Cricket Wireless 2010 Annual Report Download - page 126

Non-Negotiable Promissory Note Due 2015
As part of the purchase price for the Company’s acquisition of the remaining 17.5% controlling membership
interest in Denali that the Company did not previously own, the Company issued a five-year $45.5 million
promissory note in favor of the former holder of such controlling membership interest on December 27, 2010, which
matures on December 27, 2015. Interest on the outstanding principal balance of the note varies from year-to-year at
rates ranging from approximately 5.0% to 8.3% and compounds annually. Under the note, Cricket is required to
make principal payments of $8.5 million per year, with the remaining principal balance and all accrued interest
payable at maturity. Cricket’s obligations under the note are secured on a first-lien basis by certain assets of Savary
Island.
Senior Secured Notes Due 2016
On June 5, 2009, Cricket issued $1,100 million of 7.75% senior secured notes due 2016 in a private placement
to institutional buyers at an issue price of 96.134% of the principal amount, which notes were exchanged in
December 2009 for identical notes that had been registered with the SEC. The $42.5 million discount to the net
proceeds the Company received in connection with the issuance of the notes has been recorded in long-term debt in
the consolidated financial statements and is being accreted as an increase to interest expense over the term of the
notes. At December 31, 2010, the effective interest rate on the notes was 8.0%, which included the effect of the
discount accretion.
The notes bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest
payments commenced in November 2009. The notes are guaranteed on a senior secured basis by Leap and each of
its existing and future domestic subsidiaries (other than Cricket, which is the issuer of the notes) that guarantees any
indebtedness of Leap, Cricket or any subsidiary guarantor. The notes and the guarantees are Leap’s, Cricket’s and
the guarantors’ senior secured obligations and are equal in right of payment with all of Leap’s, Cricket’s and the
guarantors’ existing and future unsubordinated indebtedness.
The notes and the guarantees are effectively senior to all of Leap’s, Cricket’s and the guarantors’ existing and
future unsecured indebtedness (including Cricket’s $1.5 billion aggregate principal amount of unsecured senior
notes and, in the case of Leap, Leap’s $250 million aggregate principal amount of convertible senior notes), as well
as to all of Leap’s, Cricket’s and the guarantors’ obligations under any permitted junior lien debt that may be
incurred in the future, in each case to the extent of the value of the collateral securing the senior secured notes and
the guarantees.
The notes and the guarantees are secured on a pari passu basis with all of Leap’s, Cricket’s and the guarantors’
obligations under any permitted parity lien debt that may be incurred in the future. Leap, Cricket and the guarantors
are permitted to incur debt under existing and future secured credit facilities in an aggregate principal amount
outstanding (including the aggregate principal amount outstanding of the senior secured notes) of up to the greater
of $1,500 million and 3.0 times Leap’s consolidated cash flow (excluding the consolidated cash flow of Denali,
LCW Wireless, Savary Island and STX Wireless) for the prior four fiscal quarters through December 31, 2010, and
stepping down to 2.5 times such consolidated cash flow for any such debt incurred after December 31, 2011.
The notes and the guarantees are effectively junior to all of Leap’s, Cricket’s and the guarantors’ obligations
under any permitted priority debt that may be incurred in the future (up to the lesser of 0.30 times Leap’s
consolidated cash flow (excluding the consolidated cash flow of Denali, LCW Wireless, Savary Island and STX
Wireless) for the prior four fiscal quarters and $300 million in aggregate principal amount outstanding), to the
extent of the value of the collateral securing such permitted priority debt, as well as to existing and future liabilities
of Leap’s and Cricket’s subsidiaries that are not guarantors (including Denali, LCW Wireless and STX Wireless)
and Savary Island and their respective subsidiaries. In addition, the notes and the guarantees are senior in right of
payment to any of Leap’s, Cricket’s and the guarantors’ future subordinated indebtedness.
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LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)