries of options to acquire shares of New Leap Common Stock. The
options may be based upon a vesting schedule and any other performance criteria
that may be structured by the Board of Directors of Reorganized Leap.
D. ISSUANCE OF NEW SENIOR NOTES AND NEW LEAP COMMON STOCK
On the Effective Date, or as soon thereafter as practicable,
(a) Reorganized Leap will issue and contribute to CCH
96.5% of the New Leap Common Stock, and CCH will
contribute such stock to Reorganized Cricket;
(b) the Holders of Old Vendor Debt will receive from
Reorganized Cricket, on a Pro Rata basis, 96.5% of
the New Leap Common Stock and New Senior Notes issued
by Reorganized Cricket aggregating $350 million in
principal amount. For a more detailed description of
the New Senior Notes, please refer to Exhibit K
attached hereto; and
(c) Leap will deliver to the Leap Creditor Trust, for
Distribution to the Holders of General Unsecured
Claims against Leap, on a Pro Rata basis, 3.5% of the
issued and outstanding shares of New Leap Common
Stock.
The issuance of the New Leap Common Stock and New Senior Notes
under the Plan will be exempt from the registration requirements under the
Securities Act of 1933, as amended, by virtue of the exemption from registration
provided under Section 1145 of the Bankruptcy Code.
The Debtors expect that the New Leap Common Stock will not be
listed for trading on any national securities exchange, automated quotation
service or over-the-counter trading markets following the Effective Date. The
Debtors also expect that Reorganized Leap will not be a public company that
files reports under Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), following the Effective Date, and the
Debtors expect to take all actions necessary or appropriate to effect the
deregistration of the Old Leap Common Stock under the Exchange Act. However, the
Debtors reserve the right to cause Reorganized Leap to be a public company
following the Effective Date that files reports under Section 13(a) or 15(d) of
the Exchange Act if required under the rules promulgated under the Exchange Act
or if the Debtors in the exercise of their business judgment, with the consent
of the Informal Vendor Debt Committee, deem it to be prudent to do so, and the
costs related thereto shall be paid with funds from Cricket or Reorganized Leap.
If prior to the Distribution of all of the New Leap Common
Stock to the Leap General Unsecured Creditors any matter is submitted to the
stockholders of Reorganized Leap for their approval at a meeting of stockholders
(or by written consent), the Leap Creditor Trust Trustee will vote (or grant its
consent to) the shares of New Leap Common Stock not yet Distributed to the Leap
General Unsecured Creditors in the same relative proportions as the aggregate
affirmative and negative votes cast (or consents granted) by all other
stockholders properly voting on (or consenting to) such matter.
24
SECTION VII.
SUMMARY OF THE
PLAN OF REORGANIZATION
A. INTRODUCTION
The Plan is the product of diligent efforts and intense
negotiations by the Debtors, the Informal Vendor Debt Committee, the Informal
Noteholder Committee and the Official Committee to formulate a plan that
provides for a fair allocation of the Debtors' assets in an orderly manner,
consistent with the mandates of the Bankruptcy Code and other applicable law.
The Debtors believe that Confirmation of the Plan is critical
to the Debtors' continued survival, and that the Plan provides the best
opportunity for maximum recoveries to the Debtors' creditors. The Debtors
believe, and will demonstrate to the Court, that the Holders of Claims against
and Interests in the Debtors will receive significantly more value under the
Plan than any available alternative.
B. CLASSIFICATION AND TREATMENT OF ADMINISTRATIVE CLAIMS,
CLAIMS AND INTERESTS UNDER THE PLAN
Only administrative expenses, claims and interests that are
"allowed" may receive distributions under a chapter 11 plan. An administrative
claim, claim or interest becomes "allowed" when the Court determines that the
administrative claim, claim or interest is a valid obligation of a debtor,
including the amount. Section 502(a) of the Bankruptcy Code provides that a
timely filed administrative expense claim, claim or interest is "allowed"
automatically unless the debtor or another party in interest objects. Section
502(b) of the Bankruptcy Code, however, provides that certain claims may not be
"allowed" in bankruptcy even if a proof of claim is filed. Such claims include,
without limitation, claims that are unenforceable under a governing agreement or
applicable non-bankruptcy law, claims for unmatured interest, claims for certain
services that exceed their reasonable value, lease and employment contract
rejection damage claims in excess of specified amounts and late-filed claims. In
addition, Rule 3003(c)(2) of the Federal Rules of Bankruptcy Procedure prohibits
the allowance of any claim or interest that either is not listed on the debtor's
schedules or is listed as disputed, contingent or unliquidated, if the holder of
such claim or interest has not timely filed a proof of claim or interest.
The Bankruptcy Code also requires that, for the purposes of
treatment and voting, a chapter 11 plan divide different types of claims and
interests into separate classes, based upon their legal nature. Claims of a
substantially similar nature generally are classified together, as are interests
of a substantially similar nature. As a single entity may hold multiple claims
and/or interests that give rise to different legal rights, such a holder may be
a member of multiple classes under a plan.
Under a chapter 11 plan, the separate classes of claims and
interests must be designated as either "impaired" or "unimpaired." If a class of
claims or interests is "impaired" under a plan, the Bankruptcy Code affords
certain rights to the holders in such class, including the right to vote on the
plan (with the exception of classes of claims and interests that receive no
distributions under the plan, and which therefore are deemed to have rejected
the plan), and the right to receive an amount under the plan that is no less
than the value that claim holder would receive in a chapter 7 liquidation. Under
Section 1124 of the Bankruptcy Code, a class is "impaired" if the legal,
equitable or contractual rights attaching to the claims or interests of that
class are modified, other than by curing defaults and reinstating maturity or by
payment in full in Cash. Typically, this means that the holder of an unimpaired
claim will receive under the plan payment in full, in Cash, with prepetition
interest to the extent permitted and provided under the governing agreement
between the parties (if applicable) or applicable non-bankruptcy law, and the
remainder of the debtor's obligations, if any, will be performed as they become
due in accordance with their terms. Thus, other than the right to accelerate the
debtor's
25
obligations, the holder of an unimpaired claim will be placed in the position in
which it would have been if the debtor had not commenced a chapter 11 case.
Consistent with these requirements, the Plan divides the
Claims against, and Interests in, the Debtors into separate Classes. The
following is a designation of the Classes of Claims and Interests under the
Plan. In accordance with section 1123(a)(1) of the Bankruptcy Code,
Administrative Claims and Priority Tax Claims have not been classified and are
excluded from the following Classes. A Claim or Interest is classified in a
particular Class only to the extent that the Claim or Interest qualifies within
the description of that Class, and is classified in another Class or Classes to
the extent that any remainder of the Claim or Interest qualifies within the
description of such other Class or Classes. A Claim or Interest is classified in
a particular Class only to the extent that the Claim or Interest is an Allowed
Claim or Allowed Interest in that Class and has not been paid, released or
otherwise satisfied before the Effective Date; a Claim or Interest which is not
an Allowed Claim or Allowed Interest is not in any Class. A Disputed Claim or
Disputed Interest, to the extent that it subsequently becomes an Allowed Claim
or Allowed Interest, shall be included in the Class for which it would have
qualified had it not been disputed. Notwithstanding anything to the contrary
contained in the Plan, no distribution shall be made on account of any Claim or
Interest which is not an Allowed Claim or an Allowed Interest.
A chart summarizing the treatment of Claims and Interests
under the Plan is set forth at page vii, supra.
For purposes of computing distributions under the Plan,
Allowed Claims do not include postpetition interest unless otherwise specified
in the Plan.
If the Plan is confirmed, except for distributions made on the
Initial Distribution Date and distributions in respect of Leap Creditor Trust
Assets that are monetized after the Initial Distribution Date but prior to the
Effective Date and except for Disputed Claims, distributions will be deemed made
on the Effective Date if made on the Effective Date or as soon as practicable
thereafter. Distributions on accounts of Claims that become Allowed Claims after
the Effective Date will be made pursuant to Section 8.02 of the Plan (relating
to timing and calculation of amounts to be distributed under the Plan) and
Section 8.05 of the Plan (relating to distributions on account of Disputed
Claims once they are allowed).
1. UNCLASSIFIED - ADMINISTRATIVE CLAIMS
Administrative Claims include the costs and expenses of
administration of the Chapter 11 Cases of a kind specified in Section 503(b) of
the Bankruptcy Code and entitled to priority under Section 507(a)(1) of the
Bankruptcy Code. Such costs include any actual, necessary costs and expenses of
operating the Debtors' businesses and preserving the Debtors' Estates, any
indebtedness or obligations incurred or assumed by the Debtors in connection
with the conduct of their businesses, all compensation and reimbursement of
expenses to the extent Allowed by the Court pursuant to Section 330 or Section
503 of the Bankruptcy Code, and any fees or charges assessed against the
Debtors' Estates pursuant to Section 1930, Chapter 123 of Title 28 of the United
States Code.
Pursuant to the Plan, Allowed Administrative Claims (a) will
be paid Cash equal to the full unpaid portion of the Allowed Administrative
Claim on the later of the Effective Date and the date on which such
Administrative Claim becomes an Allowed Claim, or as soon thereafter as
practicable, or (b) will receive such other treatment as to which the applicable
Debtor and the holder of an Allowed Administrative Claim shall agree in writing.
The Debtors anticipate that, with the exception noted below,
most Administrative Expenses will be paid as they come due during the Chapter 11
Cases, and that the Administrative Claims
26
to be paid on or after the Effective Date will mainly comprise the Allowed fees
and expenses incurred by professionals providing services in the Chapter 11
Cases.
The Debtors estimate that the amount of Allowed Administrative
Claims and Priority Claims under the Bankruptcy Code (the "Effective Date
Payments"), that are unpaid as of the Effective Date, will include the
following: (a) the Debtors', the Informal Vendor Debt Committee's, the Informal
Noteholder Committee's and the Official Committee's professionals' fees
(approximately $10-15 million, including any success fees to UBS ($3.35
million), CTA ($2.65 million) and Chanin Capital Partners ($1.5 million); and
(b) severance payments, if any.
2. UNCLASSIFIED - PRIORITY TAX CLAIMS
Except as otherwise agreed to by Reorganized Debtors and the
applicable taxing agency, Reorganized Debtors, as appropriate, shall pay to each
holder of an Allowed Priority Tax Claim deferred Cash payments, over a period
not exceeding six years from the date of assessment of such Claim, in an
aggregate amount equal to the amount of such Allowed Priority Tax Claim, plus
interest from the Effective Date on the unpaid portion of such Allowed Priority
Tax Claim (without penalty of any kind) at the rate prescribed below. Payment of
the amount of each such Allowed Priority Tax Claim shall be made in equal
semiannual installments payable on June 1 and December 1, with the first
installment due on June 1 or December 1 after the latest of: (a) the Effective
Date; (b) 30 days after the date on which an Order allowing such Priority Tax
Claim becomes a Final Order; and (c) such other time or times as may be agreed
to by the holder of such Claim and the respective Reorganized Debtor. Each
installment shall include interest on the unpaid portion of such Allowed
Priority Tax Claim, without penalty of any kind, at the rate of 8 1/4% per annum
or as otherwise established by the Court; provided, however, that the
Reorganized Debtors, as appropriate, shall have the right to pay any Allowed
Priority Tax Claim, or any remaining balance of such Claim, in full, at any time
on or after the Effective Date, without premium or penalty of any kind.
The Debtors currently believe that no material Allowed
Priority Tax Claims exist.
3. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN LEAP
Leap Class 1A - GLH Claim. On the Effective Date, or as soon
as practicable thereafter, the Holder of the Class 1A GLH Claim shall, in full
satisfaction, settlement, release and discharge of and in exchange for such
Secured Claim, receive the GLH Collateral. The Holder of the Allowed Secured
Claim in Class 1A shall be Impaired and entitled to vote to accept or reject the
Plan. The Debtors believe the amount of the Leap Class 1A Claim is approximately
$8,383,941 as of the Petition Date.
Leap Class 1B - 12 1/2% Senior Secured Claim. On the Initial
Distribution Date, or as soon as practicable thereafter, each Holder of a Class
1B 12 1/2% Senior Secured Claim shall receive, in full satisfaction, settlement,
release and discharge of and in exchange for its Claim, on a Pro Rata basis, the
12 1/2% Senior Secured Claim Distribution (approximately $200,000 in the
aggregate). In addition, by order entered by the Court on April 18, 2003, each
Holder of a Class 1B 12 1/2% Senior Secured Claim, received, on a Pro Rata
basis, the Cash in the Senior Notes Pledged Account reflecting the amount of
interest owing as of April 15, 2003. Leap Class 1B is Unimpaired and shall be
deemed to have voted to accept the Plan. The Debtors believe the aggregate
amount of the Leap Class 1B Claims is approximately $200,000 as of the Petition
Date. The holders of Leap's 12 1/2% Senior Notes also hold approximately $224.8
million of General Unsecured Claims which are included in Leap Class 4 - General
Unsecured Claims.
Leap Class 1C - Old Vendor Debt Claim. The Holders of Old
Vendor Debt have secured claims against Leap and its Estate because Leap pledged
the stock of substantially all of the License Holding Companies owned by Leap as
security for the Old Vendor Debt. On the Initial Distribution Date, each Holder
of a Class 1C Old Vendor Debt Claim shall, in full satisfaction, settlement,
release
27
and discharge of and in exchange for its Claim against Leap and its Estate,
receive the benefit of the Intercompany Releases, and on the Effective Date or
as soon as practicable thereafter, on a Pro Rata basis, the Old Vendor Debt
Distribution (constituting in the aggregate 96.5% of the issued and outstanding
shares of New Leap Common Stock and $350.0 million aggregate principal amount of
New Senior Notes). Leap Class 1C is Impaired and shall be entitled to vote to
accept or reject the Plan. The Debtors believe the aggregate amount of the Leap
Class 1C Claims is approximately $1.6 billion as of the Petition Date (without
giving effect to the value of the Collateral pledged by Leap).
Leap Class 2A et seq. - Other Secured Claims. Class 2A et seq.
consists of all other Secured Claims against Leap. Leap currently believes that,
as of the Petition Date, Wells Fargo Bank, N.A., Travelers Casualty & Surety Co.
of America and GE Capital Financial held certificates of deposit or money market
funds in the amount of approximately $1.6 million, $0.8 million and $0.9
million, respectively, to secure obligations under letters of credit, surety
bonds and employee credit cards, respectively. Leap expects that the Allowed
Claims of the foregoing Class 2A, 2B and 2C members shall be Reinstated. Leap
Class 2A, 2B and 2C Claims are Unimpaired and shall be deemed to have voted to
accept the Plan.
Although the Debtors do not currently believe that any other
Class 2A et seq. Claim Holders exist, this Class will be further divided into
subclasses designated by letters of the alphabet (CLASS 2D, CLASS 2E, and so
on), so that each Holder of any Secured Claim is in a Class by itself, except to
the extent that there are Secured Claims that are substantially similar to each
other and may be included within a single Class. Each Allowed Secured Claim in
Class 2A et seq. shall, in the discretion of the Debtor with the consent of the
Informal Vendor Debt Committee, receive, in full satisfaction, settlement,
release and discharge of and in exchange for its Claim, any one or a combination
of any of the following: (i) Cash in an amount equal to such Allowed Class 2A et
seq. Claim; (ii) deferred Cash payments totaling at least the Allowed amount of
such Allowed Class 2A et seq. Claim, of a value, as of the Effective Date, of at
least the value of such Holder's interest in the Collateral securing the Allowed
Class 2A et seq. Claim; (iii) the Collateral securing such Holder's Allowed
Class 2A et seq. Claim; (iv) payments or Liens amounting to the indubitable
equivalent of the value of such Holder's interest in the Collateral securing the
Allowed Class 2A et seq. Claim; (v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the Debtor and such Holder shall have
agreed upon in writing. The Debtor will make the foregoing election and provide
notice of such election to the applicable Holder of an Allowed Class 2A et seq.
Claim no later than 14 days prior to the Voting Deadline. To the extent the
Debtor elects clause (i), (ii), (iv), (v) or (vi) above, any liability
associated with such treatment shall be satisfied with funds from Cricket.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
Leap Class 3 - Priority Claims. The Plan provides that unless
otherwise agreed to by Leap and the applicable Holder of a Claim, each Holder of
an Allowed Claim in Class 3 will be paid the Allowed Amount of such Claim in
full in Cash by Leap on or before the later of (i) the Effective Date or as soon
as practicable thereafter, (ii) the date such Claim becomes an Allowed Claim and
(iii) the date that such Claim would be paid in accordance with any terms and
conditions of any agreements or understandings relating thereto between Leap and
the Holder of such Claim. Allowed Claims in Class 3 are Unimpaired under the
Plan and the Holders of Allowed Claims in Class 3 will be deemed to have
accepted the Plan. The Debtors believe the aggregate amount of the Leap Class 3
Claims is approximately $1.5 million as of the Petition Date.
Leap Class 4 - General Unsecured Claims. On the Initial
Distribution Date, each Holder of an Allowed Class 4 Claim shall, in full
satisfaction, settlement, release, discharge of and in exchange
28
for such Claim (except as otherwise provided in the Plan), receive a Pro Rata
distribution of beneficial interests in the Leap Creditor Trust and the Leap
Creditor Trust shall receive the Leap General Unsecured Claim Cash Distribution
(approximately $80.0 million, minus a reserve in the approximate amount of $5
million for Administrative Claims against Leap, the actual amount of which may
vary materially; the amount initially withheld in reserve for Administrative
Claims and Priority Claims will be subject to negotiation between the Debtors
and the Official Committee). On the Effective Date, Reorganized Leap shall
transfer to the Leap Creditor Trust the Leap General Unsecured Claim Equity
Distribution for Distribution to the Holders of Leap General Unsecured Claims,
and the Leap Creditor Trust Assets (comprised of other assets that have a value
estimated to be approximately $30.0 million-$50.0 million). After the
satisfaction of all Allowed Administrative Claims and Priority Claims against
Leap and the resolution of all Disputed Administrative Claims and Disputed
Priority Claims against Leap, any remaining Cash held in reserve by Leap will be
distributed to the Leap Creditor Trust. If any Leap Creditor Trust Assets are
converted to Cash on or after the Initial Distribution Date but prior to the
Effective Date, the Cash proceeds shall be transferred to the Leap Creditor
Trust as soon as practicable upon such monetization, notwithstanding the fact
that the Effective Date has not occurred. The Leap Creditor Trust Trustee will
be selected by the Official Committee, and the identity of the Leap Creditor
Trust Trustee will be submitted to the Court no later than 10 days prior to the
Confirmation Hearing. Class 4 is Impaired and therefore entitled to vote to
accept or reject the Plan. The Debtors believe the aggregate amount of the Leap
Class 4 Claims is approximately $732 million as of the Petition Date (excluding
potential rejection damages for leases and contracts that are rejected (see
discussion under the subheading "Rejection and Damages" at pp. 16-17) and any
General Unsecured Claims that could be asserted against Leap by the Holders of
the Old Vendor Debt, including any undersecured Claim that could be asserted
under the Bankruptcy Code).
Leap Class 4A - Subordinated General Unsecured Claims. To the
extent the Bankruptcy Court enters an Order subordinating a Class 4 Claim
against Leap, that claim will be placed in Class 4A. If any such claims are
subordinated, all Allowed Class 4 Claims against Leap would have to be paid in
full prior to any payments to satisfy the Allowed Class 4A Claims. Because
Allowed Class 4 Claims against Leap will not be paid in full under the Plan,
each Holder of an Allowed Class 4A Claim shall not receive any property or Cash
under the Plan on account of such Claims. Class 4A is Impaired under the Plan
and deemed to have voted to reject the Plan.
Leap Class 5 - Intercompany Claim. Each Holder of an Allowed
Class 5 Claim shall, in full satisfaction, settlement, release, discharge of and
in exchange for such Claim, receive the Intercompany Release on account of such
Claim as of the Initial Distribution Date. Class 5 is Impaired under the Plan
and therefore entitled to vote to accept or reject the Plan.
Leap Class 6 - Old Leap Common Stock and Securities Claims
Against Leap. Each Holder of an Allowed Class 6 Interest shall not receive or
retain any property or Cash under the Plan on account of such Interest. Class 6
is Impaired under the Plan and deemed to have voted to reject the Plan.
Leap Class 7 - Interests of Holders of Old Stock Rights and
All Claims Arising Out of Such Old Stock Rights. Each Holder of an Allowed Class
7 Interest shall not receive or retain any property or Cash under the Plan on
account of such Interest. Class 7 is Impaired under the Plan and deemed to have
voted to reject the Plan.
4. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN CCH
CCH Class 1A - Old Vendor Debt Claim. On the Effective Date,
or as soon as practicable thereafter, each Holder of an Allowed Class 1A Claim
shall, in full satisfaction, settlement, release, discharge of and in exchange
for such Claim, receive a Pro Rata share of the Old Vendor Debt Distribution.
Class 1A is Impaired and entitled to vote to accept or reject the Plan. The
Debtors believe the aggregate amount of the CCH Class 1A Claims is approximately
$1.6 billion as of the Petition Date (without giving effect to the value of the
Collateral pledged by CCH).
29
CCH Class 2A et seq. - Other Secured Claims. Class 2A et seq.
consists of all other Secured Claims against CCH. CCH currently does not believe
any such Holders exist.
This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 2B, CLASS 2C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 2A et seq.
shall, in the discretion of the Debtor with the consent of the Informal Vendor
Debt Committee, receive, in full satisfaction, settlement, release and discharge
of and in exchange for its Claim, any one or a combination of any of the
following: (i) Cash in an amount equal to such Allowed Class 2A et seq. Claim;
(ii) deferred Cash payments totaling at least the Allowed amount of such Allowed
Class 2A et seq. Claim, of a value, as of the Effective Date, of at least the
value of such Holder's interest in the Collateral securing the Allowed Class 2A
et seq. Claim; (iii) the Collateral securing such Holder's Allowed Class 2A et
seq. Claim; (iv) payments or Liens amounting to the indubitable equivalent of
the value of such Holder's interest in the Collateral securing the Allowed Class
2A et seq. Claim; (v) Reinstatement of such Class 2A et seq. Claim; or (vi) such
other treatment as the Debtor and such Holder shall have agreed upon in writing.
The Debtor will make the foregoing election and provide notice of such election
to the applicable Holder of an Allowed Class 2A et seq. Claim no later than 14
days prior to the Voting Deadline. To the extent the Debtor elects clause (i),
(ii), (iv), (v) or (vi) above, any liability associated with such treatment
shall be satisfied with funds from Cricket.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
CCH Class 3 - Priority Claims. Unless otherwise agreed to by
CCH and the applicable Holder of a Claim, each Holder of an Allowed Claim in
Class 3 will, in full satisfaction, settlement, release, discharge of and in
exchange for such Claim, be paid the Allowed Amount of such Claim in full in
Cash by Reorganized CCH on or before the later of (i) the Effective Date or as
soon as practicable thereafter, (ii) the date such Claim becomes an Allowed
Claim and (iii) the date that such Claim would be paid in accordance with any
terms and conditions of any agreements or understandings relating thereto
between CCH and the Holder of such Claim. Allowed Claims in Class 3 are
Unimpaired under the Plan and the Holders of Allowed Claims in Class 3 will be
deemed to have accepted the Plan. CCH currently does not believe any such
Holders exist.
CCH Class 4 - General Unsecured Claims. Holders of Allowed
Class 4 Claims shall not receive any property or Cash on account of such Claims.
Class 4 is Impaired under the Plan and deemed to have voted to reject the Plan.
The Debtors believe the aggregate amount of the CCH Class 4 Claims is
approximately $732 million as of the Petition Date (excluding any General
Unsecured Claims that could be asserted by the Holders of the Old Vendor Debt,
including any undersecured Claims that could be asserted under the Bankruptcy
Code).
CCH Class 5 - Intercompany Claim. Each Holder of an Allowed
Class 5 Claim shall, in full satisfaction, settlement, release, discharge of and
in exchange for such Claim, receive the Intercompany Release on account of such
Claim as of the Initial Distribution Date. Class 5 is Impaired under the Plan
and therefore entitled to vote to accept or reject the Plan.
CCH Class 6 - Old Common Stock of CCH and Securities Claims.
Holders of Allowed Class 6 Interests shall not receive any property or Cash on
account of such Interests. Class 6 is Impaired and deemed to have voted to
reject the Plan.
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CCH Class 7 - Interests of Holders of Old Stock Rights and All
Claims Arising Out of Such Old Stock Rights. Each Holder of an Allowed Class 7
Interest shall not receive or retain any property or Cash under the Plan on
account of such Interest. Class 7 is Impaired under the Plan and deemed to have
voted to reject the Plan. CCH currently does not believe any such Holders exist.
5. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN CRICKET
Cricket Class 1A - Old Vendor Debt Claim. On the Effective
Date, or as soon as practicable thereafter, each Holder of an Allowed Class 1A
Claim shall, in full satisfaction, settlement, release, discharge of and in
exchange for such Claim, receive from Cricket a Pro Rata share of the Old Vendor
Debt Distribution (constituting in the aggregate 96.5% of the issued and
outstanding shares of New Leap Common Stock and $350.0 million aggregate
principal amount of New Senior Notes). Class 1A is Impaired and entitled to vote
to accept or reject the Plan. The Debtors believe the aggregate amount of the
Cricket Class 1A Claims is approximately $1.6 billion as of the Petition Date
(without giving effect to the value of the Collateral pledged by Cricket). The
Holders of Old Vendor Debt will have unsecured deficiency Claims equal to the
difference between the amount of the Old Vendor Debt and the value of the
Collateral pledged by Cricket (which difference could be $990 million or more)
and which Claims shall be treated separately as Cricket Class 4 General
Unsecured Claims.
Cricket Class 2A et seq. - Other Secured Claims. Class 2A et
seq. consists of all other Secured Claims against Cricket. Cricket believes
that, as of the Petition Date, Wells Fargo Bank, N.A. and Wells Fargo Merchant
Services LLC, and Travelers Casualty and Surety Co. of America, held security
interests in money market funds in the amount of approximately $10.3 million and
$0.3 million, respectively, to secure obligations under credit card programs and
surety bonds, respectively. Cricket intends to Reinstate these Class 2A and 2B
Claims. Cricket Class 2A and 2B Claims are Unimpaired and shall be deemed to
have voted to accept the Plan.
Although the Debtors do not currently believe other Class 2A
et seq. Claim Holders exist, this Class will be further divided into subclasses
designated by letters of the alphabet (CLASS 2C, CLASS 2D, and so on), so that
each Holder of any Secured Claim is in a Class by itself, except to the extent
that there are Secured Claims that are substantially similar to each other and
may be included within a single Class. Each Allowed Secured Claim in Class 2A et
seq. shall, in the discretion of the Debtor with the consent of the Informal
Vendor Debt Committee, receive, in full satisfaction, settlement, release and
discharge of and in exchange for its Claim, any one or a combination of any of
the following: (i) Cash in an amount equal to such Allowed Class 2A et seq.
Claim; (ii) deferred Cash payments totaling at least the Allowed amount of such
Allowed Class 2A et seq. Claim, of a value, as of the Effective Date, of at
least the value of such Holder's interest in the Collateral securing the Allowed
Class 2A et seq. Claim; (iii) the Collateral securing such Holder's Allowed
Class 2A et seq. Claim; (iv) payments or Liens amounting to the indubitable
equivalent of the value of such Holder's interest in the Collateral securing the
Allowed Class 2A et seq. Claim; (v) Reinstatement of such Class 2A et seq.
Claim; or (vi) such other treatment as the Debtor and such Holder shall have
agreed upon in writing. The Debtor will make the foregoing election and provide
notice of such election to the applicable Holder of an Allowed Class 2A et seq.
Claim no later than 14 days prior to the Voting Deadline.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
Cricket Class 3 - Priority Claims. Unless otherwise agreed to
by the parties, each Holder of an Allowed Claim in Class 3 will, in full
satisfaction, settlement, release, discharge of and in exchange for such Claim,
be paid the Allowed Amount of such Claim in full in Cash by Reorganized Cricket
on or before the later of (i) the Effective Date or as soon as practicable
thereafter, (ii) the date
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such Claim becomes an Allowed Claim and (iii) the date that such Claim would be
paid in accordance with any terms and conditions of any agreements or
understandings relating thereto between Cricket and the Holder of such Claim.
Allowed Claims in Class 3 are Unimpaired under the Plan and the Holders of
Allowed Claims in Class 3 will be deemed to have accepted the Plan. The Debtors
believe the aggregate amount of the Cricket Class 3 Claims is approximately $33
million as of the Petition Date.
Cricket Class 4 - General Unsecured Claims. Holders of Allowed
Class 4 Claims shall, in full satisfaction, settlement, release, discharge of
and in exchange for such Claim, receive, on a Pro Rata basis, the Cricket
General Unsecured Creditor Distribution on account of such Claims. The Debtors
believe that there will be de minimus or no value distributed to Holders of
Allowed Class 4 Claims under the Cricket General Unsecured Creditor
Distribution. The Debtors believe the aggregate amount of the Cricket Class 4
Claims is approximately $1.22 billion as of the Petition Date, including the
deficiency Claims of Old Vendor Debt Holders of approximately $990 million or
more. Class 4 is Impaired and therefore entitled to vote to accept or reject the
Plan.
Cricket Class 5 - Intercompany Claim. Each Holder of an
Allowed Class 5 Claim shall in full satisfaction, settlement, release, discharge
of and in exchange for such Claim, receive the Intercompany Release on account
of such Claim as of the Initial Distribution Date. Class 5 is Impaired under the
Plan and therefore entitled to vote to accept or reject the Plan.
Cricket Class 6 - Old Common Stock of Cricket and Securities
Claims. Holders of Allowed Class 6 Interests shall not receive any property or
Cash on account of such Interests. Class 6 is Impaired and deemed to have voted
to reject the Plan.
Cricket Class 7 - Interests of Holders of Old Stock Rights and
All Claims Arising Out of Such Old Stock Rights. Holders of Allowed Class 7
Interests shall not receive any property or Cash on account of such Interests.
Class 7 is Impaired and deemed to have voted to reject the Plan. Cricket does
not believe any such Holders exist.
6. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN LICENSE HOLDING
COMPANIES (APPLICABLE TO EACH LICENSE HOLDING COMPANY)
License Holding Company Class 1A - Old Vendor Debt Claim. On
the Effective Date, or as soon as practicable thereafter, each Holder of an
Allowed Class 1A Claim shall, in full satisfaction, settlement, release,
discharge of and in exchange for such Claim, receive a Pro Rata share of the Old
Vendor Debt Distribution. Class 1A is Impaired and entitled to vote to accept or
reject the Plan. The Debtors believe the aggregate amount of the License Holding
Company Class 1A Claims is approximately $1.6 billion as of the Petition Date
(without giving effect to the value of the Collateral pledged by the License
Holding Companies).
License Holding Company Class 1B - FCC Claims. On the
Effective Date or as soon as practicable thereafter, the Holder of the FCC
Claims shall, in full satisfaction, settlement, release, discharge of and in
exchange for such Claim, be Reinstated. The Holder of the FCC Claims will be
deemed Unimpaired and to have voted to accept the Plan. The Debtors believe the
aggregate amount of the FCC Claims is approximately $78 million as of the
Petition Date.
License Holding Company Class 2A et seq. - Other Secured
Claims. Class 2A et seq. consists of all other Secured Claims against a License
Holding Company. The License Holding Companies currently do not believe any such
Holders exist.
This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 2B, CLASS 2C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 2A et seq.
shall, in the discretion
32
of the Debtor with the consent of the Informal Vendor Debt Committee, receive,
in full satisfaction, settlement, release and discharge of and in exchange for
its Claim, any one or a combination of any of the following: (i) Cash in an
amount equal to such Allowed Class 2A et seq. Claim; (ii) deferred Cash payments
totaling at least the Allowed amount of such Allowed Class 2A et seq. Claim, of
a value, as of the Effective Date, of at least the value of such Holder's
interest in the Collateral securing the Allowed Class 2A et seq. Claim; (iii)
the Collateral securing such Holder's Allowed Class 2A et seq. Claim; (iv)
payments or Liens amounting to the indubitable equivalent of the value of such
Holder's interest in the Collateral securing the Allowed Class 2A et seq. Claim;
(v) Reinstatement of such Class 2A et seq. Claim; or (vi) such other treatment
as the Debtor and such Holder shall have agreed upon in writing. The Debtor will
make the foregoing election and provide notice of such election to the
applicable Holder of an Allowed Class 2A et seq. Claim no later than 14 days
prior to the Voting Deadline. To the extent the Debtor elects clause (i), (ii),
(iv), (v) or (vi) above, any liability associated with such treatment shall be
satisfied with funds from Cricket.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
License Holding Company Class 3 - Priority Claims. Unless
otherwise agreed to by the parties, each Holder of an Allowed Claim in Class 3
will, in full satisfaction, settlement, release, discharge of and in exchange
for such Claim, be paid the Allowed Amount of such Claim in full in Cash by the
applicable Reorganized License Holding Company on or before the later of (i) the
Effective Date or as soon as practicable thereafter, (ii) the date such Claim
becomes an Allowed Claim and (iii) the date that such Claim would be paid in
accordance with any terms and conditions of any agreements or understandings
relating thereto between the applicable License Holding Company and the Holder
of such Claim. Allowed Claims in Class 3 are Unimpaired under the Plan and the
Holders of Allowed Claims in Class 3 will be deemed to have accepted the Plan.
The License Holding Companies currently do not believe any such Holders exist.
License Holding Company Class 4 - General Unsecured Claims.
Holders of Allowed Class 4 Claims shall not receive any property or Cash on
account of such Claims. Class 4 is Impaired and deemed to have voted to reject
the Plan. The License Holding Companies believe that no such Holders exist
(excluding any General Unsecured Claim that could be asserted by the Holders of
Old Vendor Debt, including any undersecured Claim that could be asserted under
the Bankruptcy Code).
License Holding Company Class 5 - Intercompany Claim. Each
Holder of an Allowed Class 5 Claim shall, in full satisfaction, settlement,
release, discharge of and in exchange for such Claim, receive the Intercompany
Release under the Plan on account of such Claim as of the Initial Distribution
Date. Class 5 is Impaired under the Plan and therefore entitled to vote to
accept or reject the Plan.
License Holding Company Class 6 - Old Common Stock of License
Holding Company and Securities Claims. Holders of Allowed Class 6 Interests
shall not receive any property or Cash on account of such Interests. Class 6 is
Impaired and deemed to have voted to reject the Plan.
License Holding Company Class 7 - Interests of Holders of Old
Stock Rights and All Claims Arising Out of Such Old Stock Rights. Holders of
Allowed Class 7 Interests shall not receive any property or Cash on account of
such Interests. Class 7 is Impaired and deemed to have voted to reject the Plan.
The License Holding Companies do not believe any such Holders exist.
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7. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN PROPERTY HOLDING
COMPANIES (APPLICABLE TO EACH PROPERTY HOLDING COMPANY)
Property Holding Company Class 1A - Vendor Debt Claim. On the
Effective Date, or as soon as practicable thereafter, each Holder of an Allowed
Class 1A Claim shall, in full satisfaction, settlement, release, discharge of
and in exchange for such Claim, receive a Pro Rata share of the Old Vendor Debt
Distribution. Class 1A is Impaired and entitled to vote to accept or reject the
Plan. The Debtors believe the aggregate amount of the Property Holding Companies
Class 1A Claims is approximately $1.6 billion as of the Petition Date (without
giving effect to the value of the Collateral pledged by the Property Holding
Companies).
Property Holding Company Class 2A et seq. - Other Secured
Claims. Class 2A et seq. consists of all other Secured Claims against a Property
Holding Company. The Property Holding Companies currently do not believe any
such Holders exist.
This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 2B, CLASS 2C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 2A et seq.
shall, in the discretion of the Debtor with the consent of the Informal Vendor
Debt Committee, receive, in full satisfaction, settlement, release and discharge
of and in exchange for its Claim, any one or a combination of any of the
following: (i) Cash in an amount equal to such Allowed Class 2A et seq. Claim;
(ii) deferred Cash payments totaling at least the Allowed amount of such Allowed
Class 2A et seq. Claim, of a value, as of the Effective Date, of at least the
value of such Holder's interest in the Collateral securing the Allowed Class 2A
et seq. Claim; (iii) the Collateral securing such Holder's Allowed Class 2A et
seq. Claim; (iv) payments or Liens amounting to the indubitable equivalent of
the value of such Holder's interest in the Collateral securing the Allowed Class
2A et seq. Claim; (v) Reinstatement of such Class 2A et seq. Claim; or (vi) such
other treatment as the Debtor and such Holder shall have agreed upon in writing.
The Debtor will make the foregoing election and provide notice of such election
to the applicable Holder of an Allowed Class 2A et seq. Claim no later than 14
days prior to the Voting Deadline.
Allowed Claims in Class 2A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 2A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
2A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
Property Holding Company Class 3 - Priority Claims. Unless
otherwise agreed to by the parties, each Holder of an Allowed Claim in Class 3
will, in full satisfaction, settlement, release, discharge of and in exchange
for such Claim, be paid the Allowed Amount of such Claim in full in Cash by the
applicable Reorganized Property Holding Company on or before the later of (i)
the Effective Date or as soon as practicable thereafter, (ii) the date such
Claim becomes an Allowed Claim and (iii) the date that such Claim would be paid
in accordance with any terms and conditions of any agreements or understandings
relating thereto between the applicable Property Holding Company and the Holder
of such Claim. Allowed Claims in Class 3 are Unimpaired under the Plan and the
Holders of Allowed Claims in Class 3 will be deemed to have accepted the Plan.
The Property Holding Companies do not believe any such Holders exist.
Property Holding Company Class 4 - General Unsecured Claims.
Holders of Allowed Class 4 Claims shall not receive any property or Cash on
account of such Claims. Class 4 is Impaired and deemed to have voted to reject
the Plan. The Debtors believe the aggregate amount of the Property Holding
Companies Class 4 Claims is approximately $2.9 million as of the Petition Date
(excluding any General Unsecured Claim that could be asserted by the Holders of
Old Vendor Debt, including any undersecured Claim that could be asserted under
the Bankruptcy Code).
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Property Holding Company Class 5 - Intercompany Claim. Each
Holder of an Allowed Class 5 Claim shall, in full satisfaction, settlement,
release, discharge of and in exchange for such Claim, receive the Intercompany
Release under the Plan on account of such Claim as of the Initial Distribution
Date. Class 5 is Impaired under the Plan and therefore entitled to vote to
accept or reject the Plan.
Property Holding Company Class 6 - Old Common Stock of
Property Holding Company and Securities Claims. Holders of Allowed Class 6
Interests shall not receive any property or Cash on account of such Interests.
Class 6 is Impaired and deemed to have voted to reject the Plan.
Property Holding Company Class 7 - Interests of Holders of Old
Stock Rights and All Claims Arising Out of Such Old Stock Rights. Holders of
Allowed Class 7 Interests shall not receive any property or Cash on account of
such Interests. Class 7 is Impaired and deemed to have voted to reject the Plan.
The Property Holding Companies do not believe any such Holders exist.
8. CLASSIFIED CLAIMS AGAINST AND INTERESTS IN OTHER SUBSIDIARIES
(APPLICABLE TO EACH OTHER SUBSIDIARY)
Other Subsidiary Class 1A et seq. - Other Secured Claims.
Class 1A et seq. consists of all other Secured Claims against an Other
Subsidiary. The Other Subsidiaries currently do not believe any such Holders
exist.
This Class will be further divided into subclasses designated
by letters of the alphabet (CLASS 1B, CLASS 1C, and so on), so that each Holder
of any Secured Claim is in a Class by itself, except to the extent that there
are Secured Claims that are substantially similar to each other and may be
included within a single Class. Each Allowed Secured Claim in Class 1A et seq.
shall, in the discretion of the Debtor with the consent of the Informal Vendor
Debt Committee, receive, in full satisfaction, settlement, release and discharge
of and in exchange for its Claim, any one or a combination of any of the
following: (i) Cash in an amount equal to such Allowed Class 1A et seq. Claim;
(ii) deferred Cash payments totaling at least the Allowed amount of such Allowed
Class 1A et seq. Claim, of a value, as of the Effective Date, of at least the
value of such Holder's interest in the Collateral securing the Allowed Class 1A
et seq. Claim; (iii) the Collateral securing such Holder's Allowed Class 1A et
seq. Claim; (iv) payments or Liens amounting to the indubitable equivalent of
the value of such Holder's interest in the Collateral securing the Allowed Class
1A et seq. Claim; (v) Reinstatement of such Class 1A et seq. Claim; or (vi) such
other treatment as the Debtor and such Holder shall have agreed upon in writing.
The Debtor will make the foregoing election and provide notice of such election
to the applicable Holder of an Allowed Class 1A et seq. Claim no later than 14
days prior to the Voting Deadline. To the extent the Debtor elects clause (i),
(ii), (iv), (v) or (vi) above, any liability associated with such treatment
shall be satisfied with funds from Cricket.
Allowed Claims in Class 1A et seq. that are paid in full in
Cash or Reinstated on the Effective Date or as soon as practicable thereafter
are Unimpaired under the Plan and the Holders of such Allowed Claims in Class 1A
et seq. will be deemed to have voted to accept the Plan. Allowed Claims in Class
1A et seq. that receive any alternative treatment are Impaired and therefore
entitled to vote to accept or reject the Plan.
Other Subsidiary Class 2 - Priority Claims. Unless otherwise
agreed to by the parties, each Holder of an Allowed Claim in Class 2 will, in
full satisfaction, settlement, release, discharge of and in exchange for such
Claim, be paid the Allowed Amount of such Claim in full in Cash by the
applicable Reorganized Other Subsidiary on or before the later of (i) the
Effective Date or as soon as practicable thereafter, (ii) the date such Claim
becomes an Allowed Claim and (iii) the date that such Claim would be paid in
accordance with any terms and conditions of any agreements or understandings
relating thereto between the applicable Other Subsidiary and the Holder of such
Claim. Allowed Claims in Class 2 are Unimpaired under the Plan and the Holders
of Allowed Claims in Class 2 will be deemed to have accepted the Plan.
35
Other Subsidiary Class 3 - General Unsecured Claims. Holders
of Allowed Class 3 Claims shall not receive any property or Cash on account of
such Claims. Class 3 is Impaired and deemed to have voted to reject the Plan.
Other Subsidiary Class 4 - Intercompany Claim. Each Holder of
an Allowed Class 4 Claim shall, in full satisfaction, settlement, release,
discharge of and in exchange for such Claim, receive the Intercompany Release
under the Plan on account of such Claim as of the Initial Distribution Date.
Class 4 is Impaired under the Plan and therefore entitled to vote to accept or
reject the Plan.
Other Subsidiary Class 5 - Old Common Stock of Other
Subsidiary and Securities Claims. Holders of Allowed Class 5 Interests shall not
receive any property or Cash on account of such Interests. Class 5 is Impaired
and deemed to have voted to reject the Plan.
Other Subsidiary Class 6 - Interests of Holders of Old Stock
Rights and All Claims Arising Out of Such Old Stock Rights. Holders of Allowed
Class 6 Interests shall not receive any property or Cash on account of such
Interests. Class 6 is Impaired and deemed to have voted to reject the Plan. The
Other Subsidiaries do not believe any such Holders exist.
C. INDEBTEDNESS OF REORGANIZED LICENSE HOLDING COMPANIES AND REORGANIZED
CRICKET
1. FCC DEBT
On the Effective Date or as soon thereafter as practicable,
the Holder of the FCC Claims shall be Reinstated. Pursuant to the Plan, the
Reorganized License Holding Companies shall remain indebted to the FCC in the
aggregate principal amount of approximately $78 million as of the Petition Date.
2. NEW INDEBTEDNESS OF REORGANIZED CRICKET
On the Effective Date, Reorganized Cricket will issue the New
Senior Notes in the aggregate principal amount of $350.0 million. A description
of the New Senior Notes and related Risk Factors is attached hereto as Exhibit
K.
The Reorganized Debtors will have additional indebtedness as
set forth in the Projections, attached hereto as Exhibit G.
D. DISTRIBUTIONS UNDER THE PLAN
1. GENERAL
Except as otherwise provided in the Plan or in the Leap
Creditor Trust Agreement (which shall govern the timing of distributions to
Holders of Leap General Unsecured Claims), on the Effective Date or as soon as
practicable thereafter, to the extent that the Plan provides for distributions
on account of Allowed Claims or Allowed Interests in the applicable Class, each
Holder of an Allowed Claim or Allowed Interest will receive the full amount of
the distributions that the Plan provides for Allowed Claims or Allowed Interests
in the applicable Class, unless such distribution was received on an earlier
date pursuant to the terms of the Plan. Beginning on the date that is 15 days
after the end of the calendar quarter following the Effective Date and 15 days
after the end of each calendar quarter thereafter, distributions will also be
made respectively (a) to Holders of Claims or Interests to whom a distribution
has become deliverable during the preceding calendar quarter and (b) to Holders
of Disputed Claims or Disputed Interests in any such Class whose Claims or
Interests were Allowed during the preceding calendar quarter. Such quarterly
distributions will also be in the full amount that the Plan provides for Allowed
Claims or Allowed Interests in the applicable Class. Notwithstanding the
foregoing,
36
distributions to Holders of Disputed Secured Claims shall be paid as soon as
practicable after such Claims are Allowed.
Except as otherwise provided in the Plan or the Confirmation
Order, and except with respect to Claims against Leap, all Cash necessary for
the Reorganized Debtors to make payments pursuant to the Plan will be obtained
from the applicable Debtors' existing cash balances, the operations of the
Debtors or Reorganized Debtors or post-Effective Date borrowings, as applicable.
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Leap Creditor Trust to make payments pursuant
to the Plan for Holders of Claims against Leap will be obtained from assets
transferred to the Leap Creditor Trust in accordance with the terms of the Plan.
The Disbursing Agents will make all distributions of Cash and
securities required to be distributed under the applicable provisions of the
Plan. Any Disbursing Agent may employ or contract with other entities to assist
in or make the distributions required by the Plan. Each Disbursing Agent will
serve without bond, and each Disbursing Agent, other than the Reorganized
Debtors and the Leap Creditor Trust Trustee, will receive, without further Court
approval, reasonable compensation for distribution services rendered pursuant to
the Plan and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services from the Reorganized Debtors on terms acceptable
to the Reorganized Debtors. Any compensation for distribution services rendered
by the Leap Creditor Trust Trustee pursuant to the Plan or the Leap Creditor
Trust and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services shall be paid from Cash or assets transferred to
the Leap Creditor Trust.
Cash payments made pursuant to the Plan will be in U.S.
dollars by checks drawn on or wire transfers from a bank selected by the
Disbursing Agent. Except as otherwise set forth in the Leap Creditor Trust, Cash
payments of $1,000,000 or more to be made pursuant to the Plan will, to the
extent requested in writing no later than five days after the Confirmation Date,
be made by wire transfer from a bank. Cash payments to foreign creditors, if
any, may be made, at the option of the Disbursing Agent, in such funds and by
such means as are necessary or customary in a particular foreign jurisdiction.
The Disbursing Agents will make all distributions required
under the applicable provisions of the Plan and the Leap Creditor Trust.
2. TIMING AND METHODS OF DISTRIBUTIONS
a. COMPLIANCE WITH TAX REQUIREMENTS
In connection with the Plan, to the extent applicable and
except as provided in Section 5.17(b) of the Plan, each Disbursing Agent must
comply with all tax withholding and reporting requirements imposed on it by any
governmental unit, and all distributions pursuant to the Plan will be subject to
such withholding and reporting requirements. The Disbursing Agents will be
authorized to take any and all actions that may be necessary or appropriate to
comply with such withholding and reporting requirements.
Notwithstanding any other provision of the Plan: (i) each
Holder of an Allowed Claim or Interest that is to receive a distribution of Cash
pursuant to the Plan will have sole and exclusive responsibility for the
satisfaction and payment of any tax obligations imposed by any governmental
unit, including income, withholding and other tax obligations, on account of
such distribution; and (ii) no distribution will be made to or on behalf of such
Holder pursuant to the Plan unless and until such Holder has made arrangements
satisfactory to the Disbursing Agent for the payment and satisfaction of such
tax obligations. Any Cash to be distributed pursuant to the Plan will, pending
the implementation of such arrangements, be treated as an undeliverable
distribution pursuant to the Plan.
37
b. PRO RATA DISTRIBUTION
When the Plan provides for Pro Rata distribution, the property
to be distributed under the Plan shall be divided pro rata among the Holders of
Allowed Claims or Allowed Interests of the relevant Class for that particular
Debtor.
c. DISTRIBUTION RECORD DATE
As of the close of business on the Distribution Record Date,
the transfer registers for any Old Securities and Old Vendor Debt maintained by
the Debtors, or their respective agents, will be closed. The Disbursing Agent
and the respective agents of the Debtors will have no obligation to recognize
the transfer of the Old Securities and Old Vendor Debt occurring after the
Distribution Record Date, and will be entitled for all purposes relating to the
Plan to recognize and deal only with those Holders of record as of the close of
business on the Distribution Record Date. Distributions under the Plan shall be
made by the Debtors, Leap Creditor Trust or Reorganized Debtors, as applicable,
for the benefit of the Holders of Allowed Administrative Claims and Allowed
Claims in the Debtors' respective books and records, unless such addresses are
superseded by addresses listed on proofs of claim or transfers of claims filed
pursuant to Bankruptcy Rule 3001.
d. FRACTIONAL SHARES
The calculation of percentage distribution of the New Common
Stock to be made to Holders of certain Allowed Claims and Interests, as provided
for in the Plan, may mathematically entitle such Holder to a fractional interest
in the New Common Stock. The number of shares of New Common Stock to be received
by a Holder of an Allowed Claim and/or Interest shall be rounded to the next
greater or lower whole number of shares as follows: (a) fractions of 1/2 or
greater shall be rounded to the next greater whole number and (b) fractions of
less than 1/2 shall be rounded to the next lower whole number. The total number
of shares of New Common Stock to be distributed to a class of Claims or
Interests shall be adjusted as necessary to account for the rounding described
above. No consideration shall be provided in lieu of the fractional shares that
are rounded down and not issued.
e. SPECIAL PROCEDURES FOR LOST, STOLEN, MUTILATED OR
DESTROYED INSTRUMENTS
In addition to any requirements under the Bylaws of the
Debtors, any Holder of a Claim evidenced by an Instrument that has been lost,
stolen, mutilated or destroyed will, in lieu of surrendering such Instrument,
deliver to the Disbursing Agent: (a) evidence satisfactory to the Disbursing
Agent of the loss, theft, mutilation or destruction; and (b) such security or
indemnity as may be required by the Disbursing Agent to hold the Disbursing
Agent harmless from any damages, liabilities or costs incurred in treating such
individual as a Holder of an Instrument. Upon compliance with the Plan, the
Holder of a Claim evidenced by such an Instrument will, for all purposes under
the Plan, be deemed to have surrendered an Instrument, as applicable.
f. UNDELIVERABLE OR UNCLAIMED DISTRIBUTIONS
Any Person that is entitled to receive a cash distribution
under the Plan but that fails to cash a check within 90 days of its issuance
shall be entitled to receive a reissued check from the Leap Creditor Trust or
Reorganized Debtors, as applicable, for the amount of the original check,
without any interest, if such person requests the Disbursing Agent to reissue
such check and provides the Disbursing Agent with such documentation as the
Disbursing Agent requests to verify that such Person is entitled to such check,
prior to the first anniversary of the Effective Date. If a Person fails to cash
a check within 90 days of its issuance and fails to request reissuance of such
check prior to the first anniversary of the Effective Date, such Person shall
not be entitled to receive any distribution under this Plan. If the distribution
to any Holder of an Allowed Claim or Allowed Interest is returned to a
Disbursing Agent as undeliverable, no further distributions will be made to such
Holder unless and until the applicable
38
Disbursing Agent is notified in writing of such Holder's then-current address.
Undeliverable distributions will remain in the possession of the Disbursing
Agent pursuant to the Plan until such time as a distribution becomes
deliverable. Undeliverable cash will be held in trust in segregated bank
accounts in the name of the Disbursing Agent for the benefit of the potential
claimants of such funds, and will be accounted for separately. Except as set
forth in the Leap Creditor Trust Agreement, the Disbursing Agent holding
undeliverable cash shall invest such cash in a manner consistent with
Reorganized Cricket's investment and deposit guidelines. Any distribution which
is not claimed within one year of the Effective Date shall be deemed property
of, as applicable, the Leap Creditor Trust and the Reorganized Debtors, and to
the extent deemed the property of the Leap Creditor Trust, shall be distributed
by the Leap Creditor Trust Trustee, on a Pro Rata basis, to the Holders of
beneficial interests in the Leap Creditor Trust as soon as practicable
thereafter.
3. OBJECTIONS TO CLAIMS AND AUTHORITY TO PROSECUTE OBJECTIONS;
CLAIMS RESOLUTION
The right to prosecute, File, litigate and settle objections
to Disputed Claims, whether or not the subject of litigation pending as of the
Effective Date, shall be deemed automatically transferred by the Debtors and
their Estates to the Reorganized Debtors as of the Effective Date. From and
after the Effective Date, only the Reorganized Debtors shall have the right to
File, litigate or settle any objections to Disputed Claims; provided, that in
the case of Claims against Leap (including but not limited to the Allowance or
allocation of Administrative Claims), from and after the Effective Date the Leap
Creditor Trust Trustee (to the extent provided in the Plan) shall have the
authority to File objections, settle, compromise, withdraw or litigate to
judgment objections to Claims.
Except as otherwise provided in the Plan, objections to any
Disputed Claim shall be Filed within 60 days after the Effective Date, or within
such additional period of time as the Court may allow upon motion made by the
Reorganized Debtors or the Leap Creditor Trust Trustee, as applicable, within
such 60 day period. Any such objection that is not timely filed shall be deemed
forever waived by the Reorganized Debtors' Estates and the Leap Creditor Trust,
as applicable, and neither the Reorganized Debtors, the Leap Creditor Trust
Trustee nor any other party-in-interest shall have any right to pursue the same.
Pursuant to orders with respect to the Debtors' interim use of cash collateral,
the Bankruptcy Court limited the ability of certain parties-in-interest to
challenge the validity, priority or enforceability of the liens asserted against
the Debtors by the Holders of Old Vendor Debt. As of the date hereof, no
party-in-interest may bring such a challenge, other than the Official Committee,
which must bring any such challenge no later than September 26, 2003. Nothing
contained herein shall modify any of the foregoing orders.
Notwithstanding that the Reorganized Debtors and the Leap
Creditor Trust Trustee shall have the right to File, litigate and settle
objections to Disputed Claims on behalf of the Debtors and their Estates,
nothing contained herein shall be deemed to obligate the Reorganized Debtors and
the Leap Creditor Trust Trustee to take any such actions, all of which shall be
determined by the Reorganized Debtors and the Leap Creditor Trust Trustee in
their sole and absolute discretion.
From and after the Effective Date, the Reorganized Debtors
(and the Leap Creditor Trust Trustee with respect to any Disputed Claim against
Leap or Disputed Interest in Leap) may settle or compromise any Disputed Claim
or Disputed Interest without approval of the Court.
Within 7 days prior to the Voting Deadline, the Debtors will
File a schedule of Claims to which the Debtors, Reorganized Debtors or Leap
Creditor Trust, as applicable, may object or challenge in any way and of causes
of action (including avoidance actions) that the Debtors or Reorganized Debtors
may bring (the "Objection Schedule"). Within two business days following the
date the Debtors File the Objection Schedule, the Debtors shall serve the
Objection Schedule on all parties listed on the Objection Schedule. The Debtors
reserve the right to amend the Objection Schedule at or prior to the
Confirmation Hearing. The fact that an avoidance action, objection to Claim or
cause of action is
39
not listed on the Objection Schedule shall not preclude the Debtors, the
Reorganized Debtors or the Leap Creditor Trust from bringing any such action or
objection.
THE DEBTORS HAVE NOT FULLY REVIEWED THE CLAIMS IN THE CASE OR
DETERMINED WHETHER OBJECTIONS TO CLAIMS EXIST. THIS INVESTIGATION IS ONGOING AND
WILL OCCUR, IN LARGE PART, AFTER THE CONFIRMATION DATE. AS A RESULT, CREDITORS
AND OTHER PARTIES-IN-INTEREST ARE HEREBY ADVISED THAT, NOTWITHSTANDING THAT THE
EXISTENCE OF ANY PARTICULAR OBJECTION TO A DISPUTED CLAIM MAY NOT BE LISTED,
DISCLOSED OR SET FORTH IN THIS PLAN, AN OBJECTION TO A CLAIM MAY BE BROUGHT
AGAINST ANY CREDITOR OR PARTY-IN-INTEREST AT ANY TIME, SUBJECT TO THE TIME
LIMITATIONS SET FORTH IN THIS PARAGRAPH AND THE LIMITATION THAT AN OBJECTION MAY
BE ASSERTED ONLY WITH RESPECT TO DISPUTED CLAIMS CONTEMPLATED WITHIN THE
OBJECTION SCHEDULE. IN ADDITION TO THE FOREGOING, WITH RESPECT TO THE DISPUTED
CLAIMS SCHEDULE, THE DEBTORS, THE REORGANIZED DEBTORS AND THE LEAP CREDITOR
TRUST TRUSTEE, AS APPLICABLE, RETAIN AND HEREBY RESERVE THE RIGHT TO OBJECT TO
(i) ANY CLAIMS FILED AFTER THE BAR DATE OF JUNE 28, 2003, (ii) ANY CLAIMS FILED
BY ADDITIONAL PARTIES AFTER THE SUPPLEMENTAL BAR DATE OF SEPTEMBER 2, 2003 AND
(iii) ANY CLAIMS FILED IN ORDER TO SET FORTH DAMAGES ARISING FROM THE REJECTION
OF AN EXECUTORY CONTRACT OR OTHER AGREEMENT WITH THE DEBTORS. THE DEBTORS, THE
REORGANIZED DEBTORS AND THE LEAP CREDITOR TRUST TRUSTEE, AS APPLICABLE, FURTHER
RETAIN AND HEREBY RESERVE THE RIGHT TO OBJECT TO CLAIMS INADVERTENTLY OMITTED
FROM THE DISPUTED CLAIMS SCHEDULES, WHICH OBJECTIONS WILL NOT MATERIALLY AND
ADVERSELY AFFECT THE CLAIMS OF THE REMAINING CREDITORS OF THE DEBTORS' ESTATES.
FINALLY, THE DEBTORS AND THE REORGANIZED DEBTORS RETAIN AND HEREBY RESERVE THE
RIGHT TO OBJECT TO AMOUNTS THAT HAVE BEEN SCHEDULED BY THE DEBTORS, OR REFLECTED
IN THE DEBTORS' BOOKS AND RECORDS, AND WHICH ARE FOUND TO BE OBJECTIONABLE IN
ANY RESPECT.
Objections to applications of professionals or other Persons
for compensation or reimbursement of expenses must be Filed and served on the
Reorganized Debtors, counsel for the Reorganized Debtors, the Informal Vendor
Debt Committee, the Official Committee (or, if the Official Committee has
disbanded, the Leap Creditor Trust Trustee) and the professionals to whose
application the objections are addressed on or before (i) sixty (60) days after
such application is Filed and served or (ii) such later date as the Court shall
order upon application made prior to the end of such 60-day period or upon
agreement between the Reorganized Debtors and the affected professional.
4. DISPUTED CLAIMS; RESERVE AND ESTIMATIONS
a. TREATMENT OF DISPUTED CLAIMS
Notwithstanding any other provisions of the Plan, no payments
or distributions will be made on account of a Disputed Claim or a Disputed
Interest until such Claim or Interest becomes an Allowed Claim or Allowed
Interest. The Leap Creditor Trust Trustee or Reorganized Debtors, as applicable,
may, at any time, request that the Court estimate any contingent or unliquidated
Claim pursuant to section 502(c) of the Bankruptcy Code, irrespective of whether
any Debtor previously objected to such Claim or whether the Court has ruled on
any such objection. The Court will retain jurisdiction to estimate any
contingent or unliquidated Claim at any time during litigation concerning any
objection to the Claim, including during the pendency of any appeal relating to
any such objection. If the Court estimates any contingent or unliquidated Claim,
that estimated amount will constitute either the Allowed Amount of such Claim or
a maximum limitation on such Claim, as determined by the Court. If the estimated
amount constitutes a maximum limitation on such Claim, the Leap Creditor Trust
Trustee or Reorganized Debtors, as applicable, may elect to pursue any
supplemental proceedings
40
to object to any ultimate payment on account of such Claim. All of these Claims
objection, estimation and resolution procedures are cumulative and not
necessarily exclusive of one another. In addition to seeking estimation of
Claims as provided in the Plan, the Leap Creditor Trust Trustee or Reorganized
Debtors, as applicable, may resolve or adjudicate certain Disputed Claims of
Holders in Unimpaired Classes in the manner in which the amount of such Claim
and the rights of the Holder of such Claim would have been resolved or
adjudicated if the Chapter 11 Cases had not been commenced, subject to any
applicable discharge and limitations on amounts of claims and remedies available
under bankruptcy law. Claims may be subsequently compromised, settled, withdrawn
or resolved by the Leap Creditor Trust Trustee or Reorganized Debtors, as
applicable.
b. DISTRIBUTIONS ON ACCOUNT OF DISPUTED CLAIMS ONCE THEY
ARE ALLOWED
Except as set forth in the Leap Creditor Trust Agreement,
within 15 days following the end of each calendar quarter, the Disbursing Agent
will make all distributions on account of any Disputed Claim or Disputed
Interest that has become an Allowed Claim or Allowed Interest in accordance with
the Plan. Such distributions will be made pursuant to the provisions of the Plan
governing the applicable Class. Holders of Disputed Claims or Disputed Interests
that are ultimately Allowed will not be entitled to receive, on the basis of the
amounts ultimately allowed, any interest. Notwithstanding the foregoing,
distributions to Holders of Disputed Secured Claims shall be paid as soon as
practicable after such Claims are Allowed.
c. RESERVE OF LEAP CREDITOR TRUST
In accordance with the terms of the Leap Creditor Trust, and
as more fully set forth therein, the Leap Creditor Trust Trustee shall be
authorized to make distributions to Holders of Allowed Leap Administrative
Claims and Allowed Leap General Unsecured Claims from time to time. The total
amount of Allowed Leap Administrative Claims and Allowed Leap General Unsecured
Claims (and the value of certain of Leap assets and certain Leap Litigation
Claims) may not be known until after certain distributions are made, either
because certain Claims will be Disputed Claims or because those Claims will not
have been made by their Holders prior to the Effective Date. As a result, the
Leap Creditor Trust Trustee shall hold back from the distributions from the Leap
Creditor Trust (as more fully described in the Leap Creditor Trust Agreement)
reserves in respect of each Administrative Claim and Disputed Claim against Leap
until such Claims are resolved (the "Reserve"), so that the total amount of all
Allowed Leap Administrative Claims and Allowed Leap General Unsecured Claims
includes the sum of (i) each estimated Administrative Claim not otherwise fully
reserved for by Leap, (ii) the amount of each Disputed Claim (or the maximum
amount of any such Disputed Claim as estimated by the Bankruptcy Court pursuant
to Section 502(c) of the Bankruptcy Code, if less), and (iii) potential
rejection claims, until such Claims are resolved. Distributions from the Leap
Creditor Trust will be made only to the Holders of Claims that have been
Allowed.
d. RESERVE FOR LEAP ADMINISTRATIVE AND PRIORITY CLAIMS
In connection with the Leap General Unsecured Claim Cash
Distribution, prior to the Initial Distribution Date, Leap shall establish an
appropriate reserve in an amount to be agreed upon by Leap and the Official
Committee, to satisfy Allowed Administrative Claims against Leap through and
including the Effective Date (including Claims for compensation and
reimbursement of expenses by professionals providing services to Leap) and
Allowed Priority Claims against Leap. If and to the extent that such reserves
are insufficient to satisfy all such Allowed Administrative Claims against Leap
and Allowed Priority Claims against Leap, such Claims shall be satisfied by
assets transferred or transferable to the Leap Creditor Trust that have not then
been distributed to holders of beneficial interests in the Leap Creditor Trust.
Following the Effective Date, after the satisfaction of all Allowed
Administrative Claims and Allowed Priority Claims against Leap and the
resolution of all Disputed Administrative Claims and Disputed Priority Claims
against Leap, any remaining Cash held in the reserve of Reorganized Leap will be
distributed to the Leap Creditor Trust. Under no circumstances shall
41
Reorganized Leap, Cricket or any other Debtor or Reorganized Debtor be liable in
any way for any Claims against Leap, including such Allowed Administrative
Claims and Allowed Priority Claims.
e. RESERVE FOR CRICKET COMPANIES' ADMINISTRATIVE AND
PRIORITY CLAIMS
Prior to the Confirmation Date, Cricket shall establish an
appropriate reserve in an amount to be agreed upon by Cricket and the Informal
Vendor Debt Committee, to satisfy Allowed Administrative Claims against Cricket
and the other Cricket companies through and including the Effective Date
(including Claims for compensation and reimbursement of expenses by
professionals providing services) and Allowed Priority Claims against Cricket
and the other Cricket companies. If and to the extent that such reserves are
insufficient to satisfy all such Allowed Administrative Claims and Allowed
Priority Claims, such Claims shall be satisfied by other assets of Cricket.
Following the Effective Date, after the satisfaction of all such Allowed
Administrative Claims and Allowed Priority Claims and the resolution of all such
Disputed Administrative Claims and Disputed Priority Claims, any remaining Cash
held in the reserve of Reorganized Cricket will become available to Reorganized
Cricket to use in its discretion. Under no circumstances shall Leap or the Leap
Creditor Trust be liable in any way for any Claims against any non-Leap Debtors,
including any such Allowed Administrative Claims and Allowed Priority Claims.
Nothing contained herein shall diminish the reserve established for cure amounts
set forth in Section 4.01 of the Plan.
f. RESERVE FOR DISPUTED OLD VENDOR DEBT CLAIMS
Prior to the Effective Date, Cricket shall establish a reserve
in respect of each Disputed Old Vendor Debt Claim, by holding back that portion
of the Old Vendor Debt Distribution that would be distributed in respect of each
such Disputed Old Vendor Debt Claim as if such Claim was an Allowed Claim on the
Effective Date, until such Disputed Claim is resolved. If the resolution of a
Disputed Old Vendor Debt Claim results in such Claim becoming an Allowed Old
Vendor Debt Claim, that portion of the Old Vendor Debt Distribution held back in
respect of such Claim shall be Distributed (to the extent of the Allowed portion
of such Old Vendor Debt Claim) to the Holder thereof as promptly as practicable.
Following the Effective Date, after the resolution of all such Disputed Old
Vendor Debt Claims, any remaining Reorganized Leap Common Stock or New Senior
Notes held in the reserve of Reorganized Cricket shall be distributed to the
Holders of Allowed Old Vendor Debt Claims on a Pro Rata basis.
5. SETOFFS
Except with respect to claims released pursuant to the Plan or
any contract, instrument, release, indenture or other agreement or document
created in connection with the Plan, the Leap Creditor Trust Trustee and the
Reorganized Debtors may, as applicable and pursuant to section 553 of the
Bankruptcy Code or applicable nonbankruptcy law, set off against any Allowed
Claim and the distributions to be made pursuant to the Plan on account of such
Claim (before any distribution is made on account of such Claim), the claims,
rights and causes of action of any nature that the Leap Creditor Trust Trustee
or any of the Reorganized Debtors may hold against the Holder of such Allowed
Claim; provided, however, that neither the failure to effect such a setoff nor
the allowance of any Claim hereunder will constitute a waiver or release by the
Leap Creditor Trust or Reorganized Debtors of any such claims, rights and causes
of action that the Debtors, the Leap Creditor Trust or the Reorganized Debtors
may possess against such Holder.
E. GENERAL INFORMATION CONCERNING THE PLAN
The following is a summary of certain additional information
concerning the Plan. This summary is qualified in its entirety by reference to
the provisions of the Plan.
42
1. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Under Section 365 of the Bankruptcy Code, the Debtors have the
right, subject to Court approval, to assume or reject any executory contracts or
unexpired leases. If an executory contract or unexpired lease entered into
before the Petition Date is rejected by the Debtors, it will be treated as if
the Debtors breached such contract or lease on the date immediately preceding
the Petition Date, and the other party to the agreement may assert an Unsecured
Claim for damages incurred as a result of the rejection. In the case of
rejection of employment agreements and real property leases, damages are subject
to certain limitations imposed by Sections 365 and 502 of the Bankruptcy Code.
If a Debtor (other than Cricket) assumes a contract or lease and the non-Debtor
party to such contract or lease objects to such Debtor's ability to provide
adequate assurance of future performance (or if the time period for a non-Debtor
to object to the cure amount has not yet lapsed), the Debtor may assign the
contract or lease to Cricket. In such a circumstance, Cricket may demonstrate
Cricket's ability to provide adequate assurance of future performance.
a. ASSUMPTION AND CURE
The Debtors are parties to thousands of executory contracts
and non-residential real property leases. On or before 17 days prior to the
Voting Deadline, the Debtors will File a schedule of such contracts and leases
that they intend to assume or assign to another Debtor, along with proposed cure
amounts that will be paid by the Reorganized Debtors (the "Assumption
Schedule"). Within one business day following the Filing of the Assumption
Schedule, the Debtors will serve the Assumption Schedule on the non-debtor
parties to the contracts and leases set forth on the Assumption Schedule, the
Official Committee and the Informal Vendor Debt Committee. Any party to a
contract or lease who objects to the listed cure amounts must File and serve an
objection on counsel no later than thirty (30) days after the Debtors File and
serve the Assumption Schedule. Failure to File and serve a timely objection
shall be deemed consent to the cure amounts listed on the Assumption Schedule.
Any cure amounts shall be the responsibility of Reorganized Cricket.
Any monetary amounts by which each executory contract and
unexpired lease to be assumed pursuant to the Plan is in default, if any, will
be satisfied, pursuant to Section 365(b)(1) of the Bankruptcy Code, at the
option of the applicable Reorganized Debtor: (a) by payment of the default
amount in Cash on the Effective Date; or (b) on such other terms as are agreed
to by the parties to such executory contract or unexpired lease. All cure
payments shall be made by Reorganized Cricket. If there is a dispute regarding:
(i) the amount of any cure payment; (ii) the ability of a Reorganized Debtor to
provide "adequate assurance of future performance" (within the meaning of
Section 365 of the Bankruptcy Code) under the contract or lease to be assumed or
assigned; or (iii) any other matter pertaining to assumption, the cure payments
required by Section 365(b)(1) of the Bankruptcy Code will be made following the
entry of a Final Order resolving the dispute and approving the assumption.
The Confirmation Order will constitute an Order of the
Bankruptcy Court approving the assumptions described on the Assumption Schedule,
pursuant to Section 365 of the Bankruptcy Code, as of the Effective Date.
Notwithstanding the foregoing, if, as of the date the Court enters the
Confirmation Order, there is pending before the Bankruptcy Court a dispute
concerning the cure amount or adequate assurance for any particular contract or
lease (or if the time period for a non-Debtor to object to the cure amount has
not yet lapsed), the assumption of such contract or lease shall be effective as
of the date the Bankruptcy Court enters an order resolving any such dispute and
authorizing assumption by the applicable Debtor. Moreover, the assumption of the
Lucent System Equipment Purchase Agreement is conditioned upon payment by
Cricket of the applicable cure amount and Cricket demonstrating adequate
assurance of future performance. Cricket agrees that it intends to assume
Nortel's contract if the parties can work out a mutually acceptable cure amount
and resolve additional issues raised by Nortel.
43
Any executory contract or lease not listed on the Assumption
Schedule or that is not the subject of a motion to assume that is pending on the
Confirmation Date shall be deemed rejected as of the Confirmation Date. The
Debtors reserve the right to amend the Assumption Schedule at or prior to the
Confirmation Hearing. If the Debtors add a contract or lease to the Assumption
Schedule after the Assumption Schedule is originally Filed (as described above),
the Debtor party to the applicable contract or lease shall serve the non-Debtor
party to such contract or lease with notice (a) that the contract or lease has
been added to the Assumption Schedule and (b) of the Debtor's proposed cure
amount (the "Amended Assumption Schedule Notice"). The non-Debtor party shall
have 30 days after service of the Amended Assumption Schedule Notice to File and
serve an objection to the cure amount. To the extent the parties have a dispute
with respect to the cure amount, the Debtors shall create a reserve for the full
amount of the cure amount pending resolution of such dispute (either by
stipulation or court order). The reserve described in the preceding sentence
shall not be reduced by any other reserve established pursuant to the Plan.
The Debtors are early in their review of which contracts and
leases are to be assumed and which are to be rejected. Based on that review to
date, including a review of amounts currently shown as outstanding for such
leases and contracts in the Debtors' accounts payable system, the Debtors
currently believe that the total amount of cure payments will not exceed $65
million. The Debtors have not yet finalized their list of contracts and leases
to be assumed, and the foregoing estimate could vary materially after the
Debtors have finally determined which contracts and leases to accept and have
negotiated or resolved any dispute cure amounts. All such cure payments will be
made by Reorganized Cricket.
b. REJECTIONS
On or before 17 days prior to the Voting Deadline, the Debtors
will File a schedule of executory contracts and non-residential real property
leases that they intend to reject (the "Rejection Schedule"). Within one
business day following the Filing of the Rejection Schedule, the Debtors will
serve the Rejection Schedule on the non-debtor parties to the contracts and
leases, the Official Committee and the Informal Vendor Debt Committee. The
Rejection Schedule will indicate those contracts and leases that will be
rejected as of the Confirmation Date, and which will be rejected on or before
the Effective Date. The Debtors reserve the right to amend the Rejection
Schedule at or prior to the Confirmation Hearing.
The Debtors are early in their review of which contracts and
leases are to be assumed and which are to be rejected. Based on that review to
date, the Debtors currently believe that the total amount of rejection damages
solely for Leap will not exceed $17 million. Leap has not yet finalized its list
of contracts and leases to be rejected, and the foregoing estimate could vary
materially after Leap has finally determined which contracts and leases to
reject, rejection damage claims have been filed by the other parties to
contracts and leases that are rejected, and such claims have been settled
between Leap and such parties or otherwise have been resolved. Any such
rejection damages will be classified as Class 4 General Unsecured Claims against
Leap, and such damages could materially impact the recoveries to Holders of
General Unsecured Claims against Leap.
Whether or not listed on the Rejection Schedule, any executory
contract or lease not listed on the Assumption Schedule or that is not the
subject of a motion to assume that is pending on the Confirmation Date shall be
deemed rejected as of the Confirmation Date. The Confirmation Order shall
constitute an Order of the Court approving such rejections described herein,
pursuant to Section 365 of the Bankruptcy Code.
c. BAR DATE FOR REJECTION DAMAGES
All Claims for damages arising from the rejection of executory
contracts or unexpired leases must be Filed with the Court in accordance with
the terms of the order authorizing such rejection,
44
or, if not rejected by separate order, within sixty (60) days from the entry of
the Confirmation Order. Any Claims not filed within such time will be forever
barred from assertion against the Debtors, the Estates, the Reorganized Debtors
and the Leap Creditor Trust, unless a stipulation has been entered into with
respect to the rejection of such executory contract or unexpired lease by the
applicable Debtor and non-Debtor party, with the approval of the Official
Committee or the Leap Creditor Trust Trustee, as applicable, for executory
contracts and unexpired leases to which Leap is a party or with the approval of
the Informal Vendor Debt Committee for all other executory contracts and
unexpired leases. Each of the Allowed Claims arising from the rejection of
executory contracts or unexpired leases shall be treated as a General Unsecured
Claim of the applicable Debtor that was party to such contract or lease. The
Reorganized Debtors and the Leap Creditor Trust Trustee shall have 60 days from
the date of such filing to File an objection to any Claim for rejection damages.
2. CONTINUATION OF CERTAIN RETIREMENT AND OTHER BENEFITS
On and after the Effective Date, to the extent required by
Section 1129(a)(13) of the Bankruptcy Code, each Reorganized Debtor shall
continue to pay all retiree benefits (if any), as the term "retiree benefits" is
defined in Section 1114(a) of the Bankruptcy Code, maintained or established
prior to the Confirmation Date.
3. EXECUTORY CONTRACTS AND UNEXPIRED LEASES ENTERED INTO AND
OTHER OBLIGATIONS INCURRED AFTER THE PETITION DATE
Executory contracts and unexpired leases entered into and
other obligations incurred after the Petition Date by the Debtors shall be
performed by the Debtors or Reorganized Debtors in the ordinary course of their
businesses. Accordingly, such executory contracts, unexpired leases and other
obligations shall survive and remain unaffected by entry of the Confirmation
Order or the occurrence of the Effective Date under and the effectiveness of the
Plan.
F. ADDITIONAL INFORMATION REGARDING TREATMENT OF CERTAIN CLAIMS
1. TREATMENT OF UNCLASSIFIED CLAIMS
The Bankruptcy Code does not require classification of certain
priority claims against a debtor. In these cases, these unclassified claims
include Administrative Claims and Priority Tax Claims. All distributions
referred to below that are scheduled for the Effective Date will be made on the
Effective Date or as soon as practicable thereafter.
Administrative Claims. An "Administrative Claim" is a claim
for payment of an administrative expense of a kind specified in Section 503(b)
of the Bankruptcy Code and referred to in Section 507(a)(1) of the Bankruptcy
Code, including, without limitation, the actual and necessary costs and expenses
incurred after the commencement of a chapter 11 case of preserving the estate or
operating the business of the company (including wages, salaries and commissions
for services), loans and advances to the company made after the petition date,
compensation for legal and other services and reimbursement of expenses awarded
or allowed under Section 330(a) or 331 of the Bankruptcy Code, certain retiree
benefits, certain reclamation claims, and all fees and charges against the
estate under Chapter 123 of Title 28, United States Code. Subject to certain
additional requirements for professionals and certain other entities set forth
below, each Reorganized Debtor, as the case may be, shall pay each Holder of an
Allowed Administrative Claim in full on the Effective Date, on account of its
Administrative Claim, unless the Holder and the Company or each Reorganized
Debtor agree or shall have agreed to other treatment of such Claim, or an order
of the Court provides for other terms; provided that if incurred in the ordinary
course of business or otherwise assumed by the Debtors pursuant to the Plan,
including Administrative Claims of governmental units for taxes, an Allowed
Administrative Claim will be assumed on the Effective Date and paid, performed
or settled by the Reorganized Debtors when due in accordance with the terms and
conditions of the particular agreement(s) governing the
45
obligation in the absence of the Chapter 11 Cases. Holders of Administrative
Claims (other than Administrative Claims by professionals requesting
compensation or reimbursement of expenses) shall have until 30 days after the
Effective Date to File requests for payment.
Claims by Professionals. All professionals or other Persons
requesting compensation or reimbursement of expenses pursuant to any of sections
327, 328, 330, 331, 503(b) and 1103 of the Bankruptcy Code for services rendered
on or before the Effective Date (including, inter alia, any compensation
requested by any professional or any other Person for making a substantial
contribution in the Bankruptcy Cases) shall File and serve on each of the
Reorganized Debtors, the Informal Vendor Debt Committee and the Official
Committee (or, if the Official Committee has disbanded, the Leap Creditor Trust
Trustee) an application for final allowance of compensation and reimbursement of
expenses no later than (i) sixty (60) days after the Effective Date, or (ii)
such later date as the Court shall order upon application made prior to the end
of such 60-day period. All compensation and reimbursement of expenses for
professionals incurred by or on behalf of Leap shall be paid for by Leap. All
compensation and reimbursement of expenses for professionals incurred by or on
behalf of Debtors other than Leap shall be paid for by Cricket.
Objections to applications of professionals or other Persons
for compensation or reimbursement of expenses must be Filed and served on the
Reorganized Debtors, counsel for the Reorganized Debtors, the Informal Vendor
Debt Committee, the Official Committee (or, if the Official Committee has
disbanded, the Leap Creditor Trust Trustee) and the professionals to whose
application the objections are addressed on or before (i) sixty (60) days after
such application is Filed and served or (ii) such later date as the Court shall
order upon application made prior to the end of such 60-day period or upon
agreement between the Reorganized Debtors and the affected professional. On or
prior to the Confirmation Date, each professional seeking compensation or
reimbursement shall provide the Reorganized Debtors, the Informal Vendor Debt
Committee and the Official Committee with a non-binding, written estimate of the
amount of its requested compensation and reimbursement through the Effective
Date. On the Effective Date, Reorganized Cricket shall establish a reserve for
professionals providing services to Debtors other than Leap (the "Professional
Claims Reserve") in an amount equal to the aggregate amount of such estimated
compensation or reimbursements, unless otherwise previously paid by the Debtors.
The funds in the Professional Claims Reserve shall be used solely for the
payment of Allowed professional fee claims for professionals providing services
to Debtors other than Leap. If an applicable professional fails to submit an
estimate of its fees in accordance with this section, the Reorganized Debtors
shall not pay such professional's Allowed professional fee claim from the
Professional Claims Reserve but rather shall pay such claim from any other
source available to such Reorganized Debtors. The foregoing notwithstanding, if
an applicable professional submits a non-binding, written estimate of his or her
fees and reimbursable expenses in accordance with this section, under no
circumstances shall such submission be construed to limit the source of such
professional's compensation and reimbursement solely to the funds set aside in
the Professional Claims Reserve, nor shall such submission be construed as a
maximum or cap on the amount of compensation and expense reimbursement
ultimately payable to such professional. Any professional fees and
reimbursements or expenses incurred by the Reorganized Debtors subsequent to the
Effective Date may be paid by the Reorganized Debtors without application to or
Order of the Court. The costs of the Leap Creditor Trust, including without
limitation, the fees and expenses of the Leap Creditor Trust Trustee and any
professionals retained by the Leap Creditor Trust Trustee, shall be borne
entirely by the Leap Creditor Trust.
G. ALLOCATION OF CONSIDERATION
The aggregate consideration to be distributed to holders of
Allowed Claims in each class under the Plan shall be treated as first satisfying
an amount equal to the stated principal amount of the Allowed Claim for such
holders, and any remaining consideration considered as satisfying accrued but
unpaid interests and costs, if any, and attorneys' fees where applicable.
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H. CANCELLATION OF OLD LEAP NOTES; CERTAIN PROVISIONS IN RESPECT OF THE
OLD LEAP NOTES, AND THE OLD INDENTURE TRUSTEE
a. CANCELLATION OF OLD LEAP NOTES
On the Effective Date, the Old Leap Notes will be deemed
cancelled and of no further force or effect with respect to the Debtors without
any further action on the part of the Court, any Person or any governmental
entity or agency. Following the Effective Date, holders of Old Leap Notes will
receive from the Disbursing Agent or its designee specific instructions
regarding the time and manner in which the Old Leap Notes are to be surrendered.
Pending such surrender, such Old Leap Notes will be deemed cancelled and shall
represent only the right to receive the distributions to which the holder is
entitled under this Plan.
b. OLD INDENTURE TRUSTEE'S LIEN
Subject to the terms of the Indenture and to applicable law,
the Plan shall not affect the lien of the Old Indenture Trustee pursuant to
Section 7.07 of the Indenture on all money or property now or in the future held
by the Old Indenture Trustee, including without limitation any distributions in
respect of the Old Leap Notes pursuant to the Plan or the Leap Creditor Trust,
to secure payment of the fees and expenses incurred or to be incurred by the Old
Indenture Trustee (including without limitation the fees and expenses of its
counsel) and the indemnity and all other obligations set forth in Section 7.07
of the Indenture, which lien shall continue notwithstanding the occurrence of
the Confirmation Date, the Initial Distribution Date and the Effective Date and
notwithstanding the discharge of the Debtors pursuant to the Plan and Section
1141 of the Bankruptcy Code. Subject to the terms of the Indenture and
applicable law, the Old Indenture Trustee may at any time, and from time to
time, pay or reserve for such fees, expenses, indemnity and other obligations
from any such money or property now or in the future held by the Old Indenture
Trustee.
c. TAX REPORTING
Subject to the terms of the Indenture and to applicable law,
none of the Old Indenture Trustee, the Disbursing Agent or the Leap Creditor
Trust Trustee shall have any obligation to pay, make withholdings in respect of,
or make any filings with or reportings to any governmental entity or agency or
any other Person in respect of, any tax or tax-related obligations in respect of
the Old Leap Notes or any distributions pursuant to the Plan or the Leap
Creditor Trust in respect of the Old Leap Notes. Instead, (i) the beneficial
holder of each Old Leap Note shall have the obligation to pay all taxes in
respect of such distributions, and (ii) the top-tier Depository Trust Company
participant in respect of each Old Leap Note shall have the obligation to comply
with all such withholding, filing and reporting requirements.
d. INDENTURE
The Indenture shall continue in full force and effect
notwithstanding the occurrence of the Confirmation Date, the Initial
Distribution Date and the Effective Date and notwithstanding the discharge of
the Debtors, except that the liability of any of the Debtors thereunder shall be
discharged pursuant to the Plan and Section 1141 of the Bankruptcy Code.
I. CANCELLATION OF OLD LEAP COMMON STOCK AND OTHER OLD SECURITIES
As of the Effective Date, by virtue of the Plan and in all
events without any action on the part of the Holders thereof, the Old Securities
issued and outstanding or held in treasury, including without limitation, the
Old Leap Common Stock, will be cancelled and retired.
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J. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Reorganized Debtors to make payments pursuant
to the Plan will be obtained from the Reorganized Debtors' Cash balances or
borrowings and the operations of the Reorganized Debtors.
Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for the Leap Creditor Trust Trustee to make payments
pursuant to the Plan will be obtained from the Leap Creditor Trust Assets.
K. CERTAIN CORPORATE GOVERNANCE MATTERS
a. CANCELLATION OF OLD SECURITIES AND RELATED AGREEMENTS
On the Effective Date, the Old Securities and the Old Stock
Rights, and all obligations of the Debtors under all of the foregoing or under
any agreements relating to the foregoing will be terminated, cancelled and
extinguished.
b. CERTIFICATES OF INCORPORATION
On the Effective Date, each of the Reorganized Debtors shall
adopt the Amended Debtor Certificates of Incorporation pursuant to applicable
non-bankruptcy law and section 1123(a)(5)(I) of the Bankruptcy Code. The Amended
Debtor Certificates of Incorporation will, among other provisions: (i) authorize
the issuance of the New Common Stock; and (ii) prohibit the issuance of
nonvoting securities to the extent required by section 1123(a)(6) of the
Bankruptcy Code. The Amended Debtor Certificates of Incorporation will become
effective upon the occurrence of the Effective Date.
L. EFFECT OF CONFIRMATION OF THE PLAN
1. VESTING OF ASSETS
Except as otherwise provided in any provision of the Plan, on
the Effective Date, the Leap Creditor Trust Assets shall vest in the Leap
Creditor Trust and all property of the other Estates will vest in the
Reorganized Debtors, as applicable, free and clear of all Liens, Claims,
encumbrances and Interests. From and after the Effective Date, each Reorganized
Debtor may operate its business and use, acquire and dispose of property and
settle and compromise Claims or Interests arising post-Confirmation without
supervision by the Court and free of any restrictions of the Bankruptcy Code,
the Bankruptcy Rules or the Local Bankruptcy Rules, other than those
restrictions expressly imposed by the Plan and the Confirmation Order.
2. DISCHARGE OF CLAIMS AND TERMINATION OF INTERESTS
Except as provided in the Confirmation Order, the rights
afforded under the Plan and the treatment of Claims and Interests under the Plan
will be in exchange for and in complete satisfaction, discharge and release of
all Claims and satisfaction or termination of all Interests, including any
interest accrued on Claims from the Petition Date. Except as provided in the
Plan or Confirmation Order, Confirmation will, as of the Effective Date: (a)
discharge the Debtors from all Claims or other debts that arose before the
Effective Date, and all debts of a kind specified in Section 502(g), 502(h) or
502(i) of the Bankruptcy Code, whether or not (i) a proof of claim based on such
debt is Filed or deemed Filed pursuant to Section 501 of the Bankruptcy Code,
(ii) a Claim based on such debt is Allowed pursuant to Section 502 of the
Bankruptcy Code, or (iii) the holder of a Claim based on such debt has accepted
the Plan; and (b) satisfy or terminate all Interests and other rights of Holders
of Interests.
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UPON CONFIRMATION, THE PLAN WILL BE BINDING ON ALL HOLDERS OF
CLAIMS AGAINST AND INTERESTS IN EACH DEBTOR REGARDLESS OF WHETHER SUCH HOLDERS
VOTED TO ACCEPT THE PLAN.
3. DISCHARGE OF REORGANIZED DEBTORS AND INJUNCTION
Except as otherwise provided in the Plan or the Confirmation
Order: (i) on the Effective Date, each Reorganized Debtor shall be deemed
discharged and released to the fullest extent permitted by section 1141 of the
Bankruptcy Code from all Claims and Interests, including, but not limited to,
demands, liabilities, Claims and Interests that arose before the Confirmation
Date and all debts of the kind specified in sections 502(g), 502(h) or 502(i) of
the Bankruptcy Code, whether or not: (A) a proof of Claim or proof of Interest
based on such debt or Interest is Filed or deemed Filed pursuant to section 501
of the Bankruptcy Code, (B) a Claim or Interest based on such debt or Interest
is allowed pursuant to section 502 of the Bankruptcy Code or (C) the Holder of a
Claim or Interest based on such debt or Interest has accepted the Plan; and (ii)
all Persons shall be precluded from asserting against each Reorganized Debtor,
its successors, or its assets or properties any other or further Claims or
Interests based upon any act or omission, transaction, or other activity of any
kind or nature that occurred prior to the Confirmation Date. Except as otherwise
provided in the Plan or the Confirmation Order, the Confirmation Order shall act
as a discharge of any and all Claims against and all debts and liabilities of
the Reorganized Debtors, as provided in sections 524 and 1141 of the Bankruptcy
Code, and such discharge shall void any judgment against each Reorganized Debtor
at any time obtained to the extent that it relates to a Claim discharged.
All Persons that have held, currently hold or may hold a Claim
or other debt or liability or an Interest or other right of such Holders, are
permanently enjoined from taking any of the following actions on account of any
such Claims, debts or liabilities or Interests or rights: (a) commencing or
continuing in any manner any action or other proceeding against any of the
Debtors, the Informal Vendor Debt Committee (and each of its members in such
capacity), the Informal Noteholder Committee (and each of its members in such
capacity), the Official Committee (and each of its members in such capacity),
the Old Indenture Trustee and counsel and other professional persons retained by
the Debtors, the Informal Vendor Debt Committee, the Noteholder Committee, the
Official Committee, and the Old Indenture Trustee, and each of their respective
affiliates, current or former officers, directors, agents, employees and
representatives; (b) enforcing, attaching, collecting or recovering in any
manner any judgment, award, decree or order against any of the Debtors, the
Informal Vendor Debt Committee (and each of its members in such capacity), the
Informal Noteholder Committee (and each of its members in such capacity), the
Official Committee (and each of its members in such capacity), the Old Indenture
Trustee and counsel and other professional persons retained by any of the
Debtors, the Informal Vendor Debt Committee, the Informal Noteholder Committee,
the Official Committee, and the Old Indenture Trustee, and each of their
respective affiliates, current or former officers, directors, agents, employees
and representatives; (c) creating, perfecting or enforcing any Lien or
encumbrance against any of the Debtors, the Informal Vendor Debt Committee (and
each of its members in such capacity), the Informal Noteholder Committee (and
each of its members in such capacity), the Official Committee (and each of its
members in such capacity), the Old Indenture Trustee and counsel and other
professional persons retained by any of the Debtors, the Informal Vendor Debt
Committee, the Informal Noteholder Committee, the Official Committee, and the
Old Indenture Trustee, and each of their respective affiliates, current or
former officers, directors, agents, employees and representatives; (d) asserting
a setoff, right of subrogation or recoupment of any kind against any obligation
due to any of the Debtors, the Informal Vendor Debt Committee (and each of its
members in such capacity), the Informal Noteholder Committee (and each of its
members in such capacity), the Official Committee (and each of its members in
such capacity), the Old Indenture Trustee and counsel and other professional
persons retained by any of the Debtors, the Informal Vendor Debt Committee, the
Informal Noteholder Committee, the Official Committee, and the Old Indenture
Trustee, and each of their respective affiliates, current or former officers,
directors, agents, employees and representatives; and (e)
49
commencing or continuing any action, in any manner, in any place that does not
comply with or is inconsistent with the provisions of the Plan.
Any Person injured by any willful violation of such injunction
shall recover actual damages, including costs and attorneys' fees, and, in
appropriate circumstances, may recover punitive damages, from the willful
violator.
The foregoing releases do not extend to any claim (a) by
Lucent that could be brought with respect to any transfer by a Debtor to Cricket
Performance I (to the extent such claim was preserved by a timely filed proof of
claim) or against Cricket Performance I or (b) by Nortel that could be brought
with respect to any transfer by a Debtor to Cricket Performance II (to the
extent such claim was preserved by a timely filed proof of claim) or against
Cricket Performance II).
M. RETENTION OF JURISDICTION
Notwithstanding the entry of the Confirmation Order and the
occurrence of the Effective Date, the Court will retain such jurisdiction over
the Chapter 11 Cases after the Effective Date to the full extent permitted by
law, including, without limitation, jurisdiction to:
(i) Allow, disallow, determine, liquidate, classify,
subordinate, estimate or establish the priority or
secured or unsecured status of any Claim or Interest,
including the resolution of any request for payment
of any Administrative Claim, the resolution of any
objections to the allowance or priority of Claims or
Interests and the resolution of any dispute as to the
treatment necessary to reinstate a Claim pursuant to
the Plan;
(ii) Grant or deny any applications for allowance of
compensation or reimbursement of expenses authorized
pursuant to the Bankruptcy Code or the Plan, for
periods ending before the Effective Date;
(iii) Resolve any matters related to the assumption or
rejection of any executory contract or unexpired
lease to which any Debtor is a party or with respect
to which any Debtor may be liable, and to hear,
determine and, if necessary, liquidate any Claims
arising therefrom;
(iv) Ensure that distributions to Holders of Allowed
Claims or Allowed Interests are accomplished pursuant
to the provisions of the Plan;
(v) Decide or resolve any motions, adversary proceedings,
contested or litigated matters and any other matters
and grant or deny any applications involving the
Debtors, the Reorganized Debtors or the Leap Creditor
Trust arising out of or related to the Chapter 11
Cases;
(vi) Enter such Orders as may be necessary or appropriate
to implement or consummate the provisions of the Plan
and all contracts, instruments, releases, indentures
and other agreements or documents created in
connection with the Plan, this Disclosure Statement
or the Confirmation Order, except as otherwise
provided herein;
(vii) Resolve any cases, controversies, suits or disputes
that may arise in connection with the consummation,
interpretation or enforcement of the Plan or the
Confirmation Order, including the release and
injunction provisions set forth in and contemplated
by the Plan and the Confirmation Order, or any
entity's rights arising under or obligations incurred
in connection with the Plan or the
50
Confirmation Order;
(viii) Subject to any restrictions on modifications provided
in any contract, instrument, release, indenture or
other agreement or document created in connection
with the Plan, modify the Plan before or after the
Effective Date pursuant to section 1127 of the
Bankruptcy Code or modify this Disclosure Statement,
the Confirmation Order or any contract, instrument,
release, indenture or other agreement or document
created in connection with the Plan, this Disclosure
Statement or the Confirmation Order; or remedy any
defect or omission or reconcile any inconsistency in
any Court Order, the Plan, this Disclosure Statement,
the Confirmation Order or any contract, instrument,
release, indenture or other agreement or document
created in connection with the Plan, this Disclosure
Statement or the Confirmation Order, in such manner
as may be necessary or appropriate to consummate the
Plan, to the extent authorized by the Bankruptcy
Code;
(ix) Issue injunctions, enter and implement other Orders
or take such other actions as may be necessary or
appropriate to restrain interference by any entity
with consummation, implementation or enforcement of
the Plan or the Confirmation Order;
(x) Enter and implement such Orders as are necessary or
appropriate if the Confirmation Order is for any
reason modified, stayed, reversed, revoked or
vacated;
(xi) Determine any other matters that may arise in
connection with or relating to the Plan, this
Disclosure Statement, the Confirmation Order or any
contract, instrument, release, indenture or other
agreement or document created in connection with the
Plan, this Disclosure Statement or the Confirmation
Order, except as otherwise provided in the Plan;
(xii) Resolve any disputes that the Leap Creditor Trust
Trustee may assert with respect to whether the
Debtors or Reorganized Debtors reasonably determined
that a proposed defendant is a "Material Vendor or
Customer" in the case of a potential Eligible Leap
Avoidance Action, or that a proposed cause of action
is a "Materially Adverse Action" in the case of a
potential Eligible Leap Cause of Action; and
(xiii) Enter an Order concluding the Chapter 11 Cases.
The foregoing list is illustrative only and not intended to
limit in any way the Court's exercise of jurisdiction. If the Court abstains
from exercising jurisdiction or is otherwise without jurisdiction over any
matter arising out of the Chapter 11 Cases, including without limitation the
matters set forth in this Article, this Article shall have no effect upon and
shall not control, prohibit or limit the exercise of jurisdiction by any other
court having competent jurisdiction with respect to such matter.
N. MISCELLANEOUS PROVISIONS
1. EXEMPTION FROM TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, transfer or exchange of notes or equity securities under the Plan, the
creation of any mortgage, deed of trust or other security interest, the making
or assignment of any lease or sublease, or the making or delivery of any deed or
other instrument of transfer under, in furtherance of, or in connection with the
Plan, including, without
51
limitation, any agreements of consolidation, deeds, bills of sale or assignments
executed in connection with any of the transactions contemplated under the Plan
shall not be subject to any stamp, real estate transfer, mortgage recording or
other similar tax.
2. PAYMENT OF STATUTORY FEES
All fees payable on or before the Effective Date pursuant to
section 1930 of Title 28 of the United States Code shall be paid on or before
the Effective Date. The Debtors will pay quarterly fees to the U.S. Trustee
until entry of a final decree. In addition, the Debtors will file
post-Confirmation quarterly reports in conformance with the U.S. Trustee
Guidelines.
3. MODIFICATION OR WITHDRAWAL OF THE PLAN
The Debtors reserve the right, in accordance with the
Bankruptcy Code, to amend, modify or withdraw the Plan prior to the entry of the
Confirmation Order. After the entry of the Confirmation Order, the Debtors may
amend or modify the Plan, or remedy any defect or omission or reconcile any
inconsistency in the Plan in such a manner as may be necessary to carry out the
purpose and intent of the Plan with the consent of the Official Committee (or,
if the Official Committee has disbanded, the Leap Creditor Trust Trustee) and
the Informal Vendor Debt Committee.
4. GOVERNING LAW
Unless a rule of law or procedure is supplied by federal law
(including the Bankruptcy Code and Bankruptcy Rules), the laws of the State of
New York (without reference to the conflicts of laws provisions thereof) shall
govern the construction and implementation of the Plan and any agreements,
documents and instruments executed in connection with the Plan.
5. FILING OR EXECUTION OF ADDITIONAL DOCUMENTS
On or before the Effective Date, the Debtors shall file with
the Court or execute, as appropriate, such agreements and other documents as may
be necessary or appropriate to effectuate and further evidence the terms and
conditions of the Plan.
6. WITHHOLDING AND REPORTING REQUIREMENTS
In connection with the Plan and all instruments issued in
connection therewith and distributions thereon, to the extent applicable and
except as provided in Section 5.17(b) of the Plan, the Leap Creditor Trust
Trustee and the Reorganized Debtors shall comply with all withholding and
reporting requirements imposed by any federal, state, local or foreign taxing
authority and all distributions thereunder shall be subject to any such
withholding and reporting requirements.
7. WAIVER OF RULE 62(a) OF THE FEDERAL RULES OF CIVIL PROCEDURE
The Debtors may request that the Confirmation Order include
(a) a finding that Rule 62(a) of the Federal Rules of Bankruptcy Procedure shall
not apply to the Confirmation Order, and (b) authorization for the Debtors to
consummate the Plan immediately after the entry of the Confirmation Order.
8. HEADINGS
Headings used in the Plan are for convenience and reference
only and shall not constitute a part of the Plan for any purpose.
52
9. EXHIBITS AND SCHEDULES
All Exhibits and Schedules to the Plan and Disclosure
Statement are incorporated into and constitute a part of the Plan as if set
forth herein.
10. NOTICES
All notices, requests and demands hereunder to be effective
shall be in writing and unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when actually delivered or, in the case
of notice by facsimile transmission, when received and telephonically confirmed,
addressed as provided for in the Plan.
11. PLAN SUPPLEMENT
Forms of documents relating to the Amended Debtor Certificates
of Incorporation, Amended Debtor Bylaws, Leap Creditor Trust Agreement and New
Senior Notes Indenture shall be contained in the Plan Supplement and filed with
the Clerk of the Court at least 5 days prior to the date of the Confirmation
Hearing. Upon its filing with the Court, the Plan Supplement may be inspected
during normal Court hours. Holders of Claims may obtain a copy of the Plan
Supplement upon written request to counsel to the Debtors.
12. CONFLICT
The terms of this Plan shall govern in the event of any
inconsistency with the summaries of the Plan set forth in the Disclosure
Statement.
13. SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any Person named or
referred to in the Plan shall be binding on, and shall inure to the benefit of,
any heir, executor, trustee, administrator, successor or assign of such Person.
14. SATURDAY, SUNDAY OR LEGAL HOLIDAY
If any payment or act under the Plan is required to be made or
performed on a date that is not a Business Day, then the making of such payment
or the performance of such act may be completed on the next succeeding Business
Day, but shall be deemed to have been completed as of the required date.
15. POST-EFFECTIVE DATE EFFECT OF EVIDENCES OF CLAIMS OR INTERESTS
Notes, bonds, stock certificates and other evidences of Claims
against or Interests in the Debtors, and all Instruments of the Debtors (in
either case, other than those executed and delivered as contemplated hereby in
connection with the consummation of the Plan), shall, effective upon the
Effective Date, represent only the right to participate in the distributions
contemplated by the Plan.
16. SEVERABILITY OF PLAN PROVISIONS
If, prior to Confirmation, any term or provision of the Plan
that does not govern the treatment of Claims or Interests provided for herein or
the conditions to the Effective Date is held by the Court to be invalid, void,
or unenforceable, the Court shall have the power to alter and interpret such
term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void, or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration
53
or interpretation, the remainder of the terms and provisions of the
Plan will remain in full force and effect and will in no way be affected,
impaired, or invalidated by such holding, alteration, or interpretation. The
Confirmation Order shall constitute a judicial determination, and shall provide,
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable pursuant
to its terms.
17. BALLOTING
Each Holder of an Allowed Claim or an Allowed Interest
entitled to vote on the Plan will receive a Ballot. The Ballot will contain two
boxes, one indicating acceptance of the Plan and the other indicating rejection
of the Plan. Holders of Allowed Claims or Allowed Interests who elect to vote on
the Plan must mark one or the other box pursuant to the instructions contained
on the Ballot. Any executed Ballot that does not indicate acceptance or
rejection of the Plan will be deemed to be an acceptance of the Plan.
18. NO ADMISSIONS OR WAIVER OF OBJECTIONS
Notwithstanding anything herein to the contrary, nothing
contained herein or in the Plan shall be deemed as an admission by any Debtor,
the Official Committee or the Informal Vendor Debt Committee with respect to any
matter set forth herein including, without limitation, liability on any Claim or
the propriety of any Claims classification. The Debtors are not bound by any
statements herein or in the Plan as judicial admissions.
19. SURVIVAL OF SETTLEMENTS
All Court-approved settlements shall survive consummation of
the Plan, except to the extent that any provision of any such settlement is
inconsistent with the Plan, in which case the provisions of the Plan shall
supersede such inconsistent provision of such settlement.
SECTION VIII.
PROJECTIONS
The Debtors have developed financial projections to assess the
feasibility of the Reorganized Debtors generally. These projections and
valuations are based on a number of significant assumptions, including the
successful reorganization of the Debtors, an assumed Effective Date of September
30, 2003, and no significant downturn in the specific markets in which the
Debtors operate.
THE PROJECTIONS ARE BASED ON A NUMBER OF SIGNIFICANT
ASSUMPTIONS. ACTUAL OPERATING RESULTS AND VALUES MAY VARY.
Annexed to this Disclosure Statement as Exhibit G are
unaudited financial projections of the Reorganized Debtors prepared as of July
16, 2003 (the "Projections") and include updates by the Debtors to reflect the
declines in subscribers being experienced by the Debtors while in bankruptcy,
their post-petition financial performance and other factors. See "Description of
the Debtors' Business--Statement Regarding Financial Performance of Cricket for
Second Quarter 2003" included at page 3 of the Disclosure Statement.
The Projections are dependent upon many factors over which the
Debtors do not have any control. No assurance can be given that any of the
assumptions on which the Projections are based will prove to be correct. The
Projections were not prepared with a view to public disclosure or in compliance
with (i) published guidelines of the SEC, (ii) the guidelines established by the
American Institute of Certified Public Accountants regarding projections or
(iii) GAAP. While presented with numerical specificity, such projections are
based upon a variety of assumptions that may not be realized
54
relating to future business and operations of the Reorganized Debtors and the
integration of their operations. The Projections are subject to uncertainties
and contingencies, all of which are difficult to predict, and many of which are
beyond the control of the Debtors. THE DEBTORS MAKE NO EXPRESS OR IMPLIED
REPRESENTATION OR WARRANTY AS TO THE ATTAINABILITY OF THE PROJECTED FINANCIAL
INFORMATION SET FORTH IN THE PROJECTIONS, OR AS TO THE ACCURACY OR COMPLETENESS
OF THE ASSUMPTIONS FROM WHICH THAT PROJECTED INFORMATION IS DERIVED.
The Debtors believe the Projections illustrate the feasibility
of the Plan and of the Reorganized Debtors generally. The Projections reflect
the positive effects of substantially de-leveraging the Reorganized Debtors,
whose consolidated indebtedness will be reduced from approximately $2.5 billion
to approximately $426.7 million immediately following the Effective Date of the
Plan. The Projections show that Reorganized Leap would accumulate cash during
the seven-year projection period, with projected cash balances growing from
$112.6 million at the Effective Date to $169.4 million at the end of 2006 to
$263.1 million at the end of 2010, with the Reorganized Debtors repaying the
outstanding FCC Debt and New Senior Notes in full over the same period of time.
Reorganized Leap also would incur an aggregate of $647.4 million in capital
expenditures during this same period. The Projections also show that Reorganized
Leap would generate EBITDA of $83.6 million, $210.6 million and $344.6 million
in each of 2004, 2006 and 2010, respectively, and net income (loss) of $(10.1
million), $83.5 million and $140.1 million in each of 2004, 2006 and 2010,
respectively. Please see the Projections attached as Exhibit G for more detailed
information about projected results.
SECTION IX.
CONFIRMATION PROCEDURE
A. SOLICITATION OF VOTES
The Debtors will solicit votes from Holders of Claims and
Interests in Classes entitled to vote (e.g., those classes that (a) are Impaired
and (b) are receiving property or Cash under the Plan). As to such Classes, the
Bankruptcy Code defines acceptance of a plan by a class of creditors as
acceptance by holders of at least two-thirds in dollar amount and more than
one-half in number of the Claims of that class that have timely voted to accept
or reject a plan.
A vote may be disregarded if the Court determines, after
notice and a hearing, that acceptance or rejection was not solicited or procured
in good faith or in accordance with the provisions of the Bankruptcy Code.
Any Holder of a Claim in an Impaired Class (i) whose Claim has
been listed by the Debtors in the Debtors' Schedules filed with the Court
(provided that such Claim has not been scheduled as disputed, contingent or
unliquidated) or (ii) who filed a proof of claim on or before June 28, 2003 (or,
if not filed by such date, any proof of claim filed within any other applicable
period of limitations or with leave of the Court), which Claim is not the
subject of an objection or request for estimation, is entitled to vote.
1. VOTING PROCEDURES FOR HOLDERS OF OLD LEAP NOTES
If you are a registered holder of Old Leap Notes
(collectively, "Voting Securities"), in each case, to the extent such holder is
entitled to vote ("Holder of Voting Securities"), you will receive the ballot
relating to the securities you hold of record. Registered Holders may include
brokerage firms, commercial banks, trust companies or other nominees. If such
entities do not hold Voting Securities for their own account, they should
provide copies of this Disclosure Statement and an appropriate Ballot to their
customers and to beneficial owners. Any beneficial owner who has not received
this Disclosure Statement or a Ballot should contact their brokerage firm or
nominee or the Voting Agent.
55
All votes to accept or reject the Plan must be cast by using
the Ballot or, in the case of a brokerage firm or other nominee holding Voting
Securities in its own name on behalf of a beneficial owner, the Master Ballot,
enclosed with this Disclosure Statement. Brokerage firms or other nominees
holding Voting Securities for the account of only one beneficial owner may use a
Ballot. Purported votes which are cast in any other manner will not be counted.
Ballots and Master Ballots must be received by the Voting Agent no later than
4:00 p.m., Pacific Time, on the Voting Deadline (September 8, 2003) which may be
extended at the Debtor's discretion or with Court approval. Ballots must be sent
to the Voting Agent at the following address:
If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Tel: (800) 517-7475
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc.,
Cricket Communications Inc. and Affiliated
Entities Claims Agent
If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (800) 517-7475
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc.,
Cricket Communications Inc. and Affiliated
Entities Claims Agent
You may receive a Ballot relating to Voting Securities that
you did not beneficially own on the Distribution Record Date. You should
complete only the Ballot corresponding to each class of Voting Securities which
you beneficially owned on the Distribution Record Date. Holders who purchase or
whose purchase is registered after the Distribution Record Date, and who wish to
vote on the Plan must arrange with their seller to receive a proxy from the
Holder of record on the Distribution Record Date, a form of which is provided
with each Ballot and Master Ballot.
Holders of Voting Securities who elect to vote on the Plan
should complete and sign the Ballot in accordance with the instructions thereon
being sure to check the appropriate box entitled "Accept the Plan" or "Reject
the Plan." Holders may not split their vote on the Plan with respect to a
particular class of Voting Securities. A Holder must vote all securities
beneficially owned in a particular class in the same way (i.e., all "accept" or
all "reject") even if such Voting Securities are owned through more than one
broker or bank.
Again, delivery of the Ballots must be made to the Voting
Agent at Poorman-Douglas Corporation at the addresses set forth above. The
method of such delivery is at the election and risk of the Holder. If such
delivery is by mail, it is recommended that Holders use an air courier with a
guaranteed next day delivery or registered mail, properly insured, with return
receipt requested. In all cases, sufficient time should be allowed to assure
timely delivery.
You may receive multiple mailings of this Disclosure
Statement, especially if you own your Voting Securities through more than one
broker or bank. If you submit more than one Ballot for a class or issue of
Voting Securities because you beneficially own such Voting Securities through
more than one broker or bank, be sure to indicate in item [3] of the Ballot(s),
the names of all broker dealers or other intermediaries who hold Voting
Securities for you.
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2. BENEFICIAL OWNERS OF OLD LEAP NOTES
All beneficial owners of Voting Securities on the Distribution
Record Date are eligible to vote on the Plan, whether the Voting Securities were
held on the Distribution Record Date in such beneficial owner's name or in the
name of a brokerage firm, commercial bank, trust company or other nominee.
Any beneficial owner holding Voting Securities in its own name
can vote by completing and signing the enclosed Ballot and returning it directly
to the Voting Agent using the enclosed pre-addressed stamped envelope.
A beneficial owner holding Voting Securities in "street name"
(i.e., through a brokerage firm, bank, trust company or other nominee) or a
beneficial owner's authorized signatory (a broker or other intermediary having
power of attorney to vote on behalf of a beneficial owner) can vote by following
the instructions set forth below:
1. Fill in all the applicable information on the Ballot.
2. Sign the Ballot (unless the Ballot has already been
signed by the bank, trust company or other nominee).
3. Return the Ballot to the addressee in the
preaddressed, stamped envelope enclosed with the ballot. If no envelope was
enclosed, contact the Voting Agent for instructions.
Authorized signatories voting on behalf of more than one
beneficial owner must complete a separate Ballot for each such beneficial owner.
Any Ballot submitted to a brokerage firm or proxy intermediary will not be
counted until such brokerage firm or proxy intermediary (i) properly executes
and delivers such Ballot to the Voting Agent or (ii) properly completes and
delivers a corresponding Master Ballot to the Voting Agent.
By submitting a vote for or against the Plan, you are
certifying that you are the beneficial owner of the Voting Securities being
voted or an authorized signatory for such a beneficial owner. Your submission of
a Ballot will also constitute a request that you (or in the case of an
authorized signatory, the beneficial owner) be treated as the record holder of
such Voting Securities for purposes of voting on the Plan.
3. BROKERAGE FIRMS, BANKS AND OTHER NOMINEES
A brokerage firm, commercial bank, trust company or other
nominee which is the registered holder of a Voting Security for a beneficial
owner, or is a participant in a securities clearing agency and is authorized to
vote in the name of such securities clearing agency pursuant to an omnibus proxy
(as described below) and is acting for a beneficial owner, can vote on behalf of
such beneficial owner by (i) distributing a copy of this Disclosure Statement
and all appropriate Ballots to such owner, (ii) collecting all such Ballots,
(iii) completing a Master Ballot compiling the votes and other information from
the Ballots collected, and (iv) transmitting such completed Master Ballot to the
Voting Agent. A proxy intermediary acting on behalf of a brokerage firm or bank
may follow the procedures outlined in the preceding sentence to vote on behalf
of such beneficial owner. A brokerage firm, commercial bank, trust company or
other nominee which is the registered holder of a Voting Security for only one
beneficial owner also may arrange for such beneficial owner to vote by executing
the appropriate ballot and by distributing a copy of this Disclosure Statement
and such executed Ballot to such beneficial owner for voting and returning such
Ballot to the Voting Agent.
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4. VOTING DEADLINE AND EXTENSIONS
In order to be counted for purposes of voting on the Plan, all
of the information requested by the applicable Ballot must be provided. Ballots
indicating acceptance or rejection of the Plan must be received by the Voting
Agent at its address set forth below no later than 4:00 p.m., Pacific Time, on
the Voting Deadline. The Debtors reserve the right, in their sole discretion, to
extend the Voting Deadline or the Court may extend the Voting Deadline, in which
case the term "Voting Deadline" shall mean the latest date on which a Ballot
will be accepted.
5. WITHDRAWAL OF VOTES ON THE PLAN
The solicitation of acceptances of the Plan will expire on the
Voting Deadline. A properly submitted Ballot may be withdrawn by delivering a
written or facsimile transmission notice of withdrawal to the Voting Agent,
Poorman-Douglas, at the following address:
If by U.S. Mail:
Poorman-Douglas Corporation
P.O. Box 4390
Portland, Oregon 97208-4390
Tel: (800) 517-7475
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc.,
Cricket Communications Inc. and Affiliated
Entities Claims Agent
If by Overnight or Hand Delivery:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (800) 517-7475
Fax: (503) 350-5890
Attn: Leap Wireless International, Inc.,
Cricket Communications Inc. and Affiliated
Entities Claims Agent
at any time prior to the Voting Deadline. Thereafter, withdrawal may be effected
only with the approval of the Court.
In order to be valid, a notice of withdrawal must (i) specify
the name of the Holder who submitted the votes on the Plan to be withdrawn; (ii)
contain a description of the Claim or Interest to which it relates and the
aggregate principal amount or number of shares represented by such Claim or
Interest; and (iii) be signed by the Holder in the same manner as on the Ballot.
The Debtors expressly reserve the absolute right to contest the validity of any
such withdrawals of votes on the Plan.
Any Holder who has previously submitted to Poorman-Douglas
prior to the Voting Deadline a properly completed Ballot may revoke and change
such vote by submitting to Poorman-Douglas prior to the Voting Deadline a
subsequent properly completed Ballot for acceptance or rejection of the Plan. In
the case where more than one timely, properly completed Ballot is received, only
the one which bears the latest date will be counted for purposes of determining
whether sufficient acceptances required to seek Confirmation of the Plan have
been received. If more than one Master Ballot is submitted and the later dated
Master Ballot(s) supplement rather than supersede the earlier Master Ballot(s),
please mark the subsequent Master Ballot(s) with the words "Additional Votes" or
such other language as is customarily used to indicate additional votes that are
not meant to revoke earlier votes.
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6. VOTING AGENT
Poorman-Douglas has been appointed as Voting Agent for the
Plan. Questions and requests for assistance may be directed to the Voting Agent.
Requests for additional copies of this Disclosure Statement, the Ballots or the
Master Ballots should be directed to the Voting Agent.
B. THE CONFIRMATION HEARING
The Bankruptcy Code requires the Court, after notice, to hold
a confirmation hearing. The Confirmation Hearing in respect of the Plan has been
scheduled for September 29, 2003 at 10:00 a.m., Pacific Time, before the
Honorable Louise DeCarl Adler at the United States Bankruptcy Court for the
Southern District of California, Jacob Weinberger U.S. Courthouse, 325 West F
Street, San Diego, California 92101. The Confirmation Hearing may be adjourned
from time to time by the Court without further notice except for an announcement
of the adjourned date made at the Confirmation Hearing. Any objection to
Confirmation must be made in writing and specify in detail the name and address
of the objector, all grounds for the objection and the amount of the Claim or
number of shares of Old Leap Common Stock or Interests held by the objector. Any
such objection must be filed with the Court and served so that it is received by
the Court and the following parties on or before September 8, 2003 at 4:00 p.m.,
Pacific Time:
Latham & Watkins LLP Kramer Levin Naftalis & Frankel LLP
Attorneys for the Debtors Attorneys for the Official Committee
633 West Fifth Street, Suite 4000 919 Third Avenue
Los Angeles, California 90071 New York, New York 10022
Attn: Robert A. Klyman Attn: Robert T. Schmidt
Andrews & Kurth L.L.P. Office of the United States Trustee
Attorneys for Informal Vendor Committee 402 West Broadway, Suite 600
805 Third Avenue San Diego, CA 92101
New York, New York 10022 Attn: Tiffany L. Carroll
Attn: Paul N. Silverstein
C. CONFIRMATION
This Disclosure Statement and the appropriate Ballot are being
distributed to all Holders of Claims and Interests who are entitled to vote on
the Plan. There is a separate Ballot designated for each Impaired Class in order
to facilitate vote tabulation; however, all Ballots are substantially similar in
form and substance and the term "Ballot" is used without intended reference to
the Ballot of any specific class of Claims or Interests.
The Bankruptcy Code requires that, in order to confirm the
Plan, the Court must make a series of findings concerning the Plan and the
Debtors, including, without limitation, that (i) the Plan has classified Claims
and Interests in a permissible manner, (ii) the Plan complies with applicable
provisions of the Bankruptcy Code, (iii) the Debtors have complied with
applicable provisions of the Bankruptcy Code, (iv) the Debtors have proposed the
Plan in good faith and not by any means forbidden by law, (v) the disclosure
required by section 1125 of the Bankruptcy Code has been made, (vi) the Plan has
been accepted by the requisite votes of creditors (except to the extent that
cramdown is available under section 1129(b) of the Bankruptcy Code), (vii) the
Plan is feasible and Confirmation is not likely to be followed by the
liquidation or the need for further financial reorganization of the Debtors,
(viii) the Plan is in the "best interests" of all Holders of Claims or Interests
in an Impaired Class in that it provides to such Holders on account of their
Claims or Interests property of a value, as of the Effective Date, that is not
less than the amount that such Holder would receive or retain in a chapter 7
liquidation, unless each Holder of a Claim or Interest in such Class has
accepted the Plan, (ix) all fees and expenses payable under 28 U.S.C. Section
1930, as determined by the Court at the hearing on Confirmation, have been paid
or
59
the Plan provides for the payment of such fees on the Effective Date, and (x)
the Plan provides for the continuation after the Effective Date of all retiree
benefits, as defined in section 1114 of the Bankruptcy Code, at the level
established at any time prior to Confirmation pursuant to sections 1114(e)(1)(B)
or 1114(g) of the Bankruptcy Code, for the duration of the period that the
Debtors have obligated themselves to provide such benefits.
A plan is accepted by an impaired class of claims if holders
of at least two-thirds in dollar amount and more than one-half in number of
claims of that class vote to accept the plan. A plan is accepted by an impaired
class of interests if holders of at least two-thirds of the number of shares in
such class vote to accept the plan. Only those holders of claims or interests
who actually vote count in these tabulations.
In addition to this voting requirement, section 1129 of the
Bankruptcy Code requires that a plan be accepted by each holder of a claim or
interest in an impaired class or that the plan otherwise be found by the
bankruptcy court to be in the best interests of each holder of a claim or
interest in such class. In addition, each impaired class must accept the plan
for the plan to be confirmed without application of the "fair and equitable" and
"unfair discrimination" tests in section 1129(b) of the Bankruptcy Code
discussed below.
The Bankruptcy Code contains provisions authorizing the
confirmation of a plan even if it is not accepted by all impaired classes, as
long as at least one impaired class of claims (without including any acceptance
of the Plan by an insider) has accepted it. These so-called "cramdown"
provisions are set forth in section 1129(b) of the Bankruptcy Code. As indicated
above, a plan may be confirmed under the cramdown provisions if, in addition to
satisfying the other requirements of section 1129 of the Bankruptcy Code, it (i)
is "fair and equitable" and (ii) "does not discriminate unfairly" with respect
to each class of claims or interests that is impaired under, and has not
accepted, the plan. The "fair and equitable" standard, also known as the
"absolute priority rule," requires, among other things, that unless a dissenting
class of claims or a class of interests receives full compensation for its
allowed claims or allowed interests, no holder of claims or interests in any
junior class may receive or retain any property on account of such claims. The
Bankruptcy Code establishes different "fair and equitable" tests for secured
creditors, unsecured creditors and equity holders, as follows:
(a) Secured Creditors: either (i) each impaired secured creditor
retains its liens securing its secured claim and receives on
account of its secured claim deferred Cash payments having a
present value equal to the amount of its allowed secured
claim, (ii) each impaired secured creditor realizes the
"indubitable equivalent" of its allowed secured claim, or
(iii) the property securing the claim is sold free and clear
of liens with such liens to attach to the proceeds, and the
liens against such proceeds are treated in accordance with
clause (i) or (ii) of this subparagraph (a).
(b) Unsecured Creditors: either (i) each impaired unsecured
creditor receives or retains under the plan of reorganization
property of a value equal to the amount of its allowed claim,
or (ii) the holders of claims and interests that are junior to
the claims of the nonaccepting class do not receive any
property under the plan of reorganization on account of such
claims and interests.
(c) Equity Holders: either (i) each equity holder will receive or
retain under the plan of reorganization property of a value
equal to the greater of (a) the fixed liquidation preference
or redemption price, if any, of such stock or (b) the value of
the stock, or (ii) the holders of interests that are junior to
the nonaccepting class will not receive any property under the
plan of reorganization.
The "fair and equitable" standard has also been interpreted to prohibit any
class senior to a dissenting class from receiving under a plan more than 100% of
its allowed claims. The requirement that a plan
60
not "discriminate unfairly" means, among other things, that a dissenting class
must be treated substantially equally with respect to other classes of equal
rank. Attached as Exhibit M is a summary of a valuation analysis by UBS
Securities LLC, financial advisor to the Debtors. Based upon the review and
analysis set forth in Exhibit M, and subject to the assumptions, limitations and
qualifications summarized in Exhibit M, UBS concluded on July 17, 2003 that the
estimated going concern enterprise value of Reorganized Leap, as of the assumed
Effective Date of September 30, 2003, would be in a range between $560 million
and $683 million. Based on this estimate and assuming outstanding indebtedness
of the Reorganized Debtors as of September 30, 2003 of $426.9 million, the
Debtors believe the estimated going concern equity value of Reorganized Leap as
of such date would be in a range between $133.1 million and $256.1 million.
Based on the analysis by UBS, the Debtors believe that the plan satisfies the
"fair and equitable" standard.
The Debtors believe that, if approved, the Plan will need to
be crammed down over the dissent of certain Classes of Claims and Interests, in
view of the treatment proposed for such Classes. To the extent necessary and
appropriate, the Debtors intend to amend the Plan to permit cramdown of
dissenting Classes of Claims or Interests. There can be no assurance, however,
that the requirements of section 1129(b) of the Bankruptcy Code would be
satisfied even if the Plan treatment provisions were amended or withdrawn as to
one or more Classes. The Debtors believe that the treatment under the Plan of
the Holders of Claims and Interests will satisfy the "fair and equitable" test
since, although no distribution will be made in respect of Interests in such
Classes and, as a result, such Classes will be deemed pursuant to Section 1126
of the Bankruptcy Code to have rejected the Plan, no Class junior to such
non-accepting Classes will receive or retain any property under the Plan.
In addition, the Debtors do not believe that the Plan unfairly
discriminates against any Class that may not accept or otherwise consent to the
Plan. A plan of reorganization "does not discriminate unfairly" if (i) the legal
rights of a nonaccepting class are treated in a manner that is consistent with
the treatment of other classes whose legal rights are similarly situated to
those of the nonaccepting class, and (ii) no class receives payments in excess
of that which it is legally entitled to receive for its claims or interests. The
Debtors believe the Plan does not discriminate unfairly.
THE DEBTORS INTEND TO SEEK CONFIRMATION OF THE PLAN UNDER
SECTION 1129(b) OF THE BANKRUPTCY CODE.
Subject to the conditions set forth in the Plan, a
determination by the Court that the Plan is not confirmable pursuant to section
1129 of the Bankruptcy Code will not limit or affect the Debtors' ability to
modify the Plan to satisfy the Confirmation requirements of section 1129 of the
Bankruptcy Code.
1. FEASIBILITY
Section 1129(a)(11) of the Bankruptcy Code requires as a
condition for Confirmation that the Court determine that the Plan is not likely
to be followed by a liquidation, or the need for further financial
reorganization, of the Debtors or the Reorganized Debtors, unless such
liquidation or reorganization is proposed in the Plan. The Debtors believe that
the Plan satisfies this requirement. The Debtors have prepared the Projections
which are attached to this Disclosure Statement as Exhibit G. The Debtors
believe that throughout the forecast period ending December 31, 2010, assuming
the underlying assumptions are realized, Cash provided by operations combined
with availability under the post-Effective Date borrowings will be adequate to
meet capital expenditure and debt service requirements.
The Debtors believe the Projections illustrate the feasibility
of the Plan and of the Reorganized Debtors generally. The Projections reflect
the positive effects of substantially de-leveraging the Reorganized Debtors,
whose consolidated indebtedness will be reduced from approximately $2.5 billion
to approximately $426.7 million immediately following the Effective Date of
61
the Plan. The Projections show that Reorganized Leap would accumulate cash
during the seven-year projection period, with projected cash balances growing
from $112.6 million at the Effective Date to $169.4 million at the end of 2006
to $263.1 million at the end of 2010, with the Reorganized Debtors repaying the
outstanding FCC Debt and New Senior Notes in full over the same period of time.
Reorganized Leap also would incur an aggregate of $647.4 million in capital
expenditures during this same period. The Projections also show that Reorganized
Leap would generate EBITDA of $83.6 million, $210.6 million and $344.6 million
in each of 2004, 2006 and 2010, respectively, and net income (loss) of $(10.1
million), $83.5 million and $140.1 million in each of 2004, 2006 and 2010,
respectively. Please see the Projections attached as Exhibit G for more detailed
information about projected results.
2. BEST INTERESTS TEST/LIQUIDATION ANALYSIS
With respect to each Impaired Class of Claims and Interests,
Confirmation of the Plan requires that each Holder of a Claim or Interest either
(i) accept the Plan or (ii) receive or retain under the Plan property of a
value, as of the Effective Date, that is not less than the value such Holder
would receive or retain if the Debtors were liquidated under chapter 7 of the
Bankruptcy Code. To determine what Holders of Claims and Interests of each
Impaired Class would receive if the Debtors were liquidated under chapter 7, the
Bankruptcy Court must determine the dollar amount that would be generated from
the liquidation of the Debtors' assets and properties in the context of a
chapter 7 liquidation case. The Cash amount that would be available for
satisfaction of Claims and Interests would consist of the proceeds resulting
from the disposition of the unencumbered assets and properties of the Debtors
augmented by the unencumbered Cash held by the Debtors at the time of the
commencement of the liquidation case. Such Cash amount would be reduced by the
amount of the costs and expenses of the liquidation and by such additional
Administrative and Priority Claims that might result from the termination of the
Debtors' business and the use of chapter 7 for the purposes of liquidation.
The Debtors' cost of liquidation under chapter 7 would include
the fees payable to a trustee in bankruptcy, as well as those fees that might be
payable to attorneys and other professionals that such a trustee might engage.
In addition, claims would arise by reason of the breach or rejection of
obligations incurred and leases and executory contracts assumed or entered into
by the Debtors during the pendency of the Chapter 11 Cases. The foregoing types
of claims and other claims that might arise in a liquidation case or result from
the pending Chapter 11 Cases, including unpaid expenses incurred by the Debtors
during the Chapter 11 Cases such as compensation for attorneys, financial
advisors and accountants, would be paid in full from the liquidation proceeds
before the balance of those proceeds would be made available to pay prepetition
Claims.
To determine if the Plan is in the best interests of each
Impaired Class, the present value of the distributions from the proceeds of a
liquidation of the Debtors' unencumbered assets and properties, after
subtracting the amounts attributable to the foregoing Claims, are then compared
with the value of the property offered to such Classes of Claims and Interests
under the Plan.
After considering the effects that a chapter 7 liquidation
would have on the ultimate proceeds available for distribution to creditors in
the Chapter 11 Cases including (i) the increased costs and expenses of a
liquidation under chapter 7 from fees payable to a trustee in bankruptcy and
professional advisors to such trustee, (ii) the erosion in value of assets in a
chapter 7 case in the context of the expeditious liquidation required under
chapter 7 and the "forced sale" atmosphere that would prevail and (iii) the
substantial increases in Claims which would be satisfied on a priority basis or
on parity with creditors in the Chapter 11 Cases, the Debtors have determined
that Confirmation of the Plan will provide each Holder of an Allowed Claim or
Interest with a recovery that is not less than such Holder would receive
pursuant to liquidation of the Debtors under chapter 7.
The Debtors also believe that the value of any distributions
to each Class of Allowed Claims in a chapter 7 case would be less than the value
of distributions under the Plan because such
62
distributions in a chapter 7 case would not occur for a substantial period of
time. It is likely that distribution of the proceeds of the liquidation could be
delayed for two years after the completion of such liquidation in order to
resolve Claims and prepare for distributions. In the likely event litigation was
necessary to resolve Claims asserted in the chapter 7 case, the delay could be
prolonged.
The Debtors' Liquidation Analysis is attached hereto as
Exhibit F. The information set forth in Exhibit F provides a summary of the
liquidation values of the Debtors' assets, assuming a chapter 7 liquidation in
which a trustee appointed by the Court would liquidate the assets of the
Debtors' Estates. Reference should be made to the Liquidation Analysis for a
complete discussion and presentation of the Liquidation Analysis.
Underlying the Liquidation Analysis are a number of estimates
and assumptions that, although developed and considered reasonable by
management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Debtors and their
management. The Liquidation Analysis is also based on assumptions with regard to
liquidation decisions that are subject to change. Accordingly, the values
reflected might not be realized if the Debtors were, in fact, to undergo such a
liquidation. The chapter 7 liquidation period is assumed to be a period of more
than one year, allowing for, among other things, the (i) discontinuation of
operations, (ii) selling of assets and (iii) collection of receivables.
SECTION X.
CONFIRMATION AND EFFECTIVE DATE CONDITIONS
A. CONDITIONS TO CONFIRMATION
The conditions to Confirmation shall be the following:
(a) A finding by the Court that the requirements of 11 U.S.C.
Section 1129 have been satisfied;
(b) The Confirmation Order shall (i) be acceptable in form and
substance to the Debtors (in the Debtors' sole and absolute discretion), the
Informal Vendor Debt Committee and the Official Committee and (ii) expressly
authorize and direct the Debtors to perform the actions that are conditions to
the effectiveness of the Plan;
(c) Each of the events and actions required by the Plan to
occur or to be taken prior to Confirmation shall have occurred or have been
taken, or the Debtors or the party whose obligations are conditioned by such
occurrences and/or actions, as applicable, shall have waived such occurrences or
actions;
(d) Holders of at least two-thirds in dollar amount of the
Allowed Leap Class 4 General Unsecured Claims that actually vote on the Plan
shall have voted to accept the Plan; and
(e) The Confirmation Order shall have been entered on or
before October 31, 2003.
B. CONDITIONS TO INITIAL DISTRIBUTION DATE
The conditions to the Initial Distribution Date shall be the
following: the Confirmation Order shall (i) be acceptable in form and substance
to the Debtors, the Informal Vendor Debt Committee and the Official Committee;
(ii) expressly authorize the Debtors to perform the actions that are conditions
to the effectiveness of the Plan; and (iii) shall be entered by the Court.
63
C. CONDITIONS TO EFFECTIVE DATE
The Plan shall not become effective unless and until it has
been confirmed and the following conditions have been satisfied in full or
waived: (1) the Confirmation Order in a form satisfactory to the Debtors, the
Informal Vendor Debt Committee and the Official Committee shall have become a
Final Order; (2) all authorizations, consents and regulatory approvals
(including, without limitation, any approvals required under regulations
relating to the change in ownership of the Debtors upon the Effective Date)
required (if any) for the Plan's effectiveness shall have been obtained
including, without limitation, all FCC approvals and consents in form and
substance reasonably acceptable to the Informal Vendor Debt Committee; (3) the
New Senior Notes Indenture has been qualified under the Trust Indenture Act of
1939, as amended, if required; (4) the Debtors shall have purchased, at
Cricket's expense, directors' and officers' liability insurance for the
directors and officers of the Reorganized Debtors in form and amounts reasonably
acceptable to the Informal Vendor Debt Committee; and (5) all other actions and
documents necessary to implement the treatment of Claims and Interests shall
have been effected or executed or, if waivable, waived by the Person or Persons
entitled to the benefit thereof. The occurrence of the Effective Date is not a
condition precedent to the occurrence of the Initial Distribution Date.
D. WAIVER OF CONDITIONS
The Debtors, the Official Committee, and/or the Informal
Vendor Debt Committee, as applicable, may waive any or all of the other
conditions set forth in the Plan without leave of or order of the Court and
without any formal action; provided, however, that no waiver of the condition
set forth in Section X.A(d) above shall be effective without the prior written
consent of the Official Committee. The Debtors reserve the right to amend or
revoke the Plan. Although the Plan is styled as a joint Plan, the Debtors
reserve the right to proceed with Confirmation under the Plan for one or more
Debtors but not all Debtors.
E. EFFECT OF FAILURE OF CONDITIONS
Except as provided in the next paragraph, in the event that
the Effective Date does not occur within one year following Confirmation, upon
notification submitted by the Debtors to the Court: (a) the Confirmation Order
shall be vacated, (b) no additional distributions under the Plan shall be made,
(c) the Debtors and all Holders of Claims and Interests shall be restored to the
status quo ante as of the day immediately preceding the Confirmation Date as
though the Confirmation Date had never occurred, and (d) the Debtors'
obligations with respect to the Claims and Interests shall remain unchanged
(except to the extent of any post-Confirmation pre-Effective Date payments) and
nothing contained in the Plan shall constitute or be deemed a waiver or release
of any Claims or Interests by or against the Debtors or any other Person or to
prejudice in any manner the rights of the Debtors or any Person in any further
proceedings involving the Debtors.
Notwithstanding anything set forth above, if the Debtors
notify the Court that the Effective Date will not occur in accordance with the
procedures set forth above, and the Initial Distribution Date has already
occurred at the time of such notification, (i) the Holders of Allowed Claims
against Leap and the Leap Creditor Trust will be entitled to retain all assets
that have been transferred to them on the Initial Distribution Date or
thereafter pursuant to the Plan prior to such notification (including but not
limited to the Leap General Unsecured Claim Cash Distribution and the Cash
proceeds of any Leap Creditor Trust Assets to the extent such Leap Creditor
Trust Assets were converted to Cash prior to such notification), (ii) the Leap
Creditor Trust shall retain the right to receive a distribution equal to but not
greater than the value of the Leap General Unsecured Claim Equity Distribution,
to be paid at a time and in a manner to be agreed upon by the Official
Committee, the Informal Vendor Debt Committee and the Debtors, or otherwise
pursuant to Court Order; and (iii) Leap, its Estate and its creditors shall be
entitled to the benefit of the Intercompany Releases from the non-Leap Debtors
and their Estates and the Holders of Old Vendor Debt, as described in the Plan.
In
64
exchange, Leap, its Estate and the Holders of Leap General Unsecured Claims
shall be deemed to implement the Intercompany Releases and to release the
non-Leap Debtors and their creditors (including the current and former Holders
of Old Vendor Debt (in the capacity as such Holder) and the current and former
administrative agents under the Vendor Debt Facilities (in the capacity as such
agent)), from all Intercompany Claims and Litigation Claims (arising out of or
related to intercompany transfers, as described in the Plan) held or asserted by
Leap and/or the Holders of Leap General Unsecured Claims as of the Initial
Distribution Date. Upon the implementation of the Intercompany Releases as of
the Initial Distribution Date, all non-Leap Debtors and their Estates, the
current and former Holders of Old Vendor Debt (in the capacity as such Holder)
and the current and former administrative agents under the Vendor Debt
Facilities (in the capacity as such agent), and all Holders of Claims or
Interests against such non-Leap Debtors claiming through such non-Leap Debtors
shall be deemed to have waived any rights or Claims against the Leap Creditor
Trust Assets and the Leap General Unsecured Claim Cash Distribution, and,
subject to the satisfaction of all Allowed Administrative Claims against Leap
and Allowed Priority Claims against Leap, only Holders of Leap General Unsecured
Claims shall have a right against the Leap Creditor Trust Assets, whether or not
the Effective Date occurs. The effectiveness of the foregoing releases to former
Holders of Old Vendor Debt (in the capacity as such Holder) and former
administrative agents under the Vendor Debt Facilities (in the capacity as such
agent) is expressly conditioned upon the granting of mutual releases by such
parties to Leap, its Estate and the Holders of Leap General Unsecured Claims. If
a former Holder of Old Vendor Debt (in the capacity as such Holder) or former
administrative agent under the Vendor Debt Facilities (in the capacity as such
agent) asserts any claim released hereunder against Leap, its Estate and the
Holders of Leap General Unsecured Claims, such former Holder of Old Vendor Debt
(in the capacity as such Holder) or former administrative agent under the Vendor
Debt Facilities (in the capacity as such agent) shall not be entitled to the
benefits of the releases described herein.
F. ORDER DENYING CONFIRMATION
If an order denying Confirmation of the Plan is entered, then
the Plan shall be null and void in all respects, and nothing contained in the
Plan shall (a) constitute a waiver or release of any Claims against or Interests
in the Debtors; (b) prejudice in any manner the rights of the Holder of any
Claim against, or Interest in, the Debtors; (c) prejudice in any manner any
right, remedy or claim of the Debtors; or (d) be deemed an admission against
interest by the Debtors, the Informal Vendor Debt Committee or the Official
Committee, or any committees' respective members.
SECTION XI.
ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
A. LIQUIDATION UNDER CHAPTER 7
If no plan is confirmed, the Chapter 11 Cases may be converted
to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee
would be elected to liquidate the Debtors' assets for distribution in accordance
with the priorities established by chapter 7. A discussion of the effects that a
chapter 7 liquidation would have on the recoveries of holders of Claims and
Interests and the Debtors' liquidation analysis are set forth herein. The
Debtors, the Informal Vendor Debt Committee and the Official Committee believe
that liquidation under chapter 7 would result in smaller distributions being
made to creditors than those provided for in the Plan because of (a) the
likelihood that the Debtors' assets would have to be sold or otherwise disposed
of in a less orderly fashion over a shorter period of time, (b) additional
administrative expenses involved in the appointment of a trustee, and (c)
additional expenses and claims, some of which would be entitled to priority,
which would be generated during the liquidation and from the rejection of leases
and other executory contracts in connection with a cessation of the Debtors'
operations.
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B. ALTERNATIVE PLANS OF REORGANIZATION
If the Plan is not confirmed, the Debtors could attempt to
formulate a different plan. Such a plan might involve either a reorganization
and continuation of the Debtors' businesses or orderly liquidation of their
assets. With respect to an alternative plan, the Debtors have explored various
alternatives in connection with the formulation and development of the Plan. The
Debtors believe that the Plan, as described herein, enables creditors to realize
the most value under the circumstances. However, in a liquidation under chapter
11, the Debtors' assets would be sold in an orderly fashion over a more extended
period of time than in a liquidation under chapter 7, possibly resulting in
somewhat greater (but indeterminate) recoveries than would be obtained in
chapter 7. Further, if a trustee were not appointed, because such appointment is
not required in a chapter 11 case, the expenses for professional fees would most
likely be lower than those incurred in a chapter 7 case. Although preferable to
a chapter 7 liquidation, the Debtors believe that any alternative liquidation
under chapter 11 is a much less attractive alternative to creditors and Interest
holders than the Plan because of the greater return provided by the Plan.
C. POST-CONFIRMATION CONVERSION/DISMISSAL
A creditor or party in interest may bring a motion to convert
or dismiss the Chapter 11 Cases under Section 1112(b), after the Plan is
confirmed if there is a default in performance under the Plan. If the Court
orders the case converted to chapter 7 after the Plan is confirmed, then all
property that had been property of the chapter 11 Estates, and that has not been
disbursed pursuant to the Plan, will revest in the chapter 7 estates. The
automatic stay will be reimposed upon the revested property, but only to the
extent that relief from stay was not previously authorized by the Court during
these cases.
The Confirmation Order may also be revoked under very limited
circumstances. The Court may revoke the Confirmation Order if the Confirmation
Order was procured by fraud and if a party in interest brings an adversary
proceeding to revoke Confirmation within 180 days after the entry of the
Confirmation Order.
D. FINAL DECREE
Once the Estates have been fully administered as referred to
in Bankruptcy Rule 3019, Reorganized Cricket, or such other party as the Court
shall designate in the Plan Confirmation Order, shall file a motion with the
Court to obtain a final decree to close the Chapter 11 Cases.
SECTION XII.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain material federal
income tax consequences expected to result from the consummation of the Plan.
This discussion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Tax Code"), applicable Treasury Regulations, judicial
authority and current administrative rulings and pronouncements of the Internal
Revenue Service (the "Service"). There can be no assurance that the Service will
not take a contrary view. No ruling from the Service has been or will be sought
nor will any counsel provide a legal opinion as to any of the expected tax
consequences set forth below.
Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to the Holders of Leap
General Unsecured Claims and Old Vendor Debt (collectively, the "Holders"), Leap
and its subsidiaries (collectively, the "Debtor Group") and Reorganized Leap and
its subsidiaries (collectively, the "Reorganized Debtor Group"). It cannot be
predicted whether any tax legislation will be enacted or,
66
if enacted, whether any tax law changes contained therein would affect the tax
consequences to the Holders, the Debtor Group or the Reorganized Debtor Group.
The following discussion is for general information only and
describes the anticipated tax consequences to only those Holders that are
entitled to vote on the Plan. The tax treatment of a Holder may vary depending
upon such Holder's particular situation. This discussion assumes that Holders of
Leap General Unsecured Claims and Old Vendor Debt (collectively, the "Old
Investment Securities") have held such property as "capital assets" within the
meaning of Section 1221 of the Tax Code (generally, property held for
investment) and will also hold the New Leap Common Stock and the New Senior
Notes as "capital assets." This discussion also assumes that the New Senior
Notes are properly treated as indebtedness for federal income tax purposes. This
summary does not address all of the tax consequences that may be relevant to a
Holder, such as the potential application of the alternative minimum tax, nor
does it address the federal income tax consequences to Holders subject to
special treatment under the federal income tax laws, such as brokers or dealers
in securities or currencies, certain securities traders, tax-exempt entities,
financial institutions, insurance companies, foreign corporations, foreign
trusts, foreign estates, Holders who are not citizens or residents of the United
States, Holders that hold the Old Investment Securities as a position in a
"straddle" or as part of a "synthetic security," "hedging," "conversion" or
other integrated instrument, Holders that have a "functional currency" other
than the United States dollar and Holders that have acquired the Old Investment
Securities in connection with the performance of services. EACH HOLDER SHOULD
CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF THE PLAN,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN
TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES TO THE DEBTOR GROUP
CANCELLATION OF INDEBTEDNESS AND REDUCTION OF TAX ATTRIBUTES
Leap generally will realize cancellation of indebtedness
("COI") income on the exchange of Leap General Unsecured Claims for Cash and
other property of Leap to the extent that the sum of Cash and the fair market
value of any property received by the Holders of Leap General Unsecured Claims
is less than the adjusted issue price (plus the amount of any accrued but unpaid
interest) of the Leap General Unsecured Claims discharged thereby. The adjusted
issue price of the Leap General Unsecured Claims will be equal to their issue
price, reduced by the amount of any payments previously made thereon that were
not payments of "qualified stated interest." "Qualified stated interest" is
generally the stated interest on a debt instrument that is unconditionally
payable in Cash or property (other than debt instruments of the issuer) at least
annually at a single fixed rate. Leap will also realize COI income on the
discharge of other existing indebtedness to the extent that such indebtedness is
satisfied with an amount of Cash and other property of Leap that is less than
the adjusted issue price (plus the amount of any accrued but unpaid interest) of
such indebtedness.
Cricket generally will realize COI income to the extent that
the sum of (i) the issue price of the New Senior Notes and (ii) the fair market
value of the New Leap Common Stock received by Holders of Old Vendor Debt is
less than the adjusted issue price (plus the amount of any accrued but unpaid
interest) of such Old Vendor Debt discharged thereby. The adjusted issue price
of the Old Vendor Debt will be equal to its issue price, reduced by the amount
of any payments previously made thereon that were not payments of qualified
stated interest. Cricket will also realize COI income on the discharge of other
existing indebtedness to the extent that such indebtedness is satisfied with an
amount of Cash and other property of Cricket that is less than the adjusted
issue price (plus the amount of any accrued but unpaid interest) of such
indebtedness.
Although not free from doubt, the Debtor Group believes that
guarantee obligations among members of the Debtor Group cancelled pursuant to
the Plan will not be treated as existing indebtedness forgiven in the
implementation of the Plan for purposes of the COI income calculation.
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The determination of whether the cancellation of a guarantee obligation gives
rise to COI income should be based on whether the guarantor's net worth
increased as a result of the cancellation (not merely the prevention of a
decrease in the guarantor's net worth) or whether it is more probable than not
that the guarantor would be called upon to pay the guaranteed obligation in the
amount claimed. If any guarantee obligations among the members of the Debtor
Group are treated as indebtedness for purposes of the COI income determination,
the guarantor would realize COI income on the forgiveness. However, the Debtor
Group also believes, although not free from doubt, that the guarantor and the
debtor on the underlying guaranteed obligation would not both be required to
realize COI income with respect to a single obligation and any COI income
realized by a guarantor would only result in a reallocation of the total amount
of COI income from one member (the debtor member) to another (the guarantor
member).
Under Section 108 of the Tax Code, however, COI income will
not be recognized if the COI income occurs in a case brought under the
Bankruptcy Code, provided the taxpayer is under the jurisdiction of the court in
such case and the cancellation of indebtedness is granted by the court or is
pursuant to a plan approved by the court (the "Bankruptcy Exception").
Accordingly, because the cancellation of Leap's and Cricket's indebtedness will
occur in a case brought under the Bankruptcy Code, Leap and Cricket will be
under the jurisdiction of the court in such case and the cancellation of Leap's
and Cricket's indebtedness will be pursuant to the Plan, Leap and Cricket will
not be required to recognize any COI income realized as a result of the
implementation of the Plan.
Under Section 108(b) of the Tax Code, a taxpayer that does not
recognize COI income under the Bankruptcy Exception will be required to reduce
certain tax attributes, including its net operating losses and loss
carryforwards ("NOLs") (and certain other losses, credits and carryforwards, if
any) and its tax basis in its assets (but not below the amount of liabilities
remaining immediately after the discharge of indebtedness), in an amount
generally equal to the amount of COI income excluded from income under the
Bankruptcy Exception. Such taxpayer may elect under Section 108(b)(5) of the Tax
Code (the "Section 108(b)(5) Election") to avoid the prescribed order of
attribute reduction (which begins first with NOLs for the taxable year of the
discharge and NOL carryovers to such taxable year) and instead reduce the basis
of depreciable property first. The Section 108(b)(5) Election will extend to and
reduce the basis of the stock of any subsidiary of the taxpayer if such
subsidiary consents to a concomitant reduction in the basis of its depreciable
property. If the taxpayer makes a Section 108(b)(5) Election, the limitation
prohibiting the reduction of asset basis below the amount of its remaining
undischarged liabilities does not apply to the basis reduction resulting from
the Section 108(b)(5) Election. Leap and Cricket have not yet determined whether
they will make the Section 108(b)(5) Election.
It is not clear whether any reduction in tax attributes should
occur on a separate company or consolidated group basis or whether the same
separate company or consolidated group approach should apply to each tax
attribute. Because the Leap General Unsecured Claims are obligations of Leap, if
attribute reduction is applied on a separate company basis, only the tax
attributes of Leap (which with respect to the Debtor Group's consolidated NOL
may be limited to Leap's share thereof) would be reduced with respect to the COI
income realized on the discharge of the Leap General Unsecured Claims.
Similarly, because the Old Vendor Debt is an obligation of Cricket, attribute
reduction applied on a separate company basis would only require the tax
attributes of Cricket (which with respect to the Debtor Group's consolidated NOL
may be limited to Cricket's share thereof) to be reduced. Although the Service's
current position with respect to NOLs appears to be that attribute reduction
applies to a consolidated NOL on a consolidated group basis, it appears that a
taxpayer may still apply attribute reduction on a separate company basis. The
Debtor Group is still determining whether the reduction of tax attributes on a
separate company basis will yield a different result than the reduction of tax
attributes on a consolidated group basis, although a recent proposal in the U.S.
Senate would require, if enacted, the Debtor Group to reduce tax attributes on a
consolidated basis. However, regardless of whether the Debtor Group's tax
attributes are reduced on a separate company or consolidated group basis,
68
substantially all, if not all, of the Debtor Group's NOLs may be eliminated
(assuming a Section 108(b)(5) Election is not made) as a result of the
consummation of the Plan.
CCH would likely be required to recognize income if the amount
of the COI income realized by Cricket as a result of the consummation of the
Plan exceeds the amount of its tax attributes available for reduction under
Section 108 of the Tax Code. A parent corporation in a consolidated group has an
"excess loss account" ("ELA") when its basis in the stock of its subsidiary is
reduced under the intercompany adjustment rules for members of consolidated
groups and the reductions exceed the parent's basis in the subsidiary's stock. A
parent corporation is required to include the amount of an ELA into income if
certain events occur, for example, when the parent's stock in its subsidiary
becomes worthless. If COI income realized by a subsidiary exceeds the tax
attributes available for reduction under Section 108 of the Tax Code, the
parent's stock in such subsidiary is deemed worthless and the parent's ELA in
such subsidiary must be included into income by the parent. CCH may have an ELA
with respect to its interest in Cricket. CCH would be required to include its
ELA with respect to its Cricket stock into income if Cricket realizes COI income
as a result of the consummation of the Plan in excess of tax attributes
available for reduction under Section 108 of the Tax Code.
SECTION 382 LIMITATIONS ON NOLs
Under Section 382 of the Tax Code, if a corporation or a
consolidated group with NOLs (a "Loss Corporation") undergoes an "ownership
change," the use of such NOLs (and certain other tax attributes) will generally
be subject to an annual limitation as described below. In general, an "ownership
change" occurs if the percentage of the value of the Loss Corporation's stock
(including the parent corporation in a consolidated group) owned by one or more
direct or indirect "five percent shareholders" has increased by more than 50
percentage points over the lowest percentage of that value owned by such five
percent shareholder or shareholders at any time during the applicable "testing
period" (generally, the shorter of (i) the three-year period preceding the
testing date or (ii) the period of time since the most recent ownership change
of the corporation). Leap believes the Plan will trigger an ownership change of
Leap on the Effective Date.
Except as otherwise discussed below, a Loss Corporation's use
of NOLs (and certain other tax attributes) after an "ownership change" will
generally be limited annually to the product of the long-term tax-exempt rate
(as published by the Service for the month in which the "ownership change"
occurs) and the value of the Loss Corporation's outstanding stock immediately
before the ownership change (excluding certain capital contributions) (the
"Section 382 Limitation"). However, the Section 382 Limitation for a taxable
year any portion of which is within the five-year period following the date of
the "ownership change" will be increased by the amount of any "recognized
built-in gains" for such taxable year. The increase in a year cannot exceed the
"net unrealized built-in gain" (if such gain exists immediately before the
"ownership change" and exceeds a statutorily-defined threshold amount) reduced
by recognized built-in gains from prior years ending during such five-year
period. In addition, any "recognized built-in losses" for a taxable year any
portion of which is within the five-year period following the Effective Date
will be subject to limitation in the same manner as if such loss was an existing
NOL to the extent such recognized built-in losses do not exceed the "net
unrealized built-in loss" (if such loss exists immediately before the "ownership
change" and exceeds a statutorily-defined threshold amount) reduced by
recognized built-in losses for prior taxable years ending during such five-year
period. Although the rule applicable to "net unrealized built-in losses"
generally applies to consolidated groups on a consolidated basis, certain
corporations that join the consolidated group within the preceding five years
may not be included in the group computation of "net unrealized built-in loss."
However, such corporations would be taken into account in determining whether
the consolidated group has a "net unrealized built-in gain." Thus, a
consolidated group could be considered to have both a "net unrealized built-in
loss" and a "net unrealized built-in gain." NOLs (and certain other tax
attributes) not utilized in a given year because of the Section 382 Limitation
remain available for use in future years until their normal expiration dates. To
the extent that the Loss Corporation's Section 382 Limitation in a given year
exceeds its taxable income for such year, that excess will increase the Section
382 Limitation
69
in future taxable years. Finally, if the Loss Corporation does not continue the
Loss Corporation's historic business or use a significant portion of the Loss
Corporation's business assets in a new business for two years after the
Effective Date, the Section 382 Limitation would be zero (except as increased by
recognized built-in gains, as described above). The Reorganized Debtor Group has
no intention to discontinue the conduct of its historic business after the
Effective Date.
Two alternative bankruptcy exceptions for Loss Corporations
undergoing an ownership change pursuant to a bankruptcy proceeding are provided
for in the Tax Code. The first exception, Section 382(1)(5) of the Tax Code,
applies where qualified (so-called "old and cold") creditors of the debtor
receive at least 50% of the vote and value of the stock of the reorganized
debtor in a case under the Bankruptcy Code. Under this exception, a debtor's
pre-change NOLs are not subject to the Section 382 Limitation but are instead
reduced by the amount of any interest deductions allowed during the three
taxable years preceding the taxable year in which the ownership change occurs,
and during the part of the taxable year prior to and including the effective
date of the bankruptcy reorganization, in respect of the debt converted into
stock in the reorganization. Moreover, if this exception applies, any further
ownership change of the debtor within a two-year period will preclude the
debtor's utilization of any pre-change losses at the time of the subsequent
ownership change against future taxable income.
An "old and cold" creditor includes a creditor who has held
the debt of the debtor for at least eighteen months prior to the date of the
filing of the case or who has held "ordinary course indebtedness" at all times
it has been outstanding. However, any debt owned immediately before an ownership
change by a creditor who does not become a direct or indirect 5% shareholder of
the reorganized debtor generally will be treated as always having been owned by
such creditor, except in the case of any creditor whose participation in
formulating the plan of reorganization makes evident to the debtor that such
creditor has not owned the debt for such period.
The second bankruptcy exception, Section 382(1)(6) of the Tax
Code, requires no reduction of pre-ownership change NOLs and provides relief in
the form of a relaxed computation of the Section 382 Limitation. In that regard,
Section 382(1)(6) of the Tax Code provides that the value of the Loss
Corporation's outstanding stock for purposes of computing the Section 382
Limitation will be increased to reflect the cancellation of indebtedness in the
bankruptcy case (but the value of such stock as adjusted may not exceed the
value of the Loss Corporation's gross assets immediately before the ownership
change (subject to certain adjustments)).
The Treasury Regulations that apply the rules of Section 382
of the Tax Code to consolidated groups do not address how the bankruptcy
exceptions of Section 382(1)(5) of the Tax Code and Section 382(1)(6) of the Tax
Code apply to consolidated groups. Accordingly, it is not clear how these
exceptions will apply to the Debtor Group. The Debtor Group currently intends to
take the position, consistent with certain rulings issued by the Service and
other authority, that the rules of Section 382(1)(6) of the Tax Code will apply
on a consolidated group basis as if the Debtor Group were a single entity. If
the requirements of Section 382(1)(5) of the Tax Code are otherwise satisfied
and the Debtor Group does not elect to apply the rules of Section 382(1)(6) of
the Tax Code, the Debtor Group currently intends to similarly apply the rules of
Section 382(1)(5) of the Tax Code on a consolidated group basis as if the Debtor
Group were a single entity.
Implementation of the Plan will trigger an "ownership change"
of the Debtor Group on the Effective Date. If the exception of Section 382(l)(5)
of the Tax Code is unavailable or if the Debtor Group determines that the
exception in Section 382(l)(6) of the Tax Code is more desirable, the Debtor
Group will elect to apply the provisions of Section 382(l)(6) of the Tax Code.
In such event, the Reorganized Debtor Group's use of pre-ownership change NOLs,
AMT (as defined below) NOLs and certain other tax attributes (if any), to the
extent remaining after the reduction thereof as a result of the cancellation of
indebtedness of Leap and Cricket, will be limited and generally will not exceed
each year the product of the applicable long-term tax-exempt rate and the value
of Reorganized Leap's stock increased to reflect the cancellation of
indebtedness pursuant to the Plan.
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ALTERNATIVE MINIMUM TAX
In general, an alternative minimum tax ("AMT") is imposed on a
corporation's alternative minimum taxable income ("AMTI") at a 20% rate to the
extent that such tax exceeds the corporation's regular federal income tax. For
purposes of computing AMTI, certain tax deductions and other beneficial
allowances are modified or eliminated. In addition, even though the Reorganized
Debtor Group might otherwise be able to offset all of its taxable income for
regular tax purposes by available NOL carryforwards, only 90% of its AMTI may be
offset by available AMT NOL carryforwards. Thus, for tax periods after the
Effective Date, the Reorganized Debtor Group may have to pay AMT regardless of
whether it generates a NOL or has sufficient NOL carryforwards to offset regular
taxable income for such periods. In addition, if a corporation undergoes an
"ownership change" within the meaning of Section 382 of the Tax Code (as
discussed above) and is in a net unrealized built-in loss position on the date
of the ownership change, the corporation's aggregate tax basis in its assets
would be reduced for certain AMT purposes to reflect the fair market value of
such assets as of the change date. Any AMT that a corporation pays generally
will be allowed as a nonrefundable credit against its regular federal income tax
liability in future taxable years when the corporation is no longer subject to
the AMT.
CANCELLATION OF INTERCOMPANY CLAIMS
Although not free from doubt, the Debtor Group believes that
it will not recognize a net taxable gain if any Intercompany Claims which are
"obligations of a member" (within the meaning of Treasury Regulations Section
1.1502-13(g)) are extinguished in the implementation of the Plan. The Debtor
Group also believes, although not free from doubt, that many of the Intercompany
Claims are not "obligations of a member." The determination of whether an
Intercompany Claim is an "obligation of a member" will depend upon whether, at
the Effective Time, it is more probable than not that the debtor member would be
called upon to perform under the obligation. If any of the Intercompany Claims
are "obligations of members" extinguished in the implementation of the Plan, any
gain recognized by a member of the Debtor Group as a result of the
extinguishment should be offset by a corresponding loss or deduction of the
member of the Debtor Group with an interest in such Claim.
EXCHANGE OF PROPERTY FOR INDEBTEDNESS
The transfer by Leap or Cricket of property in satisfaction of
indebtedness will be treated as a taxable exchange of such property. With
respect to property transferred in satisfaction of recourse indebtedness or
property transferred in satisfaction of nonrecourse indebtedness if such
property does not secure such nonrecourse indebtedness, the amount of gain or
loss will be equal to the difference between the fair market value of the
property transferred and the transferor's basis in such property. If either Leap
or Cricket transfers property securing nonrecourse indebtedness in satisfaction
of such indebtedness, it will recognize gain or loss equal to the difference
between the outstanding principal amount of the debt satisfied in the transfer
less its tax basis in the property. The entire amount of such gain or loss would
be treated as gain or loss on the disposition of the property (and not as COI).
MERGER OF CRICKET COMMUNICATIONS HOLDINGS, INC. WITH CRICKET
The merger of CCH with and into Cricket should be treated as a
tax-free reorganization under Section 368(a)(1)(G) of the Tax Code. Neither CCH
nor Cricket should recognize any gain or loss for federal income tax purposes as
a result of the merger.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF LEAP GENERAL UNSECURED CLAIMS
The Holders of Leap General Unsecured Claims will recognize
gain or loss upon the receipt of Cash and other property transferred in complete
satisfaction of such Claims. The amount of the gain or loss will be equal to the
difference between (i) the sum of the Cash and the fair market value
71
of the property received in exchange therefor, and (ii) the Holder's adjusted
tax basis in the Leap General Unsecured Claims exchanged therefor. Any such gain
or loss generally would be (subject to the market discount rules discussed
below) long-term capital gain or loss if the Leap General Unsecured Claims had
been held for more than one year. The Holder's tax basis in the other property
received in exchange for Leap General Unsecured Claims would be equal to the
fair market value of such other property on the Effective Date, and the holding
period for such other property would begin for a Holder on the day immediately
after the Effective Date.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD VENDOR DEBT
Whether the exchange of Old Vendor Debt for New Senior Notes
and New Leap Common Stock pursuant to the Plan will be a nontaxable
recapitalization under the Tax Code will depend in part upon whether the Old
Vendor Debt and New Senior Notes are considered to be "securities" within the
meaning of the provisions of the Tax Code governing reorganizations. The test as
to whether a debt instrument is a "security" involves an overall evaluation of
the nature of the debt instrument, with the term of the debt instrument usually
regarded as one of the most significant factors. Generally, debt instruments
with a term of five years or less have not qualified as "securities," whereas
debt instruments with a term of ten years or more generally have qualified as
"securities."
Although the treatment of the Old Vendor Debt is not entirely
certain because the stated term of the Old Vendor Debt is less than ten years,
both the Old Vendor Debt and the New Senior Notes should be treated as
"securities" for federal income tax purposes. Accordingly, the exchange of Old
Vendor Debt for New Senior Notes and New Leap Common Stock should constitute a
recapitalization for federal income tax purposes and, as a result, exchanging
Holders should not recognize any loss, but will recognize gain to the extent of
the lesser of the amount of gain realized or the fair market value on the
Effective Date of any New Leap Common Stock (which is other property received in
the recapitalization since it is not a security in the issuer of the Old Vendor
Debt) received in exchange therefor.(7) The Holders of Old Vendor Debt would
also recognize income to the extent the New Senior Notes and the New Leap Common
Stock are attributable to accrued but unpaid interest on the Old Vendor Debt, in
which event Holders would generally be required to treat such amounts as payment
of interest includible in income in accordance with the Holder's method of
accounting for tax purposes (see "Accrued Interest" below). A Holder's adjusted
tax basis in any New Senior Notes received in exchange for Old Vendor Debt will
equal the Holder's tax basis in such Old Vendor Debt, increased by any gain
recognized in respect of such Old Vendor Debt and decreased by the fair market
value of the New Leap Common Stock (other than any portion that is allocable to
accrued interest with respect to the Old Vendor Debt). The Holder's basis in the
New Leap Common Stock will be the fair market value of such Stock. The Holder's
holding period for the New Senior Notes will include the Holder's holding period
for the Old Vendor Debt, and the Holder's holding period for the New Leap Common
Stock will begin on the day immediately following the Effective Date.
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(7) Although unlikely, the Service may view the new Leap Common Stock received
by the Holders of Old Vendor Debt pursuant to the Plan as "securities" for
federal income tax purposes. If the Service took such a position, the
receipt of the New Leap Common Stock would be treated as part of a
recapitalization, and gain, if any, should only be realized by the Holders
of Old Vendor Debt to the extent any consideration received pursuant to the
Plan is attributable to interest that accrued while the Holder held the Old
Vendor Debt, in which event Holders would generally be required to treat
such amounts as payment of interest includible in income in accordance with
the Holder's method of accounting for tax purposes (see "Accrued Interest"
below) and no loss will be recognized upon such exchange. A Holder's
aggregate tax basis in any stock or "securities" received in a
recapitalization pursuant to the Plan will be the same as that of the Old
Vendor Debt exchanged therefore, increased by the amount of gain, if any,
recognized upon such exchange and reduced by the fair market value of any
property received other than stock or "securities." Also in such case, the
Holder's holding period for any stock or "securities" received in a
recapitalization pursuant to the Plan will include the Holder's holding
period for the Old Vendor Debt.
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If the Old Vendor Debt were determined not to constitute
"securities" for federal income tax purposes, then an exchanging Holder would
recognize gain or loss equal to the difference between (i) the sum of the issue
price of the New Senior Notes and the fair market value of the New Leap Common
Stock received and (ii) the Holders' adjusted tax basis in the Old Vendor Debt
exchanged therefor. Any such gain or loss would generally be long-term capital
gain or loss (subject to the market discount rules discussed below) if the Old
Vendor Debt had been held for more than one year. In this event, a Holder's
initial tax basis in the New Senior Notes and the New Leap Common Stock received
would be equal to their issue price and fair market value, respectively, on the
Effective Date, and the holding period for the New Senior Notes and the New Leap
Common Stock would begin on the day immediately after the Effective Date.
NEW SENIOR NOTES
ORIGINAL ISSUE DISCOUNT
Because the New Senior Notes provide for the payment of
interest in Additional Notes (as defined below), the New Senior Notes will be
issued with original issue discount ("OID"). Consequently, a Holder will be
required to include OID in gross income on an annual basis under a constant
yield accrual method, regardless of its regular method of tax accounting,
possibly in advance of the receipt of Cash attributable to such income.
The amount of OID on a New Senior Note will be equal to the
excess of (i) the sum of the New Senior Note's principal amount due at maturity
plus all scheduled interest payments thereon over (ii) the issue price of the
New Senior Note. The "issue price" of a debt instrument issued in exchange for
another debt instrument depends on whether either debt instrument is "traded on
an established securities market" at any time during the sixty-day period ending
thirty days after the effective date of the exchange of such instruments. If
neither is so traded, the issue price of the debt instrument received will be
equal to its stated principal amount, assuming the debt instrument provides for
"adequate stated interest" (i.e., interest at least at the applicable federal
rate), and will be equal to its "imputed principal amount" if the debt
instrument does not provide for "adequate stated interest." Since the New Senior
Notes will not bear "adequate stated interest," the issue price of the New
Senior Notes would equal the "imputed principal amount" of such New Senior Notes
if neither the Old Vendor Debt nor the New Senior Notes is "traded on an
established securities market." The "imputed principal amount" of the New Senior
Notes would be equal to the sum of the present values of all payments due under
such New Senior Notes, as long as the "imputed principal amount" so calculated
exceeds the stated redemption price at maturity of such New Senior Notes. If the
debt instrument received is "traded on an established securities market," then
its issue price will be its trading price immediately following issuance. If the
exchanged debt instrument is so traded (but the debt instrument received in
exchange therefor is not), the issue price of the debt instrument received will
generally be equal to the fair market value of the debt instrument exchanged
therefor at the time of the exchange (less the fair market value of the portion
of such debt instrument allocable to any other property received in addition to
the new debt instrument, such as the New Leap Common Stock in the exchange of
Old Vendor Debt for New Senior Notes and New Leap Common Stock).
In general, the Holder of a New Senior Note must include in
gross income for federal income tax purposes the sum of the daily portions of
OID with respect to such New Senior Note for each day during the taxable year or
portion of a taxable year on which such Holder holds the New Senior Note. The
daily portion is determined by allocating to each day of any accrual period a
Pro Rata portion of an amount equal to the "adjusted issue price" of the New
Senior Note at the beginning of the accrual period multiplied by the yield to
maturity of the Note (taking into account the length of the accrual period). The
"adjusted issue price" of a New Senior Note at the start of any accrual period
is the issue price of the New Senior Note increased by the accrued OID for all
prior accrual periods and reduced by any prior Cash payments made on such New
Senior Note. The tax basis of the New Senior Note in the hands of a Holder will
be increased by the amount of OID, if any, on the New Senior Note that is
73
included in the Holder's gross income and will be decreased by the amount of any
Cash payments received with respect to the New Senior Note, whether such
payments are denominated as principal or interest.
When Reorganized Cricket is deemed to issue additional New
Senior Notes ("Additional Notes") as interest on such New Senior Notes, the
issuance of the Additional Notes will not be treated as a payment of interest on
the originally issued New Senior Notes and the New Senior Notes will be deemed
to be "reissued" on the date that the Additional Notes are issued solely for
purposes of computing the amount of OID includible in income during the then
remaining term of the New Senior Notes. Under these rules, the New Senior Notes
will be deemed to be reissued at their then adjusted issue price (i.e., their
original issue price plus accrued OID less any previous payments of interest in
Cash). The amount of OID includible in ordinary income over the remaining term
of the New Senior Notes, determined on the basis of a constant yield method
described above, will be equal to the excess of (i) the sum of the principal
amount due at maturity of the New Senior Notes and any Additional Notes issued
in lieu of Cash interest payments, plus all remaining scheduled interest
payments thereon over (ii) the revised adjusted issue price of the New Senior
Notes.
AHYDO RULES
The New Senior Notes will constitute "applicable high yield
discount obligations" ("AHYDOs") if the yield to maturity of such New Senior
Notes equals or exceeds the sum of the "applicable federal rate" in effect on
the Effective Date (the "AFR") plus five percentage points and the New Senior
Notes have "significant" OID. Because payments of interest on the New Senior
Notes will be made with Additional Notes, the New Senior Notes should be
considered to have "significant" OID. Based on the current AFR, the New Senior
Notes would likely be AHYDOs. However, the final determination of whether the
New Senior Notes will constitute AHYDOs will ultimately be made on the Effective
Date.
If the New Senior Notes are AHYDOs, Reorganized Cricket will
not be permitted to deduct OID that accrues with respect to such New Senior
Notes until amounts attributable to such OID are paid in Cash or in property
other than stock or debt of Reorganized Cricket (or persons related to
Reorganized Cricket). In addition, to the extent that the yield to maturity of
the New Senior Notes exceeds the sum of the AFR plus six percentage points,
interest attributable to such excess yield (the "Dividend-Equivalent Interest")
will not be deductible at any time by Reorganized Cricket (regardless of whether
Reorganized Cricket actually pays such Dividend-Equivalent Interest in Cash or
in other property). Such Dividend-Equivalent Interest would be treated as a
dividend to the extent it is deemed to have been paid out of Reorganized
Cricket's current or accumulated earnings and profits. Subject to otherwise
applicable limitations, Holders of New Senior Notes that are domestic
corporations may be entitled to a dividends received deduction (generally at a
70% rate) with respect to any Dividend-Equivalent Interest to the extent that
Reorganized Cricket has sufficient current or accumulated earnings and profits.
If the Dividend-Equivalent Interest exceeds Reorganized Cricket's current and
accumulated earnings and profits, the excess will continue to be subject to tax
as ordinary OID income in accordance with the OID rules described above.
MARKET DISCOUNT
The Tax Code generally requires holders of "market discount
bonds" to treat as ordinary income any gain realized on the disposition of such
bonds (including in certain non-recognition transactions, such as a gift) to the
extent such gain does not exceed accrued market discount. A "market discount
bond" is a debt obligation purchased at a market discount subject to a
statutorily-defined de minimis exception. For this purpose, a purchase at a
market discount includes a purchase at a price less than the stated redemption
price at maturity of the debt instrument (in the case of the Old Vendor Debt,
the stated redemption price at maturity will be equal to the principal amount of
such Old Vendor Debt).
74
Market discount generally accrues on a straight line basis,
unless a holder elects to use a constant interest rate method. A holder of a
debt instrument acquired at a market discount may elect to include the market
discount in income as the discount accrues on a current basis, in which case the
rule with respect to the recognition of ordinary income on a sale or other
disposition of such bond described in the previous paragraph would not apply.
Assuming the exchange of Old Vendor Debt for New Senior Notes
and New Leap Common Stock described above is treated as a non-recognition
transaction, a Holder whose Old Vendor Debt has accrued market discount thereon
should be required to recognize the accrued market discount as ordinary income
when the Holder exchanges such Debt for New Senior Notes and New Leap Common
Stock only to the extent of the total gain recognized by the Holder (although
this conclusion may depend on the issuance of as-yet unissued implementation
regulations). Any remaining accrued market discount should be allocated to the
New Senior Notes received in the exchange, although no regulations or rules have
been provided on this subject. If the New Senior Notes received in the exchange
are themselves treated as market discount bonds, the portion of the accrued
market discount allocable to the New Senior Notes will be treated as accrued
market discount on those instruments. The portion of the accrued market discount
allocated to New Senior Notes that are not market discount bonds will be treated
as ordinary income upon disposition of such New Senior Notes, but not in excess
of the total gain recognized upon such disposition. Holders who hold Old Vendor
Debt with accrued market discount may have been required to defer the deduction
of a portion of the interest on any indebtedness incurred or maintained to
purchase or carry their Old Vendor Debt. Holders who deferred their interest
expense should be permitted to claim their deferred deductions to the extent
they recognize gain on the disposition of such Debt in the exchange of Old
Vendor Debt for New Senior Notes and New Leap Common Stock. The balance of such
deferred deductions generally will be deductible on a taxable disposition of the
New Senior Notes received in the exchange.
If the exchange of Old Vendor Debt for New Senior Notes does
not constitute a recapitalization, any gain recognized by a Holder with respect
to the exchange of Old Vendor Debt with market discount for New Senior Notes and
New Leap Common Stock will generally be treated as ordinary income to the extent
of the market discount accrued during the Holder's period of ownership. This
rule will not apply to a Holder who had previously elected to include market
discount in income as it accrued for federal income tax purposes.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital
asset exceeds the amount payable at maturity of the obligation, such excess will
constitute amortizable bond premium that the Holder may elect to amortize under
the constant interest rate method over the period from its acquisition date to
the obligation's maturity date. Amortizable bond premium generally is treated as
an offset to interest income on the related debt instrument. A Holder who elects
to amortize bond premium must generally reduce its tax basis in the related
obligation by the amount of amortizable bond premium used to offset interest
income. If a debt instrument purchased at a premium is redeemed in full prior to
its maturity, a Holder who has elected to amortize bond premium should generally
be entitled to a deduction for any remaining unamortized bond premium in the
taxable year of redemption.
NEW LEAP COMMON STOCK
DIVIDENDS
A Holder generally will be required to include in gross income
as ordinary dividend income the amount of any distributions paid on the New Leap
Common Stock to the extent that such distributions are paid out of Reorganized
Leap's current or accumulated earnings and profits as determined for federal
income tax purposes. Distributions in excess of such earnings and profits will
reduce the Holder's tax basis in its New Leap Common Stock and, to the extent
such excess
75
distributions exceed such tax basis, will be treated as gain from a sale or
exchange of such New Leap Common Stock. Holders that are treated as corporations
for federal income tax purposes may be entitled to a dividends received
deduction (generally at a 70% rate) with respect to distributions out of
earnings and profits and are urged to consult their tax advisor regarding the
rules relating to the dividends received deduction.
SALE OR OTHER TAXABLE DISPOSITION
Upon the sale or other taxable disposition of New Leap Common
Stock, a Holder generally will recognize capital gain or loss equal to the
difference between the amount of Cash and fair market value of any property
received and such Holder's adjusted tax basis in such New Leap Common Stock
(determined as described above). Capital gain or loss recognized upon the
disposition of the New Leap Common Stock will be long-term if, at the time of
the disposition, the holding period for the New Leap Common Stock exceeds one
year. Holders should consult their tax advisors with respect to applicable tax
rates and netting rules for capital gains and losses. Certain limitations exist
on the deduction of capital losses by both corporate and noncorporate taxpayers.
ACCRUED INTEREST
A Holder will be treated as receiving a payment of interest
(includible in income in accordance with the Holder's method of accounting for
federal income tax purposes) to the extent that any property received pursuant
to the Plan is attributable to accrued but unpaid interest, if any, with respect
to the Holder's Leap General Unsecured Claims or Old Vendor Debt, as the case
may be. The extent to which the receipt of Cash or other property should be
attributable to accrued but unpaid interest is unclear. The Reorganized Debtor
Group intends to take the position that such Cash or property distributed
pursuant to the Plan will first be allocable to the principal amount of a
Holder's Leap General Unsecured Claims or Old Vendor Debt, as the case may be,
and then, to the extent necessary, to any accrued but unpaid interest thereon.
It is possible, however, that the Service may take a contrary position.
To the extent any property received pursuant to the Plan is
considered attributable to accrued but unpaid interest, a Holder will recognize
ordinary income to the extent the value of such property exceeds the amount of
interest previously taken into income by the Holder, and a Holder's basis in
such property should be equal to the amount of interest income treated as
satisfied by the receipt of such property. The holding period in such property
should begin on the day immediately after the Effective Date. A Holder generally
will be entitled to recognize a loss to the extent any accrued interest was
previously included in its gross income and is not paid in full. EACH HOLDER
SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE DETERMINATION OF THE AMOUNT OF
CONSIDERATION RECEIVED UNDER THE PLAN THAT IS ATTRIBUTABLE TO INTEREST (IF ANY).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Holders may be subject to backup withholding at the applicable
tax rate with respect to the receipt of consideration received pursuant to the
Plan, unless such Holder (1) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (2) provides a
correct taxpayer identification number ("TIN") on IRS Form W-9 (or a suitable
substitute form), certifies as to no loss of exemption from backup withholding
and complies with applicable requirements of the backup withholding rules. An
otherwise exempt Holder may be subject to backup withholding if, among other
things, the Holder (i) fails to properly report payments of interest and
dividends or (ii) in certain circumstances, has failed to certify, under penalty
of perjury, that such Holder has furnished a correct TIN. Holders that do not
provide a correct TIN may also be subject to penalties imposed by the Service.
76
Backup withholding is not an additional tax. Rather, the
federal income tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of federal income taxes, a Holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Service.
The Reorganized Debtor Group (or its paying agent) may be
obligated to provide information statements to the Service and to Holders who
receive consideration pursuant to the Plan reporting such payments (except with
respect to Holders that are exempt from the information reporting rules, such as
corporations).
The backup withholding and information reporting rules
described above may also apply with respect to payments (and deemed payments)
made after the Effective Date with respect to the New Leap Common Stock.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS FOR
GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
HOLDER SHOULD CONSULT ITS TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF
THE PLAN DESCRIBED HEREIN AND THE APPLICATION OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS. NEITHER THE PROPONENTS NOR THEIR PROFESSIONALS SHALL HAVE ANY
LIABILITY TO ANY PERSON OR HOLDER ARISING FROM OR RELATED TO THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN OR THE FOREGOING DISCUSSION.
SECTION XIII.
LIMITATION OF LIABILITY
Neither (a) any Debtor or Reorganized Debtor or any of their
respective postpetition employees, officers, directors, agents, representatives,
affiliates, attorneys, financial advisors or any other professional persons
employed by any of them, nor (b) the Informal Vendor Debt Committee and the
Informal Noteholder Committee, or any of their respective members, agents,
employees, directors, officers, representatives, attorneys or other professional
advisors, nor (c) the Official Committee, or any of their respective
postpetition members, agents, employees, directors, officers, representatives,
attorneys or other professional advisors, nor (d) the Old Indenture Trustee, or
any of its agents, employees, directors, officers, representatives, attorneys or
other professional advisors, in each case, shall have any responsibility, or
have or incur any liability, to any Person whatsoever, under any theory of
liability (except for any claim based upon willful misconduct or gross
negligence), for any act taken or omission made in good faith directly related
to formulating, implementing, confirming, or consummating the Plan, the
Disclosure Statement, or any contract, instrument, release, or other agreement
or document created in connection with the Plan, provided that nothing in this
paragraph shall limit the liability of any Person for breach of any express
obligation it has under the terms of this Plan or under any post-petition
agreement or other post-petition document entered into by such Person or in
accordance with the terms of this Plan or for any breach of a duty of care owed
to any other Person occurring after the Effective Date.
DATED: July 30, 2003 LEAP WIRELESS INTERNATIONAL,
INC.
By: /s/ HARVEY P. WHITE
-------------------------------------
Title: Chief Executive Officer
DATED: July 30, 2003 CRICKET COMMUNICATIONS HOLDINGS, INC.
77
By: /s/ HARVEY P. WHITE
-------------------------------------
Title: Chief Executive Officer
DATED: July 30, 2003 CRICKET COMMUNICATIONS, INC.
By: /s/ HARVEY P. WHITE
-------------------------------------
Title: Chief Executive Officer
DATED: July 30, 2003 FOR EACH OF THE LICENSE HOLDING COMPANIES
By: /s/ HARVEY P. WHITE
-------------------------------------
Title: Chief Executive Officer
DATED: July 30, 2003 FOR EACH OF THE PROPERTY HOLDING COMPANIES
By: /s/ HARVEY P. WHITE
-------------------------------------
Title: Chief Executive Officer
DATED: July 30, 2003 FOR EACH OF THE OTHER SUBSIDIARIES
By: /s/ HARVEY P. WHITE
-------------------------------------
Title: Chief Executive Officer
LATHAM & WATKINS LLP
Michael S. Lurey
Robert A. Klyman
Eric D. Brown
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
By: /s/
-------------------------------------
Robert A. Klyman
Counsel for the Debtors and
Debtors-In-Possession
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EXHIBIT 1
COUNTERPOINT TO DEBTORS'
DISCLOSURE STATEMENT
The Bankruptcy Court ordered that this CounterPoint be
included as a part of the debtors' Disclosure Statement after MCG PCS, Inc.
objected to the proposed Disclosure Statement
MCG is a creditor of Leap Wireless International ("Leap") and
its largest shareholder. MCG has obtained several thousands of pages of
documents under subpoena and Court order. These documents have not been made
public, and some of them were not even provided to the parties who negotiated
the proposed Plan.
MCG has spend many weeks studying these documents as well as
many others which, although filed with the Court, have not been provided to any
but a small handful of creditors (and none of the shareholders).
Based on this information, MCG believes that it can describe
the proposed Plan in plain English and demonstrate that the Disclosure Statement
is misleading and inaccurate in that
- the debtors are solvent,
- the true value of Leap and its subsidiaries is far in excess
of their debts,
- every unsecured creditor can and should receive 100 cents on
the dollar instead of from nothing to 14 cents on the dollar,
and
- the biggest secured creditors would, under the proposed Plan,
walk away with an enterprise worth billions of dollars more
than they are owed.
* * *
MCG URGES UNSECURED CREDITORS OF ANY DEBTOR TO
VOTE AGAINST THE PLAN BECAUSE UNSECURED CREDITORS
OF LEAP WIRELESS WILL RECEIVE FAR LESS THAN THEY SHOULD
AND UNSECURED CREDITORS OF ALL THE OTHER DEBTORS
WILL RECEIVE NOTHING.
* * *
1
I. THE MAIN PLAYERS
Despite the seemingly endless cast of characters who populate
the Disclosure Statement, there are very few relevant players in the Plan that
the debtors have proposed:
A. THE "DEBTORS" are LEAP and 65 of its direct and
indirect subsidiaries. Of the 65 subsidiaries, 12 have no assets; one has almost
no assets (according to the debtors); and one ("Cricket Licensee XI, Inc.) has
assets which the debtors state are worth no more than the secured debt of that
subsidiary. That leaves 51 debtors.
Those remaining 51 debtors are
- Cricket Communications, Inc. ("CRICKET"),
- 29 subsidiaries of Cricket (called "Property Holding
Companies"), and
- 21 subsidiaries of Leap (called "License Holding
Companies").
Those 51 debtors are grouped together by the debtors
(explicitly in their Schedules of Assets and Liabilities and tacitly in their
proposed Plan) because they are security for the debts of the "Vendors."
Since the proposed Plan treats Cricket, the Property Holding
Companies, and the License Holding Companies as one, MCG refers to them in this
CounterPoint as the "CRICKET COMPANIES."
B. THE "VENDORS" are the major secured creditors. They
were owed $1.6 billion under long-term debt arrangements with Cricket when the
debtors filed for bankruptcy. They have liens on all the assets and/or stock of
the Cricket Companies. The Vendors have NO claim against Leap.
The other secured creditors are the Bondholders (noted below),
the Federal Communications Commission ("FCC"), which is owed about $78 million
and has a lien on some of the FCC licensees; and GLH, which is owed about $8.4
million and has a lien on the three licenses owned by Cricket Licensee XI, Inc.
(8)
C. THE "BONDHOLDERS" are the major unsecured creditors
of Leap. Leap owes the Bondholders about $729.5 million, of which approximately
$200,000 is secured by a cash account.
Other unsecured creditors include--
- "priority" claimants (who are owed money for taxes, wages
and salaries) totaling about $33.7 million,
- unsecured creditors of the Cricket Companies, who are owed
about $136.5 million, and
- -------------
(8) Because under the proposed plan, the assets of Cricket Licensee XI are to
be delivered to GLH in satisfaction of the GLH debt, both the assets and
the liabilities of this debtor are omitted in further discussions of the
plan.
2
- unsecured creditors of Leap (other than the Bondholders),
who are owed about $3.9 million.
(Unsecured creditors other than priority claimants are referred to simply as
"unsecured creditors.")
D. THE "OFFICIAL COMMITTEE" is nothing more than the
Bondholders wearing a different hat. "Official" means only that the committee,
their lawyers, and their financial advisors get paid out of Leap's assets after
bankruptcy (as they did before bankruptcy as the "Informal Noteholder
Committee").
II. SUMMARY OF THE PLAN
Again, although the proposed Plan is seemingly quite complex,
once one has waded through the proposed Plan, through the mind-numbing
Disclosure Statement, and through the voluminous exhibits, the proposed Plan is
really not all that difficult to comprehend.
The debtors' proposed Plan would create what the Disclosure
Statement calls "Reorganized Leap." This is the holding company that would
continue to operate after the bankruptcy, with all the Cricket Companies as
subsidiaries.
Reorganized Leap would consist of all the assets on which the
Vendors have a lien (the Cricket Companies) plus many of the valuable assets of
Leap (which would otherwise go to Leap's unsecured creditors).
Reorganized Leap would have a value of from $1.92 billion (net
book value) to $4.5 billion (2005 going-concern value). This value would be
distributed as follows:
- Priority creditors, 100 cents on the dollar ($33.7
million)
- FCC claims, 100 cents on the dollar ($78 million)
- Bondholder secured claim, 100 cents on the dollar
($200,000)
- Vendors, $350 million plus 96.5% of what's left (AT LEAST
110 CENTS ON THE DOLLAR AND AS MUCH AS 300 CENTS ON THE
DOLLAR)
- Bondholders and other unsecured creditors of Leap, 3.5% of
what's left
- All other unsecured creditors, not a penny.
The unsecured creditors of Leap would also get about $75
million of Leap's cash and some of Leap's assets. The debtors estimate that the
total value of the Plan to the unsecured creditors of Leap is 14 cents on the
dollar.
III. HOW THE PLAN CAME ABOUT
The proposed Plan was negotiated between the Vendors and the
Bondholders.
3
NONE of the following was represented in or took part in the negotiations:
- The unsecured creditors of Cricket,
- The unsecured creditors of Cricket's subsidiaries,
- The unsecured creditors of Leap's subsidiaries, and
- The shareholders of Leap (other than Leap's senior
management). (9)
NONE of these non-participants will get anything under the proposed Plan.
The negotiations between the Vendors and the Bondholders,
moreover, proceeded on faulty premises (advanced by the Vendors), and the
Bondholders lost considerable leverage in the negotiations by delay and an
ill-advised negotiating strategy.
A. THE FAULTY PREMISES
During the negotiations, the Vendors asserted that they had an
unsecured claim against Leap for the difference between the value of their
security interest in the Cricket Companies and the amount of their total claim.
That unsecured claim - of about $1 billion (they asserted) - would have
substantially diluted the recovery by the Bondholders (and other unsecured
creditors of Leap).
The premise was - and is - false. It was asserted based on
Section 1111(b) of the Bankruptcy Code and the fact that Leap had pledged its
stock in some of the Cricket Companies. Since the Vendors had a secured claim
against the stock of Leap in some of the Cricket Companies, the Vendors asserted
that they could divide this claim into a secured claim against Leap's stock in
the Cricket Companies and an unsecured claim against Leap itself.
The problem with this assertion should have been very apparent
to the Bondholders: Leap was neither a maker nor a guarantor of the Vendors'
debt, whether recourse or non-recourse, so Leap was never liable to the Vendors
for anything. All the Vendors had was a lien on Leap's stock in the Cricket
Companies. The most the Vendors could have gotten was a claim against Leap's
stock in the Cricket Companies for the full amount of their claim (rather than a
secured claim against that stock only for the value of the stock itself). This
they could have gotten through what is known as an "1111(b)(2) election."
Even if the Vendors could have had an unsecured claim against
Leap, moreover, they failed to file a proof of that claim by the "bar date"
(June 28, 2003) - which meant that they absolutely had no unsecured claim
against Leap. Inexplicably, the Bondholders did not negotiate a better deal for
Leap's unsecured creditors once the Vendors' assertion of an unsecured claim
against Leap had lost any underpinning it might have had. (10)
The second faulty premise was the Vendors' assertion that they
had a claim against Leap because Leap failed to transfer to the Vendors more
than the $355 million Leap did transfer to the
- --------------
(9) Leap's senior management received severance packages under which they will
receive up to $1.8 million should they be let go.
(10) The proposed Plan also provides for an unsecured claim against the Cricket
Companies of about the same $1 billion, even though the Vendors did not
file a proof of claim for that, either. That means that the Vendors can
"swamp" the true unsecured creditors of the Cricket Companies - about
$136.5 million - and force them to accept nothing under the proposed Plan.
4
Vendors. This assertion was patently absurd. As explained below, all these
transfers could have been undone - for the benefit of Leap's unsecured creditors
- - and any failure by Leap to have transferred more assets to the Vendors meant
absolutely nothing. Again, moreover, the Vendors did not file a proof of that
claim, which means that there is no such claim.
B. THE TRANSFERS BY LEAP TO THE VENDORS
Very quickly after the Bondholders began to evaluate their
financial position with regard to the debtors (in October 2002), it became very
apparent that Leap had made massive transfers of its assets (to which the
Bondholders were entitled) to subsidiaries (on which the Vendors had a lien).
Such transfers within a year prior to bankruptcy are
"avoidable" under Section 547 of the Bankruptcy Code unless the transferee
proves a valid defense. "Avoidable" means that Leap could recover either the
assets transferred or the value of those assets from the transferees (the Leap
subsidiaries). The effect of such avoidance would be to increase the value of
Leap (to the benefit of the Bondholders) and decrease the value of the Leap
subsidiaries (to the detriment of the Vendors).
C. THE DECLINING LEVERAGE OF THE BONDHOLDERS
When the Bondholders began their investigation, they asked for
and promptly received from the debtors information about transfers from Leap to
its subsidiaries within the prior year. That information revealed that Leap had
transferred $271.1 million in cash and 41 FCC licenses having a net book value
of $84.3 million - a total of $355.4 in potential recoveries (about half of the
Bondholders' claims against Leap).
Armed with potential "avoidance" claims for $355 million, the
leverage of the Bondholders in the negotiation was at its highest.
The debtors suggested that the Bondholders should get 27% of
Reorganized Leap (and that the existing shareholders of Leap get 4%).
The Bondholders' prompt response was that they should get not
27% but 33%.
By January, however, after negotiations had bogged down in the
minutia of which debtor should be paying which salaries and other expenses of
the overall enterprise, many of those avoidable transfers became unavoidable
because they had no longer been made within one year. (For example, Leap had
made a $140 million cash transfer within the year prior to October 2002 but not
within the year prior to January 2003). The Bondholders' leverage had begun to
evaporate, and the Bondholders reduced their demand to 20% of Reorganized Leap
(plus whatever cash was left in Leap).
By the end of March, even more of that leverage had
evaporated. In March the year before (just outside the one-year period), Leap
had transferred $92.4 million in cash and 10 FCC licenses with a net book value
of $40.5 million - none of which were any longer avoidable under Section 547.
When the debtors filed for bankruptcy on April 13, 2003, the Bondholders had
reduced their demand from 20% to only 5% of Reorganized Leap (with an additional
up to 2% going to Leap's shareholders).
By May 9, 2003, the Bondholders and Vendors had agreed on 3.5%
to the Bondholders and 96.5% to the Vendors (with nothing to Leap's
shareholders). The Bondholders' avoidance leverage had evaporated from $355
million in claims to less than $90 million.
D. THE BONDHOLDERS' STRATEGIC FAILURE
The Bondholders had made a strategic error early on in the
negotiations. They had agreed that, whatever their percentage ownership in
Reorganized Leap, Reorganized Leap would include
5
all of the assets of Leap necessary for the Vendors to operate Reorganized Leap.
These assets--such as Leap's patents and trademarks, its machinery equipment,
leases, furniture, fixtures, supplies and contracts--were to be part of
Reorganized Leap virtually from the outset of negotiations. Had the Bondholders
held out on these assets (they were, after all, assets available to Leap's
creditors, not to the Vendors), the Vendor's ownership of a Reorganized Leap
capable of functioning as a going concern might well have been a pipedream.
This is not to say that the Vendors did not have their own
leverage. They did. They were secured creditors, Leap was in default on various
loan covenants, and the Vendors had used that leverage against the debtors to
force the debtors to make those $355 million in transfers. Once those transfers
were made, effort was required to undo them. And the Vendors had the additional
leverage that they could always seek Court approval to foreclose on their
security, however unlikely such approval might have been.
Nonetheless, simply as a matter of negotiation, the
Bondholders failed conceptually, tactically and strategically to negotiate even
a marginally favorable Plan.
E. THE "SETTLEMENT"
The debtors describe the proposed Plan as a "settlement"
between the Vendors and the Bondholders. They also describe the "settlement" as
one in which the Bondholders gave up the right to pursue avoidance actions with
respect to $34.5 million and 28 licenses in return for 3.5% of Reorganized Leap.
This description is quite inaccurate. The Bondholders gave up
much more than that and received much less.
First, the licenses transferred within the year prior to
bankruptcy numbered 30, not 28.
Second, the cash transferred within the year prior to
bankruptcy was $41.4 million, not $34.5 million.
Third, the Bondholders did not give up only the right to
pursue avoidance of those transfers. Rather, they also gave up:
- The value of the "Other Subsidiaries" of Leap and
- The value of all of the following assets of Leap:
-- all of Leap's intellectual property (patents and
trademarks),
-- all of Leap's machinery, fixtures and supplies,
-- all of Leap's office furnishings and equipment,
-- all of Leap's leases,
-- all of the cash value in Leap's insurance policies,
-- all of the monies due from Cricket,
-- all of Leap's pre-payments, and
6
-- all of Leap's valuable contracts. (11)
Fourth, the 3.5% of Reorganized Leap the Bondholders would get
would be 3.5% of only what is left in Reorganized Leap after the Vendors receive
the first $350 million plus interest at 13%.
Fifth, and most importantly, the Bondholders grossly
underestimated the value of the assets on which the Vendors had a lien and,
therefore, permitted the Vendors to negotiate a proposed Plan under which the
Vendors will receive much more than the amount of their debt, at the expense of
the Bondholders and other creditors.
The question, then, is whether this "settlement" and the
proposed Plan is at all fair, either to the unsecured creditors of Leap (who
would get something) or to the many other groups who get nothing. That question
can be answered only by looking at the values of these assets.
IV. ANALYSIS OF THE VALUE OF THE PROPOSED PLAN TO THE VENDORS, TO
THE BONDHOLDERS AND OTHER UNSECURED CREDITORS, AND TO LEAP'S
SHAREHOLDERS
As noted earlier, MCG has had the opportunity to examine and
analyze various information not generally available to the public. Based on this
information, MCG has attempted to fill the void left by the debtors' failure to
include asset values in their Disclosure Statement. That information
demonstrates that the Vendors will receive far more than 100 cents on the
dollar, at the expense of unsecured creditors and shareholders.
The following chart presents a summary of asset values of
Leap, the Cricket Companies, and Reorganized Leap based on the debtors' own
books and records (excluding pension plan assets, Leap's investment in its
subsidiaries, and "unknown" values) ("net book value"),
- those net book values combined with the excess values of
the debtors' FCC licenses according to a valuation by
Standard & Poors of the debtors' FCC licenses as of
December 31,2002,
- the debtors' projections of the earnings before interest,
taxes, depreciation, and amortization "EBITDA") and
- the debtors' estimates of the value of the proposed Plan:
- -------------
(11) Under the proposed Plan, the Vendors get to decide which of Leap's
contracts they want to keep, reimbursing Leap (through the Leap Creditor
Trust) only for the amount of any security deposit Leap had made. If the
Vendors decide they do not want a contract, then it is the unsecured
creditors of Leap who will be hurt by the claim that the other party to
the contract has for damages for breach of that contract. Leap has
thousands of contracts that the Vendors could reject.
7
STANDARD & BASED ON
NET BOOK VALUE POORS EBITDA PROPOSED PLAN
-------------- ------------------ ----------------- ---------------------
Leap $176 million $195-206 million $112-133 million (12)
Cricket Companies $1.91 billion $2.00-2.82 billion
Reorganized Leap $1.92 billion $2.01-2.83 billion $4.5 billion (13) $560-683 million
A. THE DEBTORS' NET BOOK VALUES.
The debtors filed two relevant "Schedules of Assets and
Liabilities" in this case, one for Leap and one for the other for the Cricket
Companies.
Under the Bankruptcy Code and the Federal Rules of Bankruptcy
Procedures, all debtors are required to schedule their assets at market value.
None of them did. Rather, the various assets scheduled are scheduled at "net
book value." "Net book value" is generally the cost of an asset less
depreciation and amortization.
Net book value is typically lower than either market value or
going concern value. In this case, that generality certainly holds true, for the
net book value of the debtors' assets is substantially less than the market
value of those assets (as discussed in Part IV.B) and grossly less than the
going concern value of the debtors (as discussed in Part IV.C).
Even the net book value of the debtors' assets; however,
demonstrates that the assets on which the Vendors have a lien (the Cricket
Companies' schedules are worth much more than the Bondholders assumed and much
more than the debtors represent in their Disclosure Statement.
The Cricket Companies' schedules state that their assets
exceed their liabilities - ALL their liabilities, including those of unsecured
creditors - by $51.3 million. This means that those debtors could satisfy the
Vendors' claims in full, could satisfy all other secured debts in full, could
satisfy all claims of unsecured creditors, and still have $51.3 million left
over to go to Leap (their parent).
- --------------
(12) Cash ($75 million), Leap Creditor Trust assets (debtors' estimate is $30-50
million), plus 3.5% of Reorganized Leap net of the first $350 million
payable to the Vendors.
(13) 2005 value.
8
That $51.3 million surplus increases under the proposed Plan
because NONE of the unsecured liabilities of these companies ($136.5 million)
and NONE of the $23.8 million owed to Leap will be paid.
Thus, just with respect to the Cricket Companies, the assets
at net book value ($1.91 billion) would under the proposed Plan exceed the
liabilities ($1.61 billion to the Vendors, $78 million to the FCC, and $33.7
million to priority claimants) by $212.6 million.
In other words, the Vendors already have liens on property
that exceeds the debts that would be paid by $212.6 million, NONE of which,
under the proposed Plan, would benefit general unsecured creditors of Leap or
the Cricket Companies.
Under the proposed Plan, the Vendors would receive a new note
for $350 million and 96.5% of Reorganized Leap. The Vendors would still receive
more assets (at net book value) than they are owed, as follows:
Cricket Companies $ 1,910,665,324
Leap's office equipment, furnishings and supplies $ 3,168,469
Leap's machinery, fixtures and business supplies $ 1,324,771
Cash value of Leap's insurance policies $ 4,956,797
Leap's pre-payments $ 213,800
Forgiveness of debt to Leap $ 23,800,608
Other Subsidiaries $ 29,824
Non-debtor subsidiaries of Cricket Unknown (14)
Leap's leases Unknown (15)
Leap's valuable contracts Unknown (16)
Leap's intellectual property Unknown (17)
Cricket's intellectual property Unknowns (18)
Less FCC liens ($ 78,043,241)
Less priority claimants ($ 33,729,292)
Less new note to Vendors ($ 350,000,000)
---------------
$ 1,482,387,060
x 96.5% (new stock to Vendors) $ 1,430,503,512
New note to Vendors $ 350,000,000
---------------
TOTAL NET BOOK VALUE TO VENDORS $ 1,780,503,512
- ----------------
(14) Cricket's schedules contain no mention of these subsidiaries except to list
them--Cricket Performance 1, Inc., Cricket Performance 2, Inc., and Cricket
Performance 3, Inc.
(15) Leap's leases are sprinkled among 45 pages of very small type in its
Schedule of Executory Contracts and Unexpired Leases. The schedule contains
no information about the value, if any, of those leases, nor does the
debtors' proposed Disclosure Statement.
(16) See footnote 4, above.
(17) "Unknown" is the stated value on the schedules.
(18) "Unknown" is the stated value on the schedules.
9
Thus, even after "giving" the unsecured creditors of Leap 3.5%
of Reorganized Leap, the net book value to the Vendors still exceeds their
original debt ($1.61 billion) by $169 million (PLUS 96.5% of the "unknown"
values"), NONE of which would benefit any of the general unsecured creditors of
Leap, the Cricket Companies, or the Leap shareholders.
The unsecured creditors of Leap are giving up those assets of
Leap which are being transferred to Reorganized Leap, with the result that the
net book "settlement" value is as follows:
3.5% of Reorganized Leap $ 51,883,448
in return for
Leap's office equipment, furnishings and supplies $ 3,168,469
Leap's machinery, fixtures and business supplies $ 1,324,771
Cash value of Leap's insurance policies $ 4,956,797
Leap's pre-payments $ 213,800
Forgiveness of debt to Leap $ 23,800,608
Other Subsidiaries $ 29,824
Leap's leases Unknown
Leap's contracts Unknown
Leap's intellectual property Unknown
Cash transfers (at least) $ 47.9 million
Licenses transfers $ 41.4 million (19)
-----------------
$ 122.8 MILLION
PLUS the unknown values of Leap's leases and intellectual
property.
Of these values, $33.5 million are not in dispute as to ownership--they belong
to Leap and, therefore, its creditors and (potentially) its shareholders. That
means that the "settlement" gives up the right to pursue transfers of $89.3
million in return for only $18.4 million--a rate of less than 21 cents on the
dollar.
On the face of it, this would not seem to be a fair trade even
for the unsecured creditors of Leap. And the unfairness of it is more pronounced
when one considers that the Vendors are already getting $169 million in
Reorganized Leap beyond the full amount of their debt - a sum that would
otherwise go to the benefit of all of the unsecured creditors (including Leap's)
and, potentially, Leap's shareholders.
The discrepancy in values becomes even more apparent, however,
when includes all of the "unknown" values listed on the schedules for assets
that would go to Reorganized Leap (previous table) and some very real (and
unexplained) discrepancies between those schedules and the debtors' books and
records.
- ----------------
(19) This value is for 22 of the 30 licenses transferred. The other 8 licenses
had FCC "build out" dates that expired in April 2002, with the result that
Debtors listed no value for these licenses (notwithstanding that the FCC
had taken no action to rescind any of them).
10
One of the "unknown" values for both Leap and the Cricket
Companies is for their intellectual property. Standard & Poors, however, valued
the debtors' intellectual property only a year ago at $40.3 million--all of
which value will go to the Vendors.
Similarly, none of the debtors listed anything in their
schedules for either their subscriber lists or their construction in progress.
Standard & Poors, however, had valued those assets at $316.2 million and $65
million, respectively--in valuations done for the debtors. The debtors' failure
to disclose either of these very significant assets, for which they had
valuations in hand, is nothing less than astounding.
Finally, as late as October 2002, the debtors carried a net
book value for Backwire.com, Inc. (one of the "Other Subsidiaries") of nearly
$3.9 million in net equity. On their schedules, however, the debtors listed this
"Other Subsidiary" of Leap at less than thirty thousand dollars. (20)
B. MARKET VALUES
The proposed Plan is even more inequitable when one examines
the market values of the debtors' assets.
As previously noted, the debtors did not schedule their assets
at market value. They have, however, represented in their publicly filed,
SEC-required financial statements that they have presented those statements at
the lower of net book value or fair value. As stated in their first-quarter 2003
SEC filing (as of March 31, 2003):
The Company assesses potential impairments
to its long-lived assets, including property
and equipment, wireless licenses, goodwill
and other intangible assets, when there is
evidence that events or changes in
circumstances indicate that the carrying
amount may not be recoverable. AN IMPAIRMENT
LOSS IS RECOGNIZED WHEN THE UNDISCOUNTED
CASH FLOWS EXPECTED TO BE GENERATED BY AN
ASSET (OR GROUP OF ASSETS) IS LESS THAN ITS
CARRYING AMOUNT. Any required impairment
loss would be measured as the amount by
which the asset's carrying value exceeds its
fair value, and would be recorded as a
reduction in the carrying value of the
related asset and a charge to results of
operations. No SUCH IMPAIRMENT LOSSES HAVE
BEEN IDENTIFIED BY THE COMPANY. [Page 61,
emphasis added.]
From this information alone, one can conclude that the fair value of the debtors
is at least as high as the values the debtors entered on their schedules.
In addition, however, the debtors reported their FCC license
assets at virtually the same $728.1 million shown on their schedules--meaning
that that particular asset value was unimpaired. This means that the licenses
are worth at least as much as the debtors' net book value on their schedules.
One very recent example of how much greater market values can
be than net book values is the debtors' motion on July 25, 2003, for permission
to sell two of its licenses in two of the smallest markets in the country--Idaho
Falls and Twin Falls. Those two licenses have net book values of $133 thousand.
The sale price is $3.25 million (subject to higher and better offers)!
- ------------------
(20) The two other "Other Subsidiaries" are Leap PCS Mexico, Inc. and Telephone
Entertainment Network, Inc., which are schedules as having no value but
which the Vendors proposed to keep. One can only guess at the real value of
these assets of Leap, which the Vendors have no lien on.
11
The information from the debtors' SEC filings can be further
supplemented by information that the Bondholders did not have when they
negotiated the proposed Plan but which the Court ordered the debtors to produce
to MCG after the debtors had filed their Second Amended Disclosure Statement.
The debtors had obtained valuations of their FCC licenses as of June 30 and
December 31, 2002, in order to ensure that their SEC-required financial
statements did not overstate the fair values of their FCC licenses.
These valuations were done by Standard & Poors. The December
31, 2002, valuation was that the FCC licenses owned by the debtors had a "fair"
value of from $860 million (base upon a 30% discount from the prices in a
Verizon transaction) to $1 billion (based on a 30% discount from the median
prices obtained in the FCC's Auction 35) to $1.246 billion (based on a 30%
discount from the Auction 35 average prices). Each of the licenses was
individually valued based upon comparables in the Verizon sale and in Auction
35.
Those figures stand in stark contrast to the value scheduled
by the debtors for those very same licenses--$728.1 million. Based on the S & P
valuation, the debtors' licenses are worth from $132 million to $518 million
MORE than what is shown on their schedules. (21)
The 30% discounts employed by S & P, however, are called into
question by the recently disclosed information about the Idaho Falls and Twin
Falls sale. S & P, of course, was only engaged to determine whether the net book
values at which the debtors carried their licenses were impaired by current
market values. Even the most conservative valuation resulted in no impairment.
The sale prices of the Idaho Falls and Twin Falls licenses, however, are at just
above the median Auction 35 values for those licenses, not 30% below those
values--meaning that the true market value of the debtors' FCC licenses is $1.43
billion, DOUBLE the net book value.
This estimation concurs with data recently available. Cingular
Wireless has agreed to purchase FCC licenses from another bankrupt company,
NextWave, at an estimated average price of $1.86 per MHzPop. (22) The average
value assigned to the debtors' FCC licenses is exactly half of that-- $0.93 per
MHzPop. By the measure of the Cingular-NextWave transaction, the debtors'
licenses are worth DOUBLE their financial-statement value.
This recent data means that ALL the debtors are solvent.
Indeed, if one ignores the double counting of liabilities throughout the
debtors' schedules, (23) an increase of the scheduled values of licenses to
current market value (on the basis of the Idaho Falls, Twin Falls, and
Cingular--NextWave transactions) changes the overall deficit of assets to
liabilities from $462.7 million to a surplus of $266.4 million. This means that
the debtors could pay all of their unsecured creditors in full (rather than 14%
for the Bondholders and Leap's other unsecured creditors and nothing for all
other unsecured creditors) and still have a huge surplus available for Leap's
shareholders.
- -----------------
(21) The Court ordered the debtors to allocate these values to Leap and the
Cricket Companies in their Disclosure Statement, which the debtors have
done--an extra $17.8 million to $19.3 million for Leap and an extra $94
million to $461.3 million for the Cricket Companies. The debtors dropped
$20-$40 million from the total S & P values in the process of allocating
these values. The only reason given is that the allocation excludes the
value of the licenses held by Cricket Licensee Company XI, which are being
given up in return for only $8.4 million in indebtedness. Nonetheless, MCG
has used the debtors' allocations in this CounterPoint.
(22) According to the Debtors' SEC-required annual report for the year ended
December 31, 2002 (at p. 39), this is the most common industry measurement
of value. "MHz" (megahertz) is the measure of bandwidth, and "Pop" is the
number of people in the area serviced by the license.
(23) For example, the Bondholder debts are listed twice in the Leap schedules,
and the Vendor debt is listed several times in the various schedules.
12
C. GOING-CONCERN VALUE.
The debtors' undervaluation of their worth is most egregious
when considered in light of their going-concern value.
Leap has been one of the fastest growing telecommunications
companies in the industry. As recently as 13 months ago, Leap reported in a
press release the following analyst's view:
"Leap is truly leading the wireless industry
in driving the trend of landline
displacement," said Knox Bricken, an analyst
with the Yankee Group. "Leap's Cricket
service clearly provides an ideal solution
for people who choose to go wireless instead
of signing up for traditional local phone
service." According to the Yankee Group, the
growing reliance on wireless phones has
already displaced 25 percent of U.S.
landline usage - a number that is expected to
rise to 35 percent by 2004. (6/24/02)
Only a year ago, MorganStanley, in its analysis of Leap, reported:
KEY INVESTMENT POSITIVE
- Overall model has performed well. Leap's wireline-replacement
wireless service has enjoyed one of the fastest ramps in history and is
on track for breakeven. A brand-new code division multiple access
(CDMA) is handling 1,100 minutes per subscriber per month. (7/29/02)
And Harvey White, the Chairmen of the Board and CEO of Leap told the financial
world in a press release at the same time:
"We believe that we have a strong future based on a solid
business model and a strong team of industry veterans to
execute on our plans." (7/24/02)
True to predictions, Leap has broken even. One of the most
fundamental factors affecting the going-concern value of a company (as opposed
to the value simply of its assets) is the cash flow the company generates.
The debtors were EBITDA positive in the first quarter of
2003--by S6.1 million--which the debtors' Chief Financial Officer has testified
was the first time in the history of the debtors that that had happened. During
the second quarter of 2003, the debtors were even more EBITDA positive--by $23.7
million. The fact that the debtors are EBITDA positive for the first time in
their history--and now two quarters in a row--is a very good indicator that the
debtors have "turned the corner" on their financial problems. Indeed, the
debtors projected that their EBITDA will increase to over $100 million next
year, nearly $200 million the following year, and $282 million the year after
that--continuing to increase throughout the period of the proposed Plan. Such
projections are nothing short of spectacular, yet they were inserted into the
middle of five pages of surrounding text as an exhibit to the Disclosure
Statement.
On July 18, two weeks after this CounterPoint was originally
filed (July 3, 2003), the debtors "modified" their previous Disclosure Statement
(filed July 8) to change the debtors' projections, supposedly based on
information from May 31. The same "modified" projections are now included in the
Disclosure Statement. The original projections are attached to this
CounterPoint.
The "modified" projections are significantly less favorable
than the original projections, all as a result of a 3.5% decrease in subscribers
during the second quarter of this year--while the debtors have been in
bankruptcy. It would, of course, make eminent sense to decrease projections for
the start
13
of Reorganized Leap (that is, after emergence from bankruptcy) based on such
decreased performance in bankruptcy. The debtors, however, have gone well beyond
that in their projections. Not only have they projected a lower starting point
for Reorganized Leap, but they have dramatically decreased the rate of increases
in subscribers after the bankruptcy. The following chart illustrates the
dramatic change from the debtors' original post-bankruptcy projections of net
new subscribers to their "modified" post-bankruptcy projections:
- ------------------------------------------------------------------------------------
Q4/03-Q1/04 Q1-Q2/04 Q2-Q3/04 Q3-Q4/04 ALL OF 2005
- ------------------------------------------------------------------------------------
ORIGINAL 85,000 64,000 62,600 69,700 295,700
- ----------------------------------------------------------------------------------
"MODIFIED" 50,400 31,500 38,500 47,400 97,600
- ----------------------------------------------------------------------------------
Even worse, the debtors have increased the "churn" rate (the rate at which
subscribers drop service) in every period through 2006, meaning that an increase
in subscribers is much more expensive to accomplish.
These changes dramatically affect the EBITDA for Reorganized
Leap throughout the period of projection. Yet there is absolutely no reason for
these post-bankruptcy metrics to change if the only cause (as the debtors state
in urging the speedy confirmation of their proposed plan) is the fact that the
debtors cannot operate as efficiently in bankruptcy as they can outside
bankruptcy.
MCG believes that, as the timing of the "modified" projections
indicates, the "modified" projections were prepared in direct response to MCG's
analysis of the originally projected EBITDA and its implications for the value
of Reorganized Leap. Accordingly, MCG uses the debtors' original projections of
EBITDA, which were made before the debtors had any reason to fabricate and which
contain post-bankruptcy projections much more consistent with the debtors'
pre-bankruptcy experience.
The debtors' originally projected EBITDA for next year, and
assuming that even next year the market capitalization (24) of Reorganized Leap
were zero, implies an EBITDA multiple (25) of 23. Taking the debtors'
projections of EBITDA out over the next several years implies the following
market capitalization (again assuming a 2004 market capitalization of zero,
notwithstanding substantial positive earnings):
- --------------------------------------------------------------------------------
LONG-TERM EBIDA TOTAL
DEBT EBITDA MULTIPLE VALUE MARKET CAP
---- ------ -------- ----- ----------
- --------------------------------------------------------------------------------
2004 $2.3 bb $101 mm 23X $2.3 bb (26) zero
- --------------------------------------------------------------------------------
2005 $2.3 bb $196 mm 23X $4.5 bb $2.2 billion
- --------------------------------------------------------------------------------
- ------------
(24) Total number of shares outstanding multiplied by the price per share.
(25) Long-term debt plus market capitalization, divided by EBITDA.
(26) This figure is below the mid-point of the S & P valuation in the table
preceding Part IV. A, above.
14
- -------------------------------------------------------------------------------
2006 $2.3 bb $282 mm 23X $6.5 bb $4.2 billion
- -------------------------------------------------------------------------------
2007 $2.3 bb $324 mm 23X $7.5 bb $5.2 billion (27)
- -------------------------------------------------------------------------------
In other words, the Vendors will double their money in two
years at the expense of everyone else--then go on to have an even more
tremendous upside value in Leap.
These projections are hardly fanciful. Other wireless
communications companies with even fewer subscribers than Leap (1.4 million)
bear comparison. For example, Nextel Partners (with 0.8 million subscribers) has
a current market capitalization of $2.1 billion. And Western Cellular (with 1.2
million subscribers) has a $1.0 billion current market capitalization--with the
same long-term debt as the debtors.
It is clear that the debtors have at least the potential to
achieve such values. Why does the market not realize this?
Part of the answer, of course, is that the debtors did not
report that they were EBITDA positive until after they had filed for bankruptcy
and had proposed a Plan under which the shareholders of Leap would receive
nothing. (28) The marketplace saw Leap simply as a company in bankruptcy with no
prospects (under the proposed Plan) of achieving its potential.
Another part of the answer lies in the debtors' senior
management. The Vendors lack of trust in the debtors' senior management is
demonstrated, in part, by the severance packages they sponsored for senior
management. Those severance packages provide that the debtors' senior management
get paid their severance packages if they are let go or if they are asked to do
less than they have done in the past. The junior managers of the debtors, on the
other hand, are provided only "retention" bonuses, payable only if they stay
with the debtors for a substantial period of time after the reorganization.
While the counsel for the Vendors has declined to say who will stay and who will
go if the proposed Plan is confirmed, it is more than apparent that senior
management will go and that the debtors will then be able to achieve the kind of
EBITDA growth the debtors project.
The third and most critical part of the answer is that the
Vendors have strong--armed the debtors and unsecured creditors through the use
of their ever-increasing demands for more collateral (such as the 41 licenses
and $271 million in cash they demanded--and got--in the 18 months prior to
bankruptcy), their restrictions on the use of all the cash in the Cricket
Companies, and their leverage even in the bankruptcy to dictate the terms not
only of the use of their cash but the terms on which they would "settle" the
bankruptcy.
The debtors' own projections, however, clearly indicate that
the debtors could structure a Plan under which the Vendors would receive the
full value of their debt, under which EVERY creditor of every debtor would be
paid in full, and under which the shareholders of Leap would retain their
interests.
- --------------
(27) Under the debtors' "modified" projections of EBITDA, Reorganized Leap would
not (in this table) have a market capitalization of $5.2 billion until
about 18 months later.
(28) The first quarter SEC filing was made on May 15, 2003--more than a month
after filing for bankruptcy and a week after the debtors had filed their
First Amended Plan.
15
The debtors' only counter to these market-value indicators is
the opinion of value (Exhibit M to the Disclosure Statement) provided by UBS
Securities (formerly known as UBS Warburg). UBS is the debtors' consultant (not
an independent appraiser), and UBS stands to gain a $3.25 million bonus (in
addition to their regular fees) if the proposed Plan is approved.
After five pages of single-spaced disclaimers and not a single
fact from which one might discern the underlying basis of its conclusion, UBS
opines that its "estimated going concern enterprise value of Reorganized Leap"
is between $560 million and $683 million.
The quoted phrase is defined to mean the total value (debt
plus equity). The "debt" portion of that is not the $2.3 billion the debtors
currently have in long-term debt but the $350 million they would have after the
Vendors own 96.5% of the stock. And the value of the FCC licenses would not be
the independent value ascribed to them by S & P, nor even the "net book value"
carried for them by the debtors, but the liquidation value of the licenses. The
valuation is absurd. And even were the valuation appropriate based on the
reduced debt and the liquidation values of the licenses (which it is not), it
would mean that the EBITDA multiple for Reorganized Leap would be not the low 23
the debtors projected for next year but the ridiculously low multiples of
between 5.5 and 6.7--half that of Western Cellular and about one-sixteenth that
of Nextel Partners.
But if UBS were right about Reorganized Leap having so little
value, why would anyone vote to reorganize the debtors the way the debtors
propose to reorganize themselves?
In fact, in the complete absence of market-value evidence in
the Disclosure Statement, why would anyone accept that the debtors should be
reorganized at all along the lines of the "settlement" between the Bondholders
and the Vendors Debtholders?
D. A NOTE ABOUT "LIQUIDATION" VALUES
One of the reasons the debtors tout their proposed plan is
that, in liquidation, the value of the debtors' assets would be so little. Given
the possibility of liquidation, they suggest, why not just take what we'll give
you and run?
Let's take the FCC licenses, for example.
For those nine licenses owned by Leap, the net book value is
$4.6 million. The debtors, however, say that the liquidation value of those same
licenses (in a "distress sale") is from $4.8 million to $6.2 million - from 4%
to 35% more than their net book value.
For the Cricket Companies' licenses, however, the story is
very different. Even though these licenses are the ones actually in service
(Leap's are not), their net book value of $723.6 million is reduced to a
liquidation value of from $258.2 million to $336.9 million - from 64% to 53%
less than their net book value.
Why is this? Since there does not seem to be any logical
explanation, one can only assume that the differences are intended to lead the
unsecured creditors of Leap (who are getting far less than they are owed) to
believe that they will have the good assets and that the Vendors (who are
getting far more than they are owed) will get less than they actually are.
The idea, moreover, that "liquidation" values are the ones
achieved in a "distress sale" is ludicrous. NextWave has been in bankruptcy for
several years. Its proposed sale to Cingular is certainly not at such
"distressed sale" prices. Rather, the bankruptcy courts provide a perfect forum
to ensure that asset sales are made at the highest and best values available in
the market.
16
If UBS is right about the value of Reorganized Leap as a going
concern, then perhaps everyone (except the Vendors, of course) would be better
off selling the FCC licenses to someone who can make a whole lot better use of
them.
THERE IS, OF COURSE, AN EASIER WAY TO REORGANIZE FOR THE
BENEFIT OF LEAP'S CREDITORS, CRICKET'S CREDITORS, AND LEAP'S SHAREHOLDERS:
- PAY THE VENDORS A MARKET RATE OF INTEREST FOR FIVE YEARS ON
THE LIQUIDATION VALUE OF WHAT THEY HAVE A LIEN ON (NO MORE
THAN $628.4 MILLION ACCORDING TO EXHIBIT F TO THE DISCLOSURE
STATEMENT);
- REFINANCE ALL THE DEBT IN FIVE YEARS; AND
- OWN A COMPANY WORTH BILLIONS OF DOLLARS AFTER PAYING ALL
CREDITORS 100 CENTS ON THE DOLLAR PLUS INTEREST.
CONCLUSION
The only information about the true value of the assets being
rearranged in this proposed Plan, and therefore the only information about how
those assets ought to be distributed and to whom, is in the financial statements
of the debtors, in their schedules, and in the market comparables evidenced by
the S & P valuations, by the Cingular-NextWave transaction, and the EBITDA
ratios of other wireless companies.
All of that information leads to but one conclusion: that the
Vendors have written this proposed Plan for themselves, will take out of it an
enterprise that has hundreds of millions of dollars more for them than is
necessary to repay their debt and that of every other creditor, and will own
virtually all of an enterprise that has the very real potential to be worth
billions of dollars more than it is even now. Every other creditor who has a
vote--and particularly those who do not--will wind up on the very short end of a
very brutal stick.
MCG believes that these debtors can be reorganized under a
rational plan that inures to the benefit of everyone. The proposed Plan,
however, is not such a plan. Every reader of this CounterPoint--and especially
any reader intending to vote as a fiduciary for others or for his or her
company--should think long and hard before voting against his or her own
interests.
17
Consolidated Pro Forma Projections Q3-03 Q4 - 03 Ql - 04 Q2 - 04 Q3 - 04
METRICS
Beginning Subs 1,560,889 1,645,922 1,709,790 1,772,455
Ending Subs 1,645,922 1,709,790 1,772,455 1,842,219
Churn % 3.6% 3.6% 3.6% 3.5%
Covered Pops 25,533,664 25,533,664 25,533,664 25,533,664
ARPU $ 36.30 $ 36.79 $ 37.05 $ 37.17
CPGA $ 220 $ 225 $ 223 $ 221
CCU $ 22.78 $ 22.03 $ 21.72 $ 21.39
INCOME STATEMENT (000s)
Revenue
Service Revenue 174,253 185,228 193,355 201,526
Equipment Revenue 23,906 24,187 24,539 25,340
--------------------------------------------------------------
Total Revenue 198,180 209,415 217,894 226,866
Operating Expenses
Network Ops 60,806 61,976 63,573 65,193
Cost of Equipment Revenue 52,613 49,927 50,650 52,304
--------------------------------------------------------------
Total Operating Expenses 113,419 111,903 114,222 117,497
Total Gross Profit 84,741 97,512 103,671 109,369
Margin % 43% 47% 48% 48%
Customer Care 24,359 25,018 25,558 26,227
Sales and Marketing 32,832 33,966 34,259 34,878
G&A 19,435 19,354 19,500 19,646
--------------------------------------------------------------
EBITDA 8,115 19,174 24,355 28,618
Margin % (excludes equipment revenue) 5% 10% 13% 14%
Depreciation & amortization 11,388 12,488 13,777 15,067
--------------------------------------------------------------
EBIT -3,273 6,886 10,578 13,150
551
Interest Expense Cash 2,050 1.947 1,893 1,839
Interest Expense Non-Cash 10,936 11,183 11,506 11,842
Interest Income & Gain on debt extinguishment -237 -199 -166 -161
Loan Fees and Other 0 0 0 0
--------------------------------------------------------------
Total Interest 12,749 12,932 13,235 13,521
--------------------------------------------------------------
Earnings before Taxes -16,022 -6,246 -2,657 31
Taxes 0 0 0 0
--------------------------------------------------------------
NET INCOME -16,022 -6,246 -2,657 31
Consolidated Pro Forma Projections Q4 - 04 2004 2005 2006
METRICS
Beginning Subs 1,842,219 1,645,922 1,941,593 2,185,406
Ending Subs 1,941,593 1,941,593 2,185,406 2,358,365
Churn % 3.3% 3.5% 3.19% 3.08%
Covered Pops 25,533,664 25,533,664 25,789,639 25,918,587
ARPU $ 36.76 $ 37.02 $ 37.36 $ 37.55
CPGA $ 212 $ 220 $ 218 $ 212
CCU $ 20.91 $ 21.53 $ 20.33 $ 19.33
INCOME STATEMENT (000s)
Revenue
Service Revenue 209,193 789,302 925,162 1,023,679
Equipment Revenue 27,672 101,738 105,977 110,973
--------------------------------------------------------------
Total Revenue 236,865 891,040 1,031,139 1,134,652
Operating Expenses
Network Ops 66,847 257,590 290,773 308,605
Cost of Equipment Revenue 57,125 210,005 210,310 205,998
--------------------------------------------------------------
Total Operating Expenses 123,973 467,595 501,083 514,603
Total Gross Profit 112,892 423,444 530,057 620,049
Margin % 48% 48% 51% 55%
Customer Care 27,198 104,000 112,343 117,999
Sales and Marketing 36,829 139,732 141,921 140,696
G&A 19,794 78,294 79,374 79,374
--------------------------------------------------------------
EBITDA 29,272 101,419 196,419 281,980
Margin % (excludes equipment revenue) 14% 13% 21% 28%
Depreciation & amortization 16,356 57,689 87,557 88,680
--------------------------------------------------------------
EBIT 12,915 43,730 108,882 193,300
551
Interest Expense Cash 1,785 7,464 20,633 59,362
Interest Expense Non-Cash 12,186 46,720 38,601 387
Interest Income & Gain on debt extinguishment -164 -690 -842 -1,467
Loan Fees and Other 0 0 0 0
--------------------------------------------------------------
Total Interest 13,807 53,494 58,392 58,281
--------------------------------------------------------------
Earnings before Taxes -892 -9,764 50,470 135,019
Taxes 0 0 0 0
--------------------------------------------------------------
NET INCOME -892 -9,764 50,470 135,019
Consolidated Pro Forma Projections 2007 2008 2009 2010
METRICS
Beginning Subs 2,358,365 2,505,835 2,609,934 2,682,129
Ending Subs 2,505,835 2,609,934 2,682,129 2,732,197
Churn % 3.05% 3.02% 3.02% 3.02%
Covered Pops 26,048,180 26,178,421 26,178,421 26,178,421
ARPU $ 37.23 $ 36.87 $ 36.29 $ 35.76
CPGA $ 208 $ 207 $ 207 $ 207
CCU $ 18.71 $ 18.27 $ 18.01 $ 17.86
INCOME STATEMENT (000s)
Revenue
Service Revenue 1,086,457 1,131,799 1,152,372 1,161,830
Equipment Revenue 112,561 111,144 109,849 108,276
---------------------------------------------------------------
Total Revenue 1,199,019 1,242,943 1,262,221 1,270,106
Operating Expenses
Network Ops 323,330 335,895 346,308 355,217
Cost of Equipment Revenue 207,968 204,427 203,665 202,390
---------------------------------------------------------------
Total Operating Expenses 531,298 540,321 549,973 557,607
Total Gross Profit 667,721 702,622 712,248 712,499
Margin % 56% 57% 56% 56%
Customer Care 121,722 123,361 123,372 122,236
Sales and Marketing 142,270 141,937 141,978 142,007
G&A 79,374 79,374 79,374 79,374
---------------------------------------------------------------
EBITDA 324,355 357,950 367,524 368,882
Margin % (excludes equipment revenue) 30% 32% 32% 32%
Depreciation & amortization 87,995 103,595 108,519 97,531
---------------------------------------------------------------
EBIT 236,360 254,356 259,005 271,351
Interest Expense Cash 57,769 57,638 57,638 43,229
Interest Expense Non-Cash 11 0 0 0
Interest Income & Gain on debt extinguishment -3,082 -5,649 -8,219 -10,083
Loan Fees and Other 0 0 0 0
---------------------------------------------------------------
Total Interest 54,698 51,989 49,419 33,145
---------------------------------------------------------------
Earnings before Taxes 181,663 202,367 209,586 238,206
Taxes 0 32,421 81,209 67,558
---------------------------------------------------------------
NET INCOME 181,663 169,946 148,377 170,648
Consolidated Pro Forma Projections Q3-03 Q4-03 Q1-04 Q2-04 Q3-04 Q4-04
Balance Sheet (000s)
Current Assets:
Cash and Equivalents 100,682 79,401 67,043 63,961 64,203 74,927
Accounts Receivable 11,454 12,633 12,590 12,704 12,784 13,078
Inventories 25,335 24,775 25,008 26,013 26,328 26,289
Other Current Assets 21,926 21,926 21,926 21,926 21,926 21,926
------------------------------------------------------------------
Total Current Assets 159,396 138,735 126,567 124,604 125,241 136,219
Net Fixed Assets 116,939 119,975 133,276 145,287 156,008 165,440
Net Licenses & Goodwill 335,953 335,953 335,953 335,953 335,953 335,953
Deposits and Deferred
Financing 6,356 6,356 6,356 6,356 6,356 6,356
Total Assets 618,644 601,020 602,151 612,200 623,559 643,969
==================================================================
Current Liabilities
Current portion of FCC debt 27,406 18,909 14,289 19,745 19,745 19,745
AP, Accruals, and Deferred
Revenue 121,137 121,931 122,745 128,634 132,882 146,834
------------------------------------------------------------------
Total Current Liabilities 148,543 140,840 137,034 148,378 152,627 166,578
Debt:
Restructured Debt Instrument 350,000 360,500 371,315 382,454 393,928 405,746
Deferred Tax & Other Long
Term Liabilities 39,850 39,850 39,850 39,850 39,850 39,850
FCC Debt 46,252 41,852 42,220 32,442 28,048 23,581
------------------------------------------------------------------
Total Liabilities 584,644 583,042 590,419 603,125 614,453 635,755
Total Shareholders Equity 34,000 17,978 11,732 9,075 9,106 8,214
Total Liabilities and
Shareholders Equity 618,644 601,020 602,151 612,200 623,559 643,969
==================================================================
Cash Flow (000s)
Cash Flow from Operations
Net Income -16,022 -6,246 -2,657 31 -892
Add:
Depreciation & Amortization 11,388 12,488 13,777 15,067 16,356
-------------------------------------------------------
Subtotal -4,634 6,242 11,120 15,098 15,465
Changes in Working Capital
Accounts Receivable -1,180 43 -114 -80 -294
Inventory 560 -233 -1,005 -315 39
Other current assets 0 0 0 0 0
Accounts Payable 795 814 5,888 4,249 13,951
-------------------------------------------------------
Cash Needed/Provided from W/C 175 625 4,769 3,854 13,697
-------------------------------------------------------
Net Cash From Operations -4,459 6,867 15,889 18,952 29,161
Cash from Investing Activities
Capital Expenditures -14,424 -25,788 -25,788 -25,788 -25,788
Goodwill & Intangibles 0 0 0 0 0
-------------------------------------------------------
Net Cash From Investing
Activities -14,424 -25,788 -25,788 -25,788 -25,788
Cash From Financing Activities
FCC Debt Drawdowns (Debt
Discount Amortization) 436 368 368 368 368
FCC Debt Paydowns -13,333 -4,620 -4,691 -4,762 -4,836
Other Long-Term Liabilities -
Drawdowns 0 0 0 0 0
Other Long-Term Liabilities-
Paydowns 0 0 0 0 0
Restructured Debt Instrument 10,500 10,815 11,139 11,474 11,818
-------------------------------------------------------
Net Cash From Financing
Activities -2,397 6,564 6,817 7,080 7,351
Net Change In Cash -21,281 -12,358 -3,082 243 10,723
Beginning Cash 100,682 79,401 67,044 63,961 64,204
=======================================================
Ending Cash 79,401 67,044 63,961 64,204 74,927
Consolidated Pro Forma Projections 2004 2005 2006 2007
Balance Sheet (000s)
Current Assets:
Cash and Equivalents 74,927 114,959 220,445 391,402
Accounts Receivable 13,078 14,377 14,549 14,689
Inventories 26,289 25,750 25,996 25,553
Other Current Assets 21,926 21,926 21,926 21,926
----------------------------------------
Total Current Assets 136,220 177,011 282,916 453,570
Net Fixed Assets 165,440 179,947 187,678 196,112
Net Licenses & Goodwill 335,953 335,953 335,953 335,953
Deposits and Deferred
Financing 6,356 6,356 8,356 6,356
Total Assets 643,969 699,268 812,904 991,992
========================================
Current Liabilities
Current portion of FCC debt 19,745 21,107 3,849 0
AP, Accruals, and Deferred
Revenue 148,834 132,806 132,144 133,407
----------------------------------------
Total Current Liabilities 166,578 153,913 135,992 133,407
Debt:
Restructured Debt Instrument 405,746 443,370 443,370 443,370
Deferred Tax & Other Long
Term Liabilities 39,850 39,850 39,850 39,850
FCC Debt 23,581 3,451 -11 0
----------------------------------------
Total Liabilities 635,755 640,583 619,200 616,626
Total Shareholders Equity 8,214 58,684 193,703 375,365
Total Liabilities and
Shareholders Equity 643,969 699,267 812,903 991,992
========================================
Cash Flow (OOOs)
Cash Flow from Operations
Net Income -9,764 50,470 135,019 181,663
Add:
Depreciation & Amortization 57,689 87,557 88,680 87,995
----------------------------------------
Subtotal 47,925 138,027 223,699 269,657
Changes in Working Capital
Accounts Receivable -445 -1,299 -173 -139
Inventory -1,514 539 -246 433
Other current assets 0 0 0 0
Accounts Payable 24,902 -14,028 -662 1,263
----------------------------------------
Cash Needed/Provided from W/C 22,944 14,788 -1,081 1,567
----------------------------------------
Net Cash From Operations 70,868 123,239 222,618 271,224
Cash from Investing Activities
Capital Expenditures -103,154 -102,064 -96,412 -96,429
Goodwill & Intangibles 0 0 0 0
----------------------------------------
Net Cash From Investing
Activities -103,154 -102,064 -96,412 -96,429
Cash From Financing Activities
FCC Debt Drawdowns (Debt
Discount Amortization) 1,474 977 387 11
FCC Debt Paydowns -18,909 -19,745 -21,107 -3,849
Other Long-Term Liabilities -
Drawdowns 0 0 0 0
Other Long-Term Liabilities-
Paydowns 0 0 0 0
Restructured Debt Instrument 45,246 37,624 0 0
----------------------------------------
Net Cash From Financing
Activities 27,811 18,856 -20,721 -3,837
Net Change In Cash -4,474 40,031 105,486 170,958
Beginning Cash 79,401 74,927 114,959 220,445
========================================
Ending Cash 74,927 114,959 220,445 391,402
CONSOLIDATED PRO FORMA PROJECTIONS 2008 2009 2010
Balance Sheet (000s)
Current Assets:
Cash and Equivalents 562,750 687,014 421,494
Accounts Receivable 14,787 14,861 10,909
Inventories 25,553 25,458 25,299
Other Current Assets 21,926 21,920 21,920
-------------------------------
Total Current Assets 625,016 749,254 479,622
Net Fixed Assets 195,083 184,410 161,282
Net Licenses & Goodwill 335,953 335,953 335,953
Deposits and Deferred
Financing 6,356 6,356 6,356
Total Assets 1,162,408 1,275,973 1,003,213
===============================
Current Liabilities
Current portion of FCC debt 0 0 0
AP, Accruals, and Deferred
Revenue 133,877 134,201 134,162
-------------------------------
Total Current Liabilities 133,877 134,201 134,162
Debt:
Restructured Debt Instrument 443,370 443,370 0
Deferred Tax & Other Long
Term Liabilities 39,850 4,714 4,714
FCC Debt 0 0 0
-------------------------------
Total Liabilities 617,096 582,284 138,676
Total Shareholders Equity 545,312 693,689 864,336
Total Liabilities and
Shareholders Equity 1,162,408 1,275,973 1,003,212
===============================
Cash Flow (000s)
Cash Flow from Operations
Net Income 169,946 148,377 170,648
Add:
Depreciation & Amortization 103,595 108,519 97,531
-------------------------------
Subtotal 273,541 256,896 268,178
Changes in Working Capital
Accounts Receivable -98 -74 3,952
Inventory 0 95 159
Other current assets 0 6 0
Accounts Payable 470 324 -39
-------------------------------
Cash Needed/Provided from W/C 372 350 4,073
-------------------------------
Net Cash From Operations 273,913 257,246 272,251
Cash from Investing Activities
Capital Expenditures -102,565 -97,864 -94,402
Goodwill & Intangibles 0 0 0
-------------------------------
Net Cash From Investing
Activities -102,565 -97,846 -94,402
Cash From Financing Activities
FCC Debt Drawdowns (Debt
Discount Amortization) 0 0 0
FCC Debt Paydowns 0 0 0
Other Long-Term Liabilities -
Drawdowns 0 0 0
Other Long-Term Liabilities-
Paydowns 0 -35,136 0
Restructured Debt Instrument 0 0 -443,370
-------------------------------
Net Cash From Financing
Activities 0 -35,136 -443,370
Net Change In Cash 171,348 124,264 -265,520
Beginning Cash 391,402 562,750 687,014
===============================
Ending Cash 562,750 687,014 424,494
EXHIBIT 2
DEBTORS' RESPONSE TO COUNTERPOINT TO DISCLOSURE STATEMENT FROM MCG PCS, INC.
MCG PCS, Inc. ("MCG"), a Leap stockholder and creditor, has objected to
the Debtors' Disclosure Statement and proposed Plan of Reorganization. To allow
MCG to present its views, the Debtors have included MCG's Counterpoint to the
Debtors' Disclosure Statement (the "Counterpoint") as Exhibit 1 to the
Disclosure Statement. However, the Debtors believe that the Counterpoint is
riddled with inaccuracies and attempts to present a wholly unrealistic and
misleading analysis of the potential recoveries in these cases to the Debtors'
stakeholders.
Without attempting to point out each of the errors in MCG's
Counterpoint, the following paragraphs note several examples of inaccuracies and
misleading statements that are contained in the Counterpoint. These examples
demonstrate why the Debtors' creditors and stockholders should disregard MCG's
Counterpoint.
Without any evidence or support, MCG makes the following inaccurate or
misleading statements in the Counterpoint:
- - "The Vendors have no claim against Leap." (Counterpoint at p. 2). In fact,
the Vendors have asserted that they have at least three direct claims
against Leap. First, Leap pledged the Old License Holding Company Common
Stock -- a Leap asset -- to the holders of Old Vendor Debt to secure
Cricket's obligations under the Old Vendor Debt Facilities. As a result,
the Holders of Old Vendor Debt now hold a secured claim against Leap to the
extent of the value of the Old License Holding Company Common Stock.
Second, because the value of that stock is less than the amount of the Old
Vendor Debt, the Holders of Old Vendor Debt are also entitled under the
Bankruptcy Code to assert an unsecured claim against Leap equal to the
difference between the amount of the Old Vendor Debt and the value of the
Old License Holding Company Common Stock. (See Disclosure Statement at pp.
9-10.) Third, in connection with the March 2002 amendments to the Old
Vendor Debt Facilities, Leap agreed with the Holders of Old Vendor Debt to
transfer additional FCC licenses and cash to Leap subsidiaries whose assets
were pledged as Collateral to such Holders. Leap did not make all of the
contributions that it agreed to make in the March Agreement. As a result,
the Informal Vendor Debt Committee has asserted that Leap breached its
agreement with the Holders of Old Vendor Debt. (See generally Disclosure
Statement at p. 12.)
Pursuant to the Plan, the Holders of Old Vendor Debt are releasing their
claims against Leap. In the event such claims were not released, the claims
that could be asserted by the Holders of Old Vendor Debt against Leap could
exceed $1.0 billion in the aggregate. The recovery on such claims would
substantially dilute the recoveries currently proposed for Holders of
General Unsecured Claims against Leap.
- - "The 'Official Committee' is nothing more than the Bondholders wearing a
different hat." (Counterpoint at p. 3). To the contrary, the Official
Committee in fact has a fiduciary obligation to all general unsecured
creditors of Leap, not just to the Bondholders. The Official Committee was
appointed by the U.S. Trustee to represent the interests of all of Leap's
general unsecured creditors in the Chapter 11 Cases, and it has continued
to do so throughout the Chapter 11 Cases. However, MCG ignores the fact
that Leap's Bondholders hold approximately $729.5 million of the
approximately $732 million in general unsecured claims against Leap
estimated as of the Petition Date (excluding potential rejection damages
for leases and contracts that are rejected and general unsecured claims
that could be asserted against Leap by the Holders of Old Vendor Debt). In
reaching the settlement underlying the Plan, the Informal Bondholder
Committee engaged its own independent financial advisor and legal counsel,
and negotiated vigorously with the Informal Vendor Debt Committee. The
Bondholders are not receiving anything more or different under the Plan
than all other general unsecured creditors of Leap.
- - "Reorganized Leap would consist of all of the assets on which the Vendors
have a lien ... plus many of the valuable assets of Leap (which would
otherwise go to Leap's unsecured creditors)." (Counterpoint at p. 4)
(emphasis added). MCG again is wrong. As set forth in the Disclosure
Statement, substantially all of Leap's
1
assets (in terms of value) will be transferred to the Leap Creditor Trust for
the benefit of Holders of Leap General Unsecured Claims as follows:
--All of Leap's unrestricted cash, consisting of approximately
$80 million less amounts payable for Leap's Allowed Administrative
Claims and Allowed Priority Claims; and
--the Leap Creditor Trust Assets, comprised of other assets
that have a value estimated to be approximately $30.0 million to $50.0
million.
- - The Counterpoint mischaracterizes the settlement negotiations that led to
the Plan. The Counterpoint alleges, for example, that the Debtors suggested
that the Leap Noteholders should receive an equity recovery of 27% of the
Reorganized Debtors and that the Noteholders countered at 33%.
(Counterpoint at p. 7). The Counterpoint fails to disclose key facts about
these negotiations and, as a result, presents a misleading picture. In
reality, the Leap Informal Noteholder Committee was presented an initial
proposal by the Debtors, delivered by UBS, that offered the Leap creditors
the choice of taking all of Leap's cash and other assets, receiving a
release from the Reorganized Debtors, and providing a release to the
Reorganized Debtors OR investing Leap's cash in the Reorganized Debtors in
exchange for a 33% stake in the Reorganized Debtors. The Debtors never
suggested that the Noteholders keep all of Leap's cash and other assets and
receive 27% of the stock of Reorganized Leap. More importantly, the
Informal Vendor Debt Committee and the Leap Informal Noteholder Committee
never reached agreement on this proposal. Instead, the Leap Informal
Noteholder Committee and their advisors, after carefully reviewing the
proposal, determined that they did not wish to reinvest the remaining cash
and assets at Leap into the Reorganized Debtors. As a result, the Informal
Noteholder Committee and the Informal Vendor Debt Committee, and their
respective legal and financial advisors, continued their vigorous and
lengthy negotiations that eventually led to the settlement underlying the
Plan.
- - The Counterpoint vastly inflates the value of the Debtors. The Counterpoint
alleges that the Debtors are worth billions. This allegation is not only
wrong, but contravenes the following indisputable facts:
1. The market has already found Leap to be insolvent. For
example, UBS has informed the Debtors that recent prices that potential
secondary purchasers are willing to pay for the 14-1/2% Senior Discount
Notes, the 12-1/2% Senior Notes and the Old Vendor Debt are 9 cents on
the dollar, 13 cents on the dollar, and 37 cents on the dollar,
respectively. These securities generally traded at or around these
levels long before the settlement underlying the Plan was reached
between the two committees.
2. The Debtors have presented the going concern enterprise
valuation performed by UBS that indicated a range of values for the
Reorganized Debtors of $560 million to $683 million. (See Disclosure
Statement at Exhibit M.) Given the $1.6 billion of secured Old Vendor
Debt and approximately $732 million in unsecured claims against Leap as
of the Petition Date (including the Senior Notes and Senior Discount
Notes, but excluding claims asserted by holders of Old Vendor Debt),
Leap is clearly insolvent.
The Debtors believe that stakeholders should disregard the valuation
information presented by MCG and its counsel in the Counterpoint.
- - The Counterpoint contains misleading information about the valuation of
wireless licenses. Without citing any specific transaction data, MCG
affirmatively states that Cingular Wireless has agreed to purchase wireless
licenses from NextWave at an estimated average price of $1.86 per MHzPop
(Counterpoint at p. 17). In fact, as of the filing of MCG's Counterpoint,
neither Cingular nor NextWave had announced such a transaction or made any
filings with the FCC or bankruptcy court to effect such a transaction.
Although rumors circulated in late May based on a cable television network
report that a potential $1.5 billion transaction may occur between these
parties, none of these old news reports reviewed by the Debtors indicated
which NextWave licenses were proposed to be transferred or the megahertz
bandwidth of those licenses.
2
However, even if NextWave were to sell licenses to Cingular for $1.5
billion, it is entirely misleading to assume that NextWave's licenses are
comparable to the wireless licenses held by the Debtors. As stated in the
Disclosure Statement, wireless licenses covering large metropolitan areas
such as New York or Chicago typically are substantially more valuable than
licenses covering smaller cities or rural areas such as Roswell, New Mexico
or Casper, Wyoming. (See Disclosure Statement at p. 21.) Therefore, it is
essential to compare NextWave's licenses to the Debtors' licenses to
determine the relative values of each portfolio. To this point, NextWave
owns licenses covering a broad range of geographic areas, including
licenses covering 28 of the top 30 markets in the U.S. (measured by
population). However, the Debtors' licenses include only 4 of the top 30
markets in the U.S. Thus, even if NextWave sells wireless licenses to
Cingular, they are not likely to be comparable to the licenses held by the
Debtors, and MCG's use of a rumored transaction as a pricing comparison for
the Debtors' licenses is misleading and improper.
The Debtors have included in the Disclosure Statement certain information
concerning values of wireless licenses (Disclosure Statement at pp. 21-24).
Even though different assumptions and valuation techniques may produce a
broad range of values for the Debtors' licenses, there are simply no
reasonable prospects for any return to Leap's stockholders because of the
significant outstanding debt of the Debtors.
- - The Counterpoint also misrepresents the reasons why the Debtors modified
their Projections on July 16, 2003. MCG asserts that the Projections were
modified "in direct response to MCG's analysis of the originally projected
EBITDA and its implications for the value of Reorganized Leap."
(Counterpoint at p. 20). This is yet another blatant mischaracterization by
MCG. In fact, the Debtors updated their Projections in response to an
objection filed with the Court by Lucent requesting that the Debtors
provide information about the post-petition performance of the Cricket
business and its impacts on the Debtors' Projections. The Cricket business
has been adversely affected by the bankruptcy filings, losing 53,770 net
subscribers during the second quarter of 2003, and the Projections were
updated to reflect these declines in subscribers, the expected
post-petition financial performance of Reorganized Leap and other factors
(Disclosure Statement at p. 3 and Exhibit G). Stakeholders should disregard
the projections attached to MCG's Counterpoint, which are not the current
Projections presented by the Debtors with the Disclosure Statement (See
Exhibit G).
MCG also points to the fact that the Debtors were EBITDA positive for the
second quarter of 2003 as an indicator that the Debtors "have turned the
corner on their financial problems." (Counterpoint at p. 19). This
highlights MCG's complete lack of understanding of the Cricket business and
its fundamentals. A reduction in customer acquisitions tends to increase
EBITDA in the short-term, because of reduced costs for handset subsidies,
dealer commissions and similar expenses. The Debtors have experienced just
such an increase. (Disclosure Statement at p. 3). However, the loss of
customers being experienced by the Debtors is very bad for the company's
business in the long-term, because it decreases the company's revenue and
EBITDA streams.
- - The Counterpoint also misrepresents the status of the Debtors' existing
management. (Counterpoint at pp. 21-22). The Informal Vendor Debt Committee
has approved the implementation of severance packages as an incentive for
the Debtors' senior executives to stay at the company and to continue to
manage the business during these turbulent times. The severance agreements
also were brought before the Bankruptcy Court and expressly approved by the
Bankruptcy Court. The severance agreements provide for only nine months
salary and COBRA benefits if an executive is terminated without cause, or
if his or her job duties are substantially diminished during the one year
period after the effective date of the Plan. As reported in the Disclosure
Statement, the Informal Vendor Debt Committee has indicated that it expects
the existing senior management team to continue as the executive officers
and senior management of the Debtors through the Effective Date of the
Plan, and that following the Effective Date, these officers will serve at
the pleasure of the Board of Directors of Reorganized Leap. MCG's attempts
to discredit the Debtors' management are pointless and unfounded.
3
* * * * *
THE DEBTORS BELIEVE MCG'S COUNTERPOINT IS FILLED WITH INACCURACIES AND
MISREPRESENTATIONS, AND URGE STAKEHOLDERS TO DISREGARD THIS INFORMATION WHEN
REVIEWING AND EVALUATING THE PLAN.
IN ADDITION, MCG HOLDS A DISPUTED, UNSECURED CLAIM AGAINST LEAP THAT
LEAP BELIEVES SHOULD BE SUBORDINATED TO THE CLAIMS OF OTHER CREDITORS. EVEN IF
MCG'S CLAIM WAS ALLOWED IN FULL AND NOT SUBORDINATED, THE DEBTORS BELIEVE THAT
MCG WILL NOT RECEIVE ANY CASH OR PROPERTY ON ACCOUNT OF SUCH CLAIM BECAUSE MCG
RECEIVED A VOIDABLE PREFERENCE OF APPROXIMATELY $1.5 MILLION IN DECEMBER 2002.
THE DEBTORS INTEND TO FILE AN ACTION TO RECOVER SUCH VOIDABLE PREFERENCE AS SOON
AS PRACTICABLE. THEREFORE, AS A MATTER OF BANKRUPTCY LAW, MCG IS NOT ENTITLED TO
ANY RECOVERY ON ITS CLAIM UNTIL MCG REPAYS THE $1.5 MILLION IN FULL.
ACCORDINGLY, THE DEBTORS BELIEVE THAT MCG'S COUNTERPOINT SHOULD BE GIVEN NO
WEIGHT BY CREDITORS WHO HOLD VALID CLAIMS AGAINST THE DEBTORS.
THE PLAN IS THE PRODUCT OF NEGOTIATIONS AMONG THE DEBTORS, THE INFORMAL
VENDOR DEBT COMMITTEE, THE INFORMAL NOTEHOLDER COMMITTEE (PRIOR TO THE
APPOINTMENT OF THE OFFICIAL COMMITTEE) AND THE OFFICIAL COMMITTEE. THE DEBTORS
BELIEVE THE PLAN REPRESENTS THE BEST POSSIBLE RETURN TO HOLDERS OF CLAIMS AND
INTERESTS AND URGE SUCH HOLDERS TO VOTE IN FAVOR OF THE PLAN.
* * * * *
4
Exhibit A
The Plan
[Exhibit 2.1 to
the Company's Current
Report on Form 8-K dated
July 30, 2003 is incorporated
herein by reference]
EXHIBIT B
LATHAM & WATKINS LLP [SEAL]
Michael S. Lurey (State Bar #048235) ORDER ENTERED ON
Robert A. Klyman (State Bar #142723) 7/31/03
Eric D. Brown (State Bar #211512) BY CLERK U/S/ BANKRUPTCY COURT
633 West Fifth Street, Suite 4000 SOUTHERN DISTRICT OF CALIFORNIA
Los Angeles, California 90071-2007
Telephone: (213) 485-1234 Facsimile: (213) 891-8763
Counsel for Debtors and Debtors-in-Possession
- --------------------------------------------------------
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF CALIFORNIA
325 West "F" Street, San Diego, California 92101-6991
- --------------------------------------------------------------------------------
In re:
Case Nos. 03-3470-A11
LEAP WIRELESS INTERNATIONAL, INC., AND through 03-3535-A11
CRICKET COMMUNICATIONS, INC., ET AL.,
(Jointly Administered)
Debtors.
DISCLOSURE STATEMENT HEARING
Date: July 22, 2003
Time: 10:00 a.m.
Place: Department 2
Judge: Hon. Louise DeCarl Adler
- --------------------------------------------------------------------------------
ORDER APPROVING DISCLOSURE STATEMENT ACCOMPANYING FIFTH AMENDED
JOINT PLAN OF REORGANIZATION DATED AS OF JULY 30, 2003, FIXING TIME FOR
FILING ACCEPTANCES OR REJECTIONS OF PLAN, ESTABLISHING PROCEDURE FOR
COUNTING VOTES, AND APPROVING FORM AND MANNER OF NOTICE AND
SOLICITATION
IT IS ORDERED THAT the relief sought as set forth on the continuation
pages attached and numbered two (2) through twelve (12) pages, is granted.
Motion/Application Docket Entry No. 479.
7/31/03
DATED:
/s/ Louise DeCarl Adler
-----------------------------------------------
Hon. Louise DeCarl Adler, U.S. Bankruptcy Judge
Signature by the attorney constitutes a certification under Fed. R. of Bankr. P.
9011 that the relief in the order is the relief granted by the court.
Submitted by:
Latham & Watkins LLP /s/
- --------------------------------
By: Robert A. Klyman
----------------------------
Counsel for Debtors and Debtors-in-Possession
This Court, having reviewed (a) the Fifth Amended Joint Plan
of Reorganization Dated as of July 30, 2003 (the "Plan") and the Disclosure
Statement Accompanying Fifth Amended Joint Plan of Reorganization Dated as of
July 30, 2003 (the "Disclosure Statement") of Leap Wireless International, Inc.
("Leap"), Cricket Communications, Inc. ("Cricket"), and certain of their
subsidiaries and other affiliated entities, as debtors and debtors-in-possession
in the above-captioned cases (collectively, the "Debtors"); and (b) the forms of
ballots for voting on the Plan; and the Court finding that adequate notice of
the hearing on approval of the Disclosure Statement has been given to all
parties in interest; and after a hearing having been held on July 22, 2003; and
all parties in interest having been given an opportunity to be heard at the
hearing;
IT IS HEREBY FOUND that: (1)
A. The Disclosure Statement, as filed by the Debtors on
July 30, 2003, contains adequate information within the meaning of section 1125
of title 11 of the United States Code (the "Bankruptcy Code").
B. The forms of ballots (the "Ballots") and Master
Ballots (the "Master Ballots") filed with this Court on July 8, 2003 adequately
address the particular needs of the Chapter 11 Cases and are appropriate for
each Class of Claims or Interests entitled under the Plan to vote to accept or
reject the Plan.
C. The period, set forth below, during which the Debtors
may solicit acceptances to the Plan is a reasonable period of time for Holders
of Claims to make an informed decision to accept or reject the Plan.
D. The procedures for the solicitation and tabulation of
votes to accept or reject the Plan (as more fully set forth in the Disclosure
Statement) provide for a fair and equitable voting process and are consistent
with section 1126 of the Bankruptcy Code.
E. The procedures set forth herein and Exhibit A hereto
regarding notice (the "Confirmation Hearing Notice") to creditors and interest
holders of the time, date, and place of the hearing to confirm the Plan (the
"Confirmation Hearing") and the contents of the Solicitation Package
- --------------
(1) All capitalized terms not defined herein shall have the meanings ascribed
to them in the Plan.
2
(as defined below) comply with Rules 2002 and 3017 of the Federal Rules of
Bankruptcy Procedure (the "Bankruptcy Rules") and constitute sufficient notice
to all interested parties.
NOW, THEREFORE, IT IS HEREBY ORDERED and Notice is hereby given that:
1. The Disclosure Statement is approved as containing
adequate information as such term is defined in section 1125 of the Bankruptcy
Code.
2. All objections to the Disclosure Statement are
overruled or were withdrawn. MCG PCS, Inc. ("MCG") is authorized to submit a
summary of its counterpoints to the Debtor no later than 12:00 p.m. Pacific
Standard Time on July 24, 2003. MCG shall file its counterpoints by July 28,
2003. The Debtors shall file their response to MCG's counterpoints by July 29,
2003. No other responses to MCG's counterpoints are authorized.
3. The forms of Ballots and Master Ballots are hereby
approved.
4. The Debtors are authorized and directed, as soon as
practicable, but no later than AUGUST 7, 2003, (the "Mailing Deadline"), to
transmit by first-class United States mail to all known Holders of Claims and
Interests a package (the "Solicitation Package") containing the following
documents: a copy of the approved Disclosure Statement and exhibits thereto
(including the Plan), a copy of this Order (without exhibit) and a copy of the
Confirmation Hearing Notice, substantially in the form attached hereto as
Exhibit A, which notice is hereby approved; provided, however, that the Debtors
are not required to distribute the Solicitation Package (except for the
Confirmation Hearing Notice) to any Holder of an unimpaired Claim or Interest in
any Class under the Plan or any Holder of any Claim or Interest who is not
entitled to any distribution under the Plan, unless such party makes a specific
request in writing for the same. The Debtors shall post the Solicitation Package
on their website (www.leapreorganization.com).
5. In addition, Holders of Claims in Classes that are
entitled to vote to accept or reject the Plan shall also receive a Ballot (and
Master Ballots as appropriate) and a Ballot return envelope as part of the
Solicitation Package.
6. With respect to the distribution of Master Ballots,
the Debtors are authorized to send Master Ballots to record holders of the Old
Vendor Debt Claims and the Senior Note Claims,
3
including, without limitation, brokers, banks, dealers, or other agents or
nominees (collectively, the "Master Ballot Agents"), and each Master Ballot
Agent shall be entitled to receive reasonably sufficient copies of Ballots to
distribute to the applicable beneficial owners of Claims, and the Debtors shall
be responsible for each such Master Ballot Agent's reasonable costs and expenses
associated with the distribution of copies of Ballots to the beneficial owners
of such Claims and tabulation of the Ballots.
7. The Master Ballot Agents shall complete the Master
Ballots according to the instructions set forth in the Master Ballots.
8. Each Master Ballot Agent shall receive returned
Ballots from the beneficial owners, tabulate the results, and return, inter
alia, such results to Poorman-Douglas Corporation ("Poorman-Douglas") in a
Master Ballot by the Voting Deadline (as defined below).
9. The Debtors are excused from mailing Solicitation
Packages to entities listed at addresses from which the Notice of Disclosure
Statement Hearing was returned as undeliverable unless the Debtors receive an
accurate address on or before the Mailing Deadline. Failure to mail Solicitation
Packages to such entities will not constitute inadequate notice of the
Confirmation Hearing, the Voting Deadline, or violation of Bankruptcy Rule
3017(d).
10. Ballots accepting or rejecting the Plan must be
received by 4:00 P.M. PACIFIC STANDARD TIME ON SEPTEMBER 8,2003, (the "Voting
Deadline") at the following address:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (800)517-7475
Fax: (503)350-5890
Attn: Leap Wireless International, Inc. and
Affiliated Entities Claims Agent Processing
Ballots received after the Voting Deadline will not be counted.
11. If a creditor casts more than one Ballot voting the
same Claim before the Voting Deadline, the last Ballot received is deemed to
supersede all prior Ballots. For purposes of determining under 11 U.S.C. Section
1126(c) whether one-half in number of Claims in each Class has accepted the
Plan, separate Claims held by a single creditor in a particular Class will be
aggregated as if such creditor held one Claim in such Class, and the votes
related to such Claims will be treated as a single vote to accept or
4
reject the Plan.
12. All Ballots must be properly executed to be counted.
The following types of Ballots will not be counted in determining whether the
Plan has been accepted or rejected: (i) any Ballot received after the Voting
Deadline unless the Debtors shall have granted an extension of the Voting
Deadline with respect to such Ballot; (ii) any Ballot that is illegible or
contains insufficient information to permit the identification of the claimant
or interest holder; (iii) any Ballot cast by a person or entity that does not
hold a Claim or Interest in a Class that is entitled to vote to accept or reject
the Plan; (iv) any Ballot cast for a Claim identified on the Schedules as
unliquidated, contingent, or disputed for which no proof of claim was timely
filed; (v) any unsigned Ballot; (vi) any Ballot received that is executed but
does not indicate an acceptance or rejection of the Plan or that indicates both
a vote for and against the Plan; and (vii) any Ballot transmitted to
Poorman-Douglas by facsimile.
13. The Confirmation Hearing and the hearing on the
valuation of the Debtors will take place on SEPTEMBER 29, 2003 THROUGH OCTOBER
3, 2003 AND OCTOBER 7, 2003 THROUGH OCTOBER 8, 2003 AT 10:00 A.M. PACIFIC
STANDARD TIME EACH DAY (the "Confirmation Hearing Date") before the Honorable
Louise DeCarl Adler, United States Bankruptcy Judge, in Department 2, located at
United States Bankruptcy Court for the Southern District of California, U.S.
Courthouse, 325 West "F" Street, San Diego, California 92101; provided, however,
that the Confirmation Hearing may be continued from time to time by the Court or
the Debtors without further notice.
14. The Debtors shall not be required to give any further
notice of any adjournment of the Confirmation Hearing announced in open Court on
the Confirmation Hearing Date or at any subsequent Confirmation Hearing Date.
15. All objections to Confirmation of the Plan must be in
writing, filed with the Clerk of the Bankruptcy Court and served upon, so as to
be received on or before SEPTEMBER 8, 2003, AT 4:00 P.M. PACIFIC STANDARD TIME
(the "Objection Deadline") by (i) counsel to the Debtors, Robert Klyman, Esq.,
Latham & Watkins LLP, 633 West Fifth Street, Los Angeles, California 90071-2007;
(ii) counsel to the Informal Vendor Debt Committee, Paul Silverstein, Esq.,
Andrews & Kurth LLP, 805 Third Avenue, New York, NY 10022; (iii) counsel to the
Leap Official Unsecured Creditors' Committee, Robert T.
5
Schmidt, Esq., Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue New York,
New York 10022; and (iv) the Office of the United States Trustee, Tiffany
Carroll, Office of the U.S. Trustee, 402 W. Broadway, Suite 600, San Diego, CA
92101-8511. Objections to confirmation of the Plan not timely filed and served
in the manner set forth above shall not be considered and shall be overruled.
16. The Debtors shall file their brief in support of the
confirmation of the Plan on or before 12:00 P.M. PACIFIC STANDARD TIME ON
SEPTEMBER 26, 2003.
17. The Debtors shall file a declaration regarding voting
results on or before SEPTEMBER 22, 2003.
18. The Record Date for purposes of determining which
creditors are entitled to vote on the Plan shall be July 25, 2003.
19. The Debtors, the Informal Vendor Debt Committee, the
Official Unsecured Creditors' Committee and MCG PCS, Inc. shall designate their
respective experts regarding valuation on or before AUGUST 5, 2003. Expert
witness reports must be filed with the Court and served on or before SEPTEMBER
8, 2003. Supplemental expert reports and expert declaration shall be filed and
served on or before SEPTEMBER 22,2003.
20. The Debtors are hereby authorized to utilize the
services of Poorman-Douglas (the "Tabulation Agent") to serve as the Debtors'
agent in connection with (i) the preparation and mailing of solicitation
materials as described below and (ii) the tabulation and certification of
ballots accepting or rejecting the Plan, and to incur and pay all fees, costs
and expenses reasonably associated therewith. Poorman-Douglas is authorized to
perform the following services as the Debtors voting agent:
(a) coordinating the printing and mailing of the Confirmation
Hearing Notice;
(b) coordinating the printing of Ballots;
(c) identifying voting and non-voting creditors and equity
security holders;
(d) preparing voting reports by Plan class and voting amount
and maintaining all such information in a Poorman-Douglas
database;
(e) printing Ballots specific to each creditor, indicating
voting Class under the Plan, voting amount of Claim, and
other relevant information;
6
(f) coordinating the mailing of Ballots and providing an
affidavit verifying the mailing of Ballots;
(g) receiving Ballots and tabulating and certifying the votes
on the Plan; and
(h) providing any other balloting-related services as the
Debtors may from time to time request, including, without
limitation, providing testimony at the confirmation
hearing with respect to the Balloting Services and the
results of the voting on the Plan.
21. The Debtors are authorized to take or refrain from
taking any action necessary or appropriate to implement the terms of and the
relief granted in this Order without seeking further order of the Court.
22. Any person or entity that seeks to solicit rejections
of the Plan shall seek an order of this Court, by motion on notice to the
attorneys for the Debtors, the attorneys for the Informal Vendor Debt Committee
and attorneys for the Leap Official Unsecured Creditors' Committee, for approval
of any solicitation materials as containing "adequate information" based upon
the same standard of review that is applicable to the Disclosure Statement.
23. The filing of a motion seeking approval of any
solicitation materials seeking rejection of the Plan shall not affect the
approval of the Disclosure Statement herein or the dates set forth herein.
24. Notice given as provided herein shall be deemed
adequate and sufficient and the Debtors shall be deemed to have complied with
Bankruptcy Rule 3017(a). The Debtors shall also post this Order on their website
(www.leapreorganization.com).
25. Prior to mailing the Disclosure Statement, the
Debtors may fill in any missing dates, correct any typographical errors and make
such other non-material, non-substantive changes in the Disclosure Statement as
they deem appropriate.
7
EXHIBIT A
LATHAM & WATKINS LLP
Michael S. Lurey (State Bar #048235)
Robert A. Klyman (State Bar #142723)
Eric D. Brown (State Bar #211512)
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Counsel for
Debtors and Debtors-in-Possession
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF CALIFORNIA
In re Case Nos.: 03-03470-A11 through
03-03535-A11
LEAP WIRELESS INTERNATIONAL, INC., and
CRICKET COMMUNICATIONS, INC., et al., (Jointly Administered)
Debtors. Chapter 11
NOTICE OF (I) APPROVAL OF
DISCLOSURE STATEMENT, (II)
DEADLINE FOR VOTING ON DEBTORS'
PLAN OF REORGANIZATION, (III)
Fed. Tax Id. Nos. 33-0811062 and 33-0879924 HEARING TO CONSIDER
CONFIRMATION OF THE PLAN, AND
(IV) LAST DATE FOR FILING
OBJECTIONS TO CONFIRMATION OF THE
PLAN
CONFIRMATION HEARING
Date: September 29, 30, October 1,
2, 3, 7, 8, 2003
Time: 10:00 a.m.
Place: Department 2
Judge: Hon. Louise DeCarl Adler
TO: ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN LEAP WIRELESS INTERNATIONAL,
INC., AND CRICKET COMMUNICATIONS, INC., ET AL.
PLEASE TAKE NOTICE THAT YOUR VOTE IS BEING SOLICITED IN
CONNECTION WITH THE DEBTORS' FIFTH AMENDED JOINT PLAN OF REORGANIZATION DATED AS
OF JULY 30, 2003 (THE "PLAN"). YOU SHOULD CAREFULLY REVIEW THE MATERIAL SET
FORTH IN DISCLOSURE STATEMENT ACCOMPANYING FIFTH AMENDED JOINT PLAN OF
REORGANIZATION DATED AS OF JULY 30, 2003 (THE "DISCLOSURE
STATEMENT") ENCLOSED HEREWITH (AND IN THE EXHIBITS ATTACHED THERETO) IN ORDER TO
MAKE AN INDEPENDENT DETERMINATION AS TO WHETHER TO VOTE TO ACCEPT OR REJECT THE
PLAN. THE DEBTORS BELIEVE THE PLAN REPRESENTS THE BEST POSSIBLE RETURN TO
HOLDERS OF CLAIMS AND INTERESTS AND URGE SUCH HOLDERS TO VOTE IN FAVOR OF THE
PLAN. THE INFORMAL VENDOR DEBT COMMITTEE URGES HOLDERS OF OLD VENDOR DEBT TO
READ THE DISCLOSURE STATEMENT AND VOTE IN FAVOR OF THE PLAN. THE OFFICIAL
COMMITTEE OF UNSECURED CREDITORS URGES HOLDERS OF LEAP GENERAL UNSECURED CLAIMS
TO READ THE DISCLOSURE STATEMENT AND VOTE IN FAVOR OF THE PLAN.
APPROVAL OF DISCLOSURE STATEMENT
PLEASE TAKE FURTHER NOTICE that, by Order dated July 31, 2003,
the United States Bankruptcy Court for the Southern District of California (the
"Bankruptcy Court") approved the Debtors' Disclosure Statement Pursuant to
Section 1125 of the Bankruptcy Code with respect to the Debtors' Plan as
containing adequate information within the meaning of section 1125 of the Code.
DEADLINE FOR VOTING ON THE PLAN
PLEASE TAKE FURTHER NOTICE that, by Order dated July 31, 2003,
the Bankruptcy Court established SEPTEMBER 8, 2003 AT 4:00 P.M. Pacific Standard
Time (the "Voting Deadline") as the deadline by which ballots accepting or
rejecting the Plan must be received. To be counted, your ballot (which is
enclosed herewith) must actually be received on or before the Voting Deadline
by:
Poorman-Douglas Corporation
10300 SW Allen Boulevard
Beaverton, Oregon 97005
Tel: (800)517-7475
Fax: (503)350-5890
Attn: Leap Wireless International, Inc. and
Affiliated Entities Claims Agent Processing
Ballots received after the Voting Deadline will not be counted.
CONFIRMATION HEARING
PLEASE TAKE FURTHER NOTICE that on SEPTEMBER 29, 2003 THROUGH
OCTOBER 3, 2003 AND OCTOBER 7, 2003 THROUGH OCTOBER 8, 2003 AT 10:00 A.M.
PACIFIC STANDARD TIME EACH DAY, or as soon thereafter as counsel may be heard, a
hearing will commence before the Honorable Louise DeCarl Adler, United States
Bankruptcy Judge, in Department 2, located at United States Bankruptcy Court for
the Southern District of California, U.S. Courthouse, 325 West "F" Street, San
Diego, California 92101 to consider confirmation of the Plan, as the same may be
further amended or
modified, the valuation of the Debtors, and for such other and further relief as
may be just (the "Confirmation Hearing").
PLEASE TAKE FURTHER NOTICE that the Confirmation Hearing may
be adjourned from time to time without further notice to creditors or other
parties in interest, other than by an announcement of such an adjournment in
open court at the Confirmation Hearing or any adjournment thereof. Additionally,
the Plan may be modified in accordance with the Code, the Federal Rules of
Bankruptcy Procedure and other applicable law, without further notice, prior to
or as a result of the Confirmation Hearing.
DEADLINE FOR OBJECTIONS TO CONFIRMATION OF THE PLAN
PLEASE TAKE FURTHER NOTICE that objections, if any, to the
confirmation of the Plan, including any supporting memoranda, must be in
writing, be filed with the Clerk of the United States Bankruptcy Court for the
Southern District of California, U.S. Courthouse, 325 West "F" Street, San
Diego, California 92101 together with proof of service, and shall (a) state the
name and address of the objecting party and the amount of its claim or the
nature of its interest in the Debtors' Chapter 11 Cases, (b) state with
particularity the provision or provisions of the Plan objected to and for any
objection asserted, the legal and factual basis for such objection, and (c) be
served upon (i) counsel to the Debtors, Robert Klyman, Esq., Latham & Watkins
LLP, 633 West Fifth Street, Los Angeles, California 90071-2007; (ii) counsel to
the Informal Vendor Debt Committee, Paul Silverstein, Esq., Andrews & Kurth LLP,
805 Third Avenue, New York, NY 10022; (iii) counsel to the Leap Official
Unsecured Creditors' Committee, Robert T. Schmidt, Esq., Kramer Levin Naftalis &
Frankel LLP, 919 Third Avenue New York, New York 10022; and (iv) the Office of
the United States Trustee, Tiffany Carroll, Office of the U.S. Trustee, 402 W.
Broadway, Suite 600, San Diego, CA 92101-8511 by hand or in a manner as will
cause such objection to be received by all such parties on or before 4:00 P.M.
PACIFIC STANDARD TIME, ON SEPTEMBER 8, 2003. Any objection not filed and served
as set forth above will be deemed waived and will not be considered by the
Court.
If you would like a copy of the Plan, the Disclosure
Statement, the Order approving the Disclosure Statement or a Ballot, please
contact the Debtors' counsel in writing or log on to the Debtors'
website, www.leapreorganization.com.
Dated: July 31,2003 Respectfully submitted,
LATHAM & WATKINS LLP
By /s/
------------------------------
Robert A. Klyman
Counsel for Debtors and
Debtors-in-Possession
EXHIBIT C
[LEAP WIRELESS INTERNATIONAL, INC. ORGANIZATION STRUCTURE]
Exhibit D
[The Company's Annual Report on Form 10-K/A for the year ended December 31,
2003 filed with the SEC On April 16, 2003 is incorporated herein by reference]
Exhibit E
[The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2003 filed with the SEC On May 15,2003 is incorporated herein by reference]
Exhibit F
CHAPTER 7 LIQUIDATION ANALYSIS
CRICKET COMMUNICATIONS, INC.
(US$ in millions)
- --------------------------------------------------------------------------------------------------------------------
ASSET REALIZATION LIQUIDATION RECOVERIES
NOTES ----------------- ----------------------
STATEMENT OF ASSETS REF. BOOK VALUE LOW HIGH LOW HIGH
- ------------------- ----- ---------- ----- ----- ------ ------
Cash and Cash Equivalents A $118.0 100.0% 100.0% $118.0 $118.0
Restricted Cash and Cash Equivalents B 10.3 30.0% 70.0% 3.1 7.2
Accounts Receivable C 9.3 53.3% 70.0% 5.0 6.5
Inventories D 19.3 60.0% 80.0% 11.6 15.4
Other Current Assets E 16.0 0.0% 0.0% 0.0 0.0
Property, Plant & Equipment, Gross F 1,477.9 3.4% 9.7% 49.8 142.7
Wireless Licenses, Net G 723.6 35.7% 46.6% 258.2 336.9
Other Long-Term Assets H 8.2 20.1% 20.1% 1.7 1.7
------- ----- ----- ------ ------
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, GROSS $447.3 $628.4
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
WIND-DOWN AND TRANSITION COSTS LOW HIGH
- ------------------------------ ------ ------
Wind-Down Operating Costs I 85.0 65.0
Subscriber Transition Costs J 45.4 0.0
------ ------
TOTAL WIND-DOWN AND TRANSITION COSTS $130.4 $ 65.0
------ ------
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, NET $316.9 $563.4
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
CHAPTER 7 ADMINISTRATIVE CLAIMS K LOW HIGH
- ------------------------------- ------ ------
Trustee Fees L $ 13.4 $ 18.9
Professional Fees M 2.5 1.5
Liquidation Costs N 15.4 24.0
------ ------
TOTAL CHAPTER 7 ADMINISTRATIVE CLAIMS $ 31.3 $ 44.3
Net Estimated Recovery - Chapter 7 Admin Claims 100.0% 100.0%
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER CHAPTER 7 ADMINISTRATIVE CLAIMS $285.5 $519.1
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ----------- ---------- ----------------------
SECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- -------------- ---------- ------ ------ ------ -----
Vendor Debt including Accrued Interest O $ 1,611.1 17.7% 32.2% 285.5 519.1
---------- ------ ------
TOTAL SECURED CLAIMS $ 1,611.1 285.5 519.1
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER SECURED CLAIMS $ 0.0 $ 0.0
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
----------- ---------- ----------------------
CHAPTER 11 ADMINISTRATIVE AND OTHER PRIORITY CLAIMS LOW HIGH LOW HIGH
- --------------------------------------------------- ----- ----- ------ ------
Chapter 11 Administrative and Other Priority Claims N/A N/A $ 0.0 $ 0.0
----- ----- ------ ------
TOTAL CH. 11 ADMINISTRATIVE AND OTHER PRIORITY CLAIMS N/A N/A $ 0.0 $ 0.0
BALANCE AVAILABLE FOR DISTRIBUTION TO UNSECURED CLAIMS $ 0.0 $ 0.0
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ----------- ---------- ----------------------
UNSECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- ---------------- ---------- ------ -------- ------ ------
Vendor Debt including Accrued Interest O, P $ 1,208.8 0.0% 0.0% $ 0.0 $ 0.0
FCC Debt Including Accrued Interest P 25.0 0.0% 0.0% 0.0 0.0
Trade Payables Q 66.5 0.0% 0.0% 0.0 0.0
---------- --- --- ------ ------
TOTAL UNSECURED CLAIMS $ 1,300.4 0.0% 0.0% $ 0.0 $ 0.0
BALANCE AVAILABLE FOR DISTRIBUTION TO EQUITY INTERESTS $ 0.0 $ 0.0
- --------------------------------------------------------------------------------------------------------------------
CHAPTER 7 LIQUIDATION ANALYSIS
LEAP WIRELESS INTERNATIONAL, INC.
(US$ in millions)
- ----------------------------------------------------------------------------------------------------------------
ASSET REALIZATION LIQUIDATION RECOVERIES
NOTES ------------------ ----------------------
STATEMENT OF ASSETS REF. BOOK VALUE LOW HIGH LOW HIGH
- ------------------- ----- ---------- ----- ----- ----- ------
Cash and Cash Equivalents A $ 84.2 100.0% 100.0% $84.2 $ 84.2
Restricted Cash and Cash Equivalents B 2.5 29.2% 33.3% 0.7 0.8
Other Current Assets E 4.0 0.0% 0.0% 0.0 0.0
Property, Plant & Equipment, Gross F 9.3 8.0% 17.2% 0.7 1.6
Investments in Subsidiaries R 763.3 0.0% 0.0% 0.0 0.0
Wireless Licenses, Net G 5.5 86.5% 111.9% 4.8 6.2
ENDESA Note Receivable S 35.0 0.0% 30.0% 0.0 10.5
Other Long-Term Assets H 31.5 8.4% 9.8% 2.7 3.1
------- ----- ----- ----- ------
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, GROSS $93.1 $106.4
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
WIND-DOWN AND TRANSITION COSTS LOW HIGH
- ------------------------------ ----- ------
Wind-Down Operating Costs I 2.0 1.0
----- ------
TOTAL WIND-DOWN AND TRANSITION COSTS 2.0 1.0
TOTAL LIQUIDATED PROCEEDS AVAILABLE TO PAY CHAPTER 7 ADMINISTRATIVE CLAIMS, NET $91.1 $105.4
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
LIQUIDATION RECOVERIES
----------------------
CHAPTER 7 ADMINISTRATIVE CLAIMS K LOW HIGH
- ------------------------------- ------ ------
Trustee Fees L $ 2.8 $ 3.2
Professional Fees M 1.5 0.5
Liquidation Costs N 0.3 0.4
------ ------
TOTAL CHAPTER 7 ADMINISTRATIVE CLAIMS $ 4.6 $ 4.1
Net Estimated Recovery - Chapter 7 Admin Claims 100.0% 100.0%
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER CHAPTER 7 ADMINISTRATIVE CLAIMS $ 86.5 $101.3
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
SECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- -------------- --------- ----- ----- ----- ------
12.5% Senior Notes T $225.0 0.1% 0.1% 0.2 0.2
------ ----- ------
TOTAL SECURED CLAIMS $225.0 0.2 0.2
NET ESTIMATED PROCEEDS AVAILABLE FOR DISTRIBUTION AFTER SECURED CLAIMS $86.3 $101.1
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
CHAPTER 11 ADMINISTRATIVE CLAIMS BALANCE LOW HIGH LOW HIGH
- -------------------------------- --------- ----- ----- ----- ------
Post-Petition Taxes, Accrued Salaries,
Accrued Bonuses U $ 6.0 100.0% 100.0% $ 6.0 $ 6.0
Restructuring Professionals U 3.0 100.0% 100.0% 3.0 3.0
------ ----- ----- ----- -----
TOTAL CHAPTER 11 ADMINISTRATIVE CLAIMS $ 9.0 100.0% 100.0% $ 9.0 $ 9.0
BALANCE AVAILABLE FOR DISTRIBUTION TO PRIORITY CLAIMS $77.3 $92.1
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
OTHER PRIORITY CHAPTER 11 UNSECURED CLAIMS BALANCE LOW HIGH LOW HIGH
- ------------------------------------------ --------- ----- ----- ----- ------
Pre-Petition Section 507 Claims V $ 1.5 100.0% 100.0% $ 1.5 $ 1.5
------ ----- ----- ----- -----
TOTAL OTHER PRIORITY CHAPTER 11 UNSECURED CLAIMS $ 1.5 100.0% 100.0% $ 1.5 $ 1.5
BALANCE AVAILABLE FOR DISTRIBUTION TO UNSECURED CLAIMS $75.8 $90.6
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
REALIZATION PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ---------------------- ----------------------
UNSECURED CLAIMS W BALANCE LOW HIGH LOW HIGH
- ---------------- --------- ----- ----- ----- ------
Trade Payables X $ 6.0 10.3% 12.3% $ 0.6 $ 0.7
NTCH Note Payable Including
Accrued Interest 2.9 10.3% 12.3% 0.3 0.4
12.5% Senior Notes T 224.8 10.3% 12.3% 23.1 27.6
14.5% Senior Discount Notes Y 504.5 10.3% 12.3% 51.8 61.9
------- ----- ----- ----- -----
TOTAL UNSECURED CLAIMS $738.2 10.3% 12.3% $75.8 $90.6
BALANCE AVAILABLE FOR DISTRIBUTION TO EQUITY INTERESTS $ 0.0 $ 0.0
- ----------------------------------------------------------------------------------------------------------------
I. SIGNIFICANT UNCERTAINTIES
In addition to the General Assumptions and the Notes to the Liquidation Analysis
that are set forth below, there are significant areas of uncertainty that exist
with respect to this Liquidation Analysis.
1) The Liquidation Analysis assumes that the liquidation of the Debtors would
commence and would be substantially complete within a twelve-month period.
The wind-down costs during the liquidation period have been estimated by
the Debtors' management and any deviation from this assumed period could
have a material impact on the wind-down costs, the amount of administrative
claims, proceeds from asset sales, and the ultimate recovery to the
creditors of the Debtors' Estates.
2) In any liquidation there is a general risk of unanticipated events, which
could have a significant impact on the projected cash receipts and
disbursements. These events include changes in the general economic
condition, changes in consumer preferences, obsolescence, new developments
in the wireless telecommunications industry, changes in the market value of
the Debtors' assets and problems with current and former employees.
In addition to the specific assumptions described in the footnotes to the table
below, the following general assumptions were used in formulating the
Liquidation Analysis.
II. GENERAL ASSUMPTIONS
1) This Liquidation Analysis was prepared in accordance with section
1129(a)(7)(A)(ii) of the Bankruptcy Code to determine whether the Joint
Plan of Reorganization is in the best interest of each holder of a claim or
interest.
2) The Liquidation Analysis at Cricket Communications, Inc. includes stock and
assets at Cricket Communications, Inc., its subsidiaries and certain
license holding companies which have been pledged as collateral to the
vendor debt and/or FCC debt. The Liquidation Analysis at Leap Wireless
International, Inc. includes the stock and assets at Leap Wireless
International, Inc. and its subsidiaries, other than those previously
discussed, which are not part of the vendor and FCC debt collateral pool.
3) The Liquidation Analysis is based upon a number of estimates and
assumptions that, although developed and considered reasonable by
management, are inherently subject to significant economic, business,
governmental regulation and competitive uncertainties, and contingencies
beyond the control of the Debtors or their management. The Liquidation
Analysis is also based on assumptions with regard to liquidation decisions
that are subject to change. Accordingly, there can be no assurance that the
values reflected in this Liquidation Analysis would be realized if the
Debtors were, in fact, to undergo such a liquidation and actual results
could vary materially and adversely from those contained herein.
4) The Liquidation Analysis assumes the liquidation of the operating
subsidiaries with proceeds used first to repay the subsidiaries'
liabilities with any surplus being applied against the obligations of the
parent company. It is assumed that all operating assets would be disposed
of through sale, liquidation and/or termination as appropriate.
5) The Liquidation Analysis uses the Debtors' consolidated unaudited financial
statements as of March 31, 2003 (except for items specifically noted), and
other figures estimated by the Debtors' management. The financial
statements will be amended for the Petition Date as they become available.
6) Nature and Timing of the Liquidation Process--Under section 704 of the
Bankruptcy Code, a Chapter 7 trustee must, among other duties, collect and
convert the property of the Debtors' estate to cash and close the estate as
expeditiously as is compatible with the best interests of the parties in
interest. Solely for purposes of preparing this Liquidation Analysis, it is
assumed that the Debtors would voluntarily convert the pending Chapter 11
case to a Chapter 7 liquidation. The Debtors' assets would be sold during a
twelve-month period. Management believes that the actual sale periods for
some of the assets could be shorter than those assumed, and there can be no
assurance that the actual sale period for other assets would not be longer
than assumed.
7) Estimated Liquidation Proceeds--All telecommunications equipment and
wireless spectrum are assumed to be sold in a straight liquidation to the
highest bidder. The following list identifies factors considered by the
Debtors in estimating the proceeds that might be received from the
liquidation sales.
- The historical cost of the assets,
- Asset location and market demand,
- Recently transacted telecommunications equipment and wireless
spectrum sales,
- Management's expertise in asset resale values, based on its
experience buying and selling wireless spectrum and used telecommunications
network equipment in the resale markets,
- Analysis of liabilities and obligations relating to particular
assets,
- Current industry trends including general availability of used
telecommunications equipment and wireless spectrum,
- The number of companies in the industry selling new and used
telecommunications equipment, and
- The current technology being used in telecommunications equipment
build outs.
8) This Liquidation Analysis was prepared assuming a distressed sale scenario
where neither buyer nor seller is under any compulsion to buy or sell and
assuming all parties are informed of the relevant facts. Given the
valuation uncertainty within the telecommunications industry that currently
exists, particularly for wireless spectrum, management has made its best
estimates of the high and low values realizable by the Debtors for their
assets in a liquidation process.
9) Certain Tax Matters--Management believes that it is unlikely that any
taxable gains would be triggered through a liquidation of the Debtors'
assets. However, if for some reason there were to be a taxable gain from
the liquidation of the Debtors' assets, management believes any realized
gains would be reduced to zero by the Debtors' net operating loss
carryforward.
Additional Liabilities and Reserves--The Debtors believe that in addition to the
expenses that would be incurred in a Chapter 11 reorganization, there would be
certain actual and contingent liabilities and expenses for which provision would
be required in a Chapter 7 liquidation before distributions could be made to
priority or general unsecured creditors, including: (a) Administrative Claims
including damages from rejected post petition contracts, the fees of a trustee
and of counsel and other professionals (including financial advisors and
accountants), retention bonuses paid to employees required to effectuate the
wind down process and other liabilities (including retirement, vacation pay, and
other employee-related administrative costs and liabilities) that would be
funded from continuing operations if the Debtors were reorganized as a going
concern; and (b) certain administrative costs. Management believes that there is
significant uncertainty as to the reliability of the Debtors' estimates of the
amounts related to the foregoing that have been assumed in this Liquidation
Analysis. In addition, it is possible that the FCC may require the Debtors to
take steps to ensure a smooth transition of their wireless customers to a new
service provider as a condition to approving the sale/transfer of their spectrum
licenses to a third party buyer. This requirement may add substantial
incremental wind down costs beyond the subscriber transition costs estimated
herein.
10) Distributions--Under a Chapter 7 liquidation, all secured claims are
required to be satisfied from the proceeds of the collateral securing such
claims before any such proceeds would be distributed to any other
creditors. The remaining proceeds of the Debtors, to the extent proceeds
remain after satisfaction of all secured claims, would be allocated in the
following priority: the proceeds would first be distributed to the Holders
of Administrative Claims, then to Priority Unsecured Claims and finally to
the Unsecured Claims.
11) Conclusion--The Debtors believe that a Chapter 7 liquidation of the Debtors
would result in a meaningful diminution in the value to be realized by the
aggregate claimants against the Debtors. Consequently, the Debtors believe
that the Joint Plan of Reorganization will provide a greater aggregate
return to the creditors than would a Chapter 7 liquidation.
NOTES TO LIQUIDATION ANALYSIS:
NOTE A: Cash & Cash Equivalents are estimated as of the Petition Date and are
assumed recoverable at 100% in both high and low liquidation scenarios for
Cricket Communications, Inc. and Leap Wireless International, Inc.
NOTE B: Restricted Cash & Cash Equivalents at Cricket Communications, Inc. on
the Petition Date consist of cash pledged to credit card processors to ensure
performance on prepaid services. In a liquidation scenario, the credit card
processors will have claims against Cricket Communications, Inc. that they are
likely to deduct from the deposits. As a result, these assets are valued at 30%
to 70% of book value. Restricted Cash & Cash Equivalents at Leap Wireless
International, Inc. on the Petition Date consist of cash and cash deposits and
excludes $14.1 million paid to senior noteholders in May 2003 in accordance with
a court order. Recovery percentages ranged from 0% to 100%, which rendered an
overall recovery range of 29% to 33%.
NOTE C: Accounts Receivable at Cricket Communications, Inc. includes receivables
from other wireless telecommunications carriers, large indirect dealers, local
exchange carriers and various other parties. For purposes of this analysis,
Accounts Receivables were divided into sub-categories based on receivable type
and specific high and low recovery values were applied to each category.
Individual recovery percentages ranged from 0% to 90% of outstanding balances,
which rendered an overall recovery range for all receivables of 53% to 70%. This
range reflects the fact that the recovery on receivables is likely to be reduced
by offsetting claims by the creditors for services owed to or provided by the
creditors.
NOTE D: Inventories at Cricket Communications, Inc. consist mainly of recently
purchased wireless handsets that management believes could be resold for
meaningful value. Inventories were valued from 60% to 80% of book value.
NOTE E: Other Current Assets include prepaid insurance, prepaid rent, prepaid
expenses and prepaid IT and were assumed to carry no value.
NOTE F: Property, Plant & Equipment (PP&E) assets were divided into a number of
different classes, and high and low recovery values were applied to each class.
Individual recovery percentages ranged from 0% to 35% of gross book value and
were based on management's estimate of realizable value for each class of asset.
Capitalized labor and software costs, which represent approximately 38% of total
PP&E, were assumed to have no value. The overall recovery of PP&E ranged from 3%
to 10% at Cricket Communications, Inc. and 8% to 17% at Leap Wireless
International, Inc.
NOTE G: Wireless licenses were valued on a license-by-license basis based on a
discount to implied FCC Auction 35 pricing for similar sized markets. FCC
Auction 35, completed in January 2001, was the last major FCC auction of PCS
spectrum and a widely accepted benchmark for spectrum values. Individual
recovery percentages by market ranged from 17% to 22% of implied Auction 35
pricing. The estimated liquidation amounts included for wireless licenses that
are pledged to secure FCC debt or the NTCH Note were reduced by the amount of
the respective debt obligations as of the Petition Date, as these amounts would
have to be repaid upon liquidation of this collateral. If the estimated
liquidation value was less than the remaining debt obligations for a wireless
license, a liquidation value of zero was ascribed to such license. The asset
realization upon liquidation, net of debt obligations, ranged from 36% to 47% at
Cricket Communications, Inc. and 87% to 112% at Leap Wireless International,
Inc.
NOTE H: Other Long Term Assets include life insurance, deposits used to secure
operating contracts, long-term investments in marketable securities and deferred
tax assets. Recovery percentages for life insurance, deposits, long-term
investments and deferred tax assets ranged from 0% to 100%. The overall recovery
of Other Long Term Assets at Cricket Communications, Inc. was estimated at 20%
for high and low recovery values. The recovery at Leap Wireless International,
Inc. ranged from 8% to 10%.
NOTE I: Wind-Down Operating Costs at Cricket Communications, Inc. assume a
3-month period to transition customers off the Cricket system, followed by 5
months to decommission the cell sites and switches. Wind-Down Operating Costs at
Cricket Communications, Inc. and Leap Wireless International, Inc. also include
corporate costs required to complete a wind down.
NOTE J: Subscriber Transition Costs at Cricket Communications, Inc. reflect
administrative and transfer costs that management estimates would be incurred by
a third party to transition existing Cricket subscribers to its network and back
office systems. Management estimates that these transfer costs would range from
$0 to $30 per subscriber. It is possible that the FCC may require the Debtors to
take steps to ensure a smooth transition of Cricket's wireless customers to a
new service provider as a condition to approving the sale/transfer of the
Debtors' spectrum licenses to a third party buyer. This requirement may add
substantial incremental wind down costs beyond the subscriber transition costs
estimated herein.
NOTE K: The costs of Chapter 7 liquidation are assumed to come out of the
proceeds from the sale of unencumbered assets or secured creditor collateral.
NOTE L: Chapter 7 Trustee fees are estimated at 3.0% of the gross liquidated
proceeds.
NOTE M: Professional Fees for legal expenses were estimated at $1.5 to $2.5
million at Cricket Communications, Inc. and $0.5 to $1.5 million at Leap
Wireless International, Inc.
NOTE N: Liquidation Costs are estimated as 5.0% of the total realization for
PP&E and wireless licenses. These charges are the selling costs associated with
liquidating the fixed assets and wireless licenses of the Debtors through
auction or other means (e.g. commissions).
NOTE O: Secured Claims at Cricket Communications, Inc. consist of the estimated
balances of the vendor debt on the Petition Date. The vendor debt obligation is
only secured to the extent of the estimated value of the assets securing the
obligation. The balance of the obligation is considered an unsecured claim.
NOTE P: In the event that the estimated recovery value of a specific asset (e.g.
spectrum licenses) pledged as collateral is less than its respective debt
obligation, the undercollateralized portion of that obligation is shown as an
unsecured claim. For purposes of presentation, the unsecured claim balances
shown under the "Estimated Balance" column reflects the average unsecured
portion of a secured claim. The corresponding high and low recovery values,
however, are calculated based on the actual high and low unsecured portions of
the secured claims. The table below shows the estimated high, low and average
unsecured portion of secured claims:
($ in millions)
UNSECURED CLAIM LOW SCENARIO HIGH SCENARIO AVERAGE
- ---------------------------------------------------------------------------------------
Vendor Debt $1,325.6 $1,092.1 $1,208.8
FCC Debt 30.8 19.2 25.0
- ---------------------------------------------------------------------------------------
NOTE Q: Unsecured Claims at Cricket Communications, Inc. in the amount of $66.5
million consist of all pre-petition accounts payable and accrued liabilities.
NOTE R: Investments in Subsidiaries at Leap Wireless International, Inc. are
assumed to carry no value.
NOTE S: ENDESA has alleged breaches of representations and warranties under the
purchase agreement in regards to the sale of Smartcom and offset related claims
against a $35.0 million (face value) promissory note.
NOTE T: 12.5% Senior Notes on the Petition Date are secured by up to $0.2
million of restricted cash held in a pledged account. The balance of the
obligation is shown as an unsecured claim.
NOTE U: Chapter 11 Administrative Claims at Leap Wireless International, Inc.
consist of accrued salaries, wages, and other compensation and restructuring
fees (financial and legal advisory) and exclude priority claims under Section
507 (except those under Section 507(a)(1)).
NOTE V: This amount is an estimate only and will be revised after the Debtors
file their schedules and statements of financial affairs.
NOTE W: For illustrative purposes, this analysis does not include unsecured
deficiency claims against Leap Wireless International, Inc. held by holders of
Cricket vendor debt.
NOTE X: Unsecured Claims at Leap Wireless International, Inc. in the amount of
$6.0 million consist of all pre-petition accounts payable and accrued
liabilities.
NOTE Y: Balance as of the Petition Date.
EXHIBIT G
FINANCIAL PROJECTIONS
The Debtors' management has developed the Debtors' business plan and
prepared certain projections of the Debtors' results of operations, cash flows
and certain other items for the quarter ending December 31, 2003 through
December 31, 2004 and the fiscal years 2004 through 2010 (together, the
"Projection Period"). Such projections (the "Projections") are based upon
various assumptions, including those described below, and have been adjusted to
reflect the confirmation and consummation of the Joint Plan of Reorganization.
THE DEBTORS DO NOT, AS A MATTER OF COURSE, PUBLISH THEIR BUSINESS
PLANS, BUDGETS OR STRATEGIES OR MAKE EXTERNAL PROJECTIONS OR FORECASTS OF THEIR
ANTICIPATED FINANCIAL POSITIONS OR RESULTS OF OPERATIONS. ACCORDINGLY, THE
DEBTORS DO NOT ANTICIPATE THAT THEY WILL, AND DISCLAIM ANY OBLIGATION TO,
FURNISH UPDATED BUSINESS PLANS, BUDGETS OR PROJECTIONS TO STAKEHOLDERS PRIOR TO
THE EFFECTIVE DATE OF THE JOINT PLAN OF REORGANIZATION OR TO INCLUDE SUCH
INFORMATION IN DOCUMENTS REQUIRED TO BE FILED WITH THE SEC OR OTHERWISE MAKE
SUCH INFORMATION PUBLICLY AVAILABLE.
The following Projections were not prepared with a view toward
compliance with published guidelines of the SEC or the American Institute of
Certified Public Accountants regarding forecasts. The independent auditors of
the Debtors have not audited, reviewed, compiled or otherwise applied procedures
to the Projections and consequently, do not express an opinion or any other form
of assurance with respect to the Projections. The forecast data was not prepared
on a basis consistent with generally accepted accounting principles ("GAAP") as
applied to the Debtors' historical financial statements and should not be relied
upon as such.
THE PROJECTIONS PROVIDED HEREIN HAVE BEEN PREPARED EXCLUSIVELY BY THE
DEBTORS' MANAGEMENT. THESE PROJECTIONS, WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND ASSUMPTIONS
WHICH, THOUGH CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED, AND ARE
INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE DEBTORS' CONTROL.
THE DEBTORS CAUTION THAT NO REPRESENTATIONS OR WARRANTIES CAN BE MADE AS TO
THEIR ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL
NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE
DATE ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE
ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS THE OCCURRENCE
OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND POSSIBLY ADVERSE
MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON AS A GUARANTY OR
OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
The Projections should be read in conjunction with the assumptions,
qualifications and expectations set forth herein and in the "Business" section,
"Management's Discussion and Analysis of
Financial Condition and Results of Operations" section and the Consolidated
Financial Statements (including the notes and schedules thereto) in Leap's 2002
Annual Report of Form 10-K/A, annexed as Exhibit D to this Disclosure Statement
and in Leap's Quarterly Report on Form 10-Q for the period ending March 31,
2003, annexed as Exhibit E to this Disclosure Statement. The Debtors also urge
you to read the section entitled "Risk Factors" in Leap's Quarterly Report on
Form 10-Q for the period ending March 31, 2003. The risks described in that
section may affect the Reorganized Debtors' ability to achieve the projected
results.
PRINCIPAL ASSUMPTIONS FOR THE PROJECTIONS
The Projections are based on, and assume the successful implementation
of, the Debtors' business plan and the Joint Plan of Reorganization. Both the
business plan and the Projections reflect numerous assumptions, including
various assumptions regarding the anticipated future performance of the Debtors,
industry performance, general business and economic conditions and other
matters, most of which are beyond the control of the Debtors. Therefore,
although the Projections are necessarily presented with numerical specificity,
the actual results achieved during the Projection Period will vary from the
projected results. These variations may be material. Accordingly, no
representation or warranty can be or is being made with respect to the
Projections or the ability of the Debtors or the Reorganized Debtors to achieve
the projected results of operations. See the section entitled "Risk Factors" in
Leap's Quarterly Report on Form 10-Q for the period ending March 31, 2003,
annexed as Exhibit E to this Disclosure Statement.
(a) Key Projected Operating and Financial Assumptions
Additional information relating to the key projected operating and
financial assumptions used in preparing the Projections is set forth in the
Projections under the heading "Metrics," which includes key assumptions used by
the Debtors' management relating to numbers of customers (subs), churn, average
revenue per user per month (ARPU), cost per gross customer addition (CPGA) and
non-selling cash costs per user per month (CCU) to prepare the Projections.
(b) Effective Date
The projected consolidated pro forma financial information of the
Debtors set forth below has been prepared based on the assumption that the
Effective Date under the Debtors' Joint Plan of Reorganization will be September
30, 2003. Although the Debtors' will seek to cause the Effective Date to occur
as soon as practicable, it could occur well after September 30, 2003, and there
can be no assurance as to when the Effective Date actually will occur.
(c) New Senior Secured Notes
The Debtors' management has assumed for the purpose of the Projections
that the new Senior Secured Notes to be issued by Reorganized Cricket on the
Effective Date will be in the aggregate principal amount of $350.0 million. The
new Senior Secured Notes are described in greater detail in the "Description of
New Senior Notes" attached as Exhibit K to the Disclosure Statement. The
Debtors' management has assumed for the purpose of the Projections that the
terms of the new Senior Secured Notes would be as follows: (a) maturity date of
September 30, 2010, (b) 12.0% pay-in-kind semi-annual
interest payments for the first two years, (c) 1.0% cash-pay semi-annual
interest payments for the first two years, and (d) 13.0% cash-pay semi-annual
interest payments from December 31, 2005 to maturity.
(d) Existing FCC Debt
The Debtors' management has assumed for the purpose of the Projections
that the Debtors' pre-petition FCC Debt will be reinstated and that any and all
accrued interest and principal amortization payments in arrears are made shortly
after the Effective Date. The remaining FCC Debt balances as of the Effective
Date would be repaid under their original amortization schedule.
(e) Income Taxes
The Debtors' management has assumed for the purpose of the Projections
that any and all gains associated with the extinguishment of existing debt as
part of the Joint Plan of Reorganization will be offset by the Debtors' existing
net operating losses and carryforwards and other tax attributes. Subsequent to
the Effective Date, the Debtors will generate additional net operating losses,
so that the first year in which the Debtors' project to pay income taxes is
2009.
(f) Accounting Adjustments
The projected consolidated balance sheet information as of September
30, 2003 for the Reorganized Debtors reflects the Debtors' preliminary estimates
of adjustments required by "fresh start" accounting as of the Effective Date of
the Joint Plan of Reorganization. Actual "fresh start" accounting adjustments to
the Debtors' consolidated financial statements upon the Effective Date of the
Joint Plan of Reorganization are likely to differ from those reflected in the
Projections and such differences could be material.
CONSOLIDATED PROFORMA PROJECTIONS Q3 - 03 Q4 - 03 Q1 - 04 Q2 - 04 Q3 - 04
METRICS
Beginning Subs 1,430,184 1,480,658 1,512,143 1,550,576
Ending Subs 1,480,658 1,512,143 1,550,576 1,598,002
Churn % 4.3% 3.9% 3.7% 3.6%
Covered Pops 25,533,664 25,533,664 25,533,664 25,533,664
ARPU $ 36.26 $ 37.14 $ 37.44 $ 37.55
CPGA $ 241 $ 250 $ 247 $ 244
CCU $ 22.76 $ 21.70 $ 21.64 $ 21.41
INCOME STATEMENT (000s)
Revenue
Service Revenue 157,499 166,696 171,836 177,327
Equipment Revenue 17,680 17,122 17,220 17,737
--------------------------------------------------------
Total Revenue 175,179 183,818 189,056 195,064
Operating Expenses
Network Ops 53,186 53,082 53,953 54,884
Cost of Equipment Revenue 49,168 43,429 43,660 44,971
--------------------------------------------------------
Total Operating Expenses 102,354 96,511 97,612 99,856
Total Gross Profit 72,824 87,307 91,444 95,209
Margin % 42% 47% 48% 49%
Customer Care 22,378 22,965 23,772 24,351
Sales and Marketing 31,098 30,361 30,516 31,017
G&A 17,935 16,466 16,590 16,715
--------------------------------------------------------
EBITDA 1,414 17,515 20,565 23,126
Margin % (exludes equipment revenue) 1% 11% 12% 13%
Depreciation & amortization 9,690 10,128 10,551 10,973
--------------------------------------------------------
EBIT -8,277 7,387 10,015 12,153
Interest Expense Cash 1,170 2,790 959 2,732
Interest Expense Non-Cash 436 21,368 368 22,628
Interest Income & Gain on debt extinguishment -289 -292 -312 -350
Loan Fees and Other -3,200 0 0 0
--------------------------------------------------------
Total Interest -1,884 23,866 1,015 25,010
--------------------------------------------------------
Earnings before Taxes -6,393 -16,479 9,000 -12,858
Taxes 0 0 0 0
--------------------------------------------------------
NET INCOME -6,393 -16,479 9,000 -12,858
CONSOLIDATED PROFORMA PROJECTIONS Q4 - 04 2004 2005 2006 2007
METRICS
Beginning Subs 1,598,002 1,480,658 1,672,298 1,875,083 2,082,583
Ending Subs 1,672,298 1,672,298 1,875,083 2,082,583 2,257,867
Churn % 3.4% 3.7% 3.35% 3.15% 3.05%
Covered Pops 25,533,664 25,533,664 25,789,639 25,918,587 26,048,180
ARPU $ 37.12 $ 37.37 $ 37.08 $ 37.06 $ 36.78
CPGA $ 234 $ 243 $ 236 $ 226 $ 223
CCU $ 20.99 $ 21.46 $ 20.36 $ 19.10 $ 18.15
INCOME STATEMENT (000s)
Revenue
Service Revenue 182,310 698,170 789,317 880,035 957,962
Equipment Revenue 19,300 71,379 77,390 86,443 87,189
-----------------------------------------------------------------------
Total Revenue 201,610 769,548 866,707 966,478 1,045,151
Operating Expenses
Network Ops 55,868 217,787 240,588 253,992 266,387
Cost of Equipment Revenue 48,997 181,057 188,083 194,584 196,285
-----------------------------------------------------------------------
Total Operating Expenses 104,865 398,844 428,671 448,576 462,672
Total Gross Profit 96,745 370,704 438,036 517,902 582,480
Margin % 48% 48% 51% 54% 56%
Customer Care 25,053 96,140 103,332 109,871 115,059
Sales and Marketing 32,410 124,304 127,612 129,926 130,754
G&A 16,841 66,612 67,530 67,530 67,530
-----------------------------------------------------------------------
EBITDA 22,441 83,648 139,561 210,574 269,136
Margin % (exludes equipment revenue) 12% 12% 18% 24% 28%
Depreciation & amortization 11,396 43,048 63,853 69,555 72,791
-----------------------------------------------------------------------
EBIT 11,045 40,600 75,708 141,018 196,345
Interest Expense Cash 794 7,275 7,115 59,141 57,566
Interest Expense Non-Cash 368 44,734 49,584 387 11
Interest Income & Gain on debt extinguishment -382 -1,337 -1,783 -2,045 -2,470
Loan Fees and Other 0 0 0 0 0
-----------------------------------------------------------------------
Total Interest 780 50,672 54,916 57,483 55,107
-----------------------------------------------------------------------
Earnings before Taxes 10,265 -10,072 20,792 83,536 141,237
Taxes 0 0 0 0 0
-----------------------------------------------------------------------
NET INCOME 10,265 -10,072 20,792 83,536 141,237
CONSOLIDATED PROFORMA PROJECTIONS 2008 2009 2010
METRICS
Beginning Subs 2,257,867 2,384,654 2,478,943
Ending Subs 2,384,654 2,478,943 2,548,509
Churn % 3.00% 2.98% 2.96%
Covered Pops 26,178,421 26,178,421 26,178,421
ARPU $ 36.45 $ 35.87 $ 35.34
CPGA $ 222 $ 222 $ 222
CCU $ 17.50 $ 17.09 $ 16.83
INCOME STATEMENT (000s)
Revenue
Service Revenue 1,015,272 1,046,669 1,065,933
Equipment Revenue 86,178 85,123 83,769
-----------------------------------------
Total Revenue 1,101,450 1,131,793 1,149,702
Operating Expenses
Network Ops 277,131 286,186 294,136
Cost of Equipment Revenue 194,107 194,214 193,717
-----------------------------------------
Total Operating Expenses 471,238 480,400 487,853
Total Gross Profit 630,212 651,392 661,849
Margin % 57% 58% 58%
Customer Care 118,018 119,199 119,137
Sales and Marketing 130,506 130,569 130,616
G&A 67,530 67,530 67,530
-----------------------------------------
EBITDA 314,158 334,094 344,566
Margin % (exludes equipment revenue) 31% 32% 32%
Depreciation & amortization 89,996 104,433 103,137
-----------------------------------------
EBIT 224,162 229,661 241,429
Interest Expense Cash 57,443 57,443 57,443
Interest Expense Non-Cash 0 0 0
Interest Income & Gain on debt extinguishment -4,108 -6,440 -8,257
Loan Fees and Other 0 0 0
-----------------------------------------
Total Interest 53,335 51,003 49,186
-----------------------------------------
Earnings before Taxes 170,827 178,658 192,243
Taxes 0 25,214 52,121
-----------------------------------------
NET INCOME 170,827 153,444 140,122
CONSOLIDATED PROFORMA PROJECTIONS Q3 - 03 Q4 - 03 Q1 - 04 Q2 - 04 Q3 - 04 Q4 - 04 2004
BALANCE SHEET (000s)
Current Assets:
Cash and Equivalents 112,604 97,222 96,514 100,949 109,169 127,308 127,308
Accounts Receivable 11,039 12,261 12,105 12,183 12,237 12,497 12,497
Inventories 22,802 21,577 21,597 22,376 22,622 23,510 23,510
Other Current Assets 26,491 21,491 21,491 21,491 21,491 21,491 21,491
----------------------------------------------------------------------------
Total Current Assets 172,936 152,551 151,707 156,998 165,519 184,806 184,806
Net Fixed Assets 94,906 94,553 92,882 90,787 88,269 85,329 85,329
Net Licenses & Goodwill 336,540 336,540 336,540 336,540 336,540 336,540 336,540
Deposits and Deferred Financing 6,358 6,358 6,358 6,358 6,358 6,358 6,358
TOTAL ASSETS 610,740 590,003 587,487 590,683 596,686 613,033 613,033
============================================================================
Current Liabilities
Current portion of FCC debt 27,423 18,932 14,306 19,769 19,769 19,769 19,769
AP, Accruals, and Deferred Revenue 125,869 124,422 121,642 120,167 121,168 131,723 131,723
----------------------------------------------------------------------------
Total Current Liabilities 153,337 143,398 135,992 139,980 140,981 151,536 151,536
DEBT:
Restructured Debt Instrument 350,000 350,000 371,000 371,000 393,260 393,260 393,260
Deferred Tax & Other Long Term Liabilities 24,981 24,981 24,981 24,981 24,981 24,981 24,981
FCC Debt 45,910 41,504 41,872 32,082 27,682 23,209 23,209
----------------------------------------------------------------------------
Total Liabilities 574,227 559,883 573,845 568,042 586,904 592,985 592,985
Total Shareholders Equity 36,513 30,120 13,641 22,641 9,783 20,048 20,048
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 610,740 590,003 587,487 590,683 596,686 613,033 613,033
============================================================================
CASH FLOW (000s)
Cash Flow from Operations
Net Income -6,393 -16,479 9,000 -12,858 10,265 -10,072
Add:
Depreciation & Amortization 9,690 10,128 10,551 10,973 11,396 43,048
----------------------------------------------------------------
Subtotal 3,298 -6,351 19,550 -1,885 21,661 32,976
Changes in Working Capital
Accounts Receivable -1,223 156 -78 -54 -260 -236
Inventory 1,226 -20 -779 -247 -888 -1,934
Other current assets 5,000 0 0 0 0 0
Accounts Payable -1,447 -2,780 -1,475 1,001 10,555 7,301
----------------------------------------------------------------
Cash Needed/Provided from W/C 3,556 -2,644 -2,332 701 9,407 5,131
----------------------------------------------------------------
Net Cash From Operations 6,854 -8,995 17,218 -1,184 31,068 38,107
Cash from Investing Activities
Capital Expenditures -9,338 -8,456 -8,456 -8,456 -8,456 -33,824
Goodwill & Intangibles 0 0 0 0 0 0
----------------------------------------------------------------
Net Cash From Investing Activities -9,338 -8,456 -8,456 -8,456 -8,456 -33,824
Cash From Financing Activities
FCC Debt Drawdowns (Debt Discount Amortization) 436 368 368 368 368 1,474
FCC Debt Paydowns -13,333 -4,625 -4,696 -4,768 -4,842 -18,932
Other Long Term Liabilities - Drawdowns 0 0 0 0 0 0
Other Long Term Liabilities - Paydowns 0 0 0 0 0 0
Restructured Debt Instrument 0 21,000 0 22,260 0 43,260
----------------------------------------------------------------
Net Cash From Financing Activities -12,897 16,743 -4,328 17,860 -4,473 25,802
Net Change In Cash -15,382 -708 4,435 8,220 18,139 30,086
Beginning Cash 112,604 97,223 96,514 100,949 109,169 97,223
----------------------------------------------------------------
Ending Cash 97,223 96,514 100,949 109,169 127,308 127,308
CONSOLIDATED PROFORMA PROJECTIONS 2005 2006 2007 2008 2009 2010
BALANCE SHEET (000s)
Current Assets:
Cash and Equivalents 143,221 169,442 278,455 433,861 554,943 263,061
Accounts Receivable 13,866 14,071 14,233 14,351 14,444 10,509
Inventories 24,323 24,536 24,263 24,263 24,277 24,215
Other Current Assets 21,491 21,491 21,491 21,491 21,486 21,486
----------------------------------------------------------------------
Total Current Assets 202,901 229,540 338,442 493,966 615,149 319,270
Net Fixed Assets 110,000 147,916 178,145 194,207 191,361 185,774
Net Licenses & Goodwill 336,540 336,540 336,540 336,540 336,540 336,540
Deposits and Deferred Financing 6,358 6,358 6,358 6,358 6,358 6,358
TOTAL ASSETS 655,799 720,354 859,485 1,031,071 1,149,409 847,942
======================================================================
Current Liabilities
Current portion of FCC debt 21,133 3,451 0 0 0 0
AP, Accruals, and Deferred Revenue 123,881 125,647 126,980 127,739 127,769 128,047
----------------------------------------------------------------------
Total Current Liabilities 145,058 129,142 127,023 127,783 127,813 128,091
DEBT:
Restructured Debt Instrument 441,867 441,867 441,867 441,867 441,867 0
Deferred Tax & Other Long Term Liabilities 24,981 24,981 24,981 24,981 -10,155 -10,155
FCC Debt 3,053 -11 0 0 0 0
----------------------------------------------------------------------
Total Liabilities 614,959 595,978 593,871 594,631 559,524 117,935
Total Shareholders Equity 40,840 124,376 265,613 436,440 589,884 730,006
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 655,799 720,354 859,484 1,031,071 1,149,408 847,942
======================================================================
CASH FLOW (000s)
Cash Flow from Operations
Net Income 20,792 83,536 141,237 170,827 153,444 140,122
Add:
Depreciation & Amortization 63,853 69,555 72,791 89,996 104,433 103,137
----------------------------------------------------------------------
Subtotal 84,645 153,091 214,028 260,823 257,877 243,259
Changes in Working Capital
Accounts Receivable -1,369 -206 -162 -118 -94 3,935
Inventory -813 -213 272 0 -13 62
Other current assets 0 0 0 0 6 0
Accounts Payable -7,842 1,766 1,333 760 30 278
----------------------------------------------------------------------
Cash Needed/Provided from W/C -10,024 1,347 1,444 642 -72 4,275
----------------------------------------------------------------------
Net Cash From Operations 74,622 154,439 215,472 261,465 257,805 247,534
Cash from Investing Activities
Capital Expenditures -88,524 -107,471 -103,019 -106,059 -101,587 -97,549
Goodwill & Intangibles 0 0 0 0 0 0
----------------------------------------------------------------------
Net Cash From Investing Activities -88,524 -107,471 -103,019 -106,059 -101,587 -97,549
Cash From Financing Activities
FCC Debt Drawdowns (Debt Discount Amortization) 977 387 11 0 0 0
FCC Debt Paydowns -19,769 -21,133 -3,451 0 0 0
Other Long Term Liabilities - Drawdowns 0 0 0 0 0 0
Other Long Term Liabilities - Paydowns 0 0 0 0 -35,136 0
Restructured Debt Instrument 48,607 0 0 0 0 -441,867
----------------------------------------------------------------------
Net Cash From Financing Activities 29,815 -20,746 -3,440 0 -35,136 -441,867
Net Change In Cash 15,913 26,221 109,013 155,406 121,082 -291,882
Beginning Cash 127,308 143,221 169,442 278,455 433,861 554,943
----------------------------------------------------------------------
Ending Cash 143,221 169,442 278,455 433,861 554,943 263,061
The Projections constitute "forward-looking statements" reflecting management's
current forecast of the Debtors' results of operations, cash flows and certain
other items for the Projection Period. The Projections are based on current
information, which management has assessed but which by its nature is dynamic
and subject to rapid and even abrupt changes. Actual results could differ
materially from those stated or implied by such forward-looking statements due
to risks and uncertainties associated with our business. Factors that could
cause actual results to differ include, but are not limited to:
- our ability to cause a Chapter 11 plan of reorganization to be
finalized and to be confirmed by the Bankruptcy Court, and our
ability to successfully implement the plan;
- our ability to continue as a going concern;
- our ability to obtain Bankruptcy Court approval with respect to
motions prosecuted by us in our Chapter 11 cases from time to
time;
- risks associated with third parties seeking and obtaining
Bankruptcy Court approval to terminate or shorten the exclusivity
period to propose and confirm one or more plans of reorganization,
for the appointment of a Chapter 11 trustee or to convert the
Chapter 11 cases to Chapter 7 cases;
- our ability to obtain and maintain normal terms with vendors and
service providers;
- our ability to maintain contracts that are critical to our
operations;
- the potential adverse impacts of the Chapter 11 cases on the
liquidity or results of operations of Cricket;
- our ability to attract, motivate and/or retain key executives and
other employees;
- our ability to attract and retain customers;
- the unsettled nature of the wireless market, the current economic
slowdown, service offerings of increasingly large bundles of
minutes of use at increasingly low prices by some major carriers,
other issues facing the telecommunications industry in general,
our announcement of restructuring discussions, and our subsequent
Chapter 11 filing, which have created a level of uncertainty that
adversely affects our ability to predict future customer growth,
as well as other key operating metrics;
- changes in economic conditions that could adversely affect the
market for wireless services;
- the acceptance of our product offering by our prospective
customers;
- the effects of actions beyond our control in our distribution
network;
- rulings by courts or the Federal Communications Commission (FCC)
adversely affecting our rights to own and/or operate certain
wireless licenses, or changes in our ownership that could
adversely affect our status as an "entrepreneur" under FCC rules
and regulations;
- our ability to maintain our cost, market penetration and pricing
structure in the face of competition;
- failure of network systems to perform according to expectations;
- the effects of competition;
- global political unrest, including the threat or occurrence of war
or acts of terrorism; and
- other factors detailed in the section entitled "Risk Factors"
included in Leap's Quarterly Report on Form 10-Q for the first
fiscal quarter of 2003 and in its other SEC filings.
The Projections should be considered in the context of these risk factors.
Stakeholders are cautioned not to place undue reliance on such forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
EXHIBIT H
LEAP WIRELESS INTERNATIONAL
CASH BUDGET (1)
MAY - SEPTEMBER 2003
May June July August September Total
--- ---- ---- ------ --------- -----
Revenue:
Service Revenue $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Equipment Revenue 0 0 0 0 0 0
Reimbursement from Cricket $ 50,438 50,438 50,438 50,438 50,438 252,189
---------------------------------------------------------------------------------------
Total Inflows $ 50,438 $ 50,438 $ 50,438 $ 50,438 $ 50,438 $ 252,189
Operating Expenses:
Operating Expenses 0 0 0 0 0 0
---------------------------------------------------------------------------------------
Total Operating Expenses 0 $ 0 $ 0 $ 0 $ 0 $ 0
Sales, Marketing and G&A:
Building Rent $ 150,145 $ 150,145 $ 150,145 $ 150,145 $ 150,145 $ 750,725
Restructuring Costs:
Legal Fees (2) (3) 113,334 113,334 113,334 113,334 113,334 566,670
Financial Advisory Fees 160,000 160,000 160,000 160,000 160,000 800,000
Expenses 41,000 41,000 41,000 41,000 41,000 205,001
Audit/Tax/ Accounting Fees 2,000 84,000 144,000 78,000 15,000 323,000
Other Legal (2)(3) 28,693 28,693 28,693 28,693 28,693 143,463
Other 262,500 22,500 22,750 18,750 8,750 335,250
---------------------------------------------------------------------------------------
Total Sales, Marketing, and G&A 757,672 599,672 659,922 589,922 516,922 3,124,108
Capital Expenditures $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Payment for Inventory 0 0 0 0 0 0
---------------------------------------------------------------------------------------
Total Cap Ex and Inv. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total Cash Payments $ 757,672 $ 599,672 $ 659,922 $ 589,922 $ 516,922 $ 3,124,108
Net Cash Inflow/(Outflow) $ (707,234) $ (549,234) $ (609,484) $ (539,484) $ (466,484) $ (2,871,919)
Opening Cash Balance $ 84,306,599 $ 83,599,365 $ 83,050,131 $ 82,440,648 $ 81,901,164 $ 84,306,599
Inflow/(Outflows) $ (707,234) $ (549,234) $ (609,484) $ (539,484) $ (466,484) $ (2,871,919)
Net Cash Balance $ 83,599,365 $ 83,050,131 $ 82,440,648 $ 81,901,164 $ 81,434,680 $ 81,434,680
Restricted Cash $ 219,073 $ 219,073 $ 219,073 $ 219,073 $ 219,073 $ 219,073
Other Deposits $ 2,509,589 $ 2,509,589 $ 2,509,589 $ 2,509,589 $ 2,509,589 $ 2,509,589
---------------------------------------------------------------------------------------
Total $ 86,328,027 $ 85,778,793 $ 85,169,309 $ 84,629,826 $ 84,163,342 $ 84,163,342
(1) Actual monthly cash flows may vary significantly from this cash budget due
to the timing of vendor invoices.
(2) Assumes that the bankruptcy stay remains in effect and that lawyers'
involvement in defense of any claims brought in the bankruptcy is minimal. If
Leap were required to become active in the defense of the shareholder claims,
this amount could increase substantially.
(3) Legal fees are estimates only. Substantial litigation over equity rights,
appointment of an equity committee will likely cause the actual expenditures to
exceed the estimates. Overruns of legal fees will not be cause to reject the
plan.
CONFIDENTIAL AND PROPRIETARY
DRAFT SUBJECT TO REVISION
8/5/2003
EXHIBIT I.
CRICKET COMMUNICATIONS INC. Preliminary Draft, Subject to Revision
CASH BUDGET (1) (2) Confidential and Proprietary
APRIL - SEPTEMBER 2003
Revenue/Inflows: April Wk 1 April Wk 2 April Wk 3 April Wk 4 May Wk 1
---------- ---------- ---------- ---------- --------
Service Revenue $13,383,500 $13,383,500 $13,383,500 $13,383,500 $13,498,250
Equipment Revenue 1,636,000 1,636,000 1,636,000 1,636,000 1,624,250
Other Inflows/Tax Payments 1,625,000 1,625,000 1,625,000 1,625,000 1,625,000
----------- ----------- ----------- ----------- -----------
Total Revenue/Inflows $16,644,500 $16,644,500 $16,644,500 $16,644,500 $16,747,500
Operating Expenses:
Cost of Subscriber Equipment $4,753,750 $4,753,750 $4,753,750 $4,753,750 $1,998,500
Network Operating Expenses:
Salaries and Benefits $1,799,910 $0 $1,799,910 $0 $1,821,870
Cell Site Leases 4,099,796 0 0 0 4,149,816
Interconnect/Backhaul 1,149,943 1,149,943 1,149,943 1,149,943 1,163,973
Long Distance/Directory Asst. 949,953 949,953 949,953 949,953 961,543
Software Maintenance 249,988 249,988 249,988 249,988 253,038
Repairs/Maintenance 499,975 499,975 499,975 499,975 506,075
Maintenance/Other 224,989 224,989 224,989 224,989 227,734
----------- ----------- ----------- ----------- -----------
Subtotal Network Operating $8,974,554 $3,074,848 $4,874,758 $3,074,848 $9,084,049
Total Operating Expenses $13,728,304 $7,828,598 $9,628,508 $7,828,598 $11,082,549
Sales, Marketing and G&A:
Salaries and Benefits $1,999,620 $0 $1,999,620 $0 $2,057,670
Commissions 472,133 472,133 472,133 472,133 485,839
Travel 416,588 416,588 416,588 416,588 428,681
Occupancy 194,408 194,408 194,408 194,408 200,051
Advertising/Production 555,450 555,450 555,450 555,450 571,575
Customer Care/Billing 1,777,440 1,777,440 1,777,440 1,777,440 1,829,040
Restructuring Exps.(3) 218,350 218,350 218,350 218,350 226,413
CTA 0 0 0 287,500 0
Administrative Agent 0 0 100,000 0 0
Insurance 288,834 288,834 288,834 288,834 297,219
Payments to Leap 0 0 0 50,436 0
Utilities 138,863 138,863 138,863 138,863 142,894
Tax Payments 0 2,500,000 3,000,000 1,000,000 0
Other (3) 420,642 420,642 320,642 420,642 433,219
----------- ----------- ----------- ----------- -----------
Total Sales, Marketing, and G&A $6,482,328 $6,982,708 $9,482,328 $5,820,644 $6,672,601
Capital Expenditures $837,500 $837,500 $837,500 $837,500 $837,500
----------- ----------- ----------- ----------- -----------
Total Cap Ex and Inv. $837,500 $837,500 $837,500 $837,500 $837,500
Total Cash Payments $21,048,132 $15,648,806 $19,948,336 $14,486,742 $18,592,650
Net Cash Inflow/(Outflow) -$4,403,632 $995,694 -$3,303,836 $2,157,758 -$1,845,150
Opening Cash Balance $111,387,000 $106,983,368 $107,979,062 $104,675,226 $106,832,984
Inflow/(Outflows) -$4,403,632 $995,694 -$3,303,836 $2,157,758 -$1,845,150
Net Cash Balance $106,983,368 $107,979,062 $104,675,226 $106,832,984 $104,987,834
Money on Deposit $10,281,738 $10,281,738 $10,281,738 $10,281,738 $10,281,738
Total Cash $117,265,106 $118,260,800 $114,956,964 $117,114,722 $115,269,572
Revenue/Inflows: May Wk 2 May Wk 3 May Wk 4 June Wk 1 June Wk 2
-------- -------- -------- --------- ---------
Service Revenue $13,498,250 $13,498,250 $13,498,250 $13,614,000 $13,614,000
Equipment Revenue 1,624,250 1,624,250 1,624,250 1,604,500 1,604,500
Other Inflows/Tax Payments 1,625,000 1,625,000 1,625,000 1,625,000 1,625,000
----------- ----------- ----------- ----------- -----------
Total Revenue/Inflows $16,747,500 $16,747,500 $16,747,500 $16,843,500 $16,843,500
Operating Expenses:
Cost of Subscriber Equipment $1,998,500 $1,998,500 $1,998,500 $3,025,750 $3,025,750
Network Operating Expenses:
Salaries and Benefits $0 $1,821,870 $0 $1,831,860 $0
Cell Site Leases 0 0 0 4,172,572 0
Interconnect/Backhaul 1,163,973 1,163,973 1,163,973 1,170,355 1,170,355
Long Distance/Directory Asst. 961,543 961,543 961,543 966,815 966,815
Software Maintenance 253,038 253,038 253,038 254,425 254,425
Repairs/Maintenance 506,075 506,075 506,075 508,850 508,850
Maintenance/Other 227,734 227,734 227,734 228,983 228,983
----------- ----------- ----------- ----------- -----------
Subtotal Network Operating $3,112,363 $4,934,233 $3,112,363 $9,133,860 $3,129,428
Total Operating Expenses $5,110,863 $6,932,733 $5,110,863 $12,159,610 $6,155,178
Sales, Marketing and G&A:
Salaries and Benefits $0 $2,057,670 $0 $2,004,480 $0
Commissions 485,839 485,839 485,839 473,280 473,280
Travel 428,681 428,681 428,681 417,600 417,600
Occupancy 200,051 200,051 200,051 194,880 194,880
Advertising/Production 571,575 571,575 571,575 556,800 556,800
Customer Care/Billing 1,829,040 1,829,040 1,829,040 1,781,760 1,781,760
Restructuring Exps.(3) 226,413 226,413 226,413 219,025 219,025
CTA 0 0 287,500 0 0
Administrative Agent 0 0 0 0 0
Insurance 297,219 297,219 297,219 289,536 289,536
Payments to Leap 0 0 50,436 0 0
Utilities 142,894 142,894 142,894 139,200 139,200
Tax Payments 2,500,000 3,000,000 1,000,000 0 2,500,000
Other (3) 433,219 433,219 433,219 421,695 421,695
----------- ----------- ----------- ----------- -----------
Total Sales, Marketing, and G&A $7,114,931 $9,672,601 $5,952,867 $6,498,256 $6,993,776
Capital Expenditures $837,500 $837,500 $837,500 $837,500 $837,500
----------- ----------- ----------- ----------- -----------
Total Cap Ex and Inv. $837,500 $837,500 $837,500 $837,500 $837,500
Total Cash Payments $13,063,294 $17,442,834 $11,901,230 $19,495,366 $13,986,454
Net Cash Inflow/(Outflow) $3,684,206 -$695,334 $4,846,270 -$2,651,866 $2,857,046
Opening Cash Balance $104,987,834 $108,672,040 $107,976,706 $112,822,976 $110,171,110
Inflow/(Outflows) $3,684,206 -$695,334 $4,846,270 -$2,651,866 $2,857,046
Net Cash Balance $108,672,040 $107,976,706 $112,822,976 $110,171,110 $113,028,156
Money on Deposit $10,281,738 $10,281,738 $10,281,738 $10,281,738 $10,281,738
Total Cash $118,953,778 $118,258,444 $123,104,714 $120,452,848 $123,309,894
Revenue/Inflows: June Wk 3 June Wk 4 July Wk 1
--------- --------- ---------
Service Revenue $13,614,000 $13,614,000 $13,779,000
Equipment Revenue 1,604,500 1,604,500 1,687,250
Other Inflows/Tax Payments 1,625,000 1,625,000 1,625,000
----------- ----------- -----------
Total Revenue/Inflows $16,843,500 $16,843,500 $17,091,250
Operating Expenses:
Cost of Subscriber Equipment $3,025,750 $3,025,750 $5,390,750
Network Operating Expenses:
Salaries and Benefits $1,831,860 $0 $1,837,980
Cell Site Leases 0 0 4,186,512
Interconnect/Backhaul 1,170,355 1,170,355 1,174,265
Long Distance/Directory Asst. 966,815 966,815 970,045
Software Maintenance 254,425 254,425 255,275
Repairs/Maintenance 508,850 508,850 510,550
Maintenance/Other 228,983 228,983 229,748
----------- ----------- -----------
Subtotal Network Operating $4,961,288 $3,129,428 $9,164,375
Total Operating Expenses $7,987,038 $6,155,178 $14,555,125
Sales, Marketing and G&A:
Salaries and Benefits $2,004,480 $0 $2,043,000
Commissions 473,280 473,280 482,375
Travel 417,600 417,600 425,625
Occupancy 194,880 194,880 198,625
Advertising/Production 556,800 556,800 567,500
Customer Care/Billing 1,781,760 1,781,760 1,816,000
Restructuring Exps.(3) 219,025 219,025 224,375
CTA 0 287,500 0
Administrative Agent 0 0 0
Insurance 289,536 289,536 295,100
Payments to Leap 0 50,436 0
Utilities 139,200 139,200 141,875
Tax Payments 3,000,000 1,000,000 0
Other (3) 421,695 421,695 430,041
----------- ----------- -----------
Total Sales, Marketing, and G&A $9,498,256 $5,831,712 $6,624,516
Capital Expenditures $837,500 $837,500 $1,256,250
----------- ----------- -----------
Total Cap Ex and Inv. $837,500 $837,500 $1,256,250
Total Cash Payments $18,322,794 $12,824,390 $22,435,891
Net Cash Inflow/(Outflow) -$1,479,294 $4,019,110 -$5,344,641
Opening Cash Balance $113,028,156 $111,548,862 $115,567,972
Inflow/(Outflows) -$1,479,294 $4,019,110 -$5,344,641
Net Cash Balance $111,548,862 $115,567,972 $110,223,331
Money on Deposit $10,281,738 $10,281,738 $10,281,738
Total Cash $121,830,600 $125,849,710 $120,505,069
(1) From time to time, Cricket pays expenses on behalf of subsidiaries and
affiliate corporations. Although reflected as expenses in the budget above, such
payments are treated as capital contributions by Cricket to the subsidiary or
loans by Cricket to the affiliate corporation, as applicable.
(2) Actual weekly cash flows may vary significantly from this cash budget due to
the timing of vendor invoices. However, on a monthly basis, the cash forecast
will more closely reflect actual cash flows.
CRICKET COMMUNICATIONS INC. Preliminary Draft, Subject to Revision
CASH BUDGET (1) (2) Confidential and Proprietary
APRIL - SEPTEMBER 2003
July Wk 2 July Wk 3 July Wk 4 August Wk 1 August Wk 2 August Wk 3
------------ ------------ ------------ ------------ ------------ ------------
Revenue/Inflows:
Service Revenue $ 13,779,000 $ 13,779,000 $ 13,779,000 $ 13,939,750 $ 13,939,750 $ 13,939,750
Equipment Revenue 1,687,250 1,687,250 1,687,250 1,801,500 1,801,500 1,801,500
Other Inflows/Tax Payments 1,625,000 1,625,000 1,625,000 1,625,000 1,625,000 1,625,000
-------------------------------------------------------------------------------------
Total Revenue/Inflows $ 17,091,250 $ 17,091,250 $ 17,091,250 $ 17,366,250 $ 17,366,250 $ 17,366,250
Operating Expenses:
Cost of Subscriber Equipment $ 5,390,750 $ 5,390,750 $ 5,390,750 $ 3,271,250 $ 3,271,250 $ 3,271,250
Network Operating Expenses:
Salaries and Benefits $ 0 $ 1,837,980 $ 0 $ 1,857,150 $ 0 $ 1,857,150
Cell Site Leases 0 0 0 4,230,176 0 0
Interconnect/Backhaul 1,174,265 1,174,265 1,174,265 1,186,513 1,186,513 1,186,513
Long Distance/Directory Asst. 970,045 970,045 970,045 980,163 980,163 980,163
Software Maintenance 255,275 255,275 255,275 257,938 257,938 257,938
Repairs/Maintenance 510,550 510,550 510,550 515,875 515,875 515,875
Maintenance/Other 229,748 229,748 229,748 232,144 232,144 232,144
-------------------------------------------------------------------------------------
Subtotal Network Operating $ 3,139,883 $ 4,977,863 $ 3,139,883 $ 9,259,959 $ 3,172,633 $ 5,029,783
Total Operating Expenses $ 8,530,633 $ 10,368,613 $ 8,530,633 $ 12,531,209 $ 6,443,883 $ 8,301,033
Sales, Marketing and G&A:
Salaries and Benefits $ 0 $ 2,043,000 $ 0 $ 2,085,480 $ 0 $ 2,085,480
Commissions 482,375 482,375 482,375 492,405 492,405 492,405
Travel 425,625 425,625 425,625 434,475 434,475 434,475
Occupancy 198,625 198,625 198,625 202,755 202,755 202,755
Advertising/Production 567,500 567,500 567,500 579,300 579,300 579,300
Customer Care/Billing 1,816,000 1,816,000 1,816,000 1,853,760 1,853,760 1,853,760
Restructuring Exps.(3) 224,375 224,375 224,375 230,275 230,275 230,275
CTA 0 0 287,500 0 0 0
Administrative Agent 0 0 0 0 0 0
Insurance 295,100 295,100 295,100 301,236 301,236 301,236
Payments to Leap 0 0 50,436 0 0 0
Utilities 141,875 141,875 141,875 144,825 144,825 144,825
Tax Payments 2,500,000 3,000,000 1,000,000 0 2,500,000 3,000,000
Other (3) 430,041 430,041 430,041 439,245 439,245 439,245
-------------------------------------------------------------------------------------
Total Sales, Marketing, and G&A $ 7,081,516 $ 9,624,516 $ 5,919,452 $ 6,763,756 $ 7,178,276 $ 9,763,756
Capital Expenditures $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250
-------------------------------------------------------------------------------------
Total Cap Ex and Inv. $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250
Total Cash Payments $ 16,868,399 $ 21,249,379 $ 15,706,335 $ 20,551,215 $ 14,878,409 $ 19,321,039
Net Cash Inflow/(Outflow) $ 222,851 -$ 4,158,129 $ 1,384,915 -$ 3,184,965 $ 2,487,841 -$ 1,954,789
Opening Cash Balance $110,223,331 $110,446,182 $106,288,053 $107,672,968 $104,488,003 $106,975,844
Inflow/(Outflows) $ 222,851 -$ 4,158,129 $ 1,384,915 -$ 3,184,965 $ 2,487,841 -$ 1,954,789
Net Cash Balance $110,446,182 $106,288,053 $107,672,968 $104,488,003 $106,975,844 $105,021,055
Money on Deposit $ 10,281,738 $ 10,281,738 $ 10,281,738 $ 10,281,738 $ 10,281,738 $ 10,281,738
Total Cash $120,727,920 $116,569,791 $117,954,706 $114,769,741 $117,257,582 $115,302,793
August Wk 4 Sept. Wk 1 Sept. Wk 2 Sept. Wk 3 Sept. Wk 4 Total
------------ ------------ ------------ ------------ ------------ ------------
Revenue/Inflows:
Service Revenue $ 13,939,750 $ 14,153,500 $ 14,153,500 $ 14,153,500 $ 14,153,500 $329,472,000
Equipment Revenue 1,801,500 1,914,500 1,914,500 1,914,500 1,914,500 41,072,000
Other Inflows/Tax Payments 1,625,000 1,625,000 1,625,000 1,625,000 1,625,000 39,000,000
-------------------------------------------------------------------------------------
Total Revenue/Inflows $ 17,366,250 $ 17,693,000 $ 17,693,000 $ 17,693,000 $ 17,693,000 $409,544,000
Operating Expenses:
Cost of Subscriber Equipment $ 3,271,250 $ 3,857,000 $ 3,857,000 $ 3,857,000 $ 3,857,000 $ 89,188,000
Network Operating Expenses:
Salaries and Benefits $ 0 $ 1,877,220 $ 0 $ 1,877,220 $ 0 $ 22,051,980
Cell Site Leases 0 4,275,892 0 0 0 25,114,764
Interconnect/Backhaul 1,186,513 1,199,335 1,199,335 1,199,335 1,199,335 28,177,536
Long Distance/Directory Asst. 980,163 990,755 990,755 990,755 990,755 23,277,096
Software Maintenance 257,938 260,725 260,725 260,725 260,725 6,125,556
Repairs/Maintenance 515,875 521,450 521,450 521,450 521,450 12,251,100
Maintenance/Other 232,144 234,653 234,653 234,653 234,653 5,513,004
-------------------------------------------------------------------------------------
Subtotal Network Operating $ 3,172,633 $ 9,360,030 $ 3,206,918 $ 5,084,138 $ 3,206,918 $122,511,036
Total Operating Expenses $ 6,443,883 $ 13,217,030 $ 7,063,918 $ 8,941,138 $ 7,063,918 $211,699,036
Sales, Marketing and G&A:
Salaries and Benefits $ 0 $ 2,165,310 $ 0 $ 2,165,310 $ 0 $ 24,711,120
Commissions 492,405 511,254 511,254 511,254 511,254 11,669,144
Travel 434,475 451,106 451,106 451,106 451,106 10,296,300
Occupancy 202,755 210,516 210,516 210,516 210,516 4,804,940
Advertising/Production 579,300 601,475 601,475 601,475 601,475 13,728,400
Customer Care/Billing 1,853,760 1,924,720 1,924,720 1,924,720 1,924,720 43,930,880
Restructuring Exps.(3) 230,275 241,363 241,363 241,363 241,363 5,439,204
CTA 287,500 0 0 0 287,500 1,725,000
Administrative Agent 0 0 0 0 0 100,000
Insurance 301,236 312,767 312,767 312,767 312,767 7,138,768
Payments to Leap 50,436 0 0 0 50,436 302,616
Utilities 144,825 150,369 150,369 150,369 150,369 3,432,104
Tax Payments 1,000,000 0 2,500,000 3,000,000 1,000,000 39,000,000
Other (3) 439,245 456,541 456,541 456,541 456,541 10,305,532
-------------------------------------------------------------------------------------
Total Sales, Marketing, and G&A $ 6,016,212 $ 7,025,421 $ 7,360,111 $ 10,025,421 $ 6,198,047 $176,584,008
Capital Expenditures $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 25,125,000
-------------------------------------------------------------------------------------
Total Cap Ex and Inv. $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 1,256,250 $ 25,125,000
Total Cash Payments $ 13,716,345 $ 21,498,701 $ 15,680,279 $ 20,222,809 $ 14,518,215 $413,408,044
Net Cash Inflow/(Outflow) $ 3,649,905 -$ 3,805,701 $ 2,012,721 -$ 2,529,809 $ 3,174,785 -$ 3,864,044
Opening Cash Balance $105,021,055 $108,670,960 $104,865,259 $106,877,980 $104,348,171 $111,387,000
Inflow/(Outflows) $ 3,649,905 -$ 3,805,701 $ 2,012,721 -$ 2,529,809 $ 3,174,785 -$ 3,864,044
Net Cash Balance $108,670,960 $104,865,259 $106,877,980 $104,348,171 $107,522,956 $107,522,956
Money on Deposit $ 10,281,738 $ 10,281,738 $ 10,281,738 $ 10,281,738 $ 10,281,738 $ 10,281,738
Total Cash $118,952,698 $115,146,997 $117,159,718 $114,629,909 $117,804,694 $117,804,694
(1) From time to time, Cricket pays expenses on behalf of subsidiaries and
affiliate corporations. Although reflected as expenses in the budget above, such
payments are treated as capital contributions by Cricket to the subsidiary or
loans by Cricket to the affiliate corporation, as applicable.
(2) Actual weekly cash flows may vary significantly from this cash budget due to
the timing of vendor invoices. However, on a monthly basis, the cash forecast
will more closely reflect actual cash flows.
8/1/2003 COMPANY CONFIDENTIAL
EXHIBIT J
TO THE DISCLOSURE STATEMENT
DESCRIPTION OF NEW LEAP COMMON STOCK AND RELATED RISK FACTORS, NEW CRICKET
COMMON STOCK, NEW LICENSE HOLDING COMPANY COMMON STOCK, NEW PROPERTY
HOLDING COMPANY COMMON STOCK AND NEW OTHER SUBSIDIARY COMMON STOCK
Capitalized terms used in this description and not otherwise defined
herein have the meanings attributable to them in the Plan.
The following is a brief description of the material terms of the New
Leap Common Stock, New Cricket Common Stock, New License Holding Company Common
Stock, New Property Holding Company Common Stock and New Other Subsidiary Common
Stock. The summary of the terms of the New Leap Common Stock, New Cricket Common
Stock, New License Holding Company Common Stock, New Property Holding Company
Common Stock and New Other Subsidiary Common Stock set forth below does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Amended Debtor Certificates of Incorporation and the Amended
Debtor Bylaws, each of which will be substantially in the form which will be
Filed with the Plan Supplement and subject to modification by the Debtors (with
the consent of the Informal Vendor Debt Committee) prior to the Effective Date.
The Debtors urge you to read the Amended Debtor Certificates of Incorporation
and the Amended Debtor Bylaws because they, and not this description, define the
rights of the holders of New Leap Common Stock, New Cricket Common Stock, New
License Holding Company Common Stock, New Property Holding Company Common Stock
and New Other Subsidiary Common Stock.
NEW LEAP COMMON STOCK
On the Effective Date, all of the shares of Old Leap Common Stock
issued and outstanding or held in treasury will be cancelled and retired and,
pursuant to the Plan, shares of New Leap Common Stock will be distributed to the
Holders of Old Vendor Debt Claims and the Leap Creditor Trust for distribution
to the Holders of Leap General Unsecured Claims.
Each holder of New Leap Common Stock will be entitled to one vote for
each share of New Leap Common Stock owned of record on all matters voted on by
stockholders. The holders of the New Leap Common Stock will possess all voting
power, except as otherwise required by law or provided in any resolution adopted
by Leap's board of directors regarding any series of preferred stock. Cumulative
voting of the shares of New Leap Common Stock is prohibited. Accordingly, the
holders of a majority of the voting power of the shares voting for the election
of directors can elect all of the directors if they choose to do so. The New
Leap Common Stock will have no subscription, redemption, conversion or
preemptive rights. Subject to any preferential or other rights of any
outstanding series of Leap's preferred stock that may be designated by Leap's
board of directors, the holders of the New Leap Common Stock will be entitled to
such dividends if, as and when declared from time to time by Leap's board of
directors from legally available funds and upon liquidation will be entitled to
receive pro rata all of Leap's assets available for distribution to the holders.
The shares of New Leap Common Stock will be, when issued in exchange for the Old
Vendor Debt Claims and the Leap General Unsecured Claims, fully paid and
nonassessable.
Leap does not expect that the New Leap Common Stock will be listed for
trading on any national securities exchange, automated quotation service or
over-the-counter trading markets following the Effective Date. The Debtors also
expect that Reorganized Leap will not be a public company that files reports
under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), following the Effective Date.
NEW CRICKET COMMON STOCK
On the Effective Date, all of the shares of Old Cricket Common Stock
issued and outstanding or held in treasury will be cancelled and retired and,
pursuant to the Plan, shares of New Cricket Common Stock will be issued to
Reorganized Leap.
Each holder of New Cricket Common Stock will be entitled to one vote
for each share of New Cricket Common Stock owned of record on all matters voted
on by stockholders. The holders of the New Cricket Common Stock will possess all
voting power, except as otherwise required by law or provided in any resolution
adopted by Cricket's board of directors regarding any series of preferred stock.
Cumulative voting of the shares of New Cricket Common Stock is prohibited.
Accordingly, the holders of a majority of the voting power of the shares voting
for the election of directors can elect all of the directors if they choose to
do so. The New Cricket Common Stock will have no subscription, redemption,
conversion or preemptive rights. Subject to any preferential or other rights of
any outstanding series of Cricket's preferred stock that may be designated by
Cricket's board of directors, the holders of the New Cricket Common Stock will
be entitled to such dividends if, as and when declared from time to time by
Cricket's board of directors from legally available funds and upon liquidation
will be entitled to receive pro rata all of Cricket's assets available for
distribution to the holders. The shares of New Cricket Common Stock will be,
when issued pursuant to the Plan, fully paid and nonassessable.
NEW LICENSE HOLDING COMPANY COMMON STOCK
On the Effective Date, all of the shares of Old License Holding Company
Common Stock issued and outstanding or held in treasury will be cancelled and
retired and, pursuant to the Plan, shares of New License Holding Company Common
Stock will be issued to Reorganized Leap.
Each holder of New License Holding Company Common Stock will be
entitled to one vote for each share of New License Holding Company Common Stock
owned of record on all matters voted on by stockholders. The holders of the New
License Holding Company Common Stock will possess all voting power, except as
otherwise required by law or provided in any resolution adopted by the License
Holding Company's board of directors regarding any series of preferred stock.
Cumulative voting of the shares of New License Holding Company Common Stock is
prohibited. Accordingly, the holders of a majority of the voting power of the
shares voting for the election of directors can elect all of the directors if
they choose to do so. The New License Holding Company Common Stock will have no
subscription, redemption, conversion or preemptive rights. Subject to any
preferential or other rights of any outstanding series of the License Holding
Company's preferred stock that may be designated by the License Holding
Company's board of directors, the holders of the New License Holding Company
Common Stock will be entitled to such dividends if, as and when declared from
time to time by the License Holding Company's board of directors from legally
available funds and upon liquidation will be entitled to receive pro rata all of
the License Holding Company's assets available for distribution to the
2
holders. The shares of New License Holding Company Common Stock will be, when
issued in exchange for the Old License Holding Company Common Stock, fully paid
and nonassessable.
NEW PROPERTY HOLDING COMPANY COMMON STOCK
On the Effective Date, all of the shares of Old Property Holding
Company Common Stock issued and outstanding or held in treasury will be
cancelled and retired and, pursuant to the Plan, shares of New Property Holding
Company Common Stock will be issued to Reorganized Cricket.
Each holder of New Property Holding Company Common Stock will be
entitled to one vote for each share of New Property Holding Company Common Stock
owned of record on all matters voted on by stockholders. The holders of the New
Property Holding Company Common Stock will possess all voting power, except as
otherwise required by law or provided in any resolution adopted by the Property
Holding Company's board of directors regarding any series of preferred stock.
Cumulative voting of the shares of New Property Holding Company Common Stock is
prohibited. Accordingly, the holders of a majority of the voting power of the
shares voting for the election of directors can elect all of the directors if
they choose to do so. The New Property Holding Company Common Stock will have no
subscription, redemption, conversion or preemptive rights. Subject to any
preferential or other rights of any outstanding series of Property Holding
Company's preferred stock that may be designated by the Property Holding
Company's board of directors, the holders of the New Property Holding Company
Common Stock will be entitled to such dividends if, as and when declared from
time to time by the Property Holding Company's board of directors from legally
available funds and upon liquidation will be entitled to receive pro rata all of
Property Holding Company's assets available for distribution to the holders. The
shares of New Property Holding Company Common Stock will be, when issued in
exchange for the Old Property Holding Company Common Stock, fully paid and
nonassessable.
NEW OTHER SUBSIDIARY COMMON STOCK
On the Effective Date, all of the shares of Old Other Subsidiary Common
Stock issued and outstanding or held in treasury will be cancelled and retired
and, pursuant to the Plan, shares of New Other Subsidiary Common Stock will be
issued to Reorganized Leap.
Each holder of New Other Subsidiary Common Stock will be entitled to
one vote for each share of New Other Subsidiary Common Stock owned of record on
all matters voted on by stockholders. The holders of New Other Subsidiary Common
Stock will possess all voting power, except as otherwise required by law or
provided in any resolution adopted by the Other Subsidiary's board of directors
regarding any series of preferred stock. Cumulative voting of the shares of New
Other Subsidiary Common Stock is prohibited. Accordingly, the holders of a
majority of the voting power of the shares voting for the election of directors
can elect all of the directors if they choose to do so. The New Other Subsidiary
Common Stock will have no subscription, redemption, conversion or preemptive
rights. Subject to any preferential or other rights of any outstanding series of
the Other Subsidiary's preferred stock that may be designated by the Other
Subsidiary's board of directors, the holders of the New Other Subsidiary Common
Stock will be entitled to such dividends if, as and when declared from time to
time by the Other Subsidiary's board of directors from legally available funds
and upon liquidation will be entitled to receive pro rata all of such Other
Subsidiary's assets available for distribution to the holders. The shares of New
Other Subsidiary Common Stock will be, when issued in exchange for Old Other
Subsidiary Common Stock, fully paid and nonassessable.
3
RELATED RISK FACTORS
In addition to the section entitled "Risk Factors" included in Leap's
Quarterly Report on Form 10-Q for the period ended March 31, 2003, which is
attached to the Disclosure Statement as Exhibit E and incorporated herein by
reference, and the other information included or incorporated by reference in
the Disclosure Statement, the following risk factors should be considered.
Capitalized terms used in the following risk factors that are not otherwise
defined have the meanings attributable to them in the Plan.
RISKS RELATED TO THE NEW LEAP COMMON STOCK
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE NEW LEAP COMMON STOCK,
STOCKHOLDERS MAY NOT BE ABLE TO RESELL THEIR NEW LEAP COMMON STOCK
Unless the holders of the New Leap Common Stock at the time of issuance are
"underwriters" as that term is defined in Section 1145 of the Bankruptcy Code,
the New Leap Common Stock will be freely tradable without restriction in the
public market. Nonetheless, for various reasons, including those discussed
below, it is unlikely that an active trading market will develop or be sustained
for the New Leap Common Stock. If no active trading market develops,
stockholders may not be able to resell their shares of New Leap Common Stock at
their fair market value or at all.
The shares of New Leap Common Stock are a new issuance of securities with
no established trading market. The Debtors expect that the New Leap Common Stock
will not be listed for trading on any national securities exchange, automated
quotation service or over-the-counter trading markets following the Effective
Date. The Debtors also expect that Reorganized Leap will not be a public company
that files reports under Section 13(a) or 15(d) of the Exchange Act, following
the Effective Date. Leap is not aware of any securities firm that intends to
make a market in the New Leap Common Stock after the restructuring is completed,
and any securities firm that does act as a market-maker could cease its
market-making at any time.
LEAP'S STOCK PRICE MAY BE HIGHLY VOLATILE, THE SHARE PRICE OF THE NEW LEAP
COMMON STOCK MAY DECREASE, AND STOCKHOLDERS COULD LOSE SOME OR ALL OF THEIR
INVESTMENT
The price at which the Old Leap Common Stock trades has fluctuated
significantly in the past, and the price at which the New Leap Common Stock
trades, if at all, may well continue to be highly volatile. If Leap's share
price decreases, stockholders could lose some or all of their investment in New
Leap Common Stock.
BECAUSE IT IS UNLIKELY THAT LEAP WILL PAY DIVIDENDS, STOCKHOLDERS WILL ONLY BE
ABLE TO BENEFIT FROM HOLDING NEW LEAP COMMON STOCK IF THE STOCK APPRECIATES
Leap currently intends to retain any future earnings to pay principal and
interest on its indebtedness and to fund growth and, therefore, does not expect
to pay any dividends in the foreseeable future. As a result of not collecting a
dividend, stockholders will not experience a return on their investment, unless
the price of the New Leap Common Stock appreciates and they sell their shares of
New Leap Common Stock.
4
LEAP MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, WHICH MAY BE
UNAVAILABLE OR WHICH MAY RESULT IN DILUTION TO LEAP'S STOCKHOLDERS AND RESTRICT
LEAP'S OPERATIONS
Leap may seek to sell additional equity or debt securities or obtain a
credit facility in order to finance its operations, which Leap may not be able
to do on favorable terms or at all. Leap's ability to obtain additional debt and
equity financing may be limited by restrictions in the New Senior Notes
Indenture. The sale of additional equity or convertible debt securities could
result in additional dilution to Leap's stockholders. If additional funds are
raised through the issuance of debt securities or preferred stock, these
securities could have rights that are senior to the New Leap Common Stock and
any debt securities could contain covenants that would restrict Leap's and its
subsidiaries' operations.
A MAJORITY OF THE NEW LEAP COMMON STOCK MAY BE HELD BY A SMALL NUMBER OF
STOCKHOLDERS WHO COULD HAVE INTERESTS THAT CONFLICT WITH THE INTERESTS OF THE
OTHER STOCKHOLDERS
After giving effect to the issuance of New Leap Common Stock contemplated
by the Plan, a majority of the New Leap Common Stock will be held by a small
number of stockholders and their affiliates. This concentration of ownership
will give those stockholders, if they act together, the power to control the
outcome of matters requiring stockholder approval, including the election of
directors, to take corporate action by written consent, and to hinder or delay a
change of control of Leap.
THE FORWARD LOOKING STATEMENTS CONTAINED IN THE DISCLOSURE STATEMENT MAY NOT
PROVE TO BE ACCURATE.
The Disclosure Statement includes "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including, in
particular, the statements about the plans, strategies and prospects of the
Debtors under the headings "Description of the Debtors' Business," "The Future
Business of Reorganized Debtors," "Projections," and "Alternatives to
Confirmation and Consummation of the Plan." Although the Debtors believe that
their plans, intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, the Debtors can give no assurance
that their plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from
the forward looking statements the Debtors made in the Disclosure Statement are
set forth above in this "Risk Factors" section, in the "Risk Factors" section
included in Leap's Quarterly Report on Form 10-Q for the period ended March 31,
2003, which is attached to the Disclosure Statement as Exhibit E and
incorporated herein by reference, and elsewhere in the Disclosure Statement, and
include the Debtors' ability to complete the restructuring in a timely fashion,
the Debtors' ability to obtain and maintain normal terms with vendors and
service providers and to maintain contracts that are critical to its operations,
the potential adverse impacts of the Chapter 11 Cases on the liquidity or
results of operations of the Debtors, the unsettled nature of the wireless
market, the effects of competition, changes in economic conditions that could
adversely affect the market for wireless services, regulatory or legal rulings
adversely affecting the Debtors' rights to own and/or operate wireless licenses,
and other factors described in Leap's filings with the SEC. All forward-looking
statements attributable to the Debtors or persons acting on their behalf are
expressly qualified in their entirety by these cautionary statements.
5
ADDITIONAL INFORMATION
Anyone who receives this document may obtain a copy of the Amended
Debtor Certificates of Incorporation and the Amended Debtor Bylaws, when
available, without charge by writing to counsel to the Debtors: Latham & Watkins
LLP, 633 West Fifth Street, Suite 4000, Los Angeles, California, USA, 90071,
Attention: Robert A. Klyman, Esq.
6
EXHIBIT K
TO THE DISCLOSURE STATEMENT
DESCRIPTION OF NEW SENIOR NOTES
AND RELATED RISK FACTORS
ISSUER................................................ Cricket Communications, Inc. (the "Company") will be the issuer
of the Notes
GUARANTEES............................................ Leap Wireless International, Inc. (the "Parent") and all
Restricted Subsidiaries of the Company and the Parent will be
guarantors of the Notes. All current subsidiaries of the Company
and the Parent will be Restricted Subsidiaries. Any new
Restricted Subsidiaries formed or acquired after the issuance of
the Notes must also become guarantors when they become Restricted
Subsidiaries.
NOTES................................................. 13% Senior Secured Notes due 2010 (the "Notes")
PRINCIPAL AMOUNT...................................... $350,000,000.00
MATURITY.............................................. 7 years from the date of issuance
COUPON/YIELD.......................................... Interest shall accrue on the Notes at a rate of 13% per annum and
will be payable semiannually in cash, with the first such payment
due approximately six months after the original issuance of the
Notes. For the first two years only, the Company will pay at
least 1% interest in cash, and may, at the Company's option, pay
the balance (i.e., up to 12%) by the issuance of additional Notes
in lieu of cash.
SECURITY.............................................. The Parent, the Company and the Restricted Subsidiaries will
pledge, as security for the Notes and the Guarantees, all of the
assets of the Parent, and all of the stock and assets of the
Company and the Restricted Subsidiaries pursuant to a Security
Agreement and Pledge.
OPTIONAL REDEMPTION................................... The Company may redeem the Notes, in whole or in part, at its
option at any time and from time to time, upon not less than 30
nor more than 60 days' written notice, at a redemption price
equal to the principal amount of the Notes being redeemed plus
accrued interest and a redemption premium.
OFFER TO PURCHASE ON CHANGE OF CONTROL................ Within 30 days after a Change of Control, the Company is required
to make an offer to purchase the Notes at a price equal to 101%
of the principal amount of the Notes, plus accrued and unpaid
interest to the date of repurchase.
COVENANTS............................................. The indenture will contain restrictive covenants, including but
not limited to covenants: (a) limiting the incurrence of
indebtedness and the issuance of disqualified stock, (b) limiting
liens, (c) limiting restricted payments and restricted
investments, (d) limiting dividends and other payment
restrictions affecting restricted subsidiaries, (e) limiting the
sale of capital stock of restricted subsidiaries, (f) limiting
the issuance of guarantees by restricted subsidiaries,
(g) limiting affiliate transactions, (h) limiting sale-leaseback
transactions, and (i) limiting asset sales.
EVENTS OF DEFAULT..................................... The indenture will contain events of default, including but not
limited to: (a) failure to pay principal when due, including upon
redemption; (b) failure to pay interest within a grace period;
(c) failure to comply with merger restrictions, or to consummate
an offer to purchase under the asset sale covenant or upon a
change of control; (d) failure to comply with any other covenant
for a specified period of time after notice of default from the
trustee or holders of at least a specified percentage of the
Notes; (e) cross default to other indebtedness; (f) one or more
uninsured final judgments in excess of a specified amount that
are not paid or stayed pending appeal for a specified period; (g)
certain events of bankruptcy or insolvency; (h) the Security
Agreement and Pledge cease to be in effect; or (i) any Guarantee
ceases to be in effect (other than upon a release of a Guarantor
under the terms of the indenture).
MERGERS, SALES OF SUBSTANTIALLY
ALL ASSETS............................................ The indenture will contain provisions restricting the ability of
the Parent, the Company and the Restricted Subsidiaries to merge,
consolidate, sell all or substantially all of their assets, or
engage in similar transactions.
-2-
AMENDMENTS AND CHANGES TO THE INDENTURE AND SECURITY
AGREEMENTS............................................ Amendments to the indenture and the Security Agreement and Pledge
may be approved by the holders of record of a majority in
principal amount of the Notes, except for reductions in interest
rates, releases of collateral, reduction in principal amount of
the debt, extension of payment dates or extension of maturity, or
any other matters which must be approved by each holder under the
Trust Indenture Act.
GOVERNING LAW......................................... The indenture will be governed by the laws of the State of New
York
RELATED RISK FACTORS
In addition to the section entitled "Risk Factors" included in Leap's
Quarterly Report on Form 10-Q for the period ended March 31, 2003, which is
attached to the Disclosure Statement as Exhibit E and incorporated herein by
reference, and the other information included or incorporated by reference in
the Disclosure Statement, the following risk factors should be considered.
Capitalized terms used in the following risk factors that are not otherwise
defined have the meanings attributable to them in the Plan.
RISKS RELATED TO THE NEW SENIOR NOTES
REORGANIZED CRICKET'S SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT ITS
FINANCIAL HEALTH AND PREVENT IT FROM FULFILLING ITS OBLIGATIONS UNDER THE NEW
SENIOR NOTES
Cricket has now and, after the offering of the New Senior Notes,
Reorganized Cricket will continue to have a significant amount of indebtedness.
Reorganized Cricket's substantial indebtedness could have important consequences
for New Senior Note holders. For example, it could:
- make it more difficult for Reorganized Cricket to satisfy its
obligations with respect to the New Senior Notes;
- increase Reorganized Cricket's vulnerability to general adverse
economic and industry conditions;
- limit Reorganized Cricket's ability to fund future working capital,
capital expenditures and other general corporate requirements;
- require Reorganized Cricket to dedicate a substantial portion of its
cash flow from operations to payments on its indebtedness, thereby
reducing the availability of its cash flow to fund working capital,
capital expenditures, acquisitions and other general corporate
purposes;
- limit Reorganized Cricket's flexibility in planning for, or reacting
to, changes in its business and the industry in which it operates;
-3-
- place Reorganized Cricket at a competitive disadvantage compared to its
competitors that have less debt; and
- limit, along with the financial and other restrictive covenants in the
New Senior Notes Indenture, among other things, the ability of
Reorganized Cricket and its subsidiaries to borrow additional funds.
The failure to comply with these covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on Reorganized Cricket, the subsidiary guarantors and the
Debtors as a whole.
DESPITE CURRENT INDEBTEDNESS LEVELS, REORGANIZED CRICKET MAY STILL BE ABLE TO
INCUR SUBSTANTIALLY MORE DEBT, WHICH COULD FURTHER EXACERBATE THE RISKS
ASSOCIATED WITH REORGANIZED CRICKET'S SUBSTANTIAL LEVERAGE
Reorganized Cricket may be able to incur substantial additional
indebtedness in the future. The terms of the New Senior Notes Indenture do not
fully prohibit Reorganized Cricket and the subsidiary guarantors from incurring
additional indebtedness. If new debt is added to Reorganized Cricket's current
debt levels, the related risks that Cricket now faces could intensify.
SERVICING REORGANIZED CRICKET'S INDEBTEDNESS WILL REQUIRE A SIGNIFICANT AMOUNT
OF CASH, AND REORGANIZED CRICKET'S ABILITY TO GENERATE CASH WILL DEPEND ON MANY
FACTORS BEYOND ITS CONTROL
Reorganized Cricket's ability to make payments on and to refinance its
indebtedness, including the New Senior Notes, and to fund working capital,
capital expenditures, acquisitions and other general corporate purposes will
depend on its ability to generate cash in the future. Reorganized Cricket's
ability to generate cash flow, to a certain extent, will be subject to general
economic, financial, competitive, legislative, regulatory and other factors that
will be beyond Reorganized Cricket's control. There can be no assurance that
Reorganized Cricket will generate sufficient cash flow from operations or that
future borrowings will be available in an amount sufficient to enable it to pay
its indebtedness, including the New Senior Notes, or to fund other liquidity
needs. As a result, Reorganized Cricket may need to refinance all or a portion
of its indebtedness, including the New Senior Notes, on or before maturity. If
Reorganized Cricket is unable to generate sufficient cash flow and is unable to
refinance or extend outstanding borrowings on commercially reasonable terms,
Reorganized Cricket may have to:
- reduce or delay capital expenditures;
- sell assets;
- restructure debt; and/or
- obtain additional debt or equity financing.
There can be no assurance that Reorganized Cricket would be able to effect or
implement any of these alternatives on satisfactory terms, if at all.
REORGANIZED CRICKET MAY NOT BE ABLE TO FINANCE FUTURE NEEDS OR ADAPT ITS
BUSINESS PLAN TO CHANGES BECAUSE OF RESTRICTIONS PLACED ON IT BY THE NEW SENIOR
NOTES INDENTURE
-4-
The New Senior Notes Indenture contains covenants that restrict Reorganized
Cricket's and the subsidiary guarantors' ability to make distributions or other
payments to investors and creditors unless certain financial tests or other
criteria are satisfied. Reorganized Cricket must also comply with certain
specified ratios and tests. In addition, the New Senior Notes Indenture contains
additional affirmative and negative covenants, including limitations on
Reorganized Cricket's and the subsidiary guarantors' ability to incur additional
debt, sell assets, create liens or other encumbrances, make certain payments and
dividends and merge or consolidate. All of these restrictions could affect
Reorganized Cricket's and the subsidiary guarantors' ability to operate their
business and may limit their ability to take advantage of potential business
opportunities as they arise.
If Reorganized Cricket and the subsidiary guarantors do not comply with
these or other covenants and restrictions contained in the New Senior Notes
Indenture, Reorganized Cricket and the subsidiary guarantors could be in default
under those agreements, and the debt, together with accrued interest, could then
be declared immediately due and payable. Reorganized Cricket's and the
subsidiary guarantors' ability to comply with these provisions may be affected
by changes in economic or business conditions or other events beyond their
control.
THE INDEBTEDNESS UNDER THE NEW SENIOR NOTES AND THE RELATED SUBSIDIARY
GUARANTEES WILL BE STRUCTURALLY SUBORDINATED TO ANY INDEBTEDNESS OF REORGANIZED
CRICKET'S NON-GUARANTOR SUBSIDIARIES
Initially, all of Reorganized Cricket's subsidiaries will guarantee the New
Senior Notes. However, in the future some of Reorganized Cricket's subsidiaries
may not guarantee the New Senior Notes. Any indebtedness, including trade
payables, incurred by any of Reorganized Cricket's subsidiaries that are not
subsidiary guarantors will be structurally senior to the indebtedness under the
New Senior Notes and the respective subsidiary guarantees, and the holders of
any such indebtedness will have a claim against the assets of any such
non-guarantor subsidiary that is prior to the claims of the holders of the New
Senior Notes on those assets.
REORGANIZED CRICKET MAY BE UNABLE TO REPURCHASE THE NEW SENIOR NOTES UPON A
CHANGE OF CONTROL
Upon the occurrence of certain specific kinds of change of control events,
Reorganized Cricket will be required to offer to repurchase all outstanding New
Senior Notes at 101% of their principal amount, plus accrued interest. Any of
Reorganized Cricket's future debt agreements also may contain a similar
provision. Reorganized Cricket's ability to pay cash to the holders of the New
Senior Notes in connection with such repurchase will be limited by its then
existing financial resources. Accordingly, it is possible that Reorganized
Cricket will not have sufficient funds at the time of the change of control to
make the required repurchase of New Senior Notes.
In addition, future debt agreements may limit Reorganized Cricket's ability to
purchase the New Senior Notes until all debt under those agreements is paid in
full. If Reorganized Cricket fails to repurchase any notes submitted in a change
of control offer, it would constitute an event of default under the New Senior
Notes Indenture which could, in turn, constitute an event of default under
Reorganized Cricket's other indebtedness, even if the change in control itself
would not cause a default.
THE PROCEEDS FROM THE COLLATERAL SECURING THE NEW SENIOR NOTES MAY NOT BE
SUFFICIENT TO PAY ALL AMOUNTS OWED UNDER THE NEW SENIOR NOTES IF AN EVENT OF
DEFAULT OCCURS, EVEN IF THE FAIR MARKET
-5-
VALUE OF THE COLLATERAL WOULD OTHERWISE BE SUFFICIENT TO PAY THE AMOUNTS OWED
UNDER THE NEW SENIOR NOTES
The New Senior Notes and guarantees will be effectively subordinated to any
future equipment financing and purchase money debt, in each case to the extent
of the assets securing that indebtedness. As a result, upon any distribution to
Reorganized Cricket's creditors or the creditors of any subsidiary guarantors in
bankruptcy, liquidation, reorganization or similar proceedings, or following
acceleration of Reorganized Cricket's indebtedness or an event of default under
such indebtedness, Reorganized Cricket's lenders under its equipment financing
and purchase money indebtedness will be entitled to be repaid in full from the
proceeds of the assets securing such indebtedness before any payment is made to
the New Senior Note holders from such proceeds. Consequently, it is possible
that the liquidation of the New Senior Notes Collateral would not produce
proceeds in an amount sufficient to pay the principal of, or premium, if any,
and accrued interest and liquidated damages, if any, on the New Senior Notes
after also satisfying the obligations to pay any other senior secured creditors,
even if the fair market value of the collateral would otherwise be sufficient to
pay the amounts owed under the notes. There can be no assurance that the fair
market value of the New Senior Notes Collateral would be sufficient to pay the
amounts due under the notes, even absent any equipment financing or purchase
money indebtedness. An event of default or acceleration of Reorganized Cricket's
and the subsidiary guarantors' other senior secured debt also may prohibit
Reorganized Cricket and the subsidiary guarantors from paying the notes or the
guarantees.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to, all other debts of that guarantor if, among
other things, the guarantor, at the time it incurred the indebtedness evidenced
by its guarantee:
- received less than reasonably equivalent value or fair consideration
for the incurrence of such guarantee;
- was insolvent or rendered insolvent by reason of such incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor. The measures of insolvency for
purposes of these fraudulent transfer laws will vary depending upon the law
applied in any proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered insolvent if:
-6-
- the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
- it could not pay its debts as they become due.
After giving effect to the restructuring of their indebtedness described in
the Disclosure Statement and other factors, the Debtors believe that each
subsidiary guarantor, after giving effect to its guarantee of the New Senior
Notes, will not be insolvent, will not have unreasonably small capital for the
business in which it is engaged and will not have incurred debts beyond its
ability to pay such debts as they mature. The Debtors cannot predict, however,
what standard a court would apply in making such determinations or that a court
would agree with their conclusions in this regard.
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE NEW SENIOR NOTES, THE
NOTEHOLDERS MAY NOT BE ABLE TO RESELL THEIR NEW SENIOR NOTES
Unless the holders of the New Senior Notes at the time of issuance are
"underwriters" as that term is defined in Section 1145 of the Bankruptcy Code,
the New Senior Notes will be freely tradable without restriction in the public
market. Nonetheless, for various reasons, including those discussed below, the
Debtors are unable to predict whether an active trading market will develop or
be sustained for the New Senior Notes. If no active trading market develops, New
Senior Note holders may not be able to resell their New Senior Notes at their
fair market value or at all.
The New Senior Notes are a new issuance of securities with no established
trading market. The Debtors expect that the New Senior Notes will not be listed
for trading on any national securities exchange, automated quotation service or
over-the-counter trading markets following the Effective Date. The Debtors also
expect that Reorganized Leap will not be a public company that files reports
under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
following the Effective Date. The Debtors are not aware of any securities firm
that intends to make a market in the New Senior Notes after this offering is
completed, and any securities firm that does act as a market-maker could cease
its market-making at any time. In addition, the liquidity of the trading market
in the New Senior Notes, and the market price quoted for the New Senior Notes,
may be adversely affected by changes in the overall market for debt securities
and by changes in the financial performance or prospects of the Debtors or in
the prospects for companies in the wireless telecommunications industry
generally. While Cricket does not anticipate that Reorganized Cricket or its
securities will be rated by any rating agency, if Reorganized Cricket or its
securities are rated and are subsequently downgraded by any rating agency, the
trading price of the New Senior Notes may be adversely effected.
THE NEW SENIOR NOTES MAY BE REDEEMED AT REORGANIZED CRICKET'S OPTION IMMEDIATELY
The terms of the New Senior Notes Indenture provide that Reorganized
Cricket may redeem the New Senior Notes at any time after issuance at their
principal amount, plus a premium and accrued interest. As a result, holders of
the New Senior Notes may not hold the New Senior Notes until maturity
-7-
and, therefore, may not receive the interest on the New Senior Notes for the
duration of the stated term of the New Senior Notes.
THE FORWARD LOOKING STATEMENTS CONTAINED IN THE DISCLOSURE STATEMENT MAY NOT
PROVE TO BE ACCURATE.
The Disclosure Statement includes "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including, in
particular, the statements about the plans, strategies and prospects of the
Debtors under the headings "Description of the Debtors' Business," "The Future
Business of Reorganized Debtors," "Projections," and "Alternatives to
Confirmation and Consummation of the Plan." Although the Debtors believe that
their plans, intentions and expectations reflected in or suggested by these
forward-looking statements are reasonable, the Debtors can give no assurance
that their plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from
the forward looking statements the Debtors made in the Disclosure Statement are
set forth above in this "Risk Factors" section, in the "Risk Factors" section
included in Leap's Quarterly Report on Form 10-Q for the period ended March 31,
2003, which is attached to the Disclosure Statement as Exhibit E and
incorporated herein by reference, and elsewhere in the Disclosure Statement, and
include the Debtors' ability to complete the restructuring in a timely fashion,
the Debtors' ability to obtain and maintain normal terms with vendors and
service providers and to maintain contracts that are critical to its operations,
the potential adverse impacts of the Chapter 11 Cases on the liquidity or
results of operations of the Debtors, the unsettled nature of the wireless
market, the effects of competition, changes in economic conditions that could
adversely affect the market for wireless services, regulatory or legal rulings
adversely affecting the Debtors' rights to own and/or operate wireless licenses,
and other factors described in Leap's filings with the SEC. All forward-looking
statements attributable to the Debtors or persons acting on their behalf are
expressly qualified in their entirety by these cautionary statements.
-8-
EXHIBIT L
ONGOING LITIGATION MATTERS
CASE NO.
COUNTY/COURT CASE NAME/TITLE GENERAL DESCRIPTION
Case No. C03029-2001 ENDESA, S.A., ETC., AL. VS. Endesa's lawsuit against Leap
19th Civil Court of Santiago, LEAP WIRELESS INTERNATIONAL, for alleged breach of
Chile INC. (AND RELATED representations and warranties
COUNTERCLAIMS) in contract for sale of business
in Chile.
GIC 769900 LEAP WIRELESS INTERNATIONAL, Leap's action to recover
Superior Court of the State of INC. VS. ENDESA, S.A., ETC., ET payment on installment
California AL. (SAN DIEGO) purchase note for sale of
County of San Diego business in Chile.
US District Court LEAP WIRELESS V. COLLIER Claim against law firm
Southern District of CA SHANNON SCOTT regarding representation
Sup. Court of AZ Tax Court CRICKET COMMUNICATIONS VS CITY Public Utilities Tax Issue. Appeal
OF TUCSON of adverse ruling imposing public
utility taxes.
Exhibit M - Valuation of Reorganized Leap (1)
INTRODUCTION
To assist the Debtors' management in evaluating the Plan and the distributions
that holders of Claims and Interests will receive under the Plan, the Debtors'
management requested that the Debtors' financial advisor, UBS Securities LLC
("UBS") (formerly known as UBS Warburg LLC), undertake an analysis of the
estimated range of the going concern enterprise value of Reorganized Leap
(including the other Debtors, on a consolidated basis), after giving effect to
the reorganization as set forth in the Plan. In performing this analysis, UBS
has assumed that substantially all assets of value currently residing at Leap
Wireless International, Inc. (including cash and wireless spectrum assets) are
distributed for the benefit of Leap creditors as contemplated by the Plan, and
the analysis referenced herein relates to only the business and assets remaining
within Reorganized Leap and its subsidiaries post-reorganization.
In conducting its analysis, UBS, among other things: (a) reviewed certain
publicly-available business and historical financial information relating to the
Debtors; (b) reviewed certain internal financial information and other data
relating to the business and financial prospects of Reorganized Leap, including
the financial projections through 2011 (the "Financial Projections") prepared by
management of Leap and its operating subsidiary, Cricket Communications, of
which projection years 2003 to 2010 are set forth under "Exhibit G-Projections
for Reorganized Leap," which were provided to UBS by the Debtors; (c) conducted
discussions with members of the Debtors' senior management concerning the
business and financial prospects of Reorganized Leap; (d) reviewed
publicly-available financial and stock market data with respect to certain other
companies in lines of business UBS believed to be comparable in certain respects
to Reorganized Leap's businesses; (e) reviewed the financial terms, to the
extent available, of certain completed or announced transactions involving
companies or wireless spectrum assets that UBS believed to be generally
relevant; (f) considered certain industry and economic information relevant to
Reorganized Leap's businesses; (g) reviewed the Plan and the information in this
Disclosure Statement as of July 8, 2003; and (h) conducted such other financial
studies, analyses and investigations, and considered such other information, as
UBS deemed necessary or appropriate.
THE ESTIMATED GOING CONCERN ENTERPRISE VALUE OF REORGANIZED LEAP SET FORTH IN
THIS SECTION REPRESENTS A HYPOTHETICAL VALUATION OF REORGANIZED LEAP, ASSUMING
THAT REORGANIZED LEAP CONTINUES AS AN OPERATING BUSINESS, ESTIMATED BASED ON
VARIOUS VALUATION METHODOLOGIES. IT DOES NOT PURPORT TO CONSTITUTE AN APPRAISAL
OR NECESSARILY REFLECT THE ACTUAL MARKET VALUE THAT MIGHT BE REALIZED THROUGH A
SALE OR LIQUIDATION OF REORGANIZED LEAP, ITS SECURITIES OR ITS ASSETS, WHICH
VALUE MAY BE SIGNIFICANTLY HIGHER OR LOWER. ACCORDINGLY, SUCH ESTIMATED GOING
CONCERN ENTERPRISE VALUE IS NOT NECESSARILY INDICATIVE OF THE PRICES AT WHICH
THE NEW COMMON STOCK OR OTHER SECURITIES OF REORGANIZED LEAP MAY TRADE AFTER
GIVING EFFECT TO THE REORGANIZATION SET FORTH IN THE PLAN, WHICH PRICES MAY BE
SIGNIFICANTLY HIGHER OR LOWER THAN INDICATED BY SUCH ESTIMATE. The actual value
of an operating business, such as Reorganized Leap, is subject to various
factors, many of which are beyond the control or knowledge of the Debtors or
UBS, and such value will fluctuate with changes in such factors. In addition,
the market prices of Reorganized Leap's securities
- -----------------
(1) Capitalized terms used herein and not defined herein have the meaning
ascribed thereto in the First Amended Joint Plan of Reorganization dated as of
July 30, 2003 (the "Plan")
will depend upon, among other things, prevailing interest rates, conditions in
the financial markets, the investment decisions of prepetition creditors
receiving such securities under the Plan (some of whom may prefer to liquidate
their investment rather than hold it on a long-term basis), and other factors
that generally influence the prices of securities. There can be no assurance as
to the trading market, if any, that may be available in the future with respect
to Reorganized Leap's securities.
UBS's analysis was undertaken solely for the purpose of assisting the Debtors'
management in evaluating the Plan and the distributions that holders of Claims
and Interests will receive under the Plan. UBS's analysis addresses the
estimated going concern enterprise value of Reorganized Leap and does not
address any other aspect of the proposed reorganization, the Plan, any other
transactions, or the Debtors' underlying business decision to effect the
reorganization set forth in the Plan. UBS'S ESTIMATED GOING CONCERN ENTERPRISE
VALUE OF REORGANIZED LEAP DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
CLAIMS OR INTERESTS AS TO HOW SUCH PERSON SHOULD VOTE OR OTHERWISE ACT WITH
RESPECT TO THE PLAN. UBS has not been asked to, nor did UBS, express any view as
to what the value of Reorganized Leap's securities will be when issued pursuant
to the Plan or the prices at which they may trade in the future. The estimated
going concern enterprise value of Reorganized Leap set forth herein does not
constitute an opinion as to fairness from a financial point of view to any
person of the consideration to be received by such person under the Plan or of
the terms and provisions of the Plan.
UBS's analysis is based upon, among other things, Reorganized Leap achieving the
Financial Projections prepared by management. The future results of Reorganized
Leap are dependent upon various factors, many of which are beyond the control or
knowledge of the Debtors, and consequently are inherently difficult to project.
The financial results reflected in the Financial Projections are in certain
respects materially better than the recent historical results of operations of
the Debtors. Reorganized Leap's actual future results may differ materially from
the Financial Projections and such differences may affect the value of
Reorganized Leap. See "Exhibit G-Projections for Reorganized Leap." ACCORDINGLY,
FOR THESE AND OTHER REASONS, SUCH ESTIMATED GOING CONCERN ENTERPRISE VALUE IS
NOT NECESSARILY INDICATIVE OF ACTUAL VALUE, WHICH MAY BE SIGNIFICANTLY HIGHER OR
LOWER THAN THE ESTIMATES HEREIN.
In addition, the estimated going concern enterprise value of Reorganized Leap in
this section is with respect to Reorganized Leap as reorganized pursuant to the
Plan. UBS has not been asked to address, and has not addressed, the estimated
going concern enterprise value of Leap as reorganized under a plan different
from the Plan (including any plan involving the investment of new money to fund
business expansion).
As part of its investment banking business, UBS is regularly engaged in
evaluating businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements,
restructurings and reorganizations and valuations for estate, corporate and
other purposes. In the ordinary course of business, UBS, its successors and
affiliates may trade securities of the Debtors for the accounts of their
customers and may in the future trade securities of Reorganized Leap for their
own accounts and the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities.
UBS completed its analysis on July 17, 2003 and delivered its analysis to the
Debtors' management on July 17, 2003.
METHODOLOGY
In preparing its valuation, UBS performed a variety of financial analyses and
considered a variety of factors. The following is a brief summary of the
material financial analyses performed by UBS, which included (a) an analysis of
the market value and trading multiples of selected publicly-held companies in
lines of business UBS believed to be comparable in certain respects to
Reorganized Leap's businesses, (b) an analysis of selected completed or
announced transactions involving companies or wireless spectrum assets UBS
believed to be generally relevant and (c) a discounted cash flow analysis to
estimate the present value of Reorganized Leap's future consolidated, unlevered,
after-tax cash flows available to debt and equity investors based on the
Financial Projections. The summary does not purport to be a complete description
of the analyses performed and factors considered by UBS. The preparation of a
valuation analysis is a complex analytical process involving various judgmental
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to particular facts and
circumstances, and such analyses and judgments are not readily susceptible to
summary description. In particular, UBS's valuation of Reorganized Leap
reflects, among other things, the following:
- - the assumption that virtually all assets of value currently residing at Leap
Wireless International, Inc. (including cash and wireless spectrum assets)
are distributed for the benefit of Leap creditors as contemplated by the
Plan and are not part of Reorganized Leap;
- - UBS has applied its financial analysis to both the Debtors' primary line of
business (wireless telecommunications) as well as the excess wireless
spectrum assets assumed to remain within Reorganized Leap
post-reorganization ("excess spectrum");
- - UBS has relied on management forecasts of excess cash on hand as of the
assumed effective date (defined as cash expected by management to be held by
Reorganized Leap post-reorganization and not planned to be utilized in the
realization of its business projections); and
- - UBS has aggregated the implied valuation of the Debtors' primary line of
business with the implied valuation of its excess spectrum and excess cash
to establish a going concern enterprise value for Reorganized Leap on a
consolidated basis.
UBS believes that its analyses must be considered as a whole and that selecting
portions of its analyses, without considering all its analyses, could create a
misleading or incomplete view of the processes underlying UBS's conclusions. UBS
did not draw, in isolation, conclusions from or with regard to any one analysis
or factor, nor did UBS place any particular reliance or weight on any individual
analysis. Rather, UBS arrived at its views based on all the analyses undertaken
by it assessed as a whole.
For purposes of UBS's analysis, the estimated going concern enterprise value of
Reorganized Leap equals the value of its fully diluted common equity plus its
outstanding debt, determined based on Reorganized Leap, on a consolidated basis,
as an operating business, after giving effect to the reorganization set forth in
the Plan.
SELECTED PUBLICLY-TRADED COMPANIES ANALYSIS. UBS analyzed the market value and
trading multiples of selected publicly-held companies in lines of business UBS
believed to be comparable in certain respects to Reorganized Leap's businesses.
To the extent such selected companies also operated in lines of business that
were unlike the Debtors, UBS made adjustments to the market values and other
financial data of the selected companies as appropriate. UBS calculated the
enterprise value of the selected companies as a multiple of certain historical
and projected financial data of such companies (adjusted as described above).
UBS then analyzed those multiples and compared them with multiples derived by
assigning a range of going concern enterprise values to Reorganized Leap and
dividing those enterprise values by the corresponding historical and projected
financial data of Reorganized Leap. The projected financial data for Reorganized
Leap were based on the Financial Projections and the projected financial data
for the selected companies were based on publicly available research analyst
reports and other publicly available information.
Although the selected companies were used for comparison purposes, no selected
company is either identical or directly comparable to Reorganized Leap.
Accordingly, UBS's comparison of the selected companies to Reorganized Leap and
analysis of the results of such comparisons was not purely mathematical, but
instead necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the relative values of the selected companies and of Reorganized
Leap.
SELECTED TRANSACTIONS ANALYSIS. UBS reviewed selected completed or announced
transactions involving companies or wireless spectrum assets that UBS believed
to be generally relevant. UBS calculated the enterprise value of the companies
or wireless spectrum assets implied by the transactions as a multiple of certain
historical financial data of such companies. To the extent such companies also
operated in lines of business that were unlike the Debtors, UBS made adjustments
to the enterprise values and historical financial data of the selected companies
as appropriate. UBS then analyzed those multiples and compared them with the
multiples derived by assigning a range of going concern enterprise values to
operations and excess spectrum of Reorganized Leap and dividing those enterprise
values by the corresponding historical financial data of Reorganized Leap.
Although the selected transactions were used for comparison purposes, no
selected transaction is either identical or directly comparable to those set
forth in the Plan and no companies or wireless spectrum assets involved in the
selected transactions were either identical or directly comparable to the
operations and excess spectrum of Reorganized Leap. Accordingly, UBS's analysis
of the selected transactions was not purely mathematical, but instead
necessarily involved complex considerations and judgments concerning differences
in transaction structure, financial and operating characteristics of the
companies and wireless spectrum assets involved and other factors that could
affect the relative values achieved in such transactions and the enterprise
value of Reorganized Leap. In reviewing the relevant transactions, UBS noted
that many of the transactions were announced in a materially more favorable
valuation environment for telecommunications companies and for wireless spectrum
assets.
DISCOUNTED CASH FLOW ANALYSIS. UBS performed a discounted cash flow analysis to
estimate the present value of Reorganized Leap's future consolidated, unlevered,
after-tax cash flows available to debt and equity investors based on the
Financial Projections. UBS used the Financial Projections of Reorganized Leap's
consolidated cash flow through 2011. For the purpose of calculating the terminal
value as of 2011, the cash flow projection from the Debtors' financial
projections for 2011 was adjusted for a statutory tax rate and the assumption
that annual depreciation expense would equal annual capital expenditures. UBS
calculated a range of terminal values by applying a range of perpetual growth
factors to the terminal year cash flow projection. UBS then applied a range of
discount rates to arrive at a range of present values of those cash flows and
terminal values. The discounted cash flow analysis also involves complex
considerations and judgments concerning appropriate adjustments to terminal year
cash flows for perpetuity purposes, perpetuity growth factors and discount
rates.
ESTIMATED GOING CONCERN ENTERPRISE VALUE OF REORGANIZED LEAP
IN CONNECTION WITH UBS'S ANALYSIS, WITH THE DEBTORS' CONSENT, UBS HAS NOT
ASSUMED ANY RESPONSIBILITY FOR INDEPENDENT VERIFICATION OF ANY OF THE
INFORMATION PROVIDED TO UBS, PUBLICLY AVAILABLE TO UBS OR OTHERWISE REVIEWED BY
UBS, AND UBS, WITH THE DEBTORS' CONSENT, HAS RELIED ON SUCH INFORMATION BEING
COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS. UBS HAS FURTHER RELIED UPON THE
REPRESENTATIONS OF THE DEBTORS' SENIOR MANAGEMENT THAT THEY ARE NOT AWARE OF ANY
FACTS OR CIRCUMSTANCES THAT WOULD MAKE SUCH INFORMATION INACCURATE OR
MISLEADING. WITH RESPECT TO THE DEBTORS' FINANCIAL PROJECTIONS, UBS HAS ASSUMED,
AT THE DEBTORS' DIRECTION, THAT SUCH FINANCIAL PROJECTIONS HAVE BEEN REASONABLY
PREPARED ON A BASIS REFLECTING THE BEST CURRENTLY AVAILABLE ESTIMATES AND
JUDGMENTS OF THE DEBTORS' SENIOR MANAGEMENT AS TO THE FUTURE PERFORMANCE OF
REORGANIZED LEAP AFTER GIVING EFFECT TO THE REORGANIZATION AS SET FORTH IN THE
PLAN.
In addition, with the Debtors' consent, UBS has not independently evaluated the
achievability of the Financial Projections or the reasonableness of the
assumptions upon which they are based. Furthermore, with the Debtors' consent,
UBS has not made any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of the Debtors that will be part of
Reorganized Leap, nor has UBS been furnished with any such evaluation or
appraisal.
UBS has also assumed, with the Debtors' consent, among other things, the
following (as to which UBS makes no representation):
- - The Plan will be confirmed and consummated in accordance with its terms, and
the Debtors will be reorganized as set forth in the Plan;
- - For purposes of the UBS analysis, the effective date will be September 30,
2003;
- - Reorganized Leap's capitalization and available cash will be as set forth in
the Plan and this Disclosure Statement. In particular, the pro forma
principal amount of indebtedness of Reorganized Leap (on a consolidated book
basis) as of the effective date will be $426.9 million ($423.7 million, net
of GAAP accounting discount);
- - Debtors' existing tax benefits and attributes (including net operating loss
carryforwards) will be completely utilized as part of the reorganization and
no such existing benefits will be available to Reorganized Leap, as
reflected in the Plan and the Financial Projections prepared by the Debtors;
- - Reorganized Leap will be able to obtain all future financings on the terms
and at the times necessary to achieve the Financial Projections;
- - Neither the Debtors nor Reorganized Leap will engage in any material asset
sales or other strategic transaction, and no such asset sales or strategic
transactions are required to meet Reorganized Leap's ongoing cash
requirements;
- - All governmental, regulatory or other consents and approvals necessary for
the consummation of the Plan will be obtained without any material adverse
effect on Reorganized Leap or the Plan;
- - There will not be any material change in the business, condition (financial
or otherwise), results of operations, assets, liabilities or prospects of
the Debtors other than as reflected in the Financial Projections; and
- - There will not be any material change in economic, market, financial and
other conditions.
The estimated range of the going concern enterprise value of Reorganized Leap is
necessarily based on economic, market, financial and other conditions as they
existed on, and on the information available to UBS as of the date of its
analysis, July 17, 2003. Although subsequent developments may affect UBS's
analysis and views, UBS does not have any obligation to update, revise or
reaffirm its estimate.
Based upon and subject to the review and analysis described herein, and subject
to the assumptions, limitations and qualifications described herein, UBS's view,
as of July 17, 2003, was that, subject to no material change in economic,
market, financial or other conditions and no material change in the condition,
projections or prospects of Reorganized Leap, the estimated going concern
enterprise value of Reorganized Leap, as of the assumed effective date
(September 30, 2003), would be in a range between $560 million and $683 million.
EXHIBIT N
RECONCILIATION OF TOTAL LIABILITIES REPORTED BY LEAP WIRELESS
Set forth below is a chart and related footnotes that
reconciles total liabilities reported by Leap Wireless International, Inc. in
its Chapter 11 Petition, its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 and Leap's Schedules filed with the Bankruptcy Court. For
presentation of Leap's standalone total liabilities reported in its Form 10-Q,
please see Note 7 to Leap's consolidated financial statements starting at page
18 of Leap's Form 10-Q.
LEAP WIRELESS LEAP WIRELESS LEAP WIRELESS
CH. 11 PETITION FORM 10-Q SCHEDULES
(DATA AS OF 3/01/03) (DATA AS OF 3/31/03) (DATA AS OF 4/13/03)
-------------------- -------------------- --------------------
SCHEDULE D:
Senior notes (1)
Face value (1) $225,000,000 $ 225,000,000 $ 225,000,000
Discount (warrants) (2) (47,033,123)
Accrued interest (3) 9,374,500 13,906,250
Note payable (NTCH) (4)
Face value (4) 7,971,575 8,383,942 8,383,942
Discount (5) (361,653)
Qualcomm term loan (6)
Face value (6) 1,527,215 1,537,364 1,541,501
Discount (7) (737,028)
Vendor debt (8) 1,611,128,534
-------------------------------------------------------------------
Subtotal 243,873,290 186,789,502 1,859,960,227
-------------------------------------------------------------------
SCHEDULE F:
Senior discount notes (9)
Face value (10) 668,000,000 668,000,000 668,000,000
Discount (unamortized OID) (11) (165,965,168) (165,965,168)
Discount (warrants) (12) (75,944,441)
Excess accrued interest (13) 2,844,112
Senior Notes - also listed as secured
debt (14) 224,632,764
-------------------------------------------------------------------
Subtotal 668,000,000 426,090,391 729,511,708
All other Unsecured Debt (15) 20,974,521 35,564,238 3,927,074
-------------------------------------------------------------------
Subtotal 688,974,521 461,654,629 733,438,782
===================================================================
SCHEDULE E (16): 1,537,685
-------------------------------------------------------------------
TOTAL LIABILITIES $932,847,811 $ 648,444,131 $2,594,936,694
===================================================================
NOTES TO RECONCILIATION OF CERTAIN LIABILITIES
(1) In February 2000, Leap completed an offering of 225,000 senior units,
each senior unit consisting of one 12.5% senior note due 2010 and one warrant to
purchase Leap common stock. Each senior note has a principal amount at maturity
of $1,000. The aggregate outstanding principal amount of the senior notes is
$225,000,000. Interest on the senior notes is payable semi-annually. Under the
terms of the senior units offering, a portion of the proceeds of the senior
units offering was invested in an account pledged by Leap to secure the first
seven interest payments and certain other obligations under the senior notes. As
of the Petition Date, there was approximately $14.3 million in the pledged
account. By order of the Bankruptcy Court, on May 7, 2003 approximately $14.1
million was distributed to the holders of the senior notes in payment of accrued
interest that was payable on April 15, 2003. The remaining approximately
$200,000 in the pledged account is now collateral securing Leap's obligations
under the senior notes. All outstanding amounts under the senior notes in excess
of the approximately $200,000 pledged account are general unsecured obligations
of Leap.
(2) Under U.S. generally accepted accounting principles (GAAP), Leap is
required to allocate a portion of the value received from the senior units
offering to the fair value of the warrants issued to the senior note holders in
the offering. The amount allocated to the fair value of the warrants is
reflected in Leap's GAAP financial statements as "discount" and is amortized
over the life of the senior notes using the effective interest method. The
$47,033,123 reflected as "discount" on the senior notes in the financial
statements included in Leap's Form 10-Q for the quarter ended March 31, 2003 is
the remaining unamortized portion of the value previously allocated to the
warrants. However, as of the Petition Date, the full $225,000,000 aggregate
principal amount outstanding under the senior notes became due and payable, so
that amount was reported in Leap's Schedules.
(3) Accrued interest for the senior notes is included in Other Current
Liabilities on Leap's consolidated balance sheets in Leap's Form 10-Q for the
quarter ended March 31, 2003 (See Note (15)), in contrast to the presentation in
the Petition and the Schedules. The difference between the amounts of accrued
interest reflected in the Petition (shown as of March 1, 2003) and in the
Schedules (shown as of April 13, 2003) is due to the accrual of additional
interest on the senior notes with the passage of time.
(4) In April 2002, Leap completed the exchange of certain wireless licenses
with NTCH and in connection with that transaction, Leap issued to NTCH a note
payable totaling approximately $8.4 million, which is secured by a pledge of the
stock of a Leap subsidiary that owns wireless licenses not used in the Cricket
business. The note is in default. The face value of the NTCH debt reflected in
the Petition was erroneously shown to be net of a scheduled April principal
installment payment that was not made. The actual outstanding principal amount
of the NTCH debt that should have been reflected on the Petition is $8,383,942,
and that amount was reported in Leap's Schedules.
(5) Under U.S. GAAP accounting, Leap is required to present indebtedness in
its financial statements net of a deemed "discount" if the stated interest rate
under an obligation is less than the prevailing market interest rates at the
time the debt is incurred. The amount of the "discount" is the difference
between the stated interest rates and management's best estimate of the
prevailing market interest rates at the time the debt is incurred, and is
amortized over the life of the debt using the effective interest method. The
$361,653 reflected as "discount" on the NTCH note in the financial statements
included in Leap's Form 10-Q for the quarter ended March 31, 2003 is the
remaining unamortized portion of the deemed "discount" on the NTCH note.
However, the full principal amount of $8,383,942 is due and payable under the
note, and that amount was reported in Leap's Schedules.
(6) In January 2001, Leap entered into a secured loan agreement with
Qualcomm Incorporated under which Qualcomm agreed to loan Leap approximately
$125.3 million to finance the acquisition of wireless licenses in the FCC's
Auction #35. Under the agreement, Leap borrowed approximately $1.5 million to
pay loan fees payable under the agreement. This note accrues interest at a
variable rate based on LIBOR and accrued interest is added to the outstanding
principal amount of the note. The differences in the outstanding amounts shown
as of March 1, 2003 in the Petition, as of March 31, 2003 in the Form 10-Q and
as of April 13, 2003 in the Schedules reflect the accrual of additional interest
on the note with the passage of time.
(7) As more fully discussed in Note (5) above, under U.S. GAAP accounting,
Leap is required to present indebtedness in its financial statements net of a
deemed "discount" if the stated interest rate under an obligation is less than
the prevailing market interest rates at the time the debt is incurred. The
$737,028 reflected as "discount" on the Qualcomm note in the financial
statements included in Leap's Form 10-Q for the quarter ended March 31, 2003 is
the remaining unamortized portion of the deemed "discount" on the Qualcomm note.
However, the full outstanding amount of $1,541,501 is due and payable under the
note, and that amount was reported in Leap's Schedules.
(8) In connection with the senior secured vendor debt facilities of Cricket
Communications, Inc., Leap has pledged to the vendor debt collateral pool the
stock of substantially all of Leap's subsidiaries that own FCC wireless
licenses, as security for the repayment of Cricket's indebtedness under the
vendor debt facilities. Leap did not specifically guarantee this debt. As a
result of these pledges of Leap's property as security for the vendor debt, and
in accordance with the instructions to the Schedules, Leap reported the
approximately $1.6 billion amount outstanding under the senior secured vendor
debt facilities on its Schedule D.
(9) In February 2000, Leap completed an offering of 668,000 senior discount
units, each senior discount unit consisting of one 14.5% senior discount note
due 2010 and one warrant to purchase Leap common stock. The senior discount
notes were issued with substantial original issue discount (OID). Each senior
discount note had an initial accreted value of $486.68 and the accreted value
increases over time as interest accrues on the notes through April 15, 2005.
Interest on the senior discount notes (whether accreted or cash pay) is payable
semi-annually. The senior discount notes do not begin to accrue cash interest
until April 15, 2005. Each senior discount note has a principal amount at
maturity of $1,000. The senior discount notes are general unsecured obligations
of Leap.
(10) In preparing its Petition, Leap erroneously included the $668 million
face amount at maturity of the senior discount notes as a liability rather than
the approximately $500 million accreted value of the senior discount notes which
is currently due and payable.
(11) In its GAAP financial statements, the original issue discount that
accretes as interest accrues under the senior discount notes is reflected as
discount. Of the total amounts shown as discount on the senior discount notes in
the financial statements included in Leap's Form 10-Q for the quarter ended
March 31, 2003, $165,965,168 is the remaining unamortized portion of the
original issue discount. However, the approximately $500,000,000 accreted value
under the senior notes became due and payable as of the Petition Date, and
accordingly, that amount is reported on Leap's Schedules.
(12) Under U.S. GAAP, Leap is required to allocate a portion of the value
received from the senior discount units offering to the fair value of the
warrants received by the senior discount note holders in the offering. The
amount allocated to the fair value of the warrants is reflected in Leap's GAAP
financial statements as "discount" and is amortized over the life of the senior
discount notes using the effective interest method. Of the total amounts shown
as discount on the senior discount notes in the financial statements included in
Leap's Form 10-Q for the quarter ended March 31, 2003, $75,944,441 is the
remaining unamortized portion of the value previously allocated to the warrants.
However, the approximately $500,000,000 accreted value under the senior discount
notes became due and payable as of the Petition Date, and accordingly, that
amount is reported on Leap's Schedules.
(13) Represents excess accrued interest on senior notes erroneously reported
on Schedule F.
(14) As more fully described in Note (1), Leap's obligations under the
senior notes are secured by approximately $200,000 of cash collateral in a
pledged account. Thus, the indebtedness under the senior notes was listed as
secured debt on Schedule D. However, the remaining $224,632,764 as of the
Petition Date represents that portion of the senior note obligations which
constitutes general unsecured debt of Leap, and accordingly, that amount was
also reported on Schedule F.
(15) "All Other Unsecured Debt" of Leap reported in the Petition and in the
financial statements included in Leap's Form 10-Q for the quarter ended March
31, 2003 include deferred tax liabilities (net of deferred tax assets), accrued
in accordance with GAAP, of $13.3 million and $14.3 million, respectively.
Deferred tax liabilities (net) were not included on Leap's Schedules because
these deferred liabilities will be eliminated in connection with the company's
emergence from bankruptcy on the effective date of the Plan. As noted above,
accrued interest for the senior notes is included in Other Current Liabilities
on Leap's consolidated financial statements included in Leap's Form 10-Q, but
accrued interest was reported with senior note indebtedness on Schedule D of
Leap's Schedules. Other differences in "All Other Unsecured Debt" of Leap
between Leap's Petition, GAAP financial statements and Schedules are primarily
attributable to fluctuations arising due to the passage of time.
(16) Amounts reported on Leap's Schedule E reflect accrued but unpaid
Chilean taxes and employment tax obligations. Amounts shown on this Schedule
were included in calculating deferred tax liabilities for Leap's GAAP financial
statements, including those set forth in Leap's Form 10-Q for the quarter ended
March 31, 2003.
EXHIBIT O
SUMMARY CORPORATE STRUCTURE TODAY FOR DEBTORS
(YELLOW = COLLATERAL POOL)
[ORGANIZATION CHART OF LEAP WIRELESS INTERNATIONAL, INC. (PUBLIC COMPANY)]
PROPOSED CORPORATE STRUCTURE FOR REORGANIZED DEBTORS
[ORGANIZATION CHART OF LEAP WIRELESS INTERNATIONAL, INC. (PRIVATE COMPANY)]
DISTRIBUTIONS TO LEAP GENERAL UNSECURED CREDITORS VIA
LEAP CREDITOR TRUST
. Leap Cash
. Specified Leap Assets (e.g., Leap licenses, Endesa Note)
. 3.5% of the Common Stock of Reorganized Leap
DISTRIBUTIONS TO CRICKET VENDOR DEBT HOLDERS
. $350 Million Senior Secured Notes
. 96.5% of the Common Stock of Reorganized Leap