Cricket Wireless 2012 Annual Report Download - page 120

LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, subject to adjustment in certain circumstances. In the event optional cash
distributions are made to the members of STX Wireless pursuant to the STX LLC Agreement, the purchase price
is reduced by the total amount of such distributions made to Pocket plus an amount equal to an 8.0% per annum
return on each such distribution from the date it was made. The purchase price is 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). The Company has the
right to deduct from or set off against the purchase price certain distributions made to Pocket, as well as any
obligations owed to the Company by Pocket. Under the STX LLC Agreement, Cricket is 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 varies from the value
of Pocket’s net interest in STX Wireless at any period (after the attribution of profits or losses), the value of such
interest is accreted to the redemption price for such interest with a corresponding adjustment to additional paid-in
capital. For the years ended December 31, 2012 and 2011, the Company recorded a net accretion benefit of
approximately $0.7 million and $8.9 million, respectively, to bring the carrying value of Pocket’s membership
interests in STX Wireless to its estimated redemption value.
In accordance with the STX LLC Agreement, STX Wireless made pro-rata tax distributions of $9.1 million
and $3.0 million to Cricket and Pocket, respectively, in connection with their estimated tax liabilities resulting
from STX Wireless’ earnings for the year ended December 31, 2012. During the year ended December 31, 2011,
STX Wireless made similar pro-rata tax distributions of $5.7 million and $1.7 million to Cricket and Pocket,
respectively. The Company recorded these tax distributions to Pocket as an adjustment to additional paid-in-
capital in the consolidated balance sheets and as a component of accretion of redeemable non-controlling
interests and distributions, net of tax, in the consolidated statements of comprehensive income. The distributions
made to Cricket were eliminated in consolidation.
On July 12, 2012, STX Wireless made an optional pro-rata cash distribution of $50.7 million and $16.2
million to Cricket and Pocket, respectively. Under the STX LLC Agreement, this optional distribution to Pocket
(plus an annual return, as discussed above), is deducted from the purchase price payable to Pocket in the event of
a put, call or mandatory buyout following a change of control of Leap.
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. As of December 31, 2012, Pocket
had approximately $8.3 million in aggregate principal amount of outstanding borrowings under the loan and
security agreement. Borrowings under the loan and security agreement 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. Cricket has 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. Accordingly, outstanding borrowings and accrued interest under the loan and security agreement
have been recorded as a deduction from the purchase price payable to Pocket as discussed above in the
consolidated balance sheets and as a component of accretion of redeemable non-controlling interests and
distributions, net of tax, in the consolidated statements of comprehensive income. The offset of the outstanding
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