Cricket Wireless 2010 Annual Report Download - page 15

fee based on Cricket’s costs of providing management services plus overhead thereafter. Under the management
services agreement, Savary Island retains full control and authority over its business strategy, finances, wireless
licenses, network equipment, facilities and operations, including its product offerings, terms of service and pricing.
The initial term of the management services agreement expires in 2017. The management services agreement may
be terminated by Savary Island or Cricket if the other party materially breaches its obligations under the agreement,
or by Savary Island for convenience upon prior written notice to Cricket.
STX Wireless
Cricket service is offered in South Texas by its joint venture, STX Operations. Cricket controls STX
Operations through a 75.75% controlling membership interest in its parent company, STX Wireless. In
October 2010, we and various entities doing business as Pocket Communications, or Pocket, contributed
substantially all of our respective wireless spectrum and operating assets in the South Texas region to STX
Wireless to create a joint venture to provide Cricket service in the South Texas region. In exchange for such
contributions, Cricket received a 75.75% controlling membership interest in STX Wireless and Pocket received a
24.25% non-controlling membership interest. Additionally, in connection with the transaction, we made payments
to Pocket of approximately $40.7 million in cash.
The joint venture strengthens our presence and competitive positioning in the South Texas region.
Commencing October 1, 2010, STX Operations began providing Cricket service to approximately 700,000
customers, of which approximately 323,000 were contributed by Pocket, with a network footprint covering
approximately 4.4 million POPs.
The joint venture is controlled and managed by Cricket under the terms of the amended and restated limited
liability company agreement of STX Wireless, or the STX LLC Agreement. Under the STX LLC Agreement, Pocket
has the right to put, and we have the right to call, all of Pocket’s membership interests in STX Wireless, which rights
are generally exercisable on or after April 1, 2014. In addition, in the event of a change of control of Leap, Pocket is
obligated to sell to us all of its membership interests in STX Wireless. The purchase price for Pocket’s membership
interests would be equal to 24.25% of the product of Leap’s enterprise value-to-revenue multiple for the four most
recently completed fiscal quarters multiplied by the total revenues of STX Wireless and its subsidiaries over that same
period, payable in either cash, Leap common stock or a combination thereof, as determined by Cricket in its discretion
(provided that, if permitted by Cricket’s debt instruments, at least $25 million of the purchase price must be paid in
cash). We have the right to deduct from or set off against the purchase price certain distributions made to Pocket, as
well as any obligations owed to us by Pocket. Under the STX LLC Agreement, we are permitted to purchase Pocket’s
membership interests in STX Wireless over multiple closings in the event that the block of shares of Leap common
stock issuable to Pocket at the closing of the purchase would be greater than 9.9% of the total number of shares of Leap
common stock then issued and outstanding. To the extent the redemption price for Pocket’s non-controlling
membership interest exceeds the value of Pocket’s net interest in STX Wireless at any period, the value of such
interest is accreted to the redemption price for such interest with a corresponding adjustment to additional paid-in
capital. As of December 31, 2010, we accreted approximately $48.1 million to reflect the change in the redemption
value of such interest. We have recorded the obligation to purchase all of Pocket’s membership interests in STX
Wireless as a component of redeemable non-controlling interests in our consolidated balance sheets. As of
December 31, 2010, this redeemable non-controlling interest had a carrying value of $99.5 million.
At the closing of the formation of the joint venture, STX Wireless entered into a loan and security agreement
with Pocket pursuant to which, commencing in April 2012, STX Wireless agreed to make quarterly limited-
recourse loans to Pocket out of excess cash in an aggregate principal amount not to exceed $30 million, which loans
are secured by Pocket’s membership interests in STX Wireless. Such loans will bear interest at 8.0% per annum,
compounded annually, and will mature on the earlier of October 2020 and the date on which Pocket ceases to hold
any membership interests in STX Wireless. We have the right to set off all outstanding principal and interest under
this loan and security agreement against the payment of the purchase price for Pocket’s membership interests in
STX Wireless in the event of a put, call or mandatory buyout following a change of control of Leap.
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