Preliminary Proxy Statement
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

Filed by the Registrant þ

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þ Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a- 6(e)(2) )
¨ Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to §240.14a-12

LEAP WIRELESS INTERNATIONAL, INC.

 

 

(Name of Registrant as Specified In Its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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LOGO

5887 Copley Drive

San Diego, California 92111

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on May 17, 2012

 

 

To the Stockholders of Leap Wireless International, Inc.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Leap Wireless International, Inc., a Delaware corporation (“Leap”), will be held at 1:00 p.m., Central Time, on May 17, 2012, at the Hyatt Regency San Antonio, 123 Losoya Street, San Antonio, Texas 78205, for the following purposes:

1.    To elect the following nine director nominees to hold office until the next Annual Meeting of Stockholders or until their successors have been elected and have qualified:

 

John D. Harkey, Jr.

   Robert V. LaPenta    Richard R. Roscitt

S. Douglas Hutcheson

   Mark A. Leavitt    Robert E. Switz

Ronald J. Kramer

   Mark H. Rachesky, M.D.    Michael B. Targoff

2.    To conduct an advisory vote on executive compensation.

3.    To reapprove the material terms of performance goals under Leap’s Executive Incentive Bonus Plan for the purpose of making awards under this plan eligible to be deducted under Section 162(m) of the Internal Revenue Code of 1986, as amended.

4.    To approve an amendment to add performance goals and cash-denominated awards under Leap’s 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan for the purpose of making awards under this plan eligible to be deducted under Section 162(m) of the Internal Revenue Code of 1986, as amended.

5.    To approve Leap’s Tax Benefit Preservation Plan.

6.    To consider a stockholder proposal regarding majority voting in director elections, if properly presented at the Annual Meeting.

7.    To ratify the selection of PricewaterhouseCoopers LLP as Leap’s independent registered public accounting firm for the fiscal year ending December 31, 2012.

8.    To transact such other business as may properly come before the Annual Meeting or any continuation, adjournment or postponement thereof.

The foregoing items of business are more fully described in the Proxy Statement associated with this Notice.

The Board of Directors has fixed the close of business on March 27, 2012 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and at any continuation, adjournment or postponement thereof.

By Order of the Board of Directors

 

LOGO

S. Douglas Hutcheson

President and Chief Executive Officer

San Diego, California

                     , 2012

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THE RECORD HOLDER.


Table of Contents

TABLE OF CONTENTS

 

     Page  

INFORMATION CONCERNING SOLICITATION AND VOTING

     1   

PROPOSAL 1: ELECTION OF DIRECTORS

     3   

BOARD OF DIRECTORS AND BOARD COMMITTEES

     6   

EXECUTIVE OFFICERS

     11   

COMPENSATION DISCUSSION AND ANALYSIS

     13   

COMPENSATION COMMITTEE REPORT

     41   

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     41   

PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION

     42   

PROPOSAL 3: REAPPROVAL OF MATERIAL TERMS OF PERFORMANCE GOALS UNDER EXECUTIVE INCENTIVE BONUS PLAN

     44   

PROPOSAL  4: APPROVAL OF FOURTH AMENDMENT TO 2004 STOCK OPTION, RESTRICTED STOCK AND DEFERRED STOCK UNIT PLAN

     48   

PROPOSAL 5: APPROVAL OF TAX BENEFIT PRESERVATION PLAN

     56   

PROPOSAL 6: CONSIDERATION OF STOCKHOLDER PROPOSAL REGARDING MAJORITY VOTING IN DIRECTOR ELECTIONS

     60   

PROPOSAL  7: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2012

     64   

REPORT OF THE AUDIT COMMITTEE

     65   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     66   

EQUITY COMPENSATION PLAN INFORMATION

     69   

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     70   

STOCKHOLDER PROPOSALS

     70   

OTHER MATTERS

     70   

APPENDIX A: ADJUSTED OIBDA AND ARPU DEFINITIONS AND RECONCILIATIONS

     A-1   

APPENDIX B: LEAP WIRELESS INTERNATIONAL, INC. EXECUTIVE INCENTIVE BONUS PLAN

     B-1   

APPENDIX  C: FOURTH AMENDMENT TO THE 2004 STOCK OPTION, RESTRICTED STOCK AND DEFERRED STOCK UNIT PLAN OF LEAP WIRELESS INTERNATIONAL, INC.

     C-1   

APPENDIX D: TAX BENEFIT PRESERVATION PLAN

     D-1   

APPENDIX E: FINANCIAL AND STOCK PERFORMANCE INFORMATION

     E-1   


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LOGO

5887 Copley Drive

San Diego, California 92111

 

 

PROXY STATEMENT

 

 

INFORMATION CONCERNING SOLICITATION AND VOTING

General

The Board of Directors (the “Board”) of Leap Wireless International, Inc., a Delaware corporation (“Leap”), is soliciting the enclosed proxy for use at the Annual Meeting of Stockholders to be held on May 17, 2012, at 1:00 p.m., Central Time (the “Annual Meeting”), or at any continuation, adjournment or postponement thereof, for the purposes set forth herein and in the associated Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at the Hyatt Regency San Antonio, 123 Losoya Street, San Antonio, Texas 78205. If you need directions to the location of the Annual Meeting, please contact Leap’s Investor Relations department at (858) 882-9876. The approximate date on which this proxy statement is first being furnished or sent to stockholders is                      , 2012. As used in this proxy statement and accompanying appendices, the terms “we,” “us,” “our,” “ours” and the “Company” refer to Leap and its wholly owned subsidiaries, including Cricket Communications, Inc. (“Cricket”).

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on May 17, 2012.

Pursuant to rules promulgated by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet. The proxy statement and our 2011 Annual Report are available at proxy.leapwireless.com.

Voting Rights and Outstanding Shares

Stockholders of record at the close of business on March 27, 2012 (the “Record Date”) are entitled to receive notice of and to vote at the Annual Meeting. At the close of business on the Record Date, Leap had 79,214,551 shares of common stock outstanding and entitled to vote. Stockholders of record on such date will be entitled to one vote on all matters to be voted upon for each share of common stock held. If you are a stockholder of record and plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting.

If you are a beneficial owner of shares held by a broker, bank or other nominee, your shares are held in “street name” and the organization holding your shares is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to direct your broker, bank or other nominee regarding how to vote your shares. However, since you are not the stockholder of record, you may not vote in person at the Annual Meeting unless you bring to the Annual Meeting a legal proxy from the record holder of the shares (your broker, bank or other nominee) authorizing you to vote at the Annual Meeting.

Quorum, Abstentions and Broker Non-Votes

A quorum is necessary for the transaction of business at the Annual Meeting. A quorum exists when holders of a majority of the total number of outstanding shares of common stock entitled to vote at the meeting are present in person or by proxy. At the Annual Meeting, the inspector of election appointed for the Annual Meeting

 

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will determine the presence of a quorum and tabulate the results of the voting by stockholders. The inspector of election will separately tabulate affirmative and negative votes, abstentions and broker non-votes.

Generally, a “broker non-vote” occurs when your shares are held by a broker, bank or other nominee and are not voted with respect to a particular proposal because the organization that holds your shares has discretionary voting power with respect to routine matters but cannot vote on non-routine matters. Only the proposal for the ratification of the selection of PricewaterhouseCoopers LLP as Leap’s independent registered public accounting firm for fiscal 2012 will be considered a routine matter under applicable rules. Therefore, unless you provide voting instructions to any broker, bank or other nominee holding shares on your behalf, they will not have discretionary authority to vote your shares on any of the proposals described in this proxy statement other than the ratification of Leap’s independent registered public accounting firm. Please vote your proxy or provide voting instructions to the broker, bank or other nominee holding your shares so your vote on these matters will be counted.

Abstentions and broker non-votes are counted towards a quorum but are not considered as votes cast in determining whether a matter has been approved and will therefore have no effect on the outcome of any proposal.

Revocability of Proxies

Any stockholder giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. Proxies may be revoked by authorizing a new proxy on a later date over the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the Annual Meeting will be counted) or by filing with the Corporate Secretary of Leap at Leap’s principal executive offices, 5887 Copley Drive, San Diego, California 92111, a written notice of revocation or a duly executed proxy bearing a later date. A stockholder of record at the close of business on the Record Date may vote in person if present at the Annual Meeting, whether or not he or she has previously given a proxy. Attendance at the Annual Meeting will not, by itself, revoke a proxy.

Solicitation

We will bear the cost of soliciting proxies for the upcoming Annual Meeting, including the cost of preparing, printing and mailing the proxy statement and any other materials used in our solicitation of proxies. We will ask banks, brokerage houses, fiduciaries and custodians holding stock in their names for others to send proxy materials to and obtain proxies from the beneficial owners of such stock, and we will reimburse them for their reasonable expenses in doing so. We have retained Innisfree M&A Incorporated to act as a proxy solicitor in conjunction with the Annual Meeting and have agreed to pay that firm a fee of up to $20,000, plus reasonable expenses, costs and disbursements, for proxy solicitation services. We and our directors, officers and regular employees may supplement the proxy solicitor’s solicitation of proxies by mail, personally, by telephone, by press release, by facsimile transmission or by other electronic means. No additional compensation will be paid to our directors, officers or other regular employees for such services.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

Leap’s Board has nominated nine nominees for election at the Annual Meeting. Each of the current members of Leap’s Board is standing for re-election by the stockholders. If elected at the Annual Meeting, each of the nine nominees will serve until Leap’s next annual meeting of stockholders, in each case until his successor is elected and has qualified, or until such director’s earlier death, resignation or removal. Each person nominated for election has agreed to serve if elected, and the Board does not believe that any nominee will be unable to serve.

Leap’s Amended and Restated Certificate of Incorporation provides that the number of directors that shall constitute the whole Board shall be fixed exclusively by one or more resolutions adopted from time to time by the Board. The authorized number of directors currently is nine.

All of our nominees will bring significant leadership, expertise and diverse backgrounds and perspectives to our Board as a result of their professional experience and service as executives and/or board members of other companies. The process undertaken by the Nominating and Corporate Governance Committee in recommending director candidates is described below under “Board of Directors and Board Committees — Director Nomination Process.” Set forth below is biographical information for each person nominated as a director, including a description of certain experience, qualifications and skills that led our Board to conclude that these individuals should serve as our directors.

Nominees for Election

John D. Harkey, Jr., 51, has served as a member of our Board since March 2005. Mr. Harkey brings significant operational and financial expertise to our Board through his role as an executive of and investor in companies in diverse and various industries, including retail, hospitality and telecommunications. Since 1998, Mr. Harkey has served as chief executive officer and chairman of Consolidated Restaurant Companies, Inc. From 1992 to 1998, Mr. Harkey was a partner with the law firm Cracken & Harkey, LLP. Mr. Harkey was founder and managing director of Capstone Capital Corporation and Capstone Partners, Inc. from 1989 until 1992. Mr. Harkey also has significant expertise and perspective as a member of the boards of directors of private and public companies in various industries, including telecommunications, energy and pharmaceuticals. He currently serves as chairman of the board of directors of Regency Energy Partners LP (NYSE: RGP) and also serves on the boards of directors and audit committees of Loral Space & Communications Inc. (NASDAQ: LORL), Energy Transfer Equity, L.P. (NYSE: ETE) and Emisphere Technologies, Inc. (NASDAQ: EMIS). Mr. Harkey also previously served as a member of the boards of directors of Energy Transfer Partners, L.P. (NYSE: ETP), Pizza Inn (NASDAQ: PZZI) and Fox & Hound Investment Group (NASDAQ: FOXX) (which was previously named Total Entertainment Restaurant Corp. (NASDAQ: TENT)). Mr. Harkey obtained a B.B.A. in finance and a J.D. from the University of Texas at Austin and an M.B.A. from the Stanford University School of Business.

S. Douglas Hutcheson, 56, has served as our president, chief executive officer, or CEO, and a member of our Board since February 2005. Mr. Hutcheson provides our Board with significant operational and financial expertise in the telecommunications industry, as well as extensive experience with our business operations, having joined us as a member of our founding management team in September 1998. Since September 1998, Mr. Hutcheson has held a number of positions with us, having served as our chief financial officer, or CFO, between August 2002 and February 2005 and again between September 2007 and June 2008, and also having served in a number of vice president roles between September 1998 and January 2004 with responsibility for areas including strategic planning and product and business development. From February 1995 to September 1998, Mr. Hutcheson served as vice president, marketing in the Wireless Infrastructure Division at Qualcomm Incorporated. Mr. Hutcheson holds a B.S. in mechanical engineering from California Polytechnic University and an M.B.A. from the University of California at Irvine.

Ronald J. Kramer, 53, has served as a member of our Board since November 2009. Mr. Kramer brings significant operational and financial expertise to our Board given his background as an executive of companies in various industries, including finance, manufacturing and gaming. Since April 2008, Mr. Kramer has served as

 

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chief executive officer of Griffon Corporation (NYSE: GFF), a diversified holding company, and has served as a member of Griffon’s board of directors since 1993. From 2002 to 2008, Mr. Kramer served as president and director of Wynn Resorts, Ltd. (NASDAQ: WYNN), a developer, owner and operator of hotel and casino resorts. From 1999 to 2001, Mr. Kramer was a managing director at Dresdner Kleinwort Wasserstein, an investment banking firm, and at its predecessor Wasserstein Perella & Co. Mr. Kramer also has significant expertise and perspective as a member of the boards of directors of private and public companies in various industries. He formerly served on the boards of directors of Monster Worldwide, Inc. (NYSE: MWW), Sapphire Industrials Corporation (AMEX: FYR.UN), Lakes Entertainment, Inc. (NASDAQ: LACO), Republic Property Trust (formerly NYSE: RPB) and New Valley Corporation (NASDAQ: NVAL). Mr. Kramer holds a B.S. in economics from the Wharton School of the University of Pennsylvania and an M.B.A. from New York University.

Robert V. LaPenta, 66, has served as a member of our Board since March 2005. Mr. LaPenta provides our Board with significant operational and financial expertise as an executive of several companies in diverse and various industries, including telecommunications and defense. Mr. LaPenta is chairman, chief executive officer and founder of Aston Capital, LLC, a newly-formed private investment company specializing in investments in secure military communication companies and companies with green technologies. Prior to that, from August 2006 to August 2011, Mr. LaPenta served as chairman, president and chief executive officer of L-1 Identity Solutions, Inc. (formerly NYSE: ID), a provider of technology solutions for protecting and securing personal identities and assets, which was acquired by Safran. From April 2005 to August 2006, Mr. LaPenta served as the chairman and chief executive officer of L-1 Investment Partners, LLC, an investment firm seeking investments in the biometrics area. Mr. LaPenta served as president, chief financial officer and director of L-3 Communications Holdings, Inc. (NYSE: LLL), a company he co-founded, from April 1997 until his retirement from those positions effective April 1, 2005. From April 1996, when Loral Corporation was acquired by Lockheed Martin Corporation, until April 1997, Mr. LaPenta was a vice president of Lockheed Martin and was vice president and chief financial officer of Lockheed Martin’s C3I and Systems Integration Sector. Prior to Lockheed Martin’s acquisition of Loral in April 1996, Mr. LaPenta was Loral’s senior vice president and controller. Mr. LaPenta previously served in a number of other executive positions with Loral after joining that company in 1972. Mr. LaPenta received a B.B.A. in accounting and an honorary degree in 2000 from Iona College in New York.

Mark A. Leavitt, 53, has served as a member of our Board since July 2011. Mr. Leavitt brings significant financial and telecommunications expertise to our Board due to his extensive investment banking experience, primarily with companies in technology, media and communications businesses. Mr. Leavitt joined Piper Jaffray in April 2008 as a managing director and the head of media and telecommunications investment banking and currently heads the firm’s global technology, media and telecommunications group. Prior to Piper, he served as a managing director and head of the media and communications group at Jefferies & Company, Inc. from May 2005 to April 2008. Prior to that, Mr. Leavitt held similar positions with several investment banking firms from 1987 to 2005, including Robertson Stephens and Prudential Securities. Mr. Leavitt also brings significant expertise and perspective through prior service as a member of the boards of directors of private and public companies in various industries, including telecommunications. Mr. Leavitt holds a B.S. from Trinity College and an M.B.A. from the University of Chicago Graduate School of Business.

Mark H. Rachesky, M.D., 53, has served as a member and Chairman of our Board since August 2004. Dr. Rachesky brings significant corporate finance and business expertise to our Board due to his background as an investor and fund manager. Dr. Rachesky is the co-founder and since 1996 has been president of MHR Fund Management LLC, which is an investment manager of various private investment funds that invest in inefficient market sectors, including special situation equities and distressed investments. Dr. Rachesky also has significant expertise and perspective as a member of the boards of directors of private and public companies in various industries, including telecommunications, pharmaceuticals and media. Dr. Rachesky serves as a member and chairman of the boards of directors of Loral Space & Communications Inc. (NASDAQ: LORL) and Telesat Canada, and as a member of the boards of directors of Emisphere Technologies, Inc. (NASDAQ: EMIS) and Lions Gate Entertainment Corp. (NYSE: LGF). Dr. Rachesky previously served as a director of NationsHealth, Inc. (formerly NASDAQ: NHRX), Neose Technologies, Inc. (formerly NASDAQ: NTEC) and Novadel Pharma, Inc. (OTCBB: NVDL). Dr. Rachesky holds a B.S. in molecular aspects of cancer from the University of Pennsylvania, an M.D. from the Stanford University School of Medicine and an M.B.A. from the Stanford University School of Business.

 

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Richard R. Roscitt, 60, has served as a member of our Board since July 2011. Mr. Roscitt brings significant operational and industry expertise to our Board given his background as an executive of various telecommunications companies. From August 2007 until January 2010 Mr. Roscitt served as chairman and chief executive officer of SMobile Systems, Inc., a software company focused on smart phone and tablet security solutions for the enterprise, service provider and consumer markets which was acquired by Juniper Networks, Inc. Prior to that, Mr. Roscitt served as president and chief operating officer of MCI, Inc. and as president, chief executive officer and chairman of ADC Telecommunications Inc. (formerly NASDAQ: ADCT), a supplier of broadband network equipment and software. Prior to his leadership roles at these companies, Mr. Roscitt worked for 28 years in various roles at AT&T. Mr. Roscitt previously served as a director of ICT Group, Inc. (formerly NASDAQ: ICTG). Mr. Roscitt holds a B.E. from Stevens Institute of Technology and an M.B.A. from the Sloan School of Management at the Massachusetts Institute of Technology.

Robert E. Switz, 65, has served as a member of our Board since July 2011. Mr. Switz brings significant operational and financial expertise to our Board given his background as an executive of various technology companies. Mr. Switz served as president, chief executive officer and a director of ADC Telecommunications, Inc. (formerly NASDAQ: ADCT), a supplier of broadband network equipment and software, from August 2003 until December 2010, when it was acquired by Tyco Electronics Ltd. From 1994 to 2003, Mr. Switz held numerous leadership roles with ADC. Prior to joining ADC, Mr. Switz was employed by Burr-Brown Corporation. Mr. Switz also serves on the board of directors of Micron Technology, Inc. (NASDAQ: MU), GT Advanced Technologies Inc. (NASDAQ: GTAT) and Broadcom Corporation (NASDAQ: BRCM). Mr. Switz holds a B.S. in business administration from Quinnipiac University and an M.B.A. from the University of Bridgeport.

Michael B. Targoff, 67, has served as a member of our Board since September 1998. Mr. Targoff has significant operational and financial expertise as an investor in and executive of telecommunication companies. Since January 2008, Mr. Targoff has served as president of Loral Space & Communications Inc. (NASDAQ: LORL), having been previously appointed as chief executive officer in March 2006 and vice chairman and a member of the board of directors in November 2005. From 1998 to February 2006, Mr. Targoff was founder and principal of Michael B. Targoff & Co., a private investment company focused on telecommunications and related industry early stage companies. From 1996 to 1998, Mr. Targoff was the president and chief operating officer of Loral Space & Communications Ltd., having previously served as senior vice president and secretary of Loral Corporation. Before joining Loral Corporation in 1981, Mr. Targoff was a partner with the law firm of Willkie Farr & Gallagher LLP. Mr. Targoff also has significant expertise and perspective as a member of the boards of directors of private and public companies in various industries, including telecommunications. Mr. Targoff previously served on the boards of directors of CPI International, Inc. (NASDAQ: CPII), ViaSat, Inc. (NASDAQ: VSAT) and Infocrossing, Inc. (formerly NASDAQ: IFOX). Mr. Targoff holds a B.A. from Brown University and a J.D. from the Columbia University School of Law.

Vote Required

Directors are elected by a plurality of the votes of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nine nominees named above. In no event may such shares be voted for the election of more than nine nominees. In the event that any nominee should be unavailable for election as a result of an unexpected occurrence, such shares will be voted for the election of such substitute nominee as the Board may propose.

Voting Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR

EACH OF LEAP’S NINE NOMINEES NAMED ABOVE

 

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BOARD OF DIRECTORS AND BOARD COMMITTEES

Board Meetings

Leap’s Board held 22 meetings, including telephonic meetings, during the 2011 fiscal year. During the past fiscal year, each incumbent director attended at least 75% of the total number of meetings of the Board and meetings of committees of the Board on which he served.

Director Attendance at Annual Meetings of Stockholders

Leap’s policy is to encourage the members of its Board to attend Leap’s annual meetings of stockholders. All of Leap’s directors attended the 2011 annual meeting of stockholders held on July 28, 2011, except for Messrs. Roscitt and Switz who were appointed to the Board following the meeting.

Communications with Our Board

Any stockholder may communicate with the Board and its committees by addressing his or her communication to the Board, the independent directors, a committee of the Board, or an individual director by sending a communication addressed to the recipient group or individual at:

Leap Wireless International, Inc.

Attn: Board of Directors

c/o Corporate Secretary

5887 Copley Drive

San Diego, CA 92111

Copies of written communications received by the Corporate Secretary will be provided to the relevant director(s) unless such communications are considered, in the reasonable judgment of the Corporate Secretary, to be improper for submission to the intended recipient(s). Examples of stockholder communications that would be considered improper for submission include, without limitation, customer complaints, solicitations, communications that do not relate directly or indirectly to Leap or its business, or communications that relate to improper or irrelevant topics. Any such improper communication will be made available to any non-employee director upon request.

Director Independence

The Board has determined that, except for Mr. Hutcheson, all of its members are independent directors as defined by the NASDAQ Stock Market listing standards. Mr. Hutcheson is not considered independent because he is employed by us as our president and CEO.

Board Leadership Structure

Our Corporate Governance Guidelines provide that our Chairman is to be selected by our Board in accordance with Leap’s Amended and Restated Bylaws (our “Bylaws”). The Board considers its leadership structure and the role and responsibilities of its Chairman based upon the needs of the Company, with the objective of providing effective, independent oversight of management. Since 2004, the Board has separated the positions of Chairman and CEO. The Board believes that this leadership structure is appropriate at this time to maximize the effectiveness of its oversight of management and to provide a perspective that is separate and distinct from that of management.

Standing Committees of the Board of Directors

Our Board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.

 

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Audit Committee.    Our Audit Committee currently consists of Mr. Targoff (Chairman), Mr. LaPenta and Mr. Leavitt. Each member of the Audit Committee is an independent director, as defined by the NASDAQ Stock Market listing standards. Our Board has determined that each member of the Audit Committee qualifies as an “audit committee financial expert” as that term is defined in the rules and regulations established by the SEC. The functions of this Committee include:

 

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appointment, compensation, retention and oversight of our independent registered public accounting firm and senior internal audit executive;

 

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pre-approval of audit and non-audit services to be rendered by our independent registered public accounting firm;

 

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review of the independence and quality control procedures of our independent registered public accounting firm and the experience and qualifications of the senior personnel from our independent registered public accounting firm providing audit services to us;

 

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meeting with our management, our independent registered public accounting firm and our senior internal audit executive in connection with our annual audit to discuss: (i) the scope of the audit, the procedures to be followed and the staffing of the audit; (ii) major issues regarding accounting principles and financial statement presentations, complex or unusual transactions and other special financial issues; (iii) analyses prepared by management or the independent registered public accounting firm of significant financial reporting issues and judgments made in connection with the preparation of our financial statements; and (iv) the effect of recent regulatory and professional accounting pronouncements and off-balance sheet structures on our financial statements;

 

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reviewing our financial statements and periodic reports and discussing these statements and reports with our management and our independent registered public accounting firm, and considering whether such statements and reports are complete and consistent with information known to the Audit Committee members;

 

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meeting separately with representatives from the independent registered public accounting firm: (i) regarding any problems or difficulties encountered during the course of the audit work; (ii) to discuss the report the independent registered public accounting firm is required to make to the Audit Committee; and (iii) to discuss the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended;

 

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generally reviewing and approving related party transactions;

 

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discussing with management the Company’s policies with respect to risk assessment and risk management; and

 

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determining whether to recommend to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year subject to the audit.

Representatives from our independent registered public accounting firm and our internal audit department regularly meet privately with the Audit Committee and have unrestricted access to this committee. The Audit Committee held four meetings during the 2011 fiscal year. A copy of the Audit Committee Charter adopted by Leap’s Board is posted in the Investor Relations section of Leap’s website at www.leapwireless.com. The information on our website is not part of this proxy statement or any other report or registration statement that we furnish to or file with the SEC.

Compensation Committee.    Our Compensation Committee currently consists of Dr. Rachesky, Mr. Roscitt and Mr. Targoff. All members of the Compensation Committee are independent directors, as defined by the NASDAQ Stock Market listing standards. The functions of this Committee include:

 

  Ÿ  

reviewing our compensation philosophy and our employee compensation and benefit plans;

 

  Ÿ  

reviewing and approving corporate goals and objectives relating to the compensation of our CEO, and evaluating the performance of, and determining and approving the compensation of, our CEO;

 

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  Ÿ  

evaluating the performance of our other executive officers, and reviewing and approving, or modifying, the recommendations of our CEO regarding compensation of such executive officers;

 

  Ÿ  

reviewing and approving any employment contracts and special employment arrangements to be entered into by Leap with any executive officer;

 

  Ÿ  

granting awards under, and setting and evaluating performance targets under, annual bonus and long-term incentive compensation plans for our executive officers; and

 

  Ÿ  

reviewing and approving, as well as reviewing and discussing with our management, the Compensation Discussion and Analysis to be included in our Annual Report on Form 10-K and proxy statement.

The Compensation Committee held seven meetings during the 2011 fiscal year. A copy of the Compensation Committee Charter adopted by Leap’s Board is posted in the Investor Relations section of Leap’s website at www.leapwireless.com. Under the Compensation Committee Charter, the Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee, and may delegate to one or more officers of Leap any or all of the Committee’s responsibilities to grant awards under Leap’s stock incentive plans to eligible participants (other than to Leap’s executive officers).

Nominating and Corporate Governance Committee.    Our Nominating and Corporate Governance Committee currently consists of Dr. Rachesky (Chairman), Mr. Harkey, Mr. Kramer and Mr. Roscitt. All members of the Nominating and Corporate Governance Committee are independent directors, as defined by the NASDAQ Stock Market listing standards. The functions of this Committee include:

 

  Ÿ  

identifying qualified candidates to become members of our Board;

 

  Ÿ  

recommending to the Board candidates for nomination for election as directors at each annual meeting of stockholders (or special meeting of stockholders at which directors are to be elected);

 

  Ÿ  

recommending the membership of committees of the Board;

 

  Ÿ  

recommending to the Board candidates for appointment to fill vacancies on our Board;

 

  Ÿ  

overseeing the annual evaluation of the performance of the Board; and

 

  Ÿ  

overseeing our corporate governance guidelines.

The Nominating and Corporate Governance Committee held three meetings during the 2011 fiscal year. A copy of the Nominating and Corporate Governance Committee Charter adopted by Leap’s Board is posted in the Investor Relations section of Leap’s website at www.leapwireless.com.

Director Nomination Process

Director Qualifications

The Nominating and Corporate Governance Committee’s goal is to assemble a Board that brings to our company a variety of perspectives and skills derived from high quality business and professional experience. In evaluating director nominees, the Nominating and Corporate Governance Committee considers the following criteria, among others that the committee deems appropriate:

 

  Ÿ  

personal and professional integrity, ethics and values;

 

  Ÿ  

experience in corporate management, such as serving as an officer or former officer of a publicly held company, and a general understanding of marketing, finance and other elements relevant to the success of a publicly traded company in today’s business environment;

 

  Ÿ  

experience in our industry;

 

  Ÿ  

experience as a board member of another publicly held company;

 

  Ÿ  

academic expertise in an area of our operations; and

 

  Ÿ  

practical and mature business judgment, including the ability to make independent analytical inquiries.

The Nominating and Corporate Governance Committee has no stated minimum criteria for director nominees. In evaluating director nominees, in addition to the criteria described above, the Nominating and

 

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Corporate Governance Committee may consider other factors that it deems to be appropriate and in the best interests of Leap and its stockholders. The Nominating and Corporate Governance Committee considers each nominee in the context of the Board as a whole, with the objective of assembling a group that can best contribute to the success of our business and represent stockholder interests through the exercise of sound judgment, using its diversity of perspectives, skills and experiences.

The Nominating and Corporate Governance Committee also believes it is appropriate for at least one, and preferably several, members of our Board to meet the criteria for an “audit committee financial expert” as defined by SEC rules, and that a majority of the members of our Board be independent directors, as defined under the NASDAQ Stock Market listing standards. At this time, the Nominating and Corporate Governance Committee also believes it is appropriate for our president and CEO to serve as a member of our Board. As indicated above, our Board has determined that all of the members of our Audit Committee are “audit committee financial experts” and that all of its members (except for Mr. Hutcheson) are independent directors.

Process for Identification and Evaluation of Nominees for Director

Nominating and Corporate Governance Committee Process.    The Nominating and Corporate Governance Committee identifies nominees for director by first evaluating the current members of the Board willing to continue in service. Current members with qualifications and skills that are consistent with the Nominating and Corporate Governance Committee’s criteria for Board service and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining new perspectives. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Nominating and Corporate Governance Committee identifies the desired skills and experience of a new nominee in light of the criteria above. In such a case, the Nominating and Corporate Governance Committee generally polls the Board and members of management for their recommendations. The Nominating and Corporate Governance Committee may also seek input from industry experts or analysts. Once candidates are identified, the Nominating and Corporate Governance Committee reviews the qualifications, experience and background of the candidates. Final candidates are then interviewed by the Nominating and Corporate Governance Committee and certain other of our independent directors and executive management. In making its determinations, the Nominating and Corporate Governance Committee evaluates each individual in the context of our Board as a whole, with the objective of assembling a group that can best perpetuate our success and represent stockholder interests through the exercise of sound judgment. After review and deliberation of all feedback and data, the Nominating and Corporate Governance Committee makes its recommendation to the Board. From time to time, the Nominating and Corporate Governance Committee has also engaged the services of a professional search firm to assist in identifying and recruiting potential candidates.

Recommendations from Stockholders.    The Nominating and Corporate Governance Committee’s policy is to consider and evaluate nominees recommended by stockholders in the same manner as it evaluates other nominees. We have not received any director candidate recommendations from our stockholders to date. However, any recommendations received from stockholders will be evaluated in the same manner that potential nominees suggested by Board members, management or other parties are evaluated.

Stockholders wishing to recommend a candidate for nomination for election as a director must do so in writing addressed to the Corporate Secretary of Leap. The stockholder must submit a detailed resume of the candidate and an explanation of the reasons why the stockholder believes this candidate is qualified for service on our Board. The stockholder must also provide such other information about the candidate as would be required by SEC rules to be included in a proxy statement about the candidate. In addition, the stockholder must include the written consent of the candidate and describe any arrangements or undertakings between the stockholder and the candidate regarding the recommendation or nomination. In order to give the Nominating and Corporate Governance Committee sufficient time to evaluate a recommended candidate, the recommendation must be received by our Corporate Secretary at our principal executive offices by the deadline for submitting proposals to be included in the proxy statement for the next annual meeting of stockholders, as described below in the section entitled “Stockholder Proposals.” Recommendations received after such date will not be timely for consideration in connection with that year’s annual meeting of stockholders.

 

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Nominations by Stockholders.    Nominations of persons for election to the Board may be made at the Annual Meeting by any stockholder who is entitled to vote at the meeting and who has complied with all of the procedures set forth in Article II, Section 8 of the Bylaws. These procedures require stockholders to give timely notice in writing and in proper form to the Corporate Secretary of Leap. Any such notice must contain the information about both the nominee and the nominating stockholder required by the Bylaws, as well as the nominee’s written consent to being named in the proxy and to serving as a director if elected. Stockholders are encouraged to review the Bylaws for a complete description of the procedures. Nominations that do not comply with the requirements set forth in the Bylaws will not be considered for presentation at the Annual Meeting. You may contact the Corporate Secretary of Leap for a copy of the relevant bylaw provisions regarding the requirements for nominating persons for election to the Board.

Risk Oversight

The Board has an active role, as a whole and at the committee level, in overseeing management of the Company’s risks. The Board is regularly updated regarding risks that we face, including those that may impact our financial and operational performance, our credit and liquidity profile and other elements of our strategic plans. The Audit Committee assists the Board in this function and is charged with oversight of our policies regarding risk assessment and management, including our policies regarding management of financial risk exposure and review of related party transactions. The Board’s other standing committees also have responsibilities with respect to risk oversight. The Compensation Committee is responsible for overseeing the management of risks relating to executive compensation plans and arrangements. The Nominating and Corporate Governance Committee manages risks associated with the independence of the Board of Directors, including considering whether any director nominees have relationships or potential conflicts of interest that could affect their independence. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is informed of risks we face through reports from our committees and management.

 

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EXECUTIVE OFFICERS

Biographical information for the executive officers of Leap as of the date of this proxy statement (other than Mr. Hutcheson) is set forth below. There are no family relationships between any director or executive officer and any other director or executive officer. Executive officers serve at the discretion of the Board and until their successors have been duly elected and qualified, unless sooner removed by the Board.

 

Name

   Age     

Position

William D. Ingram

     55       Executive Vice President, Strategy and Acting Chief Financial Officer

Raymond J. Roman

     45       Executive Vice President and Chief Operating Officer

Robert A. Strickland

     50       Executive Vice President and Chief Technical Officer

Robert A. Young

     61       Executive Vice President, Field Operations

Robert J. Irving, Jr.

     56       Senior Vice President, General Counsel and Secretary

Jeffrey E. Nachbor

     47       Senior Vice President, Financial Operations and Chief Accounting Officer

Leonard C. Stephens

     55       Senior Vice President, Human Resources

William D. Ingram has served as our executive vice president, strategy since February 2012 and our acting CFO since March 2012. Mr. Ingram previously served as our senior vice president, strategy between April 2008 and February 2012, as senior vice president, financial operations and strategy from February 2008 to April 2008 and as a consultant to the Company beginning August 2007. Prior to joining us, Mr. Ingram served as vice president and general manager of AudioCodes, Inc., a telecommunications equipment company, from July 2006 to March 2007. Prior to that, Mr. Ingram served as the president and chief executive officer of Nuera Communications, Inc., a provider of VoIP infrastructure solutions, from September 1996 until it was acquired by AudioCodes, Inc. in July 2006. Prior to joining Nuera Communications in 1996, Mr. Ingram served as the chief operating officer of the clarity products division of Pacific Communication Sciences, Inc., a provider of wireless data communications products, as president of Ivie Industries, Inc., a computer security and hardware manufacturer, and as president of KevTon, Inc., an electronics manufacturing company. Mr. Ingram holds an A.B. in economics from Stanford University and an M.B.A. from Harvard Business School.

Raymond J. Roman has served as our executive vice president and chief operating officer, or COO, since February 2011. Prior to joining us, Mr. Roman served in senior executive positions at Dell Inc. from 2007 to 2011, first as vice president of global service and operations, software and peripherals for the consumer division and then as vice president of sales, operations and service for the mobility division. Prior to Dell, Mr. Roman served in senior management roles at Motorola, Inc. from 2001 to 2007, including as senior vice president, global sales and operations for mobile devices. From 1989 to 2001, Mr. Roman served in a number of senior operating and finance roles at companies including Ameritech Corporation and Kraft Foods, Inc. Mr. Roman holds a B.S. in finance from the University of Illinois and an M.B.A. from the University of Chicago.

Robert A. Strickland has served as our executive vice president and chief technical officer since February 2012. Prior to joining us, Mr. Strickland ran his own consulting firm, providing strategic IT and go-to-market operational planning as well as enterprise IT validation to companies and their customers. From 2006 to 2010, he served as senior vice president and chief information officer at T-Mobile USA, responsible for all software development (including handsets and related infrastructure elements), the company's billing, customer care and other related systems and all telecommunications platforms. Prior to joining T-Mobile USA, he served as senior vice president and chief information officer at EchoStar Communications from 2005 to 2006. From 2004 to 2005 he served as president and chief operating officer of Silas Technologies Holdings, leading the company through a reorganization and new business plan. From 2001 to 2004 he served as chief executive officer of Xperts, an IT integration and services company. From 1998 to 2001, Mr. Strickland held several chief technology officer positions with Landmark Communications, a privately-owned holding company. From 1984 to 2004, Mr. Strickland held a number of IT, engineering and programming roles in the cable, education and computer industries. Mr. Strickland graduated from Brandeis University with a B.A. in mathematics.

 

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Robert A. Young has served as our executive vice president, field operations since January 2011. Prior to joining us, Mr. Young served in senior management positions from 2001 to 2009 with MetroPCS Communications, Inc., including as executive vice president, market operations and senior vice president, northeast markets. From 2000 to 2001, Mr. Young served in senior management roles with Verizon Wireless, including as president of the Great Lakes region and president of Verizon Wireless Messaging Services. Prior to joining Verizon Wireless, Mr. Young held senior management positions with PrimeCo Personal Communications from 1995 to 2000 and with U.S. West, Inc. from 1991 to 1995. Mr. Young holds a B.S. in business management from Florida State University and an M.S. from the University of Miami.

Robert J. Irving, Jr. has served as our senior vice president, general counsel and secretary since May 2003, having previously served as our vice president, legal from August 2002 to May 2003, and as our senior legal counsel from September 1998 to August 2002. Previously, Mr. Irving served as administrative counsel for Rohr, Inc., a corporation that designed and manufactured aerospace products from 1991 to 1998, and prior to that served as vice president, general counsel and secretary for IRT Corporation, a corporation that designed and manufactured x-ray inspection equipment. Before joining IRT Corporation, Mr. Irving was an attorney at Gibson, Dunn & Crutcher LLP. Mr. Irving was admitted to the California Bar Association in 1982. Mr. Irving holds a B.A. from Stanford University, an M.P.P. from the John F. Kennedy School of Government at Harvard University and a J.D. from Harvard Law School.

Jeffrey E. Nachbor has served as our senior vice president, financial operations and chief accounting officer since May 2008, having previously served as our senior vice president, financial operations since April 2008. From September 2005 to March 2008, Mr. Nachbor served as the senior vice president and corporate controller for H&R Block, Inc. Prior to that, Mr. Nachbor served as senior vice president and chief financial officer of Sharper Image Corporation from February 2005 to August 2005 and served as senior vice president, corporate controller of Staples, Inc. from April 2003 to February 2005. Mr. Nachbor served as vice president of finance of Victoria’s Secret Direct, a division of Limited Brands, Inc., from December 2000 to April 2003, and as vice president of financial planning and analysis for Limited Brands, Inc. from February 2000 to December 2000. Mr. Nachbor is a certified public accountant and holds an M.B.A. in finance and accounting from the University of Kansas and a B.S. in accounting from Old Dominion University.

Leonard C. Stephens has served as our senior vice president, human resources since our formation in June 1998. From December 1995 to September 1998, Mr. Stephens was vice president, human resources operations for Qualcomm Incorporated. Before joining Qualcomm Incorporated, Mr. Stephens was employed by Pfizer Inc., where he served in a number of human resources positions over a 14-year career. Mr. Stephens holds a B.A. from Howard University.

 

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COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis, or CD&A, describes the principles and objectives of our executive compensation program, how we applied those principles in compensating our named executive officers for 2011 and how our compensation programs are linked to the Company’s financial and operational performance, the individual performance of our named executive officers and the Company’s stock price performance.

Our named executive officers for 2011 (as set forth in the table below entitled “Summary Compensation”) are:

 

  Ÿ  

S. Douglas Hutcheson, our president and CEO;

 

  Ÿ  

Walter Z. Berger, our former executive vice president and CFO (who resigned in February 2012);

 

  Ÿ  

Raymond J. Roman, our executive vice president and COO;

 

  Ÿ  

Robert A. Young, our executive vice president, field operations;

 

  Ÿ  

William D. Ingram, our executive vice president, strategy and acting CFO; and

 

  Ÿ  

Albin F. Moschner, our former executive vice president and COO (who retired in January 2011).

Executive Summary

Our executive compensation program is designed to attract, motivate and retain talented executives and to provide incentives to them to drive our financial and operational objectives and create long-term shareholder value. The Company’s executive compensation philosophy is that executive officers’ pay should be closely aligned to both corporate and individual performance.

Response to the 2011 Say-on-Pay Vote

In 2011, the Company conducted its first “say-on-pay” vote, receiving “FOR” votes from approximately 66% of shares cast. In response to this vote, the Compensation Committee carefully re-evaluated our executive compensation program to ensure that it remained consistent with the Compensation Committee’s philosophy and objectives, including providing incentives to accomplish significant corporate, individual and stock price performance. We also considered stockholder input and feedback regarding our executive compensation practices. As part of our general investor outreach, we routinely meet with stockholders throughout the year to discuss input or concerns they may have, which may include discussions regarding our financial and operational performance as well as our executive compensation practices. Since our 2011 annual meeting, we have met with representatives from stockholders whose holdings constitute, in aggregate, more than two-thirds of our outstanding common stock.

To assist with the review of our executive compensation programs, the Compensation Committee worked with Mercer (US), Inc., or Mercer, its independent compensation consultant. As a result of this re-evaluation, the Compensation Committee decided to generally retain our existing approach to executive compensation for our executives, which emphasizes variable compensation that rewards our most senior executives when they deliver value for our stockholders. However, the Compensation Committee also approved key changes to the manner in which we provide long-term incentives to our executives, as further described below, ensuring that a significant portion of future long-term incentive awards will be delivered in the form of performance-based vehicles, as described below under “— Shift Toward Increased Performance-Based Compensation for 2012.”

In addition, the cash retention arrangements we previously entered into with our executive officers, which provided for cash payments to them upon a change in control of the Company in certain circumstances, terminated in March 2012 without any payments being made under such agreements. The Compensation Committee did not renew these agreements in 2012. See “Severance, Retention and Change-in-Control Arrangements – Cash Retention Arrangements” below.

Furthermore, when determining how often to hold a stockholder advisory vote on executive compensation, the Board took into account the strong preference for an annual vote expressed by our stockholders at our 2011

 

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annual meeting. Accordingly, this year stockholders will again be asked to vote on a non-binding resolution to approve the compensation of our named executive officers as disclosed in this proxy statement.

2011 Financial and Operational Performance

For the Company, 2011 was a year of continued intense competition within the wireless industry and further transition in our business. The wireless telecommunications industry has experienced significant competition since 2009 due to the attractive growth prospects of the prepaid and pay-in-advance segment in which we operate, with a number of wireless providers offering unlimited prepaid and postpaid service offerings that are designed to compete with our Cricket services. Since that time, we have continued to take actions to address the evolving competitive and economic environment and position the Company for improved financial and operating performance. Steps we took in 2011 to improve our competitive positioning included the following:

 

  Ÿ  

New Product and Service Offerings — We continued to develop and evolve our product and service offerings to better meet the needs of our target customer segments. In particular, we launched Muve Music®, the first unlimited music download service designed specifically for mobile handsets. The service is available to customers as a feature in a number of our Cricket Wireless plans and is offered in all of the markets in which we operate, as well as through nationwide retailers. Muve Music had more than 500,000 customers at the end of 2011 and is currently the second largest digital music subscription service in the U.S.

 

  Ÿ  

Strengthened and Expanded Distribution — We continued to focus on building brand awareness in our markets and improving the productivity of our distribution. We significantly expanded the number of our premier dealer locations, which are third-party retail locations with the look and feel of company-owned stores. We also significantly expanded our nationwide sales presence by offering Cricket products and services in thousands of additional nationwide retailer locations.

 

  Ÿ  

Enhanced Network — We continued to maintain and develop our network to allow us to provide customers with high-quality service. During the year, we successfully launched our first commercial LTE trial market as part of our current plans to deploy next-generation LTE network technology across approximately two-thirds of our current network footprint over the next two to three years.

 

  Ÿ  

Other Significant Initiatives — We completed a number of other significant initiatives to strengthen our operating performance, including an upgrade to our customer billing system which we believe will improve customer experience, increase our efficiency, enhance our ability to provide products and services, support future scaling of our business and reduce our operating costs.

The changes we introduced in our business helped drive significant financial and operational results:

 

  Ÿ  

New Customers and Churn Rate — We gained approximately 416,000 net customer additions in fiscal 2011, up 72% from 2010, and we ended the year with approximately 5.93 million customers. In addition, our rate of customer turnover, or churn, for fiscal 2011 improved to 3.8% from 4.7% for fiscal 2010.

 

  Ÿ  

Revenues — During fiscal 2011, we generated total revenues of $3,071 million and service revenues of $2,829 million, representing increases of 14% for these measures over fiscal 2010. In particular, average revenue per user per month, or ARPU, for fiscal 2011 increased to $40.72, up from $37.76 for fiscal 2010. For a definition of ARPU and a reconciliation of ARPU to service revenues, please see Appendix A to this proxy statement.

 

  Ÿ  

Adjusted OIBDA — We produced $562.6 million of adjusted operating income before depreciation and amortization, or OIBDA, during fiscal 2011, a 7% increase over fiscal 2010. For a definition of adjusted OIBDA and a reconciliation of adjusted OIBDA to operating loss, please see Appendix A to this proxy statement.

2011 Compensation Decisions

The compensation earned by our named executive officers for 2011 reflected the Compensation Committee’s overall pay philosophy, including its objective to provide competitive compensation opportunities and its emphasis on providing a substantial portion of executive pay in the form of variable or at-risk

 

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compensation that links the value of executive pay to corporate, individual and stock price performance. Compensation amounts earned by our named executive officers in 2011 were heavily influenced by the Company’s financial and operational performance, highlighted by the following key compensation decisions:

 

  Ÿ  

Total Direct Compensation Heavily Weighted Towards Variable Compensation Elements — For 2011, approximately 70% of the CEO’s total target compensation was variable or at-risk and between approximately 60% to 90% of the total target compensation of the other named executive officers was variable or at-risk.

 

  Ÿ  

No Increase to Base Salaries — Based on its review of the compensation levels of officers with similar positions at comparable companies, its assessment of the Company’s financial and operational performance in 2010 and the recommendation of our CEO, the Compensation Committee did not increase 2011 base salaries for any of our executive officers.

 

  Ÿ  

Below-Target Bonus Awards for Officers — Targeted amounts for 2011 annual cash bonuses were unchanged from the prior year, again based upon the Compensation Committee’s determination that such targets were reasonable and appropriate. Based upon the Company’s financial and operational performance in 2011, our named executive officers received below-target bonus awards.

 

  Ÿ  

Long-Term Incentive Compensation Tied to Leap Performance — A significant portion of the named executive officers’ 2011 compensation consisted of long-term incentive compensation which is tied in a meaningful way to stock price performance.

 

  Ÿ  

Approximately 60% of the awards consisted of stock options, which vest in annual installments over four years and will provide value to our executive officers only to the extent that we realize increases in Leap’s stock price. In addition, half of the stock options issued to Mr. Hutcheson had exercise prices that were significantly in excess of the then-current fair market value per share of Leap common stock, providing him with additional incentives to drive further stock price appreciation. We believe that stock options are appropriately characterized as “performance-based” as they provide value to our executives only to the extent Leap’s stock price increases over time.

 

  Ÿ  

The remaining 40% of the awards granted to our eligible executive officers consisted of performance-vested restricted shares, which vest in annual installments over four years; however, each annual vesting occurs only if the average closing price for Leap common stock is at or above the closing price on the date such shares were originally issued ($8.09) for the 30-calendar day period preceding the annual vesting date or for a subsequent 30-day period. This additional stock performance condition is intended to tie any future compensation benefit to be received with respect to these awards to the performance of our stock, thus further aligning our executive officers’ interests with those of our stockholders.

 

  Ÿ  

Messrs. Roman and Young received equity awards with different vesting provisions in connection with their commencement of employment in early 2011, as described below.

Shift Toward Increased Performance-Based Compensation for 2012

As discussed above, we believe that a significant portion of the compensation we offer is tied directly to our performance. However, in conjunction with its re-evaluation of our compensation program, the Compensation Committee decided to modify its approach to the long-term incentive compensation offered to our named executive officers by:

 

  Ÿ  

Tying long-term incentive compensation opportunities available to our executive officers to the Company’s financial and operational performance relative to two key metrics – our net customer additions and adjusted OIBDA. These metrics are also the key corporate performance drivers for our annual cash bonus plan and are important criteria that we and our investors use to analyze our performance. The Compensation Committee chose to link the opportunities available under our long-term incentive program

 

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to these metrics because achievement of these measures depends in many respects upon the efforts and contributions of our named executive officers and their individual performance.

 

  Ÿ  

Delivering these long-term incentives through a combination of stock options, performance-based deferred stock units and performance-based cash awards (with such awards weighted at 40%, 40% and 20%, respectively, of the total long-term incentive awards for our CEO and 30%, 30% and 40%, respectively, of the total long-term incentive awards for our other named executive officers). These long-term incentives were intended to tie future compensation opportunities available to our executive officers to the performance of Leap common stock and the Company’s financial and operational performance, thus further aligning our executive officers’ interests with those of our stockholders.

 

  Ÿ  

Aligning the payout of the performance-based deferred stock units and performance-based cash awards to our financial and operational performance. The number of shares to be issued with respect to the deferred stock units and the amount of the cash awards to be paid will range from 0% to 200% of the targeted amount of the awards, depending upon the extent to which the Company has met performance thresholds relating to net customer additions and adjusted OIBDA for each of 2012 and 2013.

 

  Ÿ  

Further tying the payout of the deferred stock units and cash awards to the performance of Leap common stock. In order for any shares to be issued to certain executives with respect to the deferred stock units or for any cash awards to be distributed at the end of the two-year performance period, the average of the closing prices of Leap common stock for the 30-calendar day period prior to December 31, 2013 must be greater than $10.10, the closing price of Leap common stock when the awards were originally granted. Otherwise, no shares will be issued with respect to the deferred stock units nor will any cash awards be eligible for distribution until the average of the closing prices of Leap common stock for any subsequent 30-calendar day period is greater than such amount.

Compensation Philosophy and Objectives

As described above, our compensation and benefits programs are designed to attract and retain key employees necessary to support our business plans and to create and sustain a competitive advantage for us in the market segment in which we compete. For all of our executive officers, a substantial portion of total compensation is performance-based. We believe that compensation paid to executive officers should be closely aligned with our performance on both a short-term and long-term basis and linked to specific, measurable results intended to create value for stockholders.

In particular, our fundamental compensation philosophies and objectives for executive officers include the following:

 

  Ÿ  

Using total compensation to recognize each individual officer’s scope of responsibility within the organization, experience, performance and overall contributions to our company.

 

  Ÿ  

Providing incentives to accomplish significant corporate, individual and stock price performance by linking incentive award opportunities to achievement in these areas.

 

  Ÿ  

Using external compensation data from similarly-sized telecommunications and technology companies as part of our due diligence in determining base salary, target bonus amounts and long-term incentive compensation for individual officers at Leap.

 

  Ÿ  

Using long-term incentive compensation awards to align employee and stockholder interests and to attract, motivate and retain employees and enable them to share in our long-term success.

Procedures for Determining Compensation Awards

The Compensation Committee

The Compensation Committee has primary authority to determine and recommend the compensation payable to our executive officers. In fulfilling this oversight responsibility, the Compensation Committee annually reviews the performance of our senior executive management team in light of the Company’s

 

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compensation philosophies and objectives described above. To aid the Compensation Committee in making its compensation determinations, each year our CEO, assisted by our senior vice president, human resources, provides recommendations to the Compensation Committee regarding the compensation of the other executive officers. Our CEO does not participate in deliberations regarding his own compensation.

In addition, the Compensation Committee has retained Mercer, a consulting firm specializing in executive compensation matters, to assist the committee in evaluating our compensation programs, policies and objectives and to provide advice and recommendations on the amount and form of executive and director compensation. Mercer began providing these services to the Compensation Committee in January 2006. During 2011, Mercer also assisted the Company with the design and administration of a stock option exchange program that was offered to employees who were not executive officers or directors of the Company. Mercer’s fees for providing services to us in 2011 were approximately $511,000.

Comparison of Compensation to Market Data and Determination Process

The Compensation Committee strives to provide compensation opportunities that are competitive with the market in which Leap competes for executive talent. Consistent with this goal, the Compensation Committee regularly reviews the compensation we provide to our officers against that provided by other companies against which we compete for executive talent. To aid the Compensation Committee in this review, management and/or Mercer periodically prepares a comparison of executive compensation levels at similarly-sized telecommunications and technology companies. This comparison typically includes statistical summaries of compensation information derived from a number of large, third-party studies and surveys, which, for purposes of considering 2011 compensation for our executive officers, included the Radford Executive Survey and the Culpepper U.S. Survey. These summaries and databases contain executive compensation information for telecommunications, wireless and other companies, although the surveys do not provide the particular names of those companies whose pay practices are surveyed with respect to any particular position being reviewed. In addition to this third-party survey information, Mercer also presented comparative compensation information for a select number of other telecommunications companies. As part of its review of compensation for 2011, the Compensation Committee reviewed comparative data prepared by Mercer with respect to executive officer compensation provided by the following companies: American Tower, CenturyLink, Crown Castle International, Frontier Communications, MetroPCS Communications, NII Holdings, Telephone and Data Systems, Time Warner Telecommunications, U.S. Cellular and Windstream. This peer group represented a select group of companies in the telecommunications industry against which we compete for executive talent, with revenues of between approximately $1 billion and $7 billion.

Our Compensation Committee generally compares the total compensation opportunity we provide to our executive officers — consisting of base salary, annual performance bonuses and long-term incentive awards — to compensation levels at the 25th, 50th and 75th percentile of compensation awarded to executives with similar positions at comparable companies. In keeping with our goal of providing competitive and attractive compensation, we generally strive to provide compensation opportunities targeted between the 50th and 75th percentile of compensation provided at comparable companies. Comparative compensation levels, however, are only one of several factors that our Compensation Committee considers in determining compensation levels for our executive officers, and the individual elements of an executive officer’s targeted overall compensation opportunity may be below, within, or above this range based on other considerations, including the executive officer’s experience and tenure in his or her position, his or her relative importance to the Company and his or her individual performance, leadership and other skills. The extent to which actual compensation to be received by an executive may materially deviate from the targeted total compensation opportunity will also depend upon Leap’s corporate and operational performance and the individual performance of the particular officer for the year. This approach is intended to ensure that there is a direct relationship between Leap’s overall financial and operational performance and each individual named executive officer’s total compensation.

In general, we seek to provide executives who have the greatest influence on our financial and operating success with compensation packages in which their long-term incentive awards could provide a significant portion of their total compensation opportunity. This focus on incentive awards is intended to provide meaningful compensation opportunities to executives with the greatest potential influence on our financial and operating

 

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performance. Thus, we make the most substantial equity awards to our senior executive management team, comprised of our CEO, executive vice presidents and senior vice presidents. In addition, we seek to provide vice presidents and other employees who have significant influence over our operating and financial success with equity incentives that provide high retention value and alignment of these managers’ interests with those of our stockholders. For 2011, a substantial portion of each named executive officer’s potential compensation opportunity was comprised of his annual performance bonus and long-term equity incentive awards. We have not, however, adopted any other formal or informal policies or guidelines for allocating compensation between long-term and short-term incentives, between cash and non-cash compensation, or among different forms of non-cash compensation.

Because the compensation levels of our named executive officers reflect, in part, compensation levels associated with the varying roles and responsibilities of corporate executives in the marketplace, there were differences in the 2011 compensation amounts awarded to our named executive officers. These differences generally arose from the relatively higher compensation opportunities provided to our CEO and executive vice presidents relative to other officers, as well as the significant equity awards provided to Messrs. Roman and Young upon their joining the Company in early 2011.

Elements of Executive Compensation

Leap’s executive officer compensation program is comprised of three primary components: base salary; annual short-term incentive compensation in the form of cash bonuses; and long-term incentive compensation, primarily in the form of stock options, restricted stock awards and deferred stock units. We also provide certain additional employee benefits and retirement programs to our executive officers, as well as severance, change in control and retention benefits.

Base Salary

The base salary for each executive officer is generally established through negotiation at the time the executive is hired, taking into account the executive’s qualifications, experience, prior salary and competitive salary information. As discussed above, in determining base salaries for our executive officers, the Compensation Committee considers compensation paid to officers at comparable companies. In addition, each year the Compensation Committee determines whether to approve merit increases to our executive officers’ base salaries based upon the Company’s prior year performance, the officer’s individual performance and the recommendations of our CEO. From time to time, an executive officer’s base salary may also be increased to reflect changes in competitive salaries for such executive’s position based on the compensation data for comparable companies prepared for our Compensation Committee.

The Compensation Committee did not increase 2011 base salaries for any of our executive officers. The Compensation Committee made this determination based on its review of the compensation levels of officers with similar positions at comparable companies, its philosophy that a substantial percentage of total compensation should be performance based, its assessment of the Company’s financial and operational performance in 2010 and the recommendation of our CEO. Our named executive officers’ base salaries for 2011 are set forth in the table below entitled “Summary Compensation.”

Annual Performance Bonus

We provide an annual cash performance bonus opportunity to our executive officers. The purpose of these bonus awards is to provide an incentive to our executive officers to assist us in achieving our principal financial and operating objectives.

Determination of Target Bonus Amounts

Target and maximum bonus amounts payable to our executive officers are established by the Compensation Committee early in the year, generally as a percentage of each individual executive officer’s base salary. For 2011, the targeted amounts of the bonuses were unchanged from 2010 levels, again based upon the Compensation Committee’s determination that such targets were reasonable and appropriate. The target amounts

 

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were set at 100% of base salary for our CEO, 80% of base salary for our executive vice presidents and 65% of base salary for our senior vice presidents. The actual bonus award payable to the executive officers can range from 0% to 200% of the target bonus amount based on relative corporate and individual performance, subject to the Compensation Committee’s discretion to increase or decrease such amount. These target and maximum bonus amounts are based, in part, on the Compensation Committee’s review of cash bonus payments made to similarly-situated executives of other comparable and surveyed companies, as described above. In determining the potential bonus opportunity for an executive officer for a given year, the Compensation Committee generally intends that approximately 75% of the targeted amount be based upon Leap’s corporate performance and that approximately 25% be based upon the officer’s individual performance.

Determination of Actual Bonus Amounts

As indicated above, an important objective of our compensation program is to provide incentives to our executives to accomplish significant strategic, financial and individual performance. As a result, the actual amount of a bonus earned by an executive officer for a given year depends upon corporate and individual performance. Our corporate performance is reviewed by reference to two key performance metrics: (i) a financial measure we call adjusted OIBDA, which we define as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of: gain/(loss) on sale, exchange or disposal of assets, net; impairments and other charges; and share-based compensation expense; and (ii) our number of net customer additions. We believe that achievement of these performance metrics is dependent in many respects upon the efforts and contributions of our named executive officers and their individual performance. When reviewing Leap’s annual corporate performance, the Compensation Committee has the ability to consider any significant investments or special projects undertaken during the year which may have impacted or not been reflected in the Company’s financial or operational results.

Individual performance is determined for our CEO and other executive officers based upon the Compensation Committee’s qualitative assessment of their performance for the year. For executive officers other than our CEO, the Compensation Committee also considers ratings assigned to each individual by our CEO in connection with his assessment of such individual’s performance during the year.

2011 Performance Bonus Awards

The corporate performance goals to permit each of our named executive officers to receive 100% of their 2011 target bonus for corporate performance were: (i) approximately $600 million of adjusted OIBDA; and (ii) approximately 600,000 net customer additions. The threshold levels, below which no performance bonus would be paid, were: (i) approximately 92% of the adjusted OIBDA target; and (ii) approximately 70% of the net customer additions target. Through its financial and operational performance in 2011, the Company achieved approximately 95% of its adjusted OIBDA target and approximately 69% of its net customer additions target. As a result, the Compensation Committee approved the payment of bonuses to the named executive officers relating to our corporate performance which represented approximately 36% of that portion of their target bonuses. These amounts are set forth in the table below entitled “Summary Compensation” in the column entitled “Non-Equity Incentive Plan Compensation.”

With respect to the portion of the bonus based upon individual performance, the Compensation Committee determined the amount of the bonus based, in part, upon a rating assigned to each individual each quarter by our CEO based upon his assessment of such individual’s achievement of performance goals, as well as the Compensation Committee’s more subjective and qualitative assessment of such individual’s overall performance. In particular, the Compensation Committee considered, away other things, the following accomplishments and achievements of our named executive officers:

 

  Ÿ  

Mr. Hutcheson’s leadership of the Company’s senior management team and his development and oversight of strategic and operational initiatives that delivered solid 2011 financial and operational results, improved the Company’s competitive profile and positioned the Company for additional financial and operational improvements;

 

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  Ÿ  

Mr. Berger’s leadership of the Company’s finance, accounting and investor relations functions, which included improving the Company’s cash position through the issuance of $400 million of 7.75% unsecured senior notes in 2011, and his oversight over the launch and growth of the Company’s Muve Music service and the launch of our new customer billing system;

 

  Ÿ  

Mr. Roman’s management of the Company’s marketing, customer care and supply chain management activities, including his leadership over the Company’s improved customer care programs, expanded device portfolio, continuing cost-management initiatives and improved procurement processes;

 

  Ÿ  

Mr. Young’s leadership of the Company’s field and sales operations, which resulted in increased customer activity and decreased churn, and his oversight over the expanded distribution of the Company’s products and services, including through nationwide retail; and

 

  Ÿ  

Mr. Ingram’s oversight of the Company’s strategic initiatives and business development activities, including activities to improve the Company’s spectrum portfolio and coverage through significant license exchange transactions and the entering into of LTE roaming arrangements.

The amounts paid to the named executive officers based upon their individual performance are set forth in the table below entitled “Summary Compensation” in the column entitled “Bonus.”

The aggregate cash bonuses paid to our named executive officers based on both our corporate performance and their individual contributions were as follows: Mr. Hutcheson: $529,687; Mr. Berger, $273,000; Mr. Roman, $197,232; Mr. Young, $197,625; and Mr. Ingram, $183,100. These amounts constituted the following approximate percentages of the officers’ aggregate target bonuses: Mr. Hutcheson: 71%; Mr. Berger, 64%; Mr. Roman, 49%; Mr. Young, 58%; and Mr. Ingram, 94%.

Long-Term Incentive Compensation

We generally provide long-term incentive compensation to our executive officers and other selected employees through the Leap Wireless International, Inc. 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan, as amended (the “2004 Plan”). The 2004 Plan was approved and adopted by the Compensation Committee in 2004 pursuant to authority delegated to it by the Board and is generally administered by the Compensation Committee. See “— 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan” for additional information regarding the 2004 Plan. In February 2009, we adopted the 2009 Employment Inducement Equity Incentive Plan of Leap Wireless International, Inc., or the 2009 Inducement Plan, which was established to make awards to new employees as an inducement to their commencing employment with us. The 2009 Inducement Plan was approved by the Board and is also administered by the Compensation Committee. See “— 2009 Employment Inducement Equity Incentive Plan” for additional information regarding the 2009 Inducement Plan.

Under these plans, we grant our executive officers and other selected employees non-qualified stock options at an exercise price equal to (or greater than) the fair market value of Leap common stock (as determined under the plans) on the date of grant and restricted stock and deferred stock units at a nominal purchase price or for no purchase price in exchange for services previously rendered to Leap or its subsidiaries by the recipient. The size and timing of equity awards is based on a variety of factors, including Leap’s overall performance, the recipient’s individual performance and competitive compensation information, including the value of awards granted to comparable executive officers as set forth in the statistical summaries of compensation data for comparable companies prepared for the Compensation Committee. We believe that the awards under these plans help us to reduce officer and employee turnover and to retain the knowledge and skills of our key employees.

In October 2008, the Compensation Committee adopted guidelines regarding the granting of equity awards to executive officers, employees or consultants. Under these guidelines, equity awards are generally granted and effective, to the extent practicable, on the 14th calendar day of the month following their approval by the Board or Compensation Committee (or if that day is not a day on which Leap common stock is actively traded on an exchange, on the next trading day). In addition, the guidelines provide that any stock options to be awarded to existing or newly-promoted executive officers and other senior vice presidents are generally to be approved and granted, to the extent practicable, during periods when trading in Leap common stock is permitted under our

 

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insider trading policy or are to be approved with the grant contingent upon, subject to and effective two trading days after, the release of any applicable, material non-public information.

The Compensation Committee has traditionally granted awards of stock options and restricted stock to executive officers and other eligible employees when they initially join us. The initial approach of the Compensation Committee, following our adoption of the 2004 Plan, was to grant initial awards which vested in full in three to five years after the date of grant (with no partial time-based vesting for the awards in the interim) but that were subject to accelerated performance-based vesting prior to that time if Leap met certain performance targets. Since mid-2008, the Compensation Committee has generally granted to executive officers and other eligible employees that join us initial awards that vest over a four year period, with the options vesting in equal 25% annual increments and the shares of restricted stock vesting in 25% increments on the second and third anniversaries of the date of grant and 50% on the fourth anniversary of the date of grant. In addition to the initial stock options and restricted stock awards, the Compensation Committee has traditionally made annual refresher grants of options and/or restricted stock to our executive officers and other eligible employees in order to help us achieve our executive compensation objectives noted above, including the long-term retention of members of our senior management team. These grants generally vest in similar fashion to the initial grants described above.

We do not have any requirements that executive officers hold a specific amount of our common stock or stock options. However, we periodically review executive officer equity-based incentives to ensure that our executives maintain sufficient unvested awards to promote their continued retention.

2011 Long-Term Equity Incentive Awards

Consistent with prior years, a significant portion of the compensation opportunity provided to our named executive officers in 2011 consisted of long-term equity incentive awards. In determining the size and amount of the awards, the Compensation Committee considered a variety of factors, including the number of shares available by the Company for grant, the amount and value of unvested equity awards held by our officers and each officer’s individual performance, leadership and other skills. The Compensation Committee also reviewed the value of grants made by those companies against which the Company compares its compensation, although the Compensation Committee did not seek to grant awards at any predetermined levels relative to such other companies. These grants of stock options and restricted stock were made to our named executive officers pursuant to the 2004 Plan in the amounts set forth in the table under the heading “2011 Grants of Plan-Based Awards.”

Messrs. Roman and Young received stock options and restricted stock awards in connection with the commencement of their employment in early 2011. Each executive was granted two sets of equity awards both consisting of stock options and restricted stock awards. One set of awards is subject to a four-year vesting schedule, with 100% of the options and restricted shares vesting on the fourth anniversary of the date of grant (with respect to Mr. Roman) or December 31, 2014 (with respect to Mr. Young). Mr. Roman’s other awards are subject to the same vesting schedule as the other awards made to our named executive officers during 2011. Mr. Young’s other awards are subject to a four-year vesting schedule, with 25% of the options and restricted shares vesting on December 31st of each of 2011, 2012, 2013 and 2014.

Our other named executive officers received refresher grants of equity awards in November 2011. Approximately 60% of the awards consisted of stock options, which vest in annual installments over four years and had an exercise price set at the then-current fair market value per share of Leap common stock, which will provide value to our executive officers only to the extent that we realize increases in our stock price. Half of the stock options issued to Mr. Hutcheson were issued at the then-current fair value market per share of Leap common stock and the remaining half were issued at exercise prices significantly in excess of the then-current fair market value, thus providing him with additional incentives to drive further stock price appreciation.

The remaining 40% of the awards consisted of performance-vested restricted shares. The performance-vested restricted stock awards vest in 20% increments on the first, second and third anniversaries of the date of grant and 40% on the fourth anniversary of the date of grant, subject to a named executive officer’s continued employment with the Company on each vesting date. However, in order for an installment of shares to vest on an

 

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anniversary vesting date, the average of the closing prices of Leap’s common stock for the prior 30-calendar day period must be greater than $8.09, the closing price of Leap’s common stock on November 2, 2011, the date on which the award was originally granted; otherwise, the installment of shares will remain unvested until the average of the closing prices of Leap’s common stock for any subsequent 30-calendar day period is greater than such amount. This additional stock performance condition represents a continuation of the vesting term introduced by the Compensation Committee in 2010 and was intended to tie any future compensation benefit to be received with respect to these awards to the performance of Leap’s common stock, thus further aligning the executive officers’ interests with those of our stockholders.

 

2012 Long-Term Equity Incentive Awards

In 2012, the Compensation Committee has continued its focus on using long-term incentive compensation to align employee and stockholder interests. In March 2012, the Committee granted additional long-term incentives to our executive officers consisting of stock options, performance-based deferred stock units and performance-based cash awards. These long-term incentives were intended to tie future compensation opportunities available to our executive officers to the performance of Leap common stock and the Company’s financial and operational performance, thus further aligning management’s interests with those of our stockholders.

Approximately 30% of the awards granted in 2012 to our named executive officers (40%, in the case of our CEO) consisted of stock options granted pursuant to our 2004 Plan. These option awards vest in annual installments over four years and have an exercise price equal to the then-current fair market value of Leap common stock, thus providing value to our executive officers only to the extent that we realize increases in our stock price.

Approximately 30% of the awards granted in 2012 to our named executive officers (40%, in the case of our CEO) consisted of performance-based deferred stock units granted pursuant to the 2004 Plan and approximately 40% of the awards (20% in the case of our CEO) consisted of performance-based cash awards. Each deferred stock unit represents the right to receive one share of Leap common stock, subject to performance-based adjustments. The number of shares to be issued with respect to the deferred stock units and the amounts of the cash awards will depend upon the performance of our business during each of 2012 and 2013, as follows:

 

  Ÿ  

First, in order for any shares to be issued with respect to the deferred stock units or any cash awards to be distributed at the end of the two-year performance period, the average of the closing prices of Leap common stock for the 30-calendar day period prior to December 31, 2013 must be greater than $10.10, the closing price of our common stock on March 16, 2012, the date on which the awards were originally granted. Otherwise, no shares will be issued with respect to the deferred stock units nor will any cash awards be eligible for distribution until the average of the closing prices of Leap common stock for any subsequent 30-calendar day period is greater than such amount. This minimum share price requirement, however, does not apply to the deferred stock units granted to our CEO nor will it apply to deferred stock units held by other executive officers if such officers elect to amend the terms of their severance arrangements with us to broaden the definition of “cause” such that they could be terminated and not receive a severance payment if they do not meet certain performance expectations.

 

  Ÿ  

Second, the Company’s net customer additions and adjusted OIBDA for the two-year performance period must exceed certain minimum achievement levels for each of 2012 and 2013. If both of these achievement levels are met for these years, then a certain percentage of shares underlying the units will be issued and a certain amount of the cash award will be distributed (each up to 200% of the target amount of the awards).

One-half of any shares issuable with respect to the deferred stock units and one-half of the cash award that is earned will vest immediately and be issued to the executive on or after December 31, 2013. The remaining one-half of the eligible awards will vest and be issued to the executive on or after December 31, 2014, subject to the employee’s continued employment with us through that date.

In the event of a change of control in Leap, the executive would be entitled to receive a number of shares underlying the deferred stock units and a cash award, in each case equal to the target amounts, and the awards would continue to vest pursuant to the vesting schedule discussed above. However, the awards would

 

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immediately vest in the event that the executive officer’s employment was terminated by us without cause or by the executive for good reason within 90 days prior to or 12 months following the change in control.

Other Benefits

Leap maintains a 401(k) plan for all employees, and provides a 50% match on employees’ contributions, with Leap’s matching funds limited to 6% of an employee’s base salary. Leap’s 401(k) plan allows eligible employees to contribute up to 30% of their salary, subject to annual limits. At our discretion, we may also make additional contributions based upon earnings. Our aggregate contributions for all employees for the year ended December 31, 2011 were approximately $5,633,000.

Our named executive officers are also eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life and accidental death and disability insurance, in each case on the same basis as other employees, subject to applicable law. We also provide vacation and other paid holidays to all employees, including our named executive officers. In addition, Leap provides our named executive officers with supplemental health insurance coverage with a maximum benefit of $750,000 per year per person, the ability to apply for supplemental, company-paid executive disability insurance that provides a benefit of up to $5,000 per month up to age 65, $750,000 of supplemental, company-paid executive life insurance, and $850,000 of executive accidental death and disability insurance. Leap also provides an annual reimbursement benefit of up to $15,000 for financial, estate and tax planning services with the amount of the annual reimbursement grossed up for applicable taxes. We believe that these additional benefits are reasonable in scope and amount and are typically offered by other companies against which we compete for executive talent. Other than our 401(k) plan, we do not maintain any pension plans or plans that provide for the deferral of compensation.

Policy on Deductibility of Executive Officer Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows a tax deduction to a publicly-held company for compensation in excess of $1.0 million paid to its principal executive officer, or PEO, and its three most highly compensated executive officers (other than the PEO and the principal financial officer). Certain compensation arrangements are excluded from this limitation, including the payment of certain performance-based compensation awards tied to the attainment of specific goals, as well as the grant of certain stock options. The Compensation Committee believes that it is advisable, to the extent practicable, for Leap to award our executive officers performance-based awards that qualify as “performance-based compensation” under Section 162(m). As a result, we adopted the Leap Wireless International, Inc. Executive Incentive Bonus Plan, or the Executive Bonus Plan, which enables us to pay cash bonuses to our executive officers based on Leap’s achievement of certain predetermined corporate performance goals. In addition, the 2004 Plan allows Leap, among other things, to grant options that are exempt from the limits on deductibility under Section 162(m). Stockholders approved the Executive Bonus Plan and the 2004 Plan at our 2007 annual meeting of stockholders. The material terms of performance goals under the Executive Bonus Plan are subject to re-approval by Leap’s stockholders at the Annual Meeting pursuant to Proposal No. 3 below. Proposal No. 4 below seeks the approval of Leap’s stockholders of an amendment to the 2004 Plan to add performance goals and cash-denominated awards under the plan for the purpose of making awards eligible to be deducted under Section 162(m). To the extent possible, the Compensation Committee intends to generally administer these plans in the manner required to make future awards that qualify as performance-based compensation under Section 162(m). As indicated above, 2011 was a year of significant business transition for the Company during which we introduced a number of significant new business and strategic initiatives to address the evolving industry and to improve our competitive positioning. Because these new initiatives were being developed throughout the year, specific corporate performance goals were not formally adopted in time to make our annual cash bonus awards qualify as performance-based compensation under Section 162(m). The Board and Compensation Committee will continue to retain the discretion to pay discretionary bonuses or other types of compensation outside of the plans which may or may not be tax deductible.

 

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Risk Assessment of Compensation Program

In early 2012, management assessed the Company’s compensation program for the purpose of reviewing and considering any risks presented by our compensation policies and practices that are reasonably likely to have a material adverse effect on the Company.

As part of that assessment, management reviewed the primary elements of our compensation program, including base salary, annual short-term incentive compensation, long-term incentive compensation and severance arrangements. Management’s risk assessment included a review of the overall design of each primary element of our compensation program and an analysis of the various design features, controls and approval rights in place with respect to compensation paid to management and other employees that mitigate potential risks to the Company that could arise from our compensation program.

Following the assessment, management determined that our compensation policies and practices did not create risks that were reasonably likely to have a material adverse effect on the Company and reported the results of the assessment to the Compensation Committee.

Summary Compensation

The following table sets forth certain information with respect to compensation for the fiscal years ended December 31, 2011, 2010 and 2009 earned by or paid to our CEO, our former CFO, our three next most highly compensated executive officers as of the end of fiscal 2011 and our former COO. We refer to these officers collectively as our named executive officers for 2011.

 

Name and Principal Position

  Year     Salary(1)     Bonus(2)     Non-Equity
Incentive Plan
Compensation(3)
    Stock
Awards(4)
    Option
Awards(5)
    All Other
Compensation(6)
    Total  

S. Douglas Hutcheson

    2011      $ 750,000      $ 328,945      $ 200,742      $ 404,500      $ 721,898      $ 87,219      $ 2,493,304   

President, CEO and

    2010      $ 750,000                    $ 2,205,000             $ 71,292      $ 3,026,292   

Director

    2009      $ 743,699      $ 355,000             $ 1,648,500             $ 63,016      $ 2,810,215   

Walter Z. Berger(7)

    2011      $ 530,000      $ 209,514      $ 113,486      $ 841,003      $ 285,714      $ 99,098      $ 2,078,815   

Former Executive Vice

    2010      $ 530,000      $ 156,000             $ 945,000             $ 48,447      $ 1,679,447   

President and CFO

    2009      $ 530,000      $ 270,000                           $ 60,449      $ 860,449   

Raymond J. Roman(8)

    2011      $ 503,288      $ 472,486      $ 107,766      $ 2,163,800      $ 954,782      $ 42,181      $ 4,244,303   

Executive Vice President and COO

               

Robert A. Young(9)

    2011      $ 425,000      $ 106,622      $ 91,003      $ 1,396,000      $ 797,035      $ 40,402      $ 2,856,062   

Executive Vice President,

               

Field Operations

               

William D. Ingram(10)

    2011      $ 299,974      $ 165,912      $ 52,188      $ 113,260      $ 166,667      $ 21,383      $ 819,384   

Executive Vice President,

    2010      $ 299,974      $ 73,746             $ 472,500             $ 29,498      $ 875,718   

Strategy and Acting CFO

    2009      $ 299,974      $ 130,000             $ 329,700             $ 17,303      $ 776,977   

Albin F. Moschner(11)

    2011      $ 92,704                                  $ 799,750      $ 892,454   

Former Executive

    2010      $ 500,000      $ 30,000             $ 945,000             $ 26,409      $ 1,501,409   

Vice President and COO

    2009      $ 500,000      $ 220,000             $ 824,250             $ 35,328      $ 1,579,578   

 

 

 

  (1) Represents base salary rate for the applicable year, prorated for any approved changes in base salary during the applicable year. Previously reported base salary amounts for 2009 have been conformed to reflect this method of presentation.

 

  (2) Except as otherwise indicated in the footnotes below, represents the portion of the annual cash bonus awards to our named executive officers in recognition of their individual performance for the applicable year.

 

  (3) Represents the portion of the annual cash bonus awards to our named executive officers in recognition of our corporate performance for the applicable year.

 

  (4)

Represents the grant date fair value of restricted stock awards and deferred stock units granted to our named executive officers in 2011, 2010 or 2009, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Stock Compensation. For information regarding assumptions made in connection with this valuation, please see Note 12 to our

 

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  consolidated financial statements found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

     The amount shown for Mr. Berger’s stock awards for 2011 includes $310,100, representing the grant date fair value of deferred stock units issued to him during 2011, adjusted for our assessment of the probability that the performance conditions to which the award was subject would be achieved. Mr. Berger was awarded 35,000 target units, with the opportunity to earn between zero and 131,250 units based on the Company’s achievement of performance measures for our Muve Music service for fiscal years 2011 and 2012 and Mr. Berger’s continued service to us. The full grant date fair value of the award assuming the highest level of performance was $646,843.

 

  (5) Represents the grant date fair value for 2011, 2010 or 2009 of options to purchase Leap common stock granted to our named executive officers, computed in accordance with FASB ASC Topic 718, Stock Compensation. For information regarding assumptions made in connection with this valuation, please see Note 12 to our consolidated financial statements found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

  (6) Includes the other compensation set forth in the table below:

 

Name

  Year     Matching
401(k)
Contributions
    Executive
Benefits
Payments
    Financial
Planning
Services
    Housing  and
Other
Living

Expenses
    Sick
Leave/Vacation
Payout
    Consulting
Fees
    Total Other
Compensation
 

S. Douglas Hutcheson

    2011      $ 7,350      $ 21,567      $ 23,687             $ 34,615             $ 87,219   
    2010      $ 8,250      $ 9,541      $ 30,424             $ 23,077             $ 71,292   
    2009      $ 7,350      $ 17,860      $ 11,845             $ 25,961             $ 63,016   

Walter Z. Berger

    2011      $ 7,350      $ 30,004      $ 49,513             $ 12,231             $ 99,098   
    2010      $ 8,250      $ 30,005                    $ 10,192             $ 48,447   
    2009      $ 4,491      $ 8,978      $ 36,788             $ 10,192             $ 60,449   

Raymond J. Roman

    2011      $ 7,096      $ 1,777      $ 23,535             $ 9,773             $ 42,181   

Robert A. Young

    2011      $ 4,162      $ 2,285      $ 24,147             $ 9,808             $ 40,402   

William D. Ingram

    2011      $ 7,095      $ 7,366                    $ 6,922             $ 21,383   
    2010      $ 4,984      $ 9,010      $ 9,735             $ 5,769             $ 29,498   
    2009      $ 5,020      $ 3,043      $ 4,625             $ 4,615             $ 17,303   

Albin F. Moschner

    2011      $ 1,442      $ 1,065                    $      $ 797,243      $ 799,750   
    2010      $ 8,250      $ 4,210             $ 4,334      $ 9,615             $ 26,409   
    2009      $ 7,350      $ 7,971             $ 10,392      $ 9,615             $ 35,328   

 

     The Company’s policy is for its employees to use commercial airline travel to the greatest possible extent. To the extent that an employee’s spouse were to accompany him or her on any flight, the employee would pay for the costs of any such companion travel. In certain limited instances, circumstances have required the Company’s officers to use chartered airline travel. Mr. Moschner’s spouse accompanied him on one chartered business flight in 2009. Because the flight was directly related to the performance of his duties and his spouse used an unoccupied seat on the flight, we did not incur any incremental cost in connection with his travel and did not report any compensation related to the flight.

 

  (7) Mr. Berger resigned as our executive vice president and CFO, effective February 29, 2012. Each of Mr. Berger’s bonus amounts for 2011, 2010 and 2009 includes a $50,000 retention bonus we agreed to pay him upon the completion of each of his first, second and third years of employment.

 

  (8) Mr. Roman joined us as our executive vice president and COO in February 2011 and his compensation for 2011 is for the partial year. Mr. Roman’s bonus for 2011 includes a sign-on bonus of $300,000 and a payment of $83,020 consisting of a relocation bonus and reimbursement of relocation expenses.

 

  (9) Mr. Young joined us as our executive vice president, field operations in January 2011.

 

(10) Mr. Ingram’s bonus amounts for 2011, 2011 and 2009 include retention bonuses of $35,000, $25,000 and $25,000 we agreed to pay him upon the completion of each of his first, second and third years of employment, respectively.

 

(11) Mr. Moschner retired as our executive vice president and COO, effective January 31, 2011. His bonus amount for 2010 represents a discretionary bonus paid to him in February 2010 in recognition of his contributions to the Company as its then-current COO and in lieu of an increase to his annual base salary.

 

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2011 Grants of Plan-Based Awards

The following table sets forth certain information with respect to non-equity and equity incentive plan awards granted during the fiscal year ended December 31, 2011 to the named executive officers.

 

                                        All
Other
Stock
Awards:
Number
of
Shares
of
Stock
or Units
(#)(4)
    All
Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(5)
    Exercise
or Base
Price
of
Option
Awards
($/Sh)
    Closing
Market
Price
on
Grant
Date
($/Sh)
    Grant
Date Fair
Value of
Stock
and
Option
Awards
($)(6)
 

Name

  Grant
Date
    Approval
Date(1)
    Estimated Future Payouts Under
Non-Equity Incentive

Plan Awards(2)
    Estimated Future Payouts
Under Equity Incentive Plan
Awards(3)
           
      Threshold     Target     Maximum     Threshold     Target     Maximum            

S. Douglas Hutcheson

                         

Annual cash bonus award

                $ 281,250      $ 562,500      $ 1,125,000                                                           

Restricted stock award

    11/02/2011        09/28/2011                                                  50,000                    $ 8.09      $ 404,500   

Stock options

    11/02/2011        09/28/2011                                                         83,375      $ 8.09      $ 8.09      $ 397,023   
    11/02/2011        09/28/2011                                                         41,688      $ 12.00      $ 8.09      $ 170,508   
    11/02/2011        09/28/2011                                                         41,688      $ 15.00      $ 8.09      $ 154,367   

Walter Z. Berger

                         

Annual cash bonus award

                $ 159,000      $ 318,000      $ 636,000                                                           

Deferred stock units

    11/02/2011        09/28/2011                             17,500        35,000        131,250                           $ 8.09      $ 646,843   

Restricted stock award

    11/02/2011        09/28/2011                                                  24,000                    $ 8.09      $ 194,160   

Stock options

    11/02/2011        09/28/2011                                                         60,000      $ 8.09      $ 8.09      $ 285,714   

Raymond J. Roman

                         

Annual cash bonus award

                $ 150,986      $ 301,973      $ 603,945                                                           

Restricted stock awards

    02/14/2011        01/20/2011                                                  75,000                    $ 13.96      $ 1,047,000   
    02/14/2011        01/20/2011                                                  80,000 (7)                  $ 13.96      $ 1,116,800   

Stock options

    02/14/2011        01/20/2011                                                         100,000      $ 13.96      $ 13.96      $ 794,960   
    02/14/2011        01/20/2011                                                         20,000 (7)    $ 13.96      $ 13.96      $ 159,822   

Robert A. Young

                         

Annual cash bonus award

                $ 127,500      $ 255,000      $ 510,000                                                           

Restricted stock awards

    02/14/2011        01/20/2011                                                  50,000 (8)                  $ 13.96      $ 698,000   
    02/14/2011        01/20/2011                                                  50,000 (9)                  $ 13.96      $ 698,000   

Stock options

    02/14/2011        01/20/2011                                                         50,000 (8)    $ 13.96      $ 13.96      $ 397,480   
    02/14/2011        01/20/2011                                                         50,000 (9)    $ 13.96      $ 13.96      $ 399,500   

William D. Ingram

                         

Annual cash bonus award

                $ 73,119      $ 146,237      $ 292,475                                                           

Restricted stock award

    11/02/2011        09/28/2011                                                  14,000                    $ 8.09      $ 113,260   

Stock options

    11/02/2011        09/28/2011                                                         35,000      $ 8.09      $ 8.09      $ 166,667   

 

 

 

(1) The equity awards were approved by the Compensation Committee on the dates indicated above and granted on the grant dates listed above pursuant to our equity grant guidelines.

 

(2) Represents the portion of the annual cash bonus awards eligible to be earned by our named executive officers in recognition of our corporate performance for 2011, which is payable pursuant to the Company’s Executive Bonus Plan.

 

(3) Represents deferred stock units issued to Mr. Berger pursuant to the Company’s 2004 Plan. Each unit represented the right to receive one share of Leap common stock upon vesting and settlement of such unit, subject to our achievement of performance measures for our Muve Music service for fiscal years 2011 and 2012. Mr. Berger resigned as our executive vice president and CFO in February 2012 and the deferred stock units expired.

 

(4) Represents restricted stock awards issued pursuant to the Company’s 2004 Plan. Except as otherwise indicated, the restricted stock awards vest in 20% increments on the first, second and third anniversaries of the date of grant and 40% on the fourth anniversary of the date of grant. Each award is also subject to certain accelerated vesting upon a termination of the named executive officer’s employment by us without cause or by the executive for good reason within 90 days prior to or 12 months following a change in control, as described under “— Severance, Retention and Change-in-Control Arrangements — Change-in-Control Vesting of Stock Options and Restricted Stock” below.

 

    

With respect to the restricted stock awards granted to Messrs. Hutcheson, Berger and Ingram, in order for an installment of shares to vest on the dates described above, the average of the closing prices of Leap common stock for the prior 30-calendar day period must be greater than $8.09, the closing price of Leap common stock on November 2, 2011, the date on which the award was originally granted; otherwise, the installment

 

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  of shares will remain unvested until the average of the closing prices of Leap common stock for any subsequent 30-calendar day period is greater than such amount.

 

(5) Represents options to purchase shares of Leap common stock issued pursuant to the Company’s 2004 Plan. Except as otherwise indicated, the stock options vest in equal annual installments on the first, second, third and fourth anniversaries of the date of grant. Each award is also subject to certain accelerated vesting upon a termination of the named executive officer’s employment by us without cause or by the executive for good reason within 90 days prior to or 12 months following a change in control, as described under “— Severance, Retention and Change-in-Control Arrangements — Change-in-Control Vesting of Stock Options and Restricted Stock” below.

 

(6) Represents the grant date fair value of each individual equity award (on a grant-by-grant basis) as computed in accordance with FASB ASC Topic 718, Stock Compensation. For information regarding assumptions made in connection with this valuation, please see Note 12 to our consolidated financial statements found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. With respect to the deferred stock units granted to Mr. Berger, the amount represents the full grant date fair value of such award without adjusting for the probability of achieving the performance conditions applicable to the award.

 

(7) These grants of restricted stock and stock options made to Mr. Roman vest in full on the fourth anniversary of the grant date, with no interim installment vesting.

 

(8) These grants of restricted stock and stock options made to Mr. Young vest in equal annual installments on December 31, 2011, 2012, 2013 and 2014.

 

(9) These grants of restricted stock and stock options made to Mr. Young vest in full on December 31, 2014, with no interim installment vesting.

Discussion of Summary Compensation and Grants of Plan-Based Awards Tables

Our executive compensation policies and practices, pursuant to which the compensation set forth in the tables entitled “Summary Compensation” and “2011 Grants of Plan-Based Awards” was paid or awarded, are described above under “Compensation Discussion and Analysis.” A summary of certain material terms of our compensation plans and arrangements is set forth below.

Amended and Restated Executive Employment Agreement with S. Douglas Hutcheson

Effective as of February 25, 2005, Cricket and Leap entered into an Amended and Restated Executive Employment Agreement with S. Douglas Hutcheson in connection with his appointment as our CEO. The Amended and Restated Executive Employment Agreement amends, restates and supersedes the Executive Employment Agreement dated January 10, 2005, as amended, among Mr. Hutcheson, Cricket and Leap. The Amended and Restated Executive Employment Agreement was amended as of June 17, 2005, February 17, 2006 and December 31, 2008. As amended, the agreement is referred to in this proxy statement as the Executive Employment Agreement.

Under the Executive Employment Agreement, Mr. Hutcheson is entitled to receive an annual base salary, subject to adjustment pursuant to periodic reviews by our Board, and an opportunity to earn an annual performance bonus. In 2011, Mr. Hutcheson’s annual base salary was $750,000. In March 2012, the Compensation Committee approved an increase in his annual base salary to $850,000. His annual target performance bonus is equal to 100% of his base salary, and the amount of any annual performance bonus is determined in accordance with Cricket’s prevailing annual performance bonus practices that are generally used to determine annual performance bonuses for Cricket’s senior executives. In addition, the Executive Employment Agreement specifies that Mr. Hutcheson is entitled to participate in all insurance and benefit plans generally available to Cricket’s executive officers.

Under the terms of the Executive Employment Agreement, if Mr. Hutcheson’s employment were terminated as a result of his discharge by the Company other than for cause or if he resigned with good reason, he would be entitled to receive: (1) any unpaid portion of his salary and accrued benefits earned up to the date of termination; (2) a lump sum payment equal to two times the sum of his then-current annual base salary plus his target performance bonus; and (3) if he elected to receive continued health coverage under COBRA, the premiums for

 

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such coverage paid by Cricket for a period of 24 months (or, if earlier, until he was eligible for comparable coverage with a subsequent employer). Mr. Hutcheson would be required to execute a general release as a condition to his receipt of any of these severance benefits.

The Executive Employment Agreement also provides that if Mr. Hutcheson’s employment were terminated by reason of his discharge other than for cause or his resignation with good reason, in each case within one year of a change in control of Leap, and he was subject to excise tax pursuant to Section 4999 of the Code as a result of any payments to him, then Cricket would pay him a “gross-up payment” equal to the sum of the excise tax and all federal, state and local income and employment taxes payable by him with respect to the gross-up payment. This gross-up payment may not exceed $1.0 million and, if Mr. Hutcheson’s employment were terminated by reason of his resignation for good reason, such payment would be conditioned on Mr. Hutcheson’s agreement to provide consulting services to Cricket or Leap for up to three days per month for up to a one-year period for a fee of $1,500 per day.

If Mr. Hutcheson’s employment were terminated as a result of his discharge by Cricket for cause or if he resigned without good reason, he would be entitled only to his accrued base salary through the date of termination. If Mr. Hutcheson’s employment were terminated as a result of his death or disability, he would be entitled only to his accrued base salary through the date of death or termination, as applicable, and his pro rata share of his target performance bonus for the year in which his death or termination occurs.

Equity Incentive Plans

2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan

Under the 2004 Plan, Leap grants executive officers and other selected employees non-qualified stock options at an exercise price equal to (or greater than) the fair market value of Leap common stock (as determined under the 2004 Plan) on the date of grant and restricted stock and deferred stock units at a purchase price equal to par value or for no purchase price in exchange for services previously rendered to Leap or its subsidiaries by the recipient. The 2004 Plan allows Leap to grant options that constitute “qualified performance-based compensation” exempt from the limits on deductibility under Section 162(m) of the Code and also allows Leap to grant incentive stock options within the meaning of Section 422 of the Code. The 2004 Plan will be in effect until December 2014, unless our Board terminates the 2004 Plan at an earlier date.

Proposal No. 4 below seeks the approval of Leap’s stockholders of an amendment to the 2004 Plan to add performance goals and cash-denominated awards for the purpose of making awards eligible to be deducted under Section 162(m). The material terms of the 2004 Plan are described in Proposal No. 4 below.

2009 Employment Inducement Equity Incentive Plan

In February 2009, we adopted the 2009 Inducement Plan. The 2009 Inducement Plan was adopted without stockholder approval as permitted under the rules and regulations of the NASDAQ Stock Market. The 2009 Inducement Plan currently authorizes the issuance of up to 400,000 shares of common stock and provides for awards consisting of stock options, restricted stock and deferred stock units, or any combination thereof.

Awards under the 2009 Inducement Plan may only be made to our new employees or new employees of one of our subsidiaries (or following a bona fide period of non-employment) in connection with that employee’s commencement of employment with us or one of our subsidiaries if such grant is an inducement material to that employee’s entering into employment with us or one of our subsidiaries.

The 2009 Inducement Plan is administered by the Compensation Committee of Leap’s Board. The change-in-control provisions applicable under the 2009 Inducement Plan are generally consistent with the change-in-control provisions applicable to the 2004 Plan described in Proposal No. 4 below. However, under the 2009 Inducement Plan, in the event of a change in control or certain other corporate transactions or events, for reasons of administrative convenience, we, in our sole discretion, may refuse to permit the exercise of any award during a period of 30 days prior to the consummation of any such transaction. The 2009 Inducement Plan will be in effect until February 2019, unless Leap’s Board terminates the 2009 Inducement Plan at an

 

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earlier date. Leap’s Board may terminate the 2009 Inducement Plan at any time with respect to any shares not then subject to an award under the 2009 Inducement Plan.

The Leap Wireless International, Inc. Executive Incentive Bonus Plan

The Executive Bonus Plan is a bonus plan for our executive officers and other eligible members of management which provides for the payment of cash bonuses based on Leap’s achievement of certain predetermined corporate performance goals. The Executive Bonus Plan authorizes the Compensation Committee or such other committee as may be appointed by the Board to establish periodic bonus programs based on specified performance objectives. The purpose of the Executive Bonus Plan is to motivate its participants to achieve specified performance objectives and to reward them when those objectives are met with bonuses that are intended to be deductible by the Company to the maximum extent possible as “performance-based compensation” within the meaning of Section 162(m) of the Code. We may, from time to time, also pay discretionary bonuses, or other types of compensation, outside the Executive Bonus Plan which may or may not be tax deductible. The Executive Bonus Plan was approved by Leap’s stockholders at the 2007 annual meeting of stockholders and the material terms of performance goals under the Executive Bonus Plan are subject to re-approval by Leap’s stockholders at the Annual Meeting pursuant to Proposal No. 3 below. The material terms of the Executive Bonus Plan are described in Proposal No. 3 below.

Employee Stock Purchase Plan

In September 2005, Leap commenced an Employee Stock Purchase Plan, or the ESP Plan, which allows eligible employees to purchase shares of Leap common stock during a specified offering period. A total of 800,000 shares of common stock were initially reserved for issuance under the ESP Plan. The aggregate number of shares that may be sold pursuant to options granted under the ESP Plan is subject to adjustment for changes in Leap’s capitalization and certain corporate transactions. The ESP Plan is a compensatory plan under FASB ASC Topic 718, Stock Compensation and is administered by the Compensation Committee of the Board. The ESP Plan will be in effect until May 2015, unless the Board terminates the ESP Plan at an earlier date.

Our employees and the employees of our designated subsidiary corporations that customarily work more than 20 hours per week and more than five months per calendar year are eligible to participate in the ESP Plan as of the first day of the first offering period after they become eligible to participate in the ESP Plan. However, no employee is eligible to participate in the ESP Plan if, immediately after becoming eligible to participate, such employee would own or be treated as owning stock (including stock such employee may purchase under options granted under the ESP Plan) representing 5% or more of the total combined voting power or value of all classes of Leap’s stock or the stock of any of its subsidiary corporations.

Under the ESP Plan, shares of Leap common stock are offered during six-month offering periods commencing on each January 1st and July 1st. On the first day of an offering period, an eligible employee is granted a nontransferable option to purchase shares of Leap common stock on the last day of the offering period.

An eligible employee can participate in the ESP Plan through payroll deductions. An employee may elect payroll deductions in any whole percentage (up to 15%) of base compensation, and may decrease or suspend his or her payroll deductions during the offering period. The employee’s cumulative payroll deductions (without interest) can be used to purchase shares of Leap common stock on the last day of the offering period, unless the employee elects to withdraw his or her payroll deductions prior to the end of the period. An employee’s cumulative payroll deductions for an offering period may not exceed $5,000.

The per share purchase price of shares of Leap common stock purchased on the last day of an offering period is 85% of the lower of the fair market value of such stock on the first or last day of the offering period. An employee may purchase no more than 250 shares of Leap common stock during any offering period. Also, an employee may not purchase shares of Leap common stock during a calendar year with a total fair market value of more than $25,000.

In the event of certain changes in Leap’s capitalization or certain corporate transactions involving Leap, the Compensation Committee will make appropriate adjustments to the number of shares that may be sold pursuant

 

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to options granted under the ESP Plan and options outstanding under the ESP Plan. The Compensation Committee is authorized to provide for the termination, cash-out, assumption, substitution or accelerated exercise of such options.

Outstanding Equity Awards At Fiscal Year-End

The following table sets forth certain information with respect to outstanding equity awards held by our named executive officers at December 31, 2011.

 

    Option Awards      Stock Awards  
    Number of Securities
Underlying Unexercised
Options (#)
    Option
Exercise
Price
    Option
Expiration
Date
     Number
of
Shares  or

Units of
Stock
That
Have Not
Vested
(#)(1)
    Market
Value of
Shares
or
Units of

Stock
That
Have Not
Vested(2)
    Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested(#)
    Equity
Incentive
Plan
Awards:
Market or

Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested($)(2)
 

Name

  Exercisable     Unexercisable(1)               

S. Douglas Hutcheson

    68,085             $ 26.55        01/05/2015         25,000      $ 232,250                 
    75,901             $ 26.35        02/24/2015         37,500      $ 348,375                 
    116,000             $ 60.62        12/20/2016         40,000      $ 371,600                 
    75,000        25,000      $ 51.50        03/25/2018         80,000 (3)    $ 743,200                 
           83,375      $ 8.09        11/02/2021         50,000 (6)    $ 464,500                 
           41,688      $ 12.00        11/02/2021                                
           41,688      $ 15.00        11/02/2021                                

Walter Z. Berger

    62,500        37,500 (4)    $ 50.13        06/23/2018         22,500 (4)    $ 209,025                 
           60,000      $ 8.09        11/02/2021         20,000      $ 185,800                 
                                 32,000 (3)    $ 297,280                 
                                 24,000 (6)    $ 222,960                 
                                               35,000 (7)    $ 325,150   

Raymond J. Roman

           20,000 (8)    $ 13.96        02/14/2021         75,000      $ 696,750                 
           100,000      $ 13.96        02/14/2021         80,000 (8)    $ 743,200                 

Robert A. Young

    12,500        37,500 (9)    $ 13.96        02/14/2021         37,500 (9)    $ 348,375                 
           50,000 (10)    $ 13.96        02/14/2021         50,000 (10)    $ 464,500                 

William D. Ingram

    8,970        56,030 (5)    $ 79.00        09/19/2017         12,930 (5)    $ 120,120                 
    15,000             $ 51.51        12/22/2017         7,500      $ 69,675                 
           35,000      $ 8.09        11/02/2021         7,500      $ 69,675                 
                                 10,000      $ 92,900                 
                                 16,000 (3)    $ 148,640                 
                                 14,000 (6)    $ 130,060            

 

  

Albin F. Moschner

    120,160             $ 26.55        01/31/2015         15,000      $ 139,350                 
    40,000             $ 34.37        10/26/2015         10,000      $ 92,900                 
    30,000             $ 60.62        12/20/2016         18,750      $ 174,188                 
    13,500        4,500      $ 51.51        02/28/2018         20,000      $ 185,800                 
    18,750        6,250      $ 45.69        08/06/2018         32,000 (3)    $ 297,280                 

 

 

 

  (1)

Except as otherwise set forth in the table, represents our standard form of stock option or restricted stock award for new hires and for additional grants to individuals with existing equity awards. Each stock option vests in four equal annual installments on each of the first four anniversaries of the date of grant. For each

 

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  restricted stock award, 25% of the award vests on the second and third anniversary of the date of grant and 50% of the award vests on the fourth anniversary of the date of grant. Each award is also subject to certain accelerated vesting upon a termination of the named executive officer’s employment by us without cause or by the executive for good reason within 90 days prior to or 12 months following a change in control, as
  described under “— Severance, Retention and Change-in-Control Arrangements — Change-in-Control Vesting of Stock Options and Restricted Stock” below.

 

  (2) Computed by multiplying the closing market price of Leap common stock on December 30, 2011 ($9.29), the last business day in fiscal 2011, by the number of shares subject to such stock award.

 

  (3) The performance-vested restricted stock awards vest in 20% increments on the first, second and third anniversaries of the date of grant and 40% on the fourth anniversary of the date of grant. However, in order for an installment of shares to vest on the dates described above, the average of the closing prices of Leap common stock for the prior 30-calendar day period must be greater than $15.75, the closing price of Leap common stock on March 15, 2010, the date on which the award was originally granted; otherwise, the installment of shares will remain unvested until the average of the closing prices of the Company’s common stock for any subsequent 30-calendar day period is greater than such amount. On May 12, 2011, the initial 20% installment of the shares vested.

 

  (4) In connection with the commencement of his employment, Mr. Berger was originally granted 100,000 stock options (i) 50,000 of which were scheduled to vest in four equal annual installments on each of the first four anniversaries of the date of grant and (ii) 50,000 of which were scheduled to vest in two equal annual installments on each of the third and fourth anniversaries of the date of grant. Mr. Berger was also granted an aggregate of 45,000 restricted shares in connection with the commencement of his employment (i) 25,000 of which were scheduled to vest over a four-year period, with 25% of the award vesting on the second and third anniversaries of the date of grant and 50% on the fourth anniversary of the date of grant; and (ii) 20,000 of which were scheduled to vest in two equal annual installments on the third and fourth anniversaries of the date of grant.

 

  (5) Represents our standard form of stock option or restricted stock award for new equity grants to new hires between January 2007 and May 2008. The award vests on the fifth anniversary of the date of grant.

 

  (6) The performance-vested restricted stock awards vest in 20% increments on the first, second and third anniversaries of the date of grant and 40% on the fourth anniversary of the date of grant. However, in order for an installment of shares to vest on the dates described above, the average of the closing prices of Leap common stock for the prior 30-calendar day period must be greater than $8.09, the closing price of Leap common stock on November 2, 2011, the date on which the award was originally granted; otherwise, the installment of shares will remain unvested until the average of the closing prices of Leap common stock for any subsequent 30-calendar day period is greater than such amount.

 

  (7) Represents deferred stock units issued to Mr. Berger, the vesting of which was tied to the performance of our Muve Music service and Mr. Berger's continued service. Mr. Berger was awarded 35,000 target units, with the opportunity to earn between zero and 131,250 units based on our achievement of performance measures for Muve Music for fiscal years 2011 and 2012. Each unit represented the right to receive one share of Leap common stock upon vesting and settlement of such unit, subject to our achievement of the performance measures discussed above. Mr. Berger resigned as our executive vice president and CFO in February 2012 and the deferred stock units expired.

 

  (8) The awards of restricted stock and stock options vest in full on the fourth anniversary of the date of grant, with no interim installment vesting.

 

  (9) The awards of restricted stock and stock options vest in equal annual installments on December 31, 2011, 2012, 2013 and 2014.

 

(10) The awards of restricted stock and stock options vest in full on December 31, 2014, with no interim installment vesting.

 

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2011 Stock Vested

The following table provides information on awards of restricted stock held by our named executive officers that vested during the fiscal year ended December 31, 2011. None of our named executive officers exercised any options to purchase shares of our common stock during the fiscal year ended December 31, 2011.

 

     Stock Awards  

Name

   Number of Shares
Acquired on
Vesting (#)
     Value Realized  on
Vesting(1)
 

S. Douglas Hutcheson

     45,000       $ 732,599   

Walter Z. Berger

     24,250       $ 404,201   

Raymond J. Roman

               

Robert A. Young

     12,500       $ 116,125   

William D. Ingram

     14,000       $ 185,957   

Albin F. Moschner

     26,750       $ 362,264   

 

 

 

(1) The value realized upon vesting of a restricted stock award is calculated based on the number of shares vesting multiplied by the difference between the fair market value per share of our common stock on the vesting date less the purchase price per share.

Severance, Retention and Change-in-Control Arrangements

We have entered into arrangements with our executives whereby they may receive certain additional benefits in the event that their employment with us were to terminate or in connection with the occurrence of a change in control.

Under our severance arrangements, as described further below, we have agreed to provide our executives with certain benefits in the event that their employment were involuntarily or constructively terminated. These severance benefits are designed to alleviate the financial impact of an involuntary termination through salary, bonus and health benefit continuation and with the intent of providing for a stable work environment. We believe that it is important that we provide reasonable severance benefits to our executive officers because it may be difficult for them to find comparable employment within a short period of time following certain qualifying terminations.

We extend severance and change-in-control benefits to senior management because they are essential to help us fulfill our objectives of attracting and retaining key managerial talent. These arrangements are intended to be competitive within our industry and company size and to attract highly qualified individuals and encourage them to remain with us. These arrangements have formed an integral part of the total compensation that we provide to these individuals and are considered by the Compensation Committee when determining executive officer compensation. The decision to offer these benefits, however, did not influence the Compensation Committee’s determinations concerning other direct compensation or benefit levels.

Severance Arrangements

The terms of our severance arrangement with our CEO, S. Douglas Hutcheson, are set forth in his employment agreement and described above in “Discussion of Summary Compensation and Grants of Plan-Based Awards Tables — Amended and Restated Executive Employment Agreement with S. Douglas Hutcheson.”

Cricket and Leap have entered into Severance Benefits Agreements with our other executive officers (except for Robert Young with whom we have an employment agreement). The terms of the Severance Benefit Agreements automatically extend for a one-year period each December 31, unless notice of termination is provided to the executive no later than January 1st of the preceding year. Under the agreements, in the event that the executive were to be terminated other than for cause or if he or she were to resign with good reason, he or she would be entitled to receive severance benefits consisting of the following: (1) any unpaid portion of his or her

 

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salary and accrued benefits earned up to the date of termination; (2) a lump sum payment equal to his or her then-current annual base salary and target bonus, multiplied by 1.5 for executive officers who report directly to our CEO and 1.0 for those who do not; and (3) the cost of continuation health coverage (COBRA) for a period of 18 months for executive officers who report directly to our CEO and 12 months for those who do not (or, if shorter, until the time when the respective officer is eligible for comparable coverage with a subsequent employer). In consideration for and prior to receiving any of these benefits, the officer would be required to provide a general release to Cricket and Leap and agree not to solicit any of our employees, and to maintain the confidentiality of our information, for three years following his or her termination.

For purposes of the Severance Benefit Agreements, “cause” is generally defined to include: (i) the officer’s willful neglect of or willful failure substantially to perform his or her duties with Cricket (or its parent or subsidiaries), after written notice and the officer’s failure to cure; (ii) the officer’s willful neglect of or willful failure substantially to perform the lawful and reasonable directions of the board of directors of Cricket (or of any parent or subsidiary of Cricket which employs the officer or for which the officer serves as an officer) or of the individual to whom the officer reports, after written notice and the officer’s failure to cure; (iii) the officer’s commission of an act of fraud, embezzlement or dishonesty upon Cricket (or its parent or subsidiaries); (iv) the officer’s material breach of his or her confidentiality and inventions assignment agreement or any other agreement between the officer and Cricket (or its parent or subsidiaries), after written notice and the executive’s failure to cure; (v) the officer’s conviction of, or plea of guilty or nolo contendere to, the commission of a felony or other illegal conduct that is likely to inflict or has inflicted material injury on the business of Cricket (or its parent or subsidiaries); or (vi) the officer’s gross misconduct affecting or material violation of any duty of loyalty to Cricket (or its parent or subsidiaries). For purposes of the Severance Benefit Agreements, “good reason” is generally defined to include the occurrence of any of the following circumstances, unless cured within thirty days after Cricket’s receipt of written notice of such circumstance from the officer: (i) a material diminution in the officer’s authority, duties or responsibilities with Cricket (or its parent or subsidiaries), including the continuous assignment to the officer of any duties materially inconsistent with his or her position, a material negative change in the nature or status of his or her responsibilities or the conditions of his or her employment with Cricket (or its parent or subsidiaries); (ii) a material diminution in the officer’s annualized cash and benefits compensation opportunity, including base compensation, annual target bonus opportunity and aggregate employee benefits; (iii) a material change in the geographic location at which the officer must perform his or her duties, including any involuntary relocation of Cricket’s offices (or its parent’s or subsidiaries’ offices) at which the officer is principally employed to a location that is more than 60 miles from such location; or (iv) any other action or inaction that constitutes a material breach by Cricket (or its parent or subsidiaries) of its obligations to the officer under his or her Severance Benefit Agreement.

Employment Agreement with Robert Young

Effective as of January 1, 2011, Cricket and Leap entered into an Employment Agreement with Robert A. Young in connection with his appointment as our executive vice president, field operations. Under the agreement, Mr. Young will be employed for the term beginning on January 1, 2011, and ending on December 31, 2012. Immediately following the employment term, Mr. Young will provide consulting services to us for the period beginning on January 1, 2013, and ending on December 31, 2015. During the consulting period, Mr. Young will report directly to our CEO and he will have the opportunity to provide a minimum of five days per month of consulting services to us. This agreement is referred to in this proxy statement as the “Young Employment Agreement.”

Under the Young Employment Agreement, Mr. Young is entitled to receive an annual base salary of $425,000 during the employment term. His annual target performance bonus for 2011 and 2012 is equal to 80% of his base salary, and the amount of any annual performance bonus will be determined in accordance with Leap’s prevailing annual performance bonus practices that are generally used to determine annual performance bonuses for Leap’s senior executives. During the consulting period, Mr. Young will be paid $4,000 per day for his consulting services. In addition, the Young Employment Agreement specifies that during the employment term, Mr. Young is entitled to participate in all insurance and benefit plans generally available to Leap’s executive officers, and that during the consulting period, Leap will pay the premiums for Mr. Young’s health insurance (until he becomes eligible for comparable coverage with a subsequent employer).

 

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In connection with the commencement of his employment, Mr. Young was granted two sets of equity awards. The “First Equity Awards” consisted of options to purchase 50,000 shares of Leap common stock and 50,000 restricted shares of Leap common stock. All of the First Equity Awards are subject to a four-year vesting schedule, with 25% of the options and restricted shares vesting on December 31st of each of 2011, 2012, 2013 and 2014. The “Second Equity Awards” consisted of options to purchase 50,000 shares of Leap common stock and 50,000 restricted shares of Leap common stock. All of the Second Equity Awards are subject to a four-year vesting schedule, with 100% of the options and restricted shares vesting on December 31, 2014.

Under the terms of the Young Employment Agreement, if Mr. Young’s employment is terminated prior to the expiration of the employment term as a result of his discharge by Leap other than for cause or if he resigns with good reason, he will be entitled to receive: (1) any unpaid portion of his salary and accrued benefits earned up to the date of termination; (2) a lump sum payment equal to the lesser of (a) one and one-half times his annual base salary or (b) the base salary remaining to be paid to him for the remainder of the employment term; (3) a lump sum payment equal to his target performance bonus for the year in which the termination occurs; (4) if he elects to receive continued health coverage under COBRA, the premiums for such coverage paid by Leap for the period beginning on the date of termination through December 31, 2015 (or, if earlier, until he becomes eligible for comparable coverage with a subsequent employer); (5) accelerated vesting in full of all of Mr. Young’s unvested First Equity Awards; and (6) if the termination occurs during 2012, accelerated vesting of 25% of the unvested Second Equity Awards. During the consulting period, if the consulting period is terminated by Leap other than for cause, Mr. Young will be entitled to receive: (1) any accrued, unpaid consulting fees earned up to the date of termination; (2) if he elects to receive continued health coverage under COBRA, the premiums for such coverage paid by Leap for the period beginning on the date of termination through December 31, 2015 (or, if earlier, until he becomes eligible for comparable coverage with a subsequent employer); (3) accelerated vesting in full of all of Mr. Young’s unvested First Equity Awards; and (4) if the termination occurs during 2013, accelerated vesting of 50% of the unvested Second Equity Awards and, if the termination occurs during 2014, accelerated vesting of 75% of the unvested Second Equity Awards. Mr. Young will be required to execute a general release as a condition to his receipt of any of these severance benefits.

If Mr. Young’s employment or consultancy is terminated as a result of his death, disability or discharge by Leap for cause, or if he resigns without good reason, he will be entitled only to his accrued base salary or consulting fees through the date of termination.

Retirement and Employment Transition Agreement with Albin Moschner

On January 17, 2011, Leap and Cricket entered into a Retirement and Employment Transition Agreement with Albin F. Moschner. Under the agreement, Mr. Moschner served as Leap’s COO until January 31, 2011, after which he commenced providing consulting services to Leap and Cricket for a period of eighteen months. For his consulting services, Leap agreed to pay Mr. Moschner a fee of $79,167 per month as well the cost of continued heath care coverage for Mr. Moschner and his eligible dependents. In addition, during the consulting period Mr. Moschner’s unexercised equity awards continue to vest and be exercisable under the terms of 2004 Plan and the respective award agreements pursuant to which they were granted. In the event that Mr. Moschner’s consulting services are terminated by the Company before the end of the eighteen-month period, the Company will pay Mr. Moschner the remaining consulting fees due under the agreement and will continue to pay for the cost of continued health care coverage for remaining period.

Cash Retention Arrangements

In March 2010, we entered into retention arrangements with members of senior management, including our named executive officers, which have since terminated and not been renewed. We entered into these agreements in early 2010 in light of the significant public speculation regarding the competitive and strategic landscape in the wireless industry and our belief that it was important to provide senior management with sufficient, future incentives to remain with the Company for a period of time following any change in control to help ensure any orderly transition. If a change in control had occurred before March 8, 2012, cash awards would be made to our named executive officers in the following amounts: Mr. Hutcheson, $1,125,000; Mr. Berger, $750,000; and Mr. Ingram, $450,000.

 

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Change-in-Control Vesting of Stock Options, Restricted Stock and Deferred Stock Units

The stock option, restricted stock and deferred stock unit awards granted to our named executive officers will become exercisable and/or vested on an accelerated basis in connection with certain changes in control. The period over which the award vests or becomes exercisable after a change in control varies depending upon the date that the award was granted and the date of the change in control.

Under the forms of stock option and restricted stock award agreements for new equity grants to new hires that we used between October 2005 and May 2008, which generally provide for five-year cliff vesting with possible accelerated vesting based on achievement of adjusted EBITDA and net customer additions performance objectives, in the event of a change in control, one-third of the unvested portion of such award would vest and/or become exercisable on the date of the change in control. In the event the named executive officer were providing services to us as an employee, director or consultant on the first anniversary of the change in control, an additional one-third of the unvested portion of such award (measured as of immediately prior to the change in control) would vest and/or become exercisable on such date. In the event that a named executive officer were providing services to us as an employee, director or consultant on the second anniversary of the change in control, the entire remaining unvested portion of such award would vest and/or become exercisable on such date.

In the case of all of our outstanding stock option and restricted stock award agreements, in the event a named executive officer’s employment were terminated by us other than for cause, or if the named executive officer resigned with good reason, during the period commencing 90 days prior to a change in control and ending 12 months after such change in control, each stock option and restricted stock award would automatically accelerate and become exercisable and/or vested as to any remaining unvested shares subject to such award on the later of (i) the date of termination of employment or (ii) the date of the change in control. Under the forms of agreements that we have generally used for refresher grants since December 2007, this is the only means by which the underlying awards would vest or become exercisable in connection with a change in control.

In the case of the deferred stock unit awards and long-term incentive cash awards granted to our executive officers beginning in 2012, in the event of a change in control of Leap, the executive would be entitled to receive a number of shares underlying the deferred stock units and a cash award, in each case equal to the target amounts, and the awards would continue to vest pursuant to their terms. However, the awards would immediately vest in the event that the executive officer’s employment was terminated by us without cause or by the executive for good reason within 90 days prior to or 12 months following the change in control.

The terms “cause” and “good reason” are defined in the applicable award agreements and are substantially similar to the definitions of such terms found in the Severance Benefit Agreements, as described above. The term “change in control” is defined in the 2004 Plan. A named executive officer would be entitled to accelerated vesting and/or exercisability in the event of a change in control only if he or she were an employee, director or consultant on the effective date of such accelerated vesting and/or exercisability, except as otherwise described above.

 

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Potential Change-in-Control and Severance Payments

The following table summarizes potential change-in-control and severance payments that could have been made to our named executive officers as of December 31, 2011. The four right-hand columns describe the payments that would apply in four different potential scenarios:

 

  Ÿ  

a termination of employment as a result of the named executive officer’s voluntary resignation without good reason or his termination by us for cause;

 

  Ÿ  

a change in control without a termination of employment;

 

  Ÿ  

a termination of employment as a result of the named executive officer’s resignation for good reason or termination of employment by us other than for cause, in each case within 90 days before or within a year after a change in control; and

 

  Ÿ  

a termination of employment as a result of the named executive officer’s resignation for good reason or termination of employment by us other than for cause, in each case not within 90 days before and not within 12 months after a change in control.

 

Name

 

Benefit Type

  Payment in the
Case of a
Voluntary

Termination
without Good
Reason or
Termination for
Cause
    Payment in the
Case  of a Change
in Control
Without
Termination
    Payment in the
Case of a
Termination
Other than
for Cause or
with Good
Reason, if
Within 90 Days
Prior to or
Within 12 Months
Following a
Change in Control
    Payment in the
Case of a
Termination
Other than
for Cause or
with Good
Reason,
Not Within 90  Days
Prior to and
Not Within 12
Months

Following a
Change in Control
 

S. Douglas Hutcheson

  Accrued Salary(1)   $ 16,488             $ 16,488      $ 16,488   
  Accrued PTO(2)   $ 254,968             $ 254,968      $ 254,968   
  Cash Severance(3)                 $ 3,000,000      $ 3,000,000   
  COBRA Payments(4)                 $ 53,692      $ 53,692   
  Value of Equity Award                 $ 2,259,969 (5)        
  Acceleration        
  Excise Tax Gross-Up Payment                 $ 1,000,000 (6)        
  Cash Retention Award(7)          $ 1,125,000      $ 1,125,000          
  Total Value:   $ 271,456      $ 1,125,000      $ 7,710,117      $ 3,325,148   

Walter Z. Berger

  Accrued Salary(1)   $ 11,648             $ 11,648      $ 11,648   
  Accrued PTO(2)   $ 122,308             $ 122,308      $ 122,308   
  Cash Severance(8)                 $ 1,431,000      $ 1,431,000   
  COBRA Payments(4)                 $ 40,269      $ 40,269   
  Value of Equity Award                 $ 1,312,213 (5)        
  Acceleration        
  Cash Retention Award(7)          $ 750,000      $ 750,000          
  Total Value:   $ 133,956      $ 750,000      $ 3,667,438      $ 1,605,225   

Raymond J. Roman

  Accrued Salary(1)   $ 12,088             $ 12,088      $ 12,088   
  Accrued PTO(2)   $ 20,900             $ 20,900      $ 20,900   
  Cash Severance(8)   $ (25,479 )(9)           $ 1,485,000      $ 1,485,000   
  COBRA Payments(4)                 $ 40,269      $ 40,269   
  Value of Equity Award          $      $ 1,439,950 (5)        
  Acceleration        
  Total Value:   $ 7,509      $      $ 2,998,207      $ 1,558,257   

Robert A. Young

  Accrued Salary(1)   $ 9,341             $ 9,341      $ 9,341   
  Accrued PTO(2)   $ 33,375             $ 33,375      $ 33,375   
  Cash Severance(10)                 $ 765,000      $ 765,000   
  COBRA Payments(4)                 $ 107,384      $ 107,384   
  Value of Equity Award                 $ 812,875 (5)    $ 348,375 (12) 
  Acceleration        
  Total Value:   $ 42,716      $      $ 1,727,975      $ 1,263,475   

William D. Ingram

  Accrued Salary(1)   $ 6,593             $ 6,593      $ 6,593   
  Accrued PTO(2)   $ 28,717             $ 28,717      $ 28,717   
  Cash Severance(8)                 $ 742,436      $ 742,436   
  COBRA Payments(4)                 $ 40,269      $ 40,269   
  Value of Equity Award          $ 40,035 (11)    $ 673,068 (5)        
  Acceleration        
  Cash Retention Award(7)          $ 450,000      $ 450,000          
  Total Value:   $ 35,310      $ 490,035      $ 1,941,083      $ 818,015   

Albin F. Moschner

  Cash Severance(13)   $ 554,169             $ 554,169      $ 554,169   
  COBRA Payments(4)   $ 15,660             $ 15,660      $ 15,660   
  Value of Equity Award                 $ 889,513 (14)        
  Acceleration        
  Total Value:   $ 569,829      $                     —      $ 1,459,342      $ 569,829   

 

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  (1) Represents earned but unpaid salary as of December 31, 2011.

 

  (2) Represents accrual for paid time off that had not been taken as of December 31, 2011.

 

  (3) Represents two times the sum of (a) Mr. Hutcheson’s annual base salary as of December 31, 2011 plus (b) the target amount of his annual bonus for 2011. This amount excludes potential payments of $1,500 per day that Mr. Hutcheson could receive for providing consulting services at Leap’s request after a resignation for good reason.

 

  (4) Amounts shown equal an aggregate of 24 months of COBRA payments for Mr. Hutcheson, 48 months of COBRA payments for Mr. Young, seven months of COBRA payments for Mr. Moschner and 18 months of COBRA payments for Messrs. Berger, Roman and Ingram.

 

  (5) Represents the value of those awards that would vest as a result of the executive’s termination of employment by us other than for cause or by the named executive officer for good reason within 90 days prior to or within 12 months following a change in control. This value assumes that the change in control and the termination occurred on December 31, 2011 and therefore that the vesting of such award was not previously accelerated as a result of a change in control. The value of such awards was calculated assuming a price per share of our common stock of $9.29, which represents the closing market price of our common stock as reported on the NASDAQ Global Select Market on December 30, 2011.

 

  (6) Represents the maximum excise tax gross-up payment to which Mr. Hutcheson may be entitled pursuant to his Executive Employment Agreement. The actual amount of any such excise tax gross-up payment may be less than the estimated amount. The excise tax gross-up payment takes into account the severance payments and benefits that would be payable to Mr. Hutcheson upon his termination of employment by the Company without cause or his resignation with good reason in connection with a change in control and assumes that such payments would constitute excess parachute payments under Section 280G of the Code, resulting in excise tax liability. See “Severance, Retention and Change-in-Control Arrangements” above. It also assumes that Mr. Hutcheson would continue to provide consulting services to Leap for three days per month for a one-year period after his resignation with good reason, for a fee of $1,500 per day. Such potential consulting fees are not reflected in the amounts shown in the table above.

 

  (7) Represents payment of the cash retention award approved by the Compensation Committee on March 4, 2010, which agreements have since terminated. If there had been a change in control (as defined in the 2004 Plan) at any time before March 8, 2012 and the Board approved the payment of the award upon the completion of such change in control, then one-third of the award would have been paid in cash upon such change in control, and two-thirds of the award would have been paid upon the six-month anniversary of such change in control. In order to be eligible to receive an award, an executive was required to continue to be employed by Leap on the date of each such payment (subject to the accelerated payment provisions described below.) If an executive’s employment had been terminated by Leap other than for cause or by the executive for good reason within 90 days prior to or six months following a change in control, then any unpaid portion of the award would have been paid to the executive upon the executive’s termination of employment. As noted above, the cash retention agreements expired by their terms in March 2012 and have not been replaced with new retention arrangements.

 

  (8) Represents one and one-half times the sum of (a) the executive’s annual base salary as of December 31, 2011 plus (b) the target amount of his annual bonus for 2011.

 

  (9) Represents the prorated amount of Mr. Roman’s sign-on bonus of $300,000 that he would be required to pay back to Leap in the event he voluntarily resigns without good reason or is terminated by us for cause within one year following February 1, 2011, his first day of employment.

 

(10) Represents the sum of (a) Mr. Young’s base salary remaining to be paid for the remainder of his employment period ending December 31, 2012 plus (b) the target amount of his annual bonus for 2011.

 

(11) Represents the value of those awards that would vest as a result of a change in control occurring on December 31, 2011, without any termination of employment. The value of such awards was calculated assuming a price per share of our common stock of $9.29, which represents the closing market price of our common stock as reported on the NASDAQ Global Select Market on December 30, 2011.

 

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(12) Represents the value of those awards that would vest as a result of Mr. Young’s termination of employment by us other than for cause or by Mr. Young for good reason not within 90 days before and not within 12 months following a change in control. This value assumes that the date of termination occurred on December 31, 2011. The value of such awards was calculated assuming a price per share of our common stock of $9.29, which represents the closing market price of our common stock as reported on the NASDAQ Global Select Market on December 30, 2011.

 

(13) Represents the consulting fees due to Mr. Moschner for the seven months ending July 31, 2012 to which Mr. Moschner is entitled under his Retirement and Employment Transition Agreement if his consulting period is terminated by Leap for any reason.

 

(14) Represents the value of those awards that would vest as a result of the termination of Mr. Moschner’s consulting period by us other than for cause within 90 days prior to or within 12 months following a change in control. This value assumes that the change in control and the termination occurred on December 31, 2011. The value of such awards was calculated assuming a price per share of our common stock of $9.29, which represents the closing market price of our common stock as reported on the NASDAQ Global Select Market on December 30, 2011.

Director Compensation

Compensation Arrangements

The annual compensation package for our non-employee directors consists of a combination of cash and equity.

 

  Ÿ  

Each of our non-employee directors receives annual cash compensation of $40,000, with the Chairman of the Board receiving $60,000. Following the 2012 Annual Meeting, the annual cash compensation will be increased to $45,000 for our non-employee directors and $65,000 for our Chairman.

 

  Ÿ  

The chairman of the Audit Committee receives additional cash compensation of $15,000; and the chairmen of each of the Compensation Committee and the Nominating and Corporate Governance Committee receive additional cash compensation of $5,000. Following the Annual Meeting, the additional annual cash compensation for chairing the Board Committees will increase to $20,000 for the chairman of the Audit Committee and to $10,000 for the chairmen of each of the Compensation Committee and Nominating and Corporate Governance Committee. In addition, following the Annual Meeting, members of the Audit, Compensation and Nominating and Corporate Governance Committees (other than the chairs) will receive a $2,500 annual cash retainer.

 

  Ÿ  

Each of our non-employee directors receives an annual award of $100,000 of restricted shares of Leap common stock pursuant to the 2004 Plan. Each such share is valued at fair market value (as defined in the 2004 Plan) on the date of grant. Each award vests in equal installments on each of the first, second and third anniversaries of the date of grant. All unvested shares under each award will vest upon a change in control (as defined in the 2004 Plan). Following the Annual Meeting, the amount of the annual award will increase to $105,000.

 

  Ÿ  

Each of our non-employee directors receives a fee of $1,000 to $2,000 (depending on the length of the meeting) for each Board meeting they attend in excess of the first four meetings of the year and for each meeting of any standing committee of the Board they attend in excess of the first four meetings of the year. The per-meeting fee is paid in arrears on a quarterly basis in shares of our common stock pursuant to the 2004 Plan. Prior to January 2012, the shares underlying the grants vested on the first anniversary of the date of grant and all unvested shares vested upon a change in control (as defined in the 2004 Plan) or if the director were not nominated for reelection at the annual meeting of stockholders following the grant date. Beginning in January 2012, the per-meeting fee has been paid in vested shares of our common stock.

From time to time, the Board also pays additional compensation to directors for service on special committees of the Board. We also reimburse directors for reasonable and necessary expenses, including their travel expenses incurred in connection with attendance at Board and committee meetings.

 

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2011 Director Compensation

The following table sets forth certain compensation information with respect to each of the members of our Board for the fiscal year ended December 31, 2011, other than Mr. Hutcheson, whose compensation relates to his service as president and CEO and who does not receive additional compensation in his capacity as a director.

 

Name

   Fees Earned or Paid
in Cash
     Stock Awards(1)      Total  

John D. Harkey, Jr.

   $ 40,000       $ 117,999       $ 157,999   

Ronald J. Kramer

   $ 40,000       $ 115,997       $ 155,997   

Robert V. LaPenta

   $ 40,000       $ 117,004       $ 157,004   

Mark A. Leavitt

   $ 40,000       $ 102,994       $ 142,994   

Mark H. Rachesky, M.D.

   $ 65,000       $ 131,996       $ 196,996   

Richard R. Roscitt

   $ 40,000       $ 101,998       $ 141,998   

Robert E. Switz

   $ 40,000       $ 101,998       $ 141,998   

Michael B. Targoff

   $ 55,000       $ 133,001       $ 188,001   

John H. Chapple(2)

           $ 4,006       $ 4,006   

William A. Roper, Jr.(2)

           $ 10,999       $ 10,999   

 

 

(1) Represents the grant date fair value of restricted stock awards granted to our non-employee directors in 2011, computed in accordance with FASB ASC Topic 718, Stock Compensation. For information regarding assumptions made in connection with this valuation, please see Note 12 to our consolidated financial statements found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

 

     On July 29, 2011, we granted 7,429 shares of restricted stock to Messrs. Harkey, Kramer, LaPenta, Leavitt, Rachesky and Targoff in connection with their election to the Board at the 2011 annual meeting of stockholders. The grant date fair value of each of these awards, computed in accordance with FASB ASC Topic 718, was $99,994. On August 15, 2011, we granted 11,641 shares of restricted stock to Messrs. Roscitt and Switz in connection with their appointment to the Board. The grant date fair value of each of these awards, computed in accordance with FASB ASC Topic 718, was $99,996. Each award of restricted stock will vest in equal installments on each of the first, second and third anniversaries of the date of grant. All unvested shares of restricted stock under each award will vest upon a change in control (as defined in the 2004 Plan).

 

     In addition, on the following dates during 2011, we granted the following shares of restricted stock to our directors in the form of per-meeting fees (and the grant date fair value of each award, computed in accordance with FASB ASC Topic 718, is shown in parentheses after each award): (a) January 14, 2011: Dr. Rachesky, 589 shares ($7,999); Mr. Chapple, 295 shares ($4,006); Mr. Harkey, 295 shares ($4,006); Mr. Kramer, 295 shares ($4,006); Mr. LaPenta, 295 shares ($4,006); Mr. Roper, 295 shares ($4,006); and Mr. Targoff, 442 shares ($6,002); (b) July 14, 2011: Dr. Rachesky, 752 shares ($11,002); Mr. Harkey, 410 shares ($5,998); Mr. Kramer, 205 shares ($2,999); Mr. LaPenta, 342 shares ($5,003); Mr. Roper, 478 shares ($6,993); and Mr. Targoff, 889 shares ($13,006); and (c) October 14, 2011: Dr. Rachesky, 1,994 shares ($13,001); Mr. Harkey, 1,227 shares ($8,000); Mr. Kramer, 1,380 shares ($8,998); Mr. LaPenta, 1,227 shares ($8,000); Mr. Leavitt, 460 shares ($2,999); Mr. Roscitt, 307 shares ($2,002); Mr. Switz, 307 shares ($2,002); and Mr. Targoff, 2,147 shares ($13,998). The shares underlying the grants vest on the first anniversary of the date of grant and all unvested shares will vest upon a change in control (as defined in the 2004 Plan). The shares underlying the grants will also vest if the director is not nominated for reelection at the annual meeting of stockholders following the grant date.

 

     The aggregate number of unvested restricted stock awards outstanding at the end of 2011 for each non-employee director was as follows: Mr. Harkey, 14,305; Mr. Kramer, 14,299; Mr. LaPenta, 14,237; Mr. Leavitt, 7,889; Dr. Rachesky, 15,708; Mr. Roscitt, 11,948; Mr. Switz, 11,948; and Mr. Targoff, 15,851.

 

    

No options to purchase shares of our common stock were granted to our directors during the fiscal year ended December 31, 2011. The aggregate number of stock option awards that were outstanding at the end of

 

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  2011 for each non-employee director were as follows: Mr. Harkey, 2,500; Mr. LaPenta, 12,500; Dr. Rachesky, 40,200; and Mr. Targoff, 4,500. These option grants were made to our non-employee directors in March 2005, and there have been no option grants to our non-employee directors since that time.

 

(2) Messrs. Chapple and Roper left our Board following the 2011 annual meeting at the end of their term of service.

 

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COMPENSATION COMMITTEE REPORT*

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management, and based on such review and discussions, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K for the year ended December 31, 2011 and in our proxy statement for our 2012 Annual Meeting of Stockholders.

COMPENSATION COMMITTEE

Mark H. Rachesky, M.D.

Richard Roscitt

Michael B. Targoff

 

 

 

* The material in this report is not soliciting material, is not deemed filed with the SEC, and is not incorporated by reference in any of our filings under the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether made on, before, or after the date of this proxy statement and irrespective of any general incorporation language in such filing.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of Leap’s Compensation Committee are Dr. Rachesky, Mr. Roscitt and Mr. Targoff. None of these directors has at any time been an officer or employee of Leap or any of its subsidiaries.

In August 2004, we entered into a registration rights agreement with certain holders of Leap common stock, including MHR Institutional Partners II LP and MHR Institutional Partners IIA LP (which entities are affiliated with Dr. Rachesky, Leap’s Chairman of the Board), whereby we granted them registration rights with respect to the shares of common stock issued to them on the effective date of Leap’s plan of reorganization.

In September 2009, we entered into an amended and restated registration rights agreement (the “Amended and Restated Registration Rights Agreement”) with MHR Capital Partners Master Account LP, MHR Capital Partners (100) LP, MHR Institutional Partners II LP, MHR Institutional Partners IIA LP and MHR Institutional Partners III LP (collectively, the “MHR Entities”), pursuant to which the parties amended and restated the original registration rights agreement. Each of the MHR Entities is a shareholder of Leap and an affiliate of Dr. Rachesky. Under the Amended and Restated Registration Rights Agreement, we are required to maintain a resale shelf registration statement, pursuant to which these holders may sell their shares of common stock on a delayed or continuous basis. In addition, the MHR Entities have certain demand registration rights and the right in certain circumstances to include their Registrable Securities (as defined in the Amended and Restated Registration Rights Agreement) in registration statements that we file for public offerings of our common stock. The Amended and Restated Registration Rights Agreement also revised the definition of “Additional Holder” under the agreement to include affiliates of any “Holder” under the agreement, amended the definition of “Registrable Securities” to include shares of our common stock held by any Holder now or from time to time in the future, and required us no later than December 2, 2009 and thereafter upon request, to register the resale on a delayed or continuous basis of Registrable Securities held or acquired by the Holders that are not the subject of an existing resale shelf registration statement. We have filed a registration statement to register the resale of all of the shares of common stock held by the MHR Entities. Under the Amended and Restated Registration Rights Agreement, we are obligated to pay all the expenses of registration, other than underwriting fees, discounts and commissions. The Amended and Restated Registration Rights Agreement contains cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of material misstatements or omissions in a registration statement that are attributable to us, and they are obligated to indemnify us for material misstatements or omissions attributable to them.

 

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PROPOSAL 2

ADVISORY VOTE ON EXECUTIVE COMPENSATION

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, stockholders are entitled to vote at the Annual Meeting to provide advisory approval of the compensation we provided to our named executive officers in 2011, as disclosed above in the section of this proxy statement entitled “Compensation Discussion and Analysis” (which we also refer to as our CD&A) and the related tabular disclosure. Pursuant to the Dodd-Frank Act, the vote on executive compensation is an advisory vote only, and it is not binding on Leap, our Compensation Committee or our Board of Directors. Although the vote is non-binding, our Compensation Committee and Board of Directors value the opinions of our stockholders and will consider the outcome of the vote when making future compensation decisions.

We urge shareholders to read the CD&A section of this proxy statement, which describes in detail the principles and objectives of our executive compensation program, which is designed to attract, motivate and retain talented executives who will drive our financial and operational objectives while creating long-term shareholder value. In particular, in the section of the CD&A entitled “Executive Summary” on page 13, we review the Company’s financial and operational performance in 2011 and discuss how those results influenced the compensation earned by our named executive officers, including discussion of the following:

 

  Ÿ  

2011 Year of Continued Competition and Company Transition — For the Company, 2011 was a year of continued intense competition within the wireless industry and further transition in our business during which we took additional steps to improve our competitive positioning. These efforts included continuing to develop and evolve our product and service offerings, including our new Muve Music offering; continuing to build brand awareness in our markets and improve the productivity of our distribution; continuing to maintain and develop our network to allow us to provide customers with high-quality service, which included the successful launch of our first commercial LTE trial market; and completion of a number of other significant initiatives to strengthen our operating and financial position, including the upgrade of our customer billing system.

 

  Ÿ  

Significant Year-Over-Financial and Operational Growth — The changes we introduced in our business in 2011 helped drive significant year-over-year financial and operational growth. Total customers for 2011 increased 8% over the prior year, and our rate of customer turnover, or churn, for the year improved nearly 100 basis points to 3.8%. Total revenues and service revenues increased approximately 14% over prior year amounts, driving a nearly $3 year-over-year increase in ARPU. Adjusted OIBDA increased 7% to $562.6 million.

 

  Ÿ  

Reasonable 2011 Compensation for CEO — The 2011 compensation earned by our CEO, S. Douglas Hutcheson, was reasonable in light of our 2011 financial and operational performance:

 

  Ÿ  

In 2011, Mr. Hutcheson did not receive any increase to his base salary of $750,000 or to the amount of his annual target bonus, which together were below the 25th percentile of total cash compensation opportunity provided by those companies against which we measured our compensation.

 

  Ÿ  

Based upon the Company’s financial and operational performance in 2011, Mr. Hutcheson received a cash bonus award of $529,687, which represented approximately 71% of his target bonus amount.

 

  Ÿ  

Almost half of Mr. Hutcheson’s total compensation for 2011 (as reported in the table entitled “Summary Compensation”) was attributable to long-term equity compensation awards. These awards consisted of stock options, half of which were issued with an exercise price equal to the then-current fair value market of Leap common stock and the remaining half of which were issued at exercise prices significantly in excess of our then-current fair market value. The remaining long-term incentives consisted of performance-vested restricted shares which vest in annual installments only if the average closing price for Leap common stock is at or above the closing price on the date such shares were originally issued for the 30-calendar day period preceding the annual vesting date or for a subsequent 30-day period.

 

  Ÿ  

Reasonable 2011 Compensation for Other Named Executive Officers — Like Mr. Hutcheson, the other named executive officers earned reasonable compensation amounts in 2011. The Compensation

 

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Committee did not increase 2011 base salaries for any of our named executive officers. The other named executive officers received 2011 cash bonus awards in amounts below their target bonus levels and, like Mr. Hutcheson, a significant portion of their compensation for 2011 consisted of long-term equity compensation awards.

In addition to discussing 2011 compensation, our CD&A also discusses some of the following governance and compensation practices that our stockholders should consider:

 

  Ÿ  

Independent Compensation Committee — Compensation amounts provided to our executive officers are determined by our Compensation Committee, which is comprised solely of independent directors, as defined by the NASDAQ Stock Market listing standards.

 

  Ÿ  

Substantial Performance-Based Compensation — To link compensation to corporate and individual performance, a substantial portion of each executive officer’s potential compensation opportunity is comprised of his annual performance bonus and long-term equity incentive awards. For 2011, our long-term incentive awards consisted of stock options, performance-based restricted stock and performance-vested deferred stock units. We have continued our focus on performance-based awards in 2012, granting long-term incentive awards consisting of stock options and performance-based deferred stock units and performance-based cash bonus awards.

 

  Ÿ  

Reasonable Severance Benefits — We provide our executive officers with severance benefits of between one and two times their annual base salary and target bonus if they are terminated without “cause” or resign for “good reason.”

 

  Ÿ  

Insider Trading and Equity Grant Policies — We have adopted an insider trading policy which prohibits directors and officers from engaging in short sales or trading in put and call options with respect to our equity securities. We have also established an equity grant policy under which equity awards are generally granted and effective, to the extent practicable, on the 14th calendar day of the month following their approval by the Board or Compensation Committee.

We believe that our executive compensation program is reasonable and structured to drive financial and operational performance and that the total compensation earned by our named executive officers for 2011, including our CEO, was appropriate when viewed in light of our achievements for the year, as well as their individual contributions.

We are asking our stockholders to indicate their support for our named executive officer compensation as described in the CD&A and the related tabular disclosure. Accordingly, we ask that our stockholders vote “FOR” the following resolution:

“RESOLVED, that Leap’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in Leap’s Proxy Statement for the 2012 Annual Meeting of Stockholders, pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2011 Summary Compensation Table and the other related tables and disclosure.”

Vote Required

Stockholder approval, on an advisory basis, of this proposal requires the affirmative vote of a majority of the votes cast with respect to this proposal by the shares present in person or represented by proxy and entitled to vote thereon at the Annual Meeting. A “majority of votes cast” means that the number of votes “FOR” the approval of our executive compensation program must exceed the number of votes “AGAINST” the approval of our executive compensation program. Abstentions and broker non-votes will not be considered as votes cast and will therefore have no effect on the outcome of this proposal.

Voting Recommendation of the Board of Directors

OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL, ON AN ADVISORY BASIS, OF OUR EXECUTIVE COMPENSATION PROGRAM AS DESCRIBED IN THIS PROXY STATEMENT

 

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PROPOSAL 3

REAPPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE LEAP WIRELESS INTERNATIONAL, INC. EXECUTIVE INCENTIVE BONUS PLAN

We are asking our stockholders to reapprove the material terms of the performance goals that may apply under the Leap Wireless International, Inc. Executive Incentive Bonus Plan, which we refer to as the “Executive Bonus Plan.” Stockholders approved the Executive Bonus Plan at our annual meeting of stockholders in May 2007. We are asking stockholders to reapprove the material terms of the performance goals under the Executive Bonus Plan in order to allow for certain awards under the Executive Bonus Plan to qualify as tax-deductible “performance-based compensation” within the meaning of Section 162(m) of the Code. One of the requirements of “performance-based compensation” for purposes of Section 162(m) is that the material terms of the performance goals under which compensation may be paid must be disclosed and approved by our stockholders every five years. Stockholders are not being asked to approve any amendments to the Executive Bonus Plan itself, but are only asked to reapprove the material terms of the performance goals for purposes of compliance with Section 162(m).

Leap’s Board believes it is in the best interests of Leap and its stockholders to provide for a stockholder-approved plan under which bonuses paid to its executive officers can be deducted for federal income tax purposes. However, in no event will reapproving the performance goals under the Executive Bonus Plan require the Board, or any applicable committee thereof, to grant bonus awards that are deductible as “performance-based compensation” within the meaning of Section 162(m). The Board and any applicable committee thereof reserves the right to grant bonus awards pursuant to terms and conditions that it determines to be in the best interests of Leap and its stockholders, regardless of whether or not such bonus awards result in compensation that is deductible for federal income tax purposes.

The following summary of the terms of the Executive Bonus Plan is qualified in its entirety by reference to the text of the Executive Bonus Plan, which is attached as Appendix B to this proxy statement.

Purpose of the Executive Bonus Plan

The purpose of the Executive Bonus Plan is to motivate its participants to achieve specified performance objectives and to reward them when those objectives are met with bonuses that are intended to be deductible to the maximum extent possible as “performance-based compensation” within the meaning of Section 162(m).

Administration

The administration of the Executive Bonus Plan has been delegated to the Compensation Committee. All actions taken and all interpretations and determinations relating to the Executive Bonus Plan made in good faith by the Compensation Committee or Leap’s Board will be final and binding on Leap and all participants.

Eligibility

Participation in the Executive Bonus Plan is limited to those senior vice presidents or more senior officers of Leap or any subsidiary who are selected by the Compensation Committee to receive a bonus award under the Executive Bonus Plan. There are currently approximately eighteen such senior officers.

Performance Objectives

The Compensation Committee may, in its discretion, establish specific performance objectives (including any adjustments) that must be achieved in order for an eligible participant to become eligible to receive a bonus award payment. In order for a bonus award to qualify as “performance-based compensation” within the meaning of Section 162(m), the performance objectives (including any adjustments) must be established in writing by the Compensation Committee no later than the earlier of (i) the ninetieth day following the commencement of the period of service to which the performance goals relate or (ii) the date preceding the date on which 25% of the period of service has lapsed (as scheduled in good faith at the time the performance objectives are established), provided that the achievement of such goals must be substantially uncertain at the time such goals are established

 

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in writing. For each performance period with regard to which one or more eligible participants in the Executive Bonus Plan is selected by the Compensation Committee to receive a bonus award, the Compensation Committee will establish in writing one or more objectively determinable performance objectives for such bonus award, based upon one or more of the following business criteria, any of which may be measured in absolute terms (as compared to an incremental increase over a prior period) or as compared to the results of a peer group:

 

  Ÿ  

revenue;

 

  Ÿ  

sales;

 

  Ÿ  

cash flow;

 

  Ÿ  

earnings (including earnings before any one or more of the following: (i) interest, (ii) taxes, (iii) depreciation, and (iv) amortization);

 

  Ÿ  

earnings (including earnings before any one or more of the following: (i) interest, (ii) taxes, (iii) depreciation, and (iv) amortization) per share of Leap’s common stock;

 

  Ÿ  

operating income (including operating income before any one or more of the following: (i) depreciation and (ii) amortization);

 

  Ÿ  

operating income (including operating income before any one or more of the following: (i) depreciation and (ii) amortization) per share of Leap’s common stock;

 

  Ÿ  

return on equity;

 

  Ÿ  

total stockholder return;

 

  Ÿ  

return on capital;

 

  Ÿ  

return on assets or net assets;

 

  Ÿ  

income or net income;

 

  Ÿ  

operating profit or net operating profit;

 

  Ÿ  

operating margin;

 

  Ÿ  

cost reductions or savings;

 

  Ÿ  

end of period customers or change in customers across a period;

 

  Ÿ  

working capital;

 

  Ÿ  

market share; and

 

  Ÿ  

fair market value per share of Leap’s common stock.

The performance objectives may be expressed in terms of overall company performance or the performance of a business function or business unit and/or Leap’s subsidiaries. The Compensation Committee, in its discretion, may specify different performance objectives for each bonus award granted under the Executive Bonus Plan. Following the end of the performance period in which the performance objectives are to be achieved, the Compensation Committee will, within the time prescribed by Section 162(m), determine whether, and to what extent, the specified performance objectives have been achieved for the applicable performance period. To the extent U.S. generally accepted accounting principles, or GAAP, are applicable, the achievement of the above performance objectives will be determined in accordance with GAAP.

Performance periods under the Executive Bonus Plan will be specified by the Compensation Committee and may be a fiscal year of Leap or one or more fiscal quarters during a fiscal year.

Adjustments to the Performance Objectives

For each bonus award granted under the Executive Bonus Plan, the Compensation Committee, in its discretion, may, at the time of grant, specify in the bonus award that one or more objectively determinable

 

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adjustments will be made to one or more of the performance objectives established under the criteria discussed above. Such adjustments may include or exclude one or more of the following:

 

  Ÿ  

items related to a change in accounting principle;

 

  Ÿ  

items related to financing activities;

 

  Ÿ  

expenses for restructuring or productivity initiatives;

 

  Ÿ  

other non-operating items;

 

  Ÿ  

items related to acquisitions;

 

  Ÿ  

items attributable to the business operations of any entity acquired by Leap during the year;

 

  Ÿ  

items related to dispositions;

 

  Ÿ  

items related to the launch of one or more new markets or the disposition of one or more markets;

 

  Ÿ  

items related to discontinued operations that do not qualify as a segment of a business under GAAP;

 

  Ÿ  

items related to gain or loss on sale of wireless licenses and/or operating assets;

 

  Ÿ  

items related to impairment of indefinite-lived intangible assets;

 

  Ÿ  

items related to impairment of long-lived assets and related charges; and

 

  Ÿ  

share-based compensation expense.

Awards

Under the Executive Bonus Plan, an eligible participant will be eligible to receive awards based upon Leap’s performance against the targeted performance objectives established by the Compensation Committee. If and to the extent the performance objectives are met, an eligible participant will be eligible to receive a bonus award to be determined by the Compensation Committee, which bonus amount may be a specific dollar amount or a specified percentage of such participant’s base compensation for the performance period.

Maximum Award; Negative Discretion

The maximum aggregate amount of all bonus awards granted to any eligible participant under the Executive Bonus Plan for any fiscal year is $1,500,000. The Executive Bonus Plan, however, is not the exclusive means for the Compensation Committee to award incentive compensation to those persons who are eligible for bonus awards under the Executive Bonus Plan and does not limit the Compensation Committee from making additional discretionary incentive awards. The Compensation Committee, in its discretion, may reduce or eliminate any bonus amount otherwise payable to an eligible participant under the Executive Bonus Plan.

Form of Payment

All bonus awards will be paid in cash, subject to any applicable tax or other withholding.

Termination of Employment

If an eligible participant’s employment with Leap or a subsidiary is terminated, including by reason of such participant’s death or disability, prior to payment of any bonus award, all of such participant’s rights under the Executive Bonus Plan will terminate and such participant will not have any right to receive any further payments from any bonus award granted under the Executive Bonus Plan. The Compensation Committee may, in its discretion, determine what portion, if any, of the eligible participant’s bonus award under the Executive Bonus Plan should be paid if the termination results from such participant’s death or disability.

Amendment and Termination

The Compensation Committee or Leap’s Board may terminate the Executive Bonus Plan or partially amend or otherwise modify or suspend the Executive Bonus Plan at any time or from time to time, subject to any

 

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stockholder approval requirements under Section 162(m) or other requirements. However, with respect to bonus awards that the Compensation Committee determines should qualify as performance-based compensation as described in Section 162(m), no action of the Board or the Compensation Committee may modify the performance objectives (or adjustments) applicable to any outstanding bonus award, to the extent such modification would cause the bonus award to fail to qualify as performance-based compensation.

Federal Income Tax Consequences

Under present federal income tax law, a participant generally will recognize ordinary income at the time such participant receives cash pursuant to a bonus award under the Executive Bonus Plan. Subject to the limitations of Section 162(m), Leap is generally entitled to a tax deduction at the time a participant recognizes ordinary income attributable to an award under the Executive Bonus Plan. Section 162(m) generally limits the deductibility of non-qualifying compensation in excess of $1 million paid to covered employees. However, Section 162(m) exempts qualifying performance-based compensation from the deduction limit if certain requirements are met. The Executive Bonus Plan is intended to satisfy these requirements. The Compensation Committee’s policy is to maximize the tax deductibility of executive compensation without compromising the essential framework of the existing total compensation program. However, the Compensation Committee may elect to forgo deductibility for federal income tax purposes if such action is, in the opinion of the Compensation Committee, necessary or appropriate to further the goals of Leap’s executive compensation program or otherwise is in Leap’s best interests.

Vote Required

Stockholder approval of this proposal requires the affirmative vote of a majority of the votes cast with respect to this proposal by the shares present in person or represented by proxy and entitled to vote thereon at the Annual Meeting. A “majority of votes cast” means that the number of votes “FOR” reapproving the material terms of the performance goals under the Leap Wireless International, Inc. Executive Incentive Bonus Plan must exceed the number of votes “AGAINST” reapproving the material terms of the performance goals under the Leap Wireless International, Inc. Executive Incentive Bonus Plan. Abstentions and broker non-votes will not be considered as votes cast and will therefore have no effect on the outcome of this proposal.

Voting Recommendation of the Board of Directors

OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” REAPPROVING THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE LEAP WIRELESS INTERNATIONAL, INC. EXECUTIVE INCENTIVE BONUS PLAN

 

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PROPOSAL 4

APPROVAL OF THE FOURTH AMENDMENT TO THE 2004 STOCK OPTION, RESTRICTED STOCK AND DEFERRED STOCK UNIT PLAN OF LEAP WIRELESS INTERNATIONAL, INC.

We are asking our stockholders to approve the fourth amendment to the 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan of Leap Wireless International, Inc., as previously amended, which we refer to as the “2004 Plan”. Our Board approved the fourth amendment of the 2004 Plan, subject to stockholder approval, on April 3, 2012. Currently, the 2004 Plan provides for the granting of stock options, restricted stock and deferred stock units. Based on the current terms of the 2004 Plan, the only form of award granted pursuant to the 2004 Plan that is eligible to qualify as “performance-based compensation” for the purposes of Section 162(m) of the Code is a stock option. In order for other awards granted pursuant to the 2004 Plan to qualify as tax-deductible “performance-based compensation,” the 2004 Plan must be amended to provide for the granting of qualified performance-based awards, in addition to stock options, and the material terms of the performance goals adopted under the 2004 Plan must be approved by our stockholders. The 2004 Plan will also be amended to provide for the granting of awards denominated in cash, with such cash awards also eligible to qualify as “performance-based compensation” for the purposes of Section 162(m) if the Administrator (as defined below) determines that it is in the best interests of the Company to do so.

Section 162(m) generally disallows a tax deduction to a publicly-held company for compensation in excess of $1 million paid to its chief executive officer and certain other executive officers. However, under Section 162(m), the deduction limit does not apply to “qualified performance-based compensation” as provided in the Treasury Regulations under Section 162(m) if the compensation is awarded by an independent compensation committee and the compensation is disclosed to, and approved by, stockholders. In particular, awards will satisfy the “qualified performance-based compensation” exception if the awards are made under a plan approved by stockholders, the awards are granted by a qualifying compensation committee, the underlying plan sets the maximum number of shares or cash that can be granted to any person within a specified period, the qualified performance-based awards, other than stock options, are based on performance metrics using stockholder-approved performance goals and, with respect to stock options, the compensation is based solely on an increase in the stock price after the grant date (i.e., the stock option exercise price is equal to or greater than the fair market value of the stock subject to the award on the grant date). This amendment does not increase the number of shares available for grant under the 2004 Plan nor does it make any material amendment other than to provide Leap with the flexibility to grant cash and equity awards (in addition to stock options) that may qualify as “performance-based compensation.”

The Board believes that it is in the best interests of Leap and its stockholders to provide an incentive plan under which a variety of awards made to executive officers can be deducted by the Company for federal income tax purposes. While this amendment, if approved, will provide the Company with the flexibility to grant awards under the 2004 Plan that are eligible to qualify as “performance-based compensation,” the approval of this amendment will not require the Administrator to grant awards that qualify as “performance-based compensation” and the Administrator reserves the right to grant any form of award permitted by the 2004 Plan, regardless of whether or not the grant of such award results in compensation that is deductible for federal income tax purposes.

The following summary of the terms of the 2004 Plan and the proposed amendment is qualified in its entirety by reference to the text of the 2004 Plan and the various award agreements used thereunder, forms of which have been filed as exhibits to Leap’s Annual Reports on Form 10-K and Current Reports on Form 8-K. The fourth amendment to the 2004 Plan is attached as Appendix C to this proxy statement.

Description of Proposed Amendments

Under the current terms of the 2004 Plan, the only form of equity award that is eligible to qualify as “performance-based compensation” for the purposes of Section 162(m) is a stock option. The proposed amendment will provide for (i) the granting of cash-denominated awards that are eligible to qualify as “performance-based compensation” for the purposes of Section 162(m) and (ii) other forms of equity awards to be eligible to qualify as “performance-based compensation” for the purposes of Section 162(m). The amendments include a list of performance goals for stockholder approval and related performance adjustments,

 

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in each case, that the Company may use as the underlying performance goals and performance adjustments (if applicable) when granting qualified performance-based awards. The amendment also provides for a process for granting qualified performance-based awards and cash awards that may qualify as performance-based awards. No participant in the 2004 Plan may be granted cash awards that are qualified performance-based awards that have an aggregate maximum payment value in any calendar year in excess of $2,000,000.

The performance goals to be added to the 2004 Plan are the same as provided in the Company’s Executive Incentive Bonus Plan (and are set forth below). The Administrator may, in its discretion, establish specific performance objectives (including any adjustments) that must be achieved in order for qualified performance-based awards held by an eligible employee to vest. For each qualified performance-based award granted, the Administrator will establish in writing one or more objectively determinable performance objectives for such qualified performance-based awards, based upon one or more of the following business criteria, any of which may be measured in absolute terms, as compared to any incremental increase or as compared to the results of a peer group:

 

  Ÿ  

revenue;

 

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sales;

 

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cash flow;

 

  Ÿ  

earnings (including earnings before any one or more of the following: (i) interest, (ii) taxes, (iii) depreciation, and (iv) amortization);

 

  Ÿ  

earnings (including earnings before any one or more of the following: (i) interest, (ii) taxes, (iii) depreciation, and (iv) amortization) per share of Leap’s common stock;

 

  Ÿ  

operating income (including operating income before any one or more of the following: (i) depreciation and (ii) amortization);

 

  Ÿ  

operating income (including operating income before any one or more of the following: (i) depreciation and (ii) amortization) per share of Leap’s common stock;

 

  Ÿ  

return on equity;

 

  Ÿ  

total stockholder return;

 

  Ÿ  

return on capital;

 

  Ÿ  

return on assets or net assets;

 

  Ÿ  

income or net income;

 

  Ÿ  

operating profit or net operating profit;

 

  Ÿ  

operating margin;

 

  Ÿ  

cost reductions or savings;

 

  Ÿ  

end of period customers or change in customers across a period;

 

  Ÿ  

working capital;

 

  Ÿ  

market share; and

 

  Ÿ  

fair market value per share of Leap’s common stock.

The performance objectives may be expressed in terms of overall company performance or the performance of a business function or business unit and/or Leap’s subsidiaries.

Adjustments to the Performance Goals

For each qualified performance-based award granted under the 2004 Plan, the Administrator, in its discretion, may, at the time of grant, specify in the qualified performance-based award that one or more

 

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objectively determinable adjustments will be made to one or more of the performance objectives established under the criteria discussed above. Such adjustments may include or exclude one or more of the following:

 

  Ÿ  

items related to a change in accounting principle;

 

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items related to financing activities;

 

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expenses for restructuring or productivity initiatives;

 

  Ÿ  

other non-operating items;

 

  Ÿ  

items related to acquisitions;

 

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items attributable to the business operations of any entity acquired by Leap during the year;

 

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items related to dispositions;

 

  Ÿ  

items related to the launch of one or more new markets or the disposition of one or more markets;

 

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items related to discontinued operations that do not qualify as a segment of a business under GAAP;

 

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items related to gain or loss on sale of wireless licenses and/or operating assets;

 

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items related to impairment of indefinite-lived intangible assets;

 

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items related to impairment of long-lived assets and related charges; and

 

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share-based compensation expense.

Qualified Performance-Based Awards

The amendments also specifically provide for the grant of equity awards that qualify as “performance-based compensation” for the purposes of the exemption from Section 162(m) of the Code. All qualified performance-based awards must be granted by a committee comprised solely of two or more “outside directors” for the purposes of Section 162(m) of the Code. Such awards will be earned, vested and/or payable solely upon the achievement of one or more of the shareholder approved performance goals that the Administrator approves at the time of the grant.

The 2004 Plan is not being amended in any respect other than to reflect the changes specifically described above.

Purposes of the 2004 Plan

The purposes of the 2004 Plan are to attract and retain the best available personnel for positions of responsibility and to provide additional incentive to our employees, directors and consultants to promote the success of our business.

The aggregate number of shares of common stock subject to awards under the 2004 Plan is currently 9,300,000. That number may be adjusted for changes in Leap’s capitalization and certain corporate transactions, as described below under the heading “Changes in Control and Corporate Transactions.” To the extent that an award expires, terminates or is cancelled without having been exercised in full, any unexercised shares subject to the award will be available for future grant or sale under the 2004 Plan. Shares of restricted stock which are forfeited or repurchased by us pursuant to the 2004 Plan may again be optioned, granted or awarded under the 2004 Plan. In addition, shares of common stock which are delivered by the holder or withheld by us upon the exercise of any award under the 2004 Plan in payment of the exercise or purchase price of such award or tax withholding thereon may again be optioned, granted or awarded under the 2004 Plan.

The maximum number of shares that may be subject to awards granted under the 2004 Plan to any individual in any calendar year may not exceed 1,500,000 shares of common stock. The maximum payment value for cash awards that are qualified performance-based awards granted under the 2004 Plan to any individual in any calendar year may not exceed $2,000,000.

 

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Administration

The 2004 Plan is generally administered by the Compensation Committee of Leap’s Board (the “Administrator”). However, Leap’s Board determines the terms and conditions of, interprets and administers the 2004 Plan for awards granted to our non-employee directors and, with respect to these awards, the term “Administrator” refers to Leap’s Board. In Leap’s Board. In addition, Leap’s Board may elect to grant awards or may determine to delegate to one or more of Leap’s directors or officers the authority to make grants to individuals who are not directors or executive officers.

Eligibility

The 2004 Plan authorizes discretionary grants to our employees, consultants and non-employee directors, and to the employees and consultants of our subsidiaries, of stock options, restricted stock and deferred stock units. As of March 20, 2012, outstanding equity awards have been issued to approximately 260 of our approximately 3,800 employees and to our eight non-employee directors.

Awards Under the 2004 Plan

Stock Options.    The 2004 Plan provides for discretionary grants of non-qualified stock options, or NQSOs, to employees, non-employee directors and consultants. The 2004 Plan also provides for the grant of incentive stock options, or ISOs, which may only be granted to employees. Stock options may be granted with terms determined by the Administrator; provided that ISOs must meet the requirements of Section 422 of the Code. The 2004 Plan provides that a stock option holder may exercise his or her stock option for three months following termination of employment, directorship or consultancy (12 months in the event such termination results from death or disability). With respect to stock options granted to employees, a stock option terminates immediately in the event of a stock option holder’s termination for cause. The exercise price for stock options granted under the 2004 Plan is set by the Administrator and may not be less than par value (except for ISOs and stock options granted to non-employee directors which must have an exercise price not less than fair market value on the date of grant). To date, however, all stock options granted under the 2004 Plan have had an exercise price greater than or equal to the fair market value of our common stock on the date of grant, as determined under the 2004 Plan. Stock options granted under the 2004 Plan generally have a term of 10 years. As of March 20, 2012, the fair market value (as that term is defined under the 2004 Plan) of a share of our common stock was $9.79.

Restricted Stock.    Unless otherwise provided in the applicable award agreement, participants generally have all of the rights of a stockholder with respect to restricted stock. Restricted stock may be issued for a nominal purchase price or for no purchase price in exchange for services previously rendered and may be subject to vesting over time or upon attainment of performance targets. Any dividends or other distributions paid on restricted stock are also subject to restrictions to the same extent as the underlying stock. Award agreements related to restricted stock may provide that restricted stock is subject to repurchase by Leap or subject to forfeiture in the event that the participant ceases to be an employee, director or consultant prior to vesting.

Deferred Stock Units.    Deferred stock units represent the right to receive shares of stock on a deferred basis. Stock distributed pursuant to deferred stock units may be issued for a nominal purchase price or for no purchase price in exchange for services previously rendered. Deferred stock units may be subject to vesting over time or upon attainment of performance targets. Stock distributed pursuant to a deferred stock unit award will not be issued before the deferred stock unit award has vested, and a participant granted a deferred stock unit award generally will have no voting or dividend rights prior to the time when the stock is distributed. The deferred stock unit award will specify when the stock is to be distributed. The Administrator may provide that the stock will be distributed pursuant to a deferred stock unit award on a deferred basis pursuant to a timely irrevocable election by the participant. The issuance of the stock distributable pursuant to a deferred stock unit award may not occur prior to the earliest of: (1) a date or dates set forth in the applicable award agreement; (2) the participant’s termination of employment or service with us (or in the case of any officer who is a “specified employee” as defined in Section 409A(a)(2)(B)(i) of the Code, six months after such termination); (3) an unforeseeable financial emergency affecting the participant; or (4) a change in control, as described below.

 

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Cash Awards.    An award granted under the 2004 Plan may be denominated in cash. Each cash award will be granted subject to terms and conditions, if any, that are not inconsistent with 2004 Plan, as determined by the Administrator and set forth in the applicable award agreement.

Awards Generally Not Transferable

Awards under the 2004 Plan are generally not transferable during the award holder’s lifetime, except, with the consent of the Administrator, pursuant to qualified domestic relations orders. The Administrator may allow non-qualified stock options to be transferable to certain permitted transferees (i.e., immediate family members for estate planning purposes).

Changes in Control and Corporate Transactions

In the event of certain changes in the capitalization of Leap or certain corporate transactions involving the Company and certain other events (including a change in control, as defined in the 2004 Plan), the Administrator will make appropriate adjustments to awards under the 2004 Plan and is authorized to provide for the acceleration, cash-out, termination, assumption, substitution or conversion of such awards. We will give award holders 20 days’ prior written notice of certain changes in control or other corporate transactions or events (or such lesser notice as the Administrator determines is appropriate or administratively practicable under the circumstances) and of any actions the Administrator intends to take with respect to outstanding awards in connection with such change in control, transaction or event. Award holders will also have an opportunity to exercise any vested awards prior to the consummation of such changes in control or other corporate transactions or events (and such exercise may be conditioned on the closing of such transactions or events).

Federal Income Tax Consequences Associated with the 2004 Plan

The following is a general summary under current law of the material federal income tax consequences to participants in the 2004 Plan. This summary deals with the general tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The summary does not discuss all aspects of income taxation that may be relevant in light of a holder’s personal investment circumstances. This summarized tax information is not tax advice.

Non-Qualified Stock Options.    For federal income tax purposes, if an optionee is granted a NQSO under the 2004 Plan, the optionee will not have taxable income on the grant of the stock option, nor will we be entitled to any deduction. Generally, upon exercise of NQSOs the optionee will recognize ordinary income, and we will be entitled to a deduction, in an amount equal to the excess of the fair market value of a common share over the stock option exercise price on the date each such stock option is exercised. The optionee’s basis for the stock for purposes of determining gain or loss on subsequent disposition of such shares generally will be the fair market value of the common stock on the date the optionee exercises such stock option. Any subsequent gain or loss will be generally taxable as capital gains or losses.

Incentive Stock Options.    There is no taxable income to an optionee when an optionee is granted an ISO or when that stock option is exercised. However, the amount by which the fair market value of the shares at the time of exercise exceeds the stock option price will be an “item of adjustment” for the optionee for purposes of the alternative minimum tax. Gain realized by the optionee on the sale of an ISO is taxable at capital gains rates, and no tax deduction is available to us, unless the optionee disposes of the shares within (a) two years after the date of grant of the stock option or (b) within one year of the date the shares were transferred to the optionee. If the common shares are sold or otherwise disposed of before the end of the two-year and one-year periods specified above, the excess of the fair market value of a common share over the stock option exercise price on the date of the stock option’s exercise will be taxed at ordinary income rates (or, if less, the gain on the sale), and we will be entitled to a deduction to the extent the optionee must recognize ordinary income. If such a sale or disposition takes place in the year in which the optionee exercises the stock option, the income the optionee recognizes upon

 

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sale or disposition of the shares will not be considered an item of adjustment for alternative minimum tax purposes.

An ISO exercised more than three months after an optionee terminates employment, for reasons other than death or disability, will be taxed as a NQSO, and the optionee will recognize ordinary income on the exercise. We will be entitled to a tax deduction equal to the ordinary income, if any, realized by the optionee.

Restricted Stock.    An individual to whom restricted stock is issued generally will not recognize taxable income upon such issuance, and we generally will not then be entitled to a deduction, unless an election is made by the participant under Section 83(b) of the Code. However, when restrictions on shares of restricted stock lapse, such that the shares are no longer subject to a substantial risk of forfeiture, the individual generally will recognize ordinary income, and we generally will be entitled to a deduction for an amount equal to the excess of the fair market value of the shares at the date such restrictions lapse over the purchase price. If a timely election is made under Section 83(b) with respect to restricted stock, the participant generally will recognize ordinary income on the date of the issuance equal to the excess, if any, of the fair market value of the shares at that date over the purchase price of such shares, and we will be entitled to a deduction for the same amount.

Deferred Stock Units.    For federal income tax purposes, if an individual is granted deferred stock units, he or she generally will not have taxable income on the grant of the deferred stock units, nor will we then be entitled to any deduction. However, when shares of our common stock are distributed to the individual pursuant to the deferred stock units, he or she generally will recognize ordinary income, and we will be entitled to a corresponding deduction, for an amount equal to the difference between the fair market value of the shares at the date of distribution over the purchase price per share for the stock issuable pursuant to the deferred stock units.

Cash Awards.    A participant generally will recognize ordinary income at the time such participant receives cash pursuant to a cash award. Subject to the limitations of Section 162(m), Leap is generally entitled to a tax deduction at the time a participant recognizes ordinary income attributable to a cash award.

Section 162(m) of the Code.    As described above, in general, under Section 162(m) of the Code, income tax deductions of publicly-held corporations may be limited to the extent total compensation (including base salary, annual bonus, stock option exercises, full-value equity award vesting and settlement, and non-qualified benefits paid) for specified executive officers exceeds $1 million in any one year. However, under Section 162(m) of the Code, the deduction limit does not apply to certain “qualified performance-based compensation” as provided in the Treasury Regulations under Section 162(m) of the Code if the compensation is awarded by an independent compensation committee and adequately disclosed to, and approved by, stockholders. In particular, equity awards will satisfy the “qualified performance-based compensation” exception if the awards are made by a qualifying compensation committee, the underlying plan sets the maximum number of shares or maximum amount of cash that can be granted, the qualified performance-based awards, other than stock options, are based on performance metrics using stockholder-approved performance goals and, with respect to stock options, the compensation is based solely on an increase in the stock price after the grant date (i.e., the stock option exercise price is equal to or greater than the fair market value of the stock subject to the award on the grant date).

The Administrator can determine the terms and conditions of equity awards granted under the 2004 Plan such that remuneration attributable to such awards will not be subject to the $1 million limitation. No assurance is given that any specific award will qualify as “qualified performance-based compensation” under the 2004 Plan.

Section 409A of the Code.    Section 409A of the Code, provides certain requirements on non-qualified deferred compensation arrangements. These include requirements on an individual’s election to defer compensation and the individual’s selection of the timing and form of distribution of the non-qualified deferred compensation. Also, Section 409A of the Code generally provides that distributions must be made on or following the occurrence of certain events (i.e., the individual’s separation from service, a predetermined date, or the individual’s death). Section 409A of the Code imposes restrictions on an individual’s ability to change his or her distribution timing or form after the compensation has been deferred. For certain individuals who are officers, Section 409A of the Code requires that such individual’s distribution commence no earlier than six months after such officer’s separation from service.

 

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Certain awards under the 2004 Plan generally will be subject to the requirements of Section 409A of the Code in form and in operation. For example, the following types of awards generally will be subject to Section 409A of the Code: non-qualified stock options granted with an exercise price less than fair market value on the date of grant, deferred stock unit awards and other awards that provide for deferred compensation.

If a 2004 Plan award is subject to and fails to satisfy the requirements of Section 409A of the Code, the recipient of that award may recognize the compensation deferred under the award as ordinary income when such amounts are vested, which may be prior to when the compensation is actually or constructively received. Also, if an award that is subject to Section 409A of the Code fails to comply, Section 409A of the Code imposes an additional 20% federal income tax on the deferred compensation recognized as ordinary income, as well as interest on such deferred compensation.

2004 Plan Benefits

From January 1, 2012 through March 20, 2012, the Administrator has granted the following awards of stock options, restricted stock and deferred stock units under the 2004 Plan. During this period, the Administrator also granted the following cash awards of the kind which, if the proposed amendment to the 2004 Plan is approved by stockholders, will be permitted to be granted in the future under the 2004 Plan:

 

Name and Position

  Aggregate
Dollar Value
($)(1)
     Number  of
Stock

Options
     Shares of
Restricted

Stock
     Number of
Deferred Stock
Units(2)
     Amount of
Cash

Award(3)
 

S. Douglas Hutcheson

  $ 5,205,513         417,000                 183,000       $ 850,000   

Walter Z. Berger

                                      

Raymond J. Roman

  $ 950,175         38,000                 17,000       $ 550,000   

Robert A. Young

  $ 912,563         45,000                 20,000       $ 440,000   

William D. Ingram

  $ 1,095,475         62,000                 27,000       $ 450,000   

Albin F. Moschner

                                      

Executive Group(4)

  $ 11,873,155         758,000         75,000         290,000       $ 3,722,000   

Non-Executive Director Group(5)

  $ 77,995                 7,823                   

Non-Executive Officer Employee Group(6)

  $ 3,624,064         55,525         297,990         35,500           

 

 

 

(1) For the equity awards, represents the grant date fair value of each individual equity award (on a grant-by-grant basis) as computed in accordance with FASB ASC Topic 718, Stock Compensation. For information regarding assumptions made in connection with this valuation, please see Note 12 to our consolidated financial statements found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. For the cash awards, represents the full value of award at target.

 

(2) Represents target amounts of performance-based deferred stock units granted to our executive officers. The number of shares to be issued with respect to the deferred stock units will range from 0% to 200% of the targeted amount of the awards, depending upon the extent to which the Company has met certain performance thresholds. For more information regarding the awards, see above under “Compensation Discussion and Analysis — Elements of Executive Compensation — Long Term Incentive Compensation.”

 

(3) Represents target amounts of performance-based cash awards granted to our executive officers. The amount of the cash awards to be paid will range from 0% to 200% of the targeted amount of the awards, depending upon the extent to which the Company has met certain performance thresholds. For more information regarding the awards, see above under “Compensation Discussion and Analysis — Elements of Executive Compensation — Long Term Incentive Compensation.”

 

(4) Represents aggregate amounts received by the Company’s executive officers during the period.

 

(5) Represents aggregate amounts received by members of the Board during the period.

 

(6) Represents aggregate amounts received by the Company’s employees (excluding the Company’s executive officers) during the period.

 

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Vote Required

Stockholder approval of this proposal requires the affirmative vote of a majority of the votes cast with respect to this proposal by the shares present in person or represented by proxy and entitled to vote thereon at the Annual Meeting. A “majority of votes cast” means that the number of votes “FOR” the approval of the fourth amendment to the 2004 Plan must exceed the number of votes “AGAINST” the approval of the fourth amendment to the 2004 Plan. Abstentions and broker non-votes will not be considered as votes cast and will therefore have no effect on the outcome of this proposal.

Voting Recommendation of the Board of Directors

OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE FOURTH AMENDMENT TO THE 2004 STOCK OPTION, RESTRICTED STOCK AND DEFERRED STOCK UNIT PLAN OF LEAP WIRELESS INTERNATIONAL, INC.

 

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PROPOSAL 5

APPROVAL OF TAX BENEFIT PRESERVATION PLAN

Background and Reasons for the Proposal

The Company has generated substantial net operating losses (“NOLs”) for federal and state income tax purposes. Subject to certain requirements, we may “carry forward” these NOLs to offset future taxable income and reduce our income tax liability. As result, these NOLs are a very valuable asset to us, and our Board believes that it is in the best interest of the Company and our stockholders to prevent the imposition of limitations on their use. At December 31, 2011, we had NOLs of approximately $2.5 billion (which begin to expire in 2022 for federal income tax purposes and of which $37.2 million will expire at the end of 2012 for state income tax purposes).

Our ability to utilize these NOLs, however, could be limited if we were to experience an “ownership change,” as defined in Section 382 of the Code and similar state provisions. In general terms, an ownership change can occur whenever there is a cumulative shift in the ownership of a company by more than 50 percentage points by one or more “5% stockholders” within a three-year period.

In order to help deter acquisitions of Leap common stock that could limit our ability to use our NOL carryforwards, Leap entered into a Tax Benefit Preservation Plan with Mellon Investor Services, LLC, as rights agent (the “Tax Benefit Preservation Plan”), effective August 30, 2011. Our Board adopted the Tax Benefit Preservation Plan, after consultation with its legal, tax and investment banking advisors, in response to trading in Leap common stock in the weeks prior to August 30, 2011, which our Board believed created a substantially increased risk of an ownership change under Section 382. (The Board had previously adopted a similar plan designed to protect our NOLs on September 13, 2010 but later terminated that plan on June 21, 2011, after it had determined, in consultation with its advisors, that the plan was not necessary at that time to protect the value of the NOLs.)

The Tax Benefit Preservation Plan is designed to deter acquisitions of Leap common stock that would result in a stockholder owning 4.99% or more of Leap common stock (as calculated under Section 382), or any existing holder of 4.99% or more of Leap common stock acquiring additional shares, by substantially diluting the ownership interest of any such stockholder unless the stockholder obtains an exemption from our Board. The Board will consider requests to exempt certain proposed acquisition of our common stock from the applicable ownership trigger if it determines in its sole discretion that the requested acquisition will not limit or impair the availability of the NOLs to Leap.

The Board is asking Leap stockholders to approve the Tax Benefit Preservation Plan at the Annual Meeting. The stockholder vote, however, will not be binding on the Board. If stockholders do not approve the Tax Benefit Preservation Plan, the Board intends to hold a meeting to consider whether to retain the plan. The Board will consider the outcome of the stockholder vote, together with all available information relevant to whether the Tax Benefit Preservation Plan continues to be necessary to protect the value of the Company’s NOLs, in deciding whether to retain the plan.

Summary Description of the Tax Benefit Preservation Plan

The following description of the terms of the Tax Benefit Preservation Plan does not purport to be complete and is qualified in its entirety by reference to the Tax Benefit Preservation Plan, which is attached here to as Appendix D and is incorporated herein by reference. We urge you to read carefully the Tax Benefit Preservation Plan in its entirety as the discussion below is only a summary.

Dividend of Preferred Stock Purchase Rights.    In connection with its adoption of the Tax Benefit Preservation Plan, on August 30, 2011, the Board declared a dividend of one preferred stock purchase right (individually, a “Right” and collectively, the “Rights”) for each share of Leap common stock outstanding at the close of business on September 12, 2011 (the “Record Date”). Each Right will entitle the registered holder, after the Rights become exercisable and until August 31, 2014 (or the earlier redemption, exchange or termination of the Rights), to purchase from Leap one one-thousandth of a share of Leap’s Series A Junior Participating

 

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Preferred Stock, par value $0.0001 per share (the “Preferred Stock”), at a price of $60.00 per one one-thousandth of a share of Preferred Stock, subject to certain anti-dilution adjustments (the “Purchase Price”). One Right was distributed to Leap stockholders for each share of common stock owned of record by them at the close of business on September 12, 2011. As long as the Rights are attached to the common stock, Leap will issue one Right with each new share of common stock so that all such shares will have attached Rights. Leap has reserved 160,000 shares of Preferred Stock for issuance upon exercise of the Rights.

Transfer, “Flip In” and Exercise of Purchase Rights.    Until the earlier to occur of (i) the close of business on the tenth business day following a public announcement that a person or group has acquired, or obtained the right to acquire, beneficial ownership of 4.99% or more of our common stock (an “Acquiring Person”) or (ii) the close of business on the tenth business day following the commencement or announcement of an intention to make a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 4.99% or more of Leap common stock (the earlier of (i) and (ii) being called the “Distribution Date”), the Rights will be evidenced, with respect to common stock certificates outstanding as of the Record Date, by such common stock certificates, or, with respect to uncertificated common stock registered in book entry form, by notation in book entry, in either case together with a copy of the Summary of Rights attached as Exhibit C to the Tax Benefit Preservation Plan. The Board can postpone the Distribution Date in certain circumstances. Shares held by persons participating in a group are deemed to be beneficially owned by all persons treated as the same entity for purposes of Section 382 of the Code.

The Tax Benefit Preservation Plan provides that any person who beneficially owned 4.99% or more of Leap common stock as of the first public announcement of the adoption of the Tax Benefit Preservation Plan (each an “Existing Holder”), shall not be deemed to be an “Acquiring Person” for purposes of the Tax Benefit Preservation Plan unless the Existing Holder becomes the beneficial owner of one or more additional shares of our common stock (other than pursuant to a dividend or distribution paid or made by Leap on the outstanding common stock, pursuant to a split or subdivision of the outstanding common stock or pursuant to the acquisition of common stock upon the exercise of any option, warrants or other rights, or upon the initial grant or vesting of restricted stock, granted by Leap to our directors or officers). However, if upon acquiring beneficial ownership of one or more additional shares of common stock, the Existing Holder does not beneficially own 4.99% or more of our common stock then outstanding, the Existing Holder will not be treated as an “Acquiring Person” for purposes of the Tax Benefit Preservation Plan.

The Rights will be transferred only with our common stock until the Distribution Date (or earlier redemption, exchange, termination or expiration of the Rights). After the Distribution Date, separate certificates evidencing the Rights (“Right Certificates”) will be mailed to holders of record of our common stock as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights.

Term of Tax Benefit Preservation Plan and Expiration of Rights.    The Rights are not exercisable until the Distribution Date. The Rights will expire on August 31, 2014, subject to Leap’s right to extend such date, unless earlier redeemed or exchanged by Leap or terminated, or if the Board determines that the NOLs are utilized in all material respects or no longer available in any material respect under Section 382 of the Code or that an ownership change under Section 382 of the Code would not adversely impact in any material respect the time period in which Leap could use the NOLs, or materially impair the amount of the NOLs that could be used by Leap in any particular time period, for applicable tax purposes. The Rights do not have any voting rights.

Rights and Preferences of Preferred Stock.    Each share of Preferred Stock purchasable upon exercise of the Rights will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment equal to the greater of (i) $1.00 or (ii) 1,000 times the dividend, if any, declared per share of our common stock. In the event of liquidation, dissolution or winding up of Leap, the holders of the Preferred Stock will be entitled to a minimum preferential liquidation payment of $1,000 per share (plus any accrued but unpaid dividends), provided that such holders of the Preferred Stock will be entitled to an aggregate payment of 1,000 times the payment made per share of our common stock. Each share of Preferred Stock will have 1,000 votes and will vote together with the common stock. Finally, in the event of any merger, consolidation or other transaction in which shares of our common stock are exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the amount received per share of common stock. The Preferred Stock will not be redeemable. The Rights are protected by customary anti-dilution provisions.

 

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The Purchase Price payable, and the number of one one-thousandth of a share of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of certain rights or warrants to subscribe for or purchase Preferred Stock or convertible securities at less than the current market price of the Preferred Stock or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness, cash, securities or assets (excluding regular periodic cash dividends at a rate not in excess of 125% of the rate of the last regular periodic cash dividend theretofore paid or, in case regular periodic cash dividends have not theretofore been paid, at a rate not in excess of 50% of the average net income per share of Leap for the four quarters ended immediately prior to the payment of such dividend, or dividends payable in shares of Preferred Stock (which dividends will be subject to the adjustment described in clause (i) above)) or of subscription rights or warrants (other than those referred to above).

No Stockholder Rights.    Until a Right is exercised, the holder of a Right, as such, will have no rights as a stockholder of Leap other than the rights such holder has as a result of its ownership of our common stock.

Merger, Exchange or Redemption of Purchase Rights.    In the event that a person becomes an Acquiring Person or if Leap were the surviving corporation in a merger with an Acquiring Person and shares of our common stock were not changed or exchanged in such merger, each holder of a Right, other than Rights that are or were acquired or beneficially owned by the Acquiring Person (which Rights will thereafter be void), will thereafter have the right to receive upon exercise that number of shares of common stock having a market value of two times the then current Purchase Price of one Right. In the event that, after a person has become an Acquiring Person, Leap were acquired in a merger or other business combination transaction or more than 50% of its assets or earning power were sold, proper provision shall be made so that each holder of a Right shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the then current Purchase Price of one Right.

Exchange Option.    At any time after a person becomes an Acquiring Person and prior to the earlier of one of the events described in the last sentence of the previous paragraph or the acquisition by such Acquiring Person of 50% or more of the then outstanding common stock of Leap, the Board may cause Leap to exchange the Rights (other than Rights owned by an Acquiring Person which have become void), in whole or in part, for shares of our common stock at an exchange rate of one share of common stock per Right (subject to adjustment).

Redemption of Rights.    The Rights may be redeemed in whole, but not in part, at a price of $0.01 per Right (the “Redemption Price”) by the Board at any time prior to the time that an Acquiring Person has become such. The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.

Amendment of Tax Benefit Preservation Plan.    Any of the provisions of the Tax Benefit Preservation Plan may be amended by the Company for so long as the Rights are then redeemable, and after the Rights are no longer redeemable, Leap may amend or supplement the Tax Benefit Preservation Plan in any manner that does not adversely affect the interests of the holders of the Rights (other than an Acquiring Person).

Other Considerations

As described above in “Background and Reasons for the Proposal,” Leap’s ability to utilize its significant NOLs may be limited if an “ownership change” under Section 382 were to occur. The Tax Benefit Preservation Plan is an important tool in reducing the likelihood that such an “ownership change” will occur and, therefore, in protecting Leap’s ability to offset future taxable income. Therefore our Board believes it in Leap’s and our stockholders’ best interests to approve the Tax Benefit Preservation Plan.

Nonetheless, we cannot eliminate the possibility that an “ownership change” will occur even if the Tax Benefit Preservation Plan is approved. You should consider the following factors when making your voting decision.

 

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Future Use and Amount of NOLs is Uncertain.    Leap’s use of the NOLs depends on Leap’s ability to generate taxable income in the future. We cannot assure you that Leap will have taxable income in any applicable period or, if we do, whether such income or the NOLs at such time will exceed any potential Section 382 limitations.

Potential Challenge to NOLs.    The amount of the NOLs has not been audited or otherwise validated by the Internal Revenue Service (the “IRS”). The IRS could challenge the amount of the NOLs, which could result in an increase in our liability in the future for income taxes. In addition, determining whether an “ownership change” has occurred is subject to uncertainty, both because of the complexity and ambiguity of the Section 382 provisions and because of limitations on knowledge that any publicly traded company can have about the ownership of, and transactions in, its securities on a timely basis. Therefore, we cannot assure you that the IRS or other taxing authority will not claim that Leap experienced an “ownership change” and attempt to reduce the benefit of the NOLs even if the Tax Benefit Preservation Plan is put into place.

Continued Risk of Ownership Change.    Although the Tax Benefit Preservation Plan is intended to diminish the likelihood of an “ownership change” as defined in Section 382 of the Code, Leap cannot assure you that it will be effective. The amount by which Leap’s ownership may change in the future could, for example, be affected by purchases and sales of stock by our five-percent stockholders who either are unaware of the plan or make a conscious decision to discount the potential consequences under the plan.

Potential Effects on Liquidity.    The Tax Benefit Preservation Plan is intended to deter persons or groups of persons from acquiring ownership of shares of our common stock in excess of the specified limitations. A stockholder’s ability to dispose of Leap common stock may be limited if the Tax Benefit Preservation Plan reduces the number of persons willing to acquire our stock or the amount they are willing to acquire. A stockholder’s ownership of Leap common stock may become subject to the Tax Benefit Preservation Plan upon actions taken by persons related to, or affiliated with, them. Stockholders are advised to monitor their ownership of our common stock carefully and to consult their own legal advisors to determine whether their ownership of our common stock approaches the proscribed level in the Tax Benefit Preservation Plan.

Potential Impact on Value.    The Tax Benefit Preservation Plan could negatively impact the value of Leap common stock by deterring persons or groups of persons from acquiring shares of our common stock, including in acquisitions for which some stockholders might receive a premium above market value.

Potential Anti-Takeover Effect.    Our Board adopted the Tax Benefit Preservation Plan to diminish the risk that Leap’s ability to use its NOLs to offset future taxable income becomes limited. Nonetheless, the Tax Benefit Preservation Plan may have an “anti-takeover effect” because it may deter a person or group of persons from, without obtaining the approval of our Board, acquiring beneficial ownership of 4.99% or more of our common stock, or, in the case of persons who already beneficially own 4.99% or more of our common stock, from acquiring beneficial ownership of any additional shares of our common stock. As the Tax Benefit Preservation Plan will cause substantial dilution to any person or group who attempts to acquire such an interest in Leap without advance approval from our Board, one effect of the Tax Benefit Preservation Plan may be to render more difficult or discourage any attempt to acquire Leap or a substantial interest in Leap without Board approval.

Vote Required

Stockholder approval of this proposal requires the affirmative vote of a majority of the votes cast with respect to this proposal by the shares present in person or represented by proxy and entitled to vote thereon at the Annual Meeting. A “majority of votes cast” means that the number of votes “FOR” the approval of the Tax Benefit Preservation Plan must exceed the number of votes “AGAINST” the approval of the Tax Benefit Preservation Plan. Abstentions and broker non-votes will not be considered as votes cast and will therefore have no effect on the outcome of this proposal.

Voting Recommendation of the Board of Directors

OUR BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS

VOTE “FOR” THE APPROVAL OF OUR TAX BENEFIT PRESERVATION PLAN

AS DESCRIBED IN THIS PROXY STATEMENT

 

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PROPOSAL 6

STOCKHOLDER PROPOSAL REGARDING MAJORITY VOTING IN DIRECTOR ELECTIONS

We received notice from the California State Teachers’ Retirement System, or CalSTRS, that it intends to present the following stockholder proposal and supporting statement at the Annual Meeting. According to information provided to us, CalSTRS, whose address is 100 Waterfront Place, MS-04, West Sacramento, California, 95605-2807, beneficially owned 131,277 shares of our common stock as of February 24, 2012. In accordance with the applicable proxy rules and regulations, the proposed resolution and supporting statement (for which neither Leap nor its Board of Directors accepts responsibility) are set forth below.

Stockholder Proposal and Supporting Statement

Be It Resolved:    That the shareholders of Leap Wireless International, Inc. hereby request that the Board of Directors initiate the appropriate process to amend the Company’s articles of incorporation and/or bylaws to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders, with a plurality vote standard retained for contested director elections, that is, when the number of director nominees exceeds the number of board seats.

Supporting Statement:    In order to provide shareholders a meaningful role in director elections, the Company’s current direction election standard should be changed from a plurality voting standard to a majority vote standard. The majority vote standard is the most appropriate voting standard for director elections where only board nominated candidates are on the ballot, and it will establish a challenging vote standard for board nominees to improve the performance of individual directors and entire boards. Under the Company’s current voting system, a nominee for the board can be elected with as little as a single affirmative vote, because “withheld” votes have no legal effect. A majority vote standard would require that a nominee receive a majority of the votes cast in order to be re-elected and continue to serve as a representative for the shareholders.

In response to strong shareholder support a substantial number of the nation’s leading companies have adopted a majority vote standard in company bylaws or articles of incorporation. In fact, more than 77% of the companies in the S&P 500 have adopted majority voting for uncontested elections. We believe the Company needs to join the growing list of companies that have already adopted this standard.

CalSTRS is a long-term shareholder of the Company and we believe that accountability is of utmost importance. We believe the plurality vote standard currently in place at the Company completely disenfranchises shareholders and makes the shareholder’s role in director elections meaningless. Majority voting in director elections will empower shareholders with the ability to remove poorly performance directors and increase the directors’ accountability to the owners of the Company, its shareholders. In addition, those directors who receive the majority support from shareholders will know they have the backing of the very shareholders they represent. We therefore ask you to join us in requesting that the Board of directors promptly adopt the majority vote standard for director elections.

Please vote FOR this proposal.

Board of Directors’ Statement in Opposition to the Stockholder Proposal

Our Board has carefully reviewed and considered this stockholder proposal and believes it is not in the best interests of our stockholders at this time. For the reasons set forth below, the Board believes that Leap’s current plurality voting standard continues to be the best standard for electing our directors. The Board therefore recommends a vote AGAINST the stockholder proposal.

Unlike the long-standing and widely used plurality voting standard, the majority voting standard has not yet been fully tested and may have ramifications that are not yet completely understood.

Leap currently employs a plurality voting standard in director elections, which is the default standard under Delaware law and under the laws of many other states. It is also the prevailing method used by corporations in the United States, including some of the largest corporations in the country and corporations recognized as

 

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leaders in corporate governance. Because plurality voting has long been the accepted standard, the rules governing plurality voting are well established and widely understood.

The Board believes the majority voting standard, in contrast, may raise issues for which there is little precedent. Our Board believes that there are complex legal and practical issues surrounding the implementation of a majority voting system and that the stockholder proposal fails to adequately address these issues. For example, a majority voting standard presents the potential problem of “holdover” directors, which would occur when, as a result of the majority voting structure, a director receives less than a majority of the votes cast and is therefore not elected but, as a result of Delaware law, continues to serve until his or her successor is elected and qualified. In other words, implementation of the stockholder proposal could result in a situation where unelected incumbent directors nonetheless remain on our Board for some period of time until a subsequent stockholder meeting is held. In addition, the stockholder proposal does not address how to handle vacancies on the Board that may result if one or more directors are not elected because they fail to receive a majority of the votes cast. We believe that these and other questions regarding the mechanics of majority voting would need to be resolved before exposing our company to the uncertainty and potential unforeseen risks involved in such a system.

In light of these uncertainties, the legal community, shareholder advocates, governance experts, public companies and other groups are still debating whether the purported benefits of such a standard outweigh the risks and are considering how to deal with the practical difficulties of implementing a majority voting standard. The discussions surrounding the adoption of the Dodd-Frank Act, for example, included discussions about whether majority voting should be made mandatory for all public companies. Congress did not, however, mandate majority voting as part of the Dodd-Frank Act, supporting our view that concerns and questions regarding majority voting remain. We have been monitoring and will continue to monitor the ongoing debate and developments on this topic and will re-evaluate our approach as necessary in response to any emerging consensus or progressions in the discourse. Our Board is of the view that any change in voting standards should be undertaken cautiously and only with a better grasp of the potential ramifications of such a change. Until the advantages, disadvantages, feasibility and implications of majority voting are more thoroughly understood, we believe it would be premature and imprudent to abandon our long-standing voting standard to venture into uncharted territory.

A majority voting standard could have negative consequences for us.

Our Board is likewise concerned about the potential unintended and undesirable effects of majority voting for Leap and its stockholders, including, for instance, the potential cost and disruption involved in director elections subject to majority voting and the possible pitfalls associated with failed elections. For example, a majority voting standard may unnecessarily increase the cost to us of soliciting stockholder votes, with the potential to turn every annual meeting into an expensive and time-consuming contest that drains corporate funds and distracts management and our Board from more pressing matters. For example, special-interest or single-issue stockholders could choose to promote a “vote no” campaign against the election of one or more director nominees in an effort to forward their particular agendas at the expense of other Leap stockholders. To prevent such stockholders from thwarting a productive director or group of directors from being elected, we could be forced to resort to proactive and costly solicitation strategies and to divert our attention from our everyday business. If we are unable to obtain the requisite votes for our slate of directors despite these efforts, such special-interest or single-issue stockholders, who are at best indifferent to and at worst hostile to the long-term interests of other Leap stockholders, may gain undue influence.

Further, in addition to the uncertainties discussed above, the Board believes that holdover directors and vacancies resulting from failed elections could lead to other adverse consequences. In addition to the potentially substantial cost involved in soliciting stockholder votes in the first place, we could incur the potentially substantial cost involved in soliciting stockholder votes all over again if, as a result of the majority voting standard, we are faced with the need to replace a holdover director or fill a resulting vacancy. To make matters worse, the process of identifying, evaluating and electing a director may be an unavoidably slow one, resulting in extended time periods dedicated to the election process and lingering uncertainty over the identity of our Board members. Moreover, vacant Board positions may increase the workload of our existing directors, especially those serving on Board committees, and until any such vacancies are filled, we could confront problems in complying

 

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with stock exchange listing requirements or federal securities laws. For instance, if an insufficient number of directors who meet the independence and financial literacy requirements of NASDAQ is elected, we could be incapable of taking important corporate action until the situation is remedied.

These potential negative effects of the stockholder proposal are exacerbated by the recent amendment to the New York Stock Exchange, or NYSE, Rule 452, which eliminated broker discretionary voting in uncontested director elections. Even though we are a NASDAQ-listed company, this rule governs all brokers licensed by the NYSE, including those who hold our stock on behalf of a client. Consequently, our Board believes this change will make it more difficult to obtain a high voter turnout for the election of directors and, when combined with the higher voting threshold inherent in a majority voting standard, will ultimately make it more difficult to obtain enough stockholder votes to fill all of our Board seats. To overcome the effect of this amended NYSE rule, we may have to increase our solicitation expenditures even in routine elections where no “vote no” campaign has been launched, perhaps requiring us to use corporate resources to conduct telephone solicitation campaigns, make second mailings of proxy materials or engage in other vote-getting strategies.

The stockholder proposal is not necessary to ensure the election of highly qualified directors given our already strong corporate governance practices.

Although the stockholder proposal may have a downside for Leap and its stockholders, the Board does not feel it has any clear upside for us, given our strong process for identifying, nominating and evaluating highly qualified director candidates and our commitment to accountability and transparency in corporate governance. The Board has already adopted what it considers to be strong director nomination procedures. As described under the section entitled “Board of Directors and Board Committees—Director Nomination Process,” the Nominating and Corporate Governance Committee, which consists only of independent directors, takes into account a variety of factors when recommending candidates for our Board, including professional integrity, business and industry expertise and practical and mature business judgment, and has established procedures for considering candidates recommended by our stockholders. As a result, our stockholders have consistently elected highly qualified, dedicated directors with outstanding professional reputations and a diverse set of qualifications, attributes and skills, all of whom are independent as defined by the NASDAQ Stock Market listing standards, except for Mr. Hutcheson (who, as our president and CEO and an employee of the Company, is not considered independent under these standards).

Further, contrary to the suggestion made in the stockholder proposal, we do not believe that a plurality voting standard prevents our stockholders from registering dissatisfaction with the Board or is in any way inconsistent with the accountability of our directors to our stockholders. Our stockholders have always had the ability to nominate an alternative Board candidate or candidates for stockholder consideration, and our Bylaws further permit stockholders to remove directors, with or without cause, by a majority of the shares entitled to vote. Moreover, a plurality voting standard does not, as the stockholder proposal implies, render “withhold” votes meaningless. Because we are required to report voting results of director elections in a publicly filed report on Form 8-K, there is significant visibility as to any director who receives a large number of “withhold” votes, providing stockholders with a viable means to publicly communicate any dissatisfaction with individual Board members or the Board as a whole to other stockholders. “Withhold” votes also have the potential to influence our Nominating and Corporate Governance Committee, which reviews the voting results from each annual meeting. Also, because we do not have a classified Board, our stockholders are able to express their confidence, or lack of confidence, in each director on an annual basis. Given the existing safeguards, our Board feels that a different voting standard is unnecessary and would not enhance corporate governance or result in a more effective Board.

Because our directors have consistently received a majority of votes cast, even without the majority voting standard in place, the stockholder proposal is unlikely to result in any tangible benefit in our case.

The stockholder proposal reflects the view that majority voting is unqualifiedly appropriate for all companies at all times and under all circumstances. Our Board, however, disagrees with this one-size-fits-all, cookie-cutter approach to corporate governance. We believe that our plurality standard has served us well to date and that the stockholder proposal is especially unwarranted in our case. At every election we have held since the formation of the Company, our stockholders have elected our Board members, even under a plurality voting

 

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standard, by the affirmative vote of at least a majority of votes cast. Accordingly, as a practical matter, implementation of the stockholder proposal would not have had any impact on the outcome of these prior director elections. This suggests that the stockholder proposal is not made in response to any particular concerns over the contribution of our directors or any perceived deficiencies with our current director election process. Instead, the historic support our stockholders have shown for our directors underscores our stockholders’ satisfaction with the composition of our Board and confidence in our corporate governance protections and renders the stockholder proposal unnecessary for our company.

The Board accordingly recommends a vote AGAINST this proposal.

Vote Required

Stockholder approval of this proposal requires the affirmative vote of a majority of the votes cast with respect to this proposal by the shares present in person or represented by proxy and entitled to vote thereon at the Annual Meeting. A “majority of votes cast” means that the number of votes “FOR” the stockholder proposal must exceed the number of votes “AGAINST” the stockholder proposal. Abstentions and broker non-votes will not be considered as votes cast and will therefore have no effect on the outcome of this proposal.

Voting Recommendation of the Board of Directors

OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” THE MAJORITY VOTING STOCKHOLDER PROPOSAL ABOVE

 

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PROPOSAL 7

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM FOR FISCAL 2012

Leap’s financial statements for the fiscal year ended December 31, 2011 have been examined by PricewaterhouseCoopers LLP, which has audited Leap’s financial statements since 1998. The Board has selected PricewaterhouseCoopers LLP as Leap’s independent registered public accounting firm for the fiscal year ending December 31, 2012 and has directed that management submit the selection of the independent registered public accounting firm to the stockholders for ratification at the Annual Meeting. Representatives of PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement and to respond to appropriate questions.

Vote Required

Stockholder approval of this proposal requires the affirmative vote of a majority of the votes cast with respect to this proposal by the shares present in person or represented by proxy and entitled to vote thereon at the Annual Meeting. A “majority of votes cast” means that the number of votes “FOR” the ratification of Leap’s independent registered public accounting firm must exceed the number of votes “AGAINST” the ratification of Leap’s independent registered public accounting firm. Abstentions will not be considered as votes cast and will therefore have no effect on the outcome of this proposal.

Stockholders are not required to ratify the selection of PricewaterhouseCoopers LLP as Leap’s independent registered public accounting firm. However, the Board is submitting the selection of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Board and the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Board and the Audit Committee in their discretion may direct the appointment of a different independent accounting firm at any time during the year if they determine that such a change would be in the best interests of Leap and its stockholders.

Voting Recommendation of the Board of Directors

THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL 2012

The following table summarizes the aggregate fees billed to Leap by its independent registered public accounting firm, PricewaterhouseCoopers LLP, for the fiscal years ended December 31, 2011 and 2010 (in thousands):

 

     2011      2010  

Audit fees(1)

   $ 2,896       $ 2,918   

Audit-related fees(2)

     274         908   

Tax fees(3)

     48         468   

All other fees

               
  

 

 

    

 

 

 

Total

   $ 3,218       $ 4,294   
  

 

 

    

 

 

 

 

(1) Audit fees consist of fees billed for professional services rendered for the audit of the consolidated annual financial statements of Leap and its subsidiaries and internal control over financial reporting, review of the interim condensed consolidated financial statements included in quarterly reports, and services that are normally provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings or engagements.

 

(2)

Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the consolidated financial statements of Leap and its subsidiaries and are not reported under “Audit fees.” For the fiscal years ended December 31, 2011 and 2010, these fees

 

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  primarily related to assurance and related services in connection with the implementation and testing of a new customer billing system.

 

(3) Tax fees consist of fees billed for professional services rendered for tax compliance, advice and planning. For the fiscal years ended December 31, 2011 and 2010, these services included assistance regarding federal and state tax compliance and consultations regarding various income tax issues.

In considering the nature of the services provided by PricewaterhouseCoopers LLP, the Audit Committee determined that such services were compatible with the provision of independent audit services. The Audit Committee discussed these services with PricewaterhouseCoopers LLP and Leap management to determine that they were permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the Public Company Accounting Oversight Board. The Audit Committee requires that all services performed by PricewaterhouseCoopers LLP be pre-approved prior to the services being performed. During the fiscal years ended December 31, 2011 and 2010, all services were pre-approved in accordance with these procedures.

REPORT OF THE AUDIT COMMITTEE

The Audit Committee of Leap’s Board of Directors is comprised solely of independent directors, as defined by the listing standards of the NASDAQ Stock Market, and operates pursuant to a written charter adopted by the Board of Directors. The Audit Committee reviews and reassesses the adequacy of the charter on an annual basis. The Audit Committee is responsible for monitoring and overseeing management’s conduct of Leap’s financial reporting process, Leap’s systems of internal accounting and financial controls, and the independent audit of Leap’s financial statements by Leap’s independent registered public accounting firm.

In this context, the Audit Committee has reviewed and discussed the audited consolidated financial statements of Leap as of and for the fiscal year ended December 31, 2011 with both management and PricewaterhouseCoopers LLP. Specifically, the Audit Committee has discussed with PricewaterhouseCoopers LLP those matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board.

The Audit Committee has received from PricewaterhouseCoopers LLP the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and it has discussed with PricewaterhouseCoopers LLP the issue of its independence from Leap.

Based on the Audit Committee’s review of the audited financial statements and its discussions with management and PricewaterhouseCoopers LLP noted above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in Leap’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 for filing with the Securities and Exchange Commission.

AUDIT COMMITTEE

Michael B. Targoff, Chairman

Robert V. LaPenta

Mark A. Leavitt

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table contains information about the beneficial ownership of our common stock as of March 20, 2012 for:

 

  Ÿ  

each stockholder known by us to beneficially own more than 5% of our common stock;

 

  Ÿ  

each of our current directors;

 

  Ÿ  

each of our named executive officers; and

 

  Ÿ  

all directors and executive officers as a group.

The percentage of ownership indicated in the following table is based on 79,218,426 shares of common stock outstanding on March 20, 2012.

Information with respect to beneficial ownership has been furnished by each director and officer, and with respect to beneficial owners of more than 5% of our common stock, by Schedules 13D and 13G, filed with the SEC by them. Beneficial ownership is determined in accordance with the rules of the SEC. Except as indicated by footnote and subject to community property laws where applicable, to our knowledge, the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after March 20, 2012 are deemed outstanding, while such shares are not deemed outstanding for purposes of computing percentage ownership of any other person.

 

5% Stockholders, Directors and Officers(1)

   Number of
Shares
     Percent of
Total
 

Entities affiliated with MHR Fund Management LLC(2)

     23,533,869         29.7

Wellington Management Company, LLP(3)

     9,677,628         12.2

Capital Research Global Investors(4)

     9,640,252         12.2

Pentwater Capital Management LP (5)

     4,950,001         6.2

John D. Harkey, Jr.(6)

     77,774         *   

Ronald J. Kramer(6)

     26,280         *   

Robert V. LaPenta(6)(7)

     52,505         *   

Mark A. Leavitt(6)

     8,992         *   

Mark H. Rachesky(6)(8)

     23,600,859         29.8

Richard R. Roscitt(6)

     26,551         *   

Michael B. Targoff(6)

     31,899         *   

Robert E. Switz(6)

     12,851         *   

S. Douglas Hutcheson(9)

     712,622         *   

Walter Z. Berger(10)

     107,278         *   

Raymond J. Roman(11)

     180,250         *   

Robert A. Young (12)

     109,160         *   

William D. Ingram(13)

     103,368         *   

Albin F. Moschner(14)

     328,070         *   

All directors and executive officers as a group (16 persons)

     25,335,929         32

 

    * Represents beneficial ownership of less than 1.0% of the outstanding shares of common stock.

 

  (1) Unless otherwise indicated, the address for each person or entity named below is c/o Leap Wireless International, Inc., 5887 Copley Drive, San Diego, California 92111.

 

  (2)

Consists of (a) 353,420 shares of common stock held for the account of MHR Capital Partners Master Account LP, a limited partnership organized in Anguilla, British West Indies (“Master Account”);

 

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  (b) 42,514 shares of common stock held for the account of MHR Capital Partners (100) LP, a Delaware limited partnership (“Capital Partners (100)”); (c) 3,340,378 shares of common stock held for the account of MHR Institutional Partners II LP, a Delaware limited partnership (“Institutional Partners II”); (d) 8,415,428 shares of common stock held for the account of MHR Institutional Partners IIA LP, a Delaware limited partnership (“Institutional Partners IIA”); and (e) 11,382,129 shares of common stock held for the account of MHR Institutional Partners III LP, a Delaware limited partnership (“Institutional Partners III”). MHR Advisors LLC (“Advisors”) is the general partner of each of Master Account and Capital Partners (100), and in such capacity, may be deemed to be the beneficial owner of the shares of common stock held by Master Account and Capital Partners (100). MHR Institutional Advisors II LLC (“Institutional Advisors II”) is the general partner of Institutional Partners II and Institutional Partners IIA, and in such capacity, may be deemed to be the beneficial owner of the shares of common stock held by Institutional Partners II and Institutional Partners IIA. MHR Institutional Advisors III LLC (“Institutional Advisors III”) is the general partner of Institutional Partners III, and in such capacity, may be deemed to be the beneficial owner of the shares of common stock held by Institutional Partners III. MHR Fund Management LLC (“Fund Management”) has entered into an investment management agreement with Master Account, Capital Partners (100), Institutional Partners II, Institutional Partners IIA and Institutional Partners III and thus may be deemed to be the beneficial owner of all of the shares of common stock held by all of these entities. The address for each of these entities is 40 West 57th Street, 24th Floor, New York, New York 10019.

 

  (3) Wellington Management Company, LLP, in its capacity as an investment adviser in accordance with Section 240.13d-1(b)(1)(ii)(E), may be deemed to beneficially own 9,677,628 shares which are held of record by clients of Wellington Management Company, LLP. Wellington Management Company, LLP has shared voting power with respect to 8,047,918 shares and has shared dispositive power with respect to 9,677,628 shares. The address for Wellington Management Company is 280 Congress Street, Boston, Massachusetts 02210.

 

  (4) These securities may be deemed to be beneficially owned by Capital Research Global Investors, an investment adviser, in accordance with Section 240.13d-1(b)(1)(ii)(E). The address for Capital Research Global Investors is 333 South Hope Street, Los Angeles, California 90071.

 

  (5) Consists of (a) 792,000 shares held by PWCM Master Fund Ltd, an exempted company formed in the Cayman Islands (“PWCM Master”); (b) 2,524,501 shares held by Pentwater Equity Opportunities Master Fund, Ltd., an exempted company formed in the Cayman Islands (“Pentwater Equity”); (c) 1,089,000 shares held by Oceana Master Fund, Ltd., an exempted company formed in the Cayman Islands (“Oceana”); and (d) 544,500 shares held by LMA SPC for and on behalf of MAP 98 Segregated Portfolio, a segregated portfolio company formed in the Cayman Islands (“MAP”). PWCM Master, Pentwater Equity, Oceana and MAP are collectively referred to herein as the “Funds”. Pentwater Capital Management LP, a Delaware limited partnership (“Pentwater Capital”), is the investment manager for the Funds. The business address of Pentwater Capital and the Funds is 227 West Monroe, Suite 4000, Chicago, IL 60606.

 

  (6)

Includes (a) shares issuable upon exercise of vested stock options, as follows: Dr. Rachesky, 40,200 shares; Mr. Harkey, 2,500 shares; Mr. Targoff, 4,500 shares; and Mr. LaPenta, 12,500 shares; (b) restricted stock awards which vest on May 22, 2012, as follows: Dr. Rachesky, 854 shares; Mr. Harkey, 854 shares; Mr. Targoff, 854 shares; and Mr. LaPenta, 854 shares; (c) restricted stock awards which vest on November 2, 2012, as follows: Mr. Kramer, 4,990 shares; (d) restricted stock awards which vest in two equal installments on May 21, 2012 and 2013, as follows: Dr. Rachesky, 4,090 shares; Mr. Harkey, 4,090 shares; Mr. Targoff, 4,090 shares; and Mr. LaPenta, 4,090 shares; (e) restricted stock awards which vest on July 14, 2012, as follows: Dr. Rachesky, 752 shares; Mr. Harkey, 410 shares; Mr. Kramer, 205 shares; Mr. LaPenta, 342 shares; and Mr. Targoff, 889 shares; (f) restricted stock awards which vest in three equal installments on July 29, 2012, 2013 and 2014, as follows: Dr. Rachesky, 7,429 shares; Mr. Harkey, 7,429 shares; Mr. Kramer, 7,429 shares; Mr. LaPenta, 7,429 shares; Mr. Leavitt, 7,429 shares; and Mr. Targoff, 7,429 shares; (g) restricted stock awards which vest in three equal installments on August 15, 2012, 2013 and 2014, as follows: Mr. Roscitt, 11,641 shares; and Mr. Switz, 11,641 shares; (h) restricted stock awards which vest on October 14, 2012, as follows: Dr. Rachesky, 1,994 shares; Mr. Harkey, 1,227 shares; Mr. Kramer, 1,380 shares; Mr. Leavitt, 460 shares; Mr. Switz, 307 shares; and

 

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  Mr. Targoff, 2,147 shares; and (i) restricted stock awards which vest on January 17, 2013, as follows: Dr. Rachesky, 1,103 shares; Mr. Harkey, 903 shares; Mr. Kramer, 903 shares; Mr. LaPenta, 702 shares; Mr. Leavitt, 1,103 shares; Mr. Roscitt, 1,103 shares; Mr. Switz, 903 shares; and Mr. Targoff, 1,103 shares.

 

  (7) Includes 5,000 shares held by a corporation which is wholly owned by Mr. LaPenta. Mr. LaPenta has the power to vote and dispose of such shares by virtue of his serving as an officer and director thereof.

 

  (8) Consists of (a) all of the shares of common stock otherwise described in footnote 2 by virtue of Dr. Rachesky’s position as the managing member of each of Fund Management, Advisors, Institutional Advisors II and Institutional Advisors III; (b) 40,200 shares of common stock issuable upon exercise of options and 16,222 shares of restricted stock, as further described in footnote 7; and (c) 10,568 shares of common stock which were previously granted as shares of restricted stock and which have vested. The address for Dr. Rachesky is 40 West 57th Street, 24th Floor, New York, New York 10019

 

  (9) Includes (a) restricted stock awards for 25,000 shares which vested on March 25, 2012 (and from which 9,400 shares were sold to pay applicable taxes); (b) restricted stock awards for 37,500 shares, of which 12,500 shares vest on April 14, 2012 and 25,000 shares vest on April 14, 2013; (c) restricted stock awards for 30,000 shares, of which 10,000 shares vest on March 15, 2013 and 20,000 shares vest on March 15, 2014; (d) restricted stock awards for 60,000 shares, of 20,000 shares vest on March 15, 2013 and 40,000 shares vest on March 15, 2014, subject in each case to the achievement of certain performance-based vesting conditions; and (e) restricted stock awards for 50,000 shares, of which 10,000 shares vest on November 2, 2012, 10,000 shares vest on November 2, 2013, 10,000 shares vest on November 2, 2014 and 20,000 shares vest on November 2, 2015, subject in each case to the achievement of certain performance-based vesting conditions. Also includes 359,986 shares issuable upon exercise of vested stock options.

 

(10) Includes (a) restricted stock awards for 12,500 shares which vest on June 23, 2012; and (b) restricted stock awards for 10,000 shares which vest on June 23, 2012. Also includes 62,500 shares issuable upon exercise of vested stock options. Mr. Berger resigned as our executive vice president and CFO effective February 29, 2011, and his shares of restricted stock will be repurchased by the Company on or about June 14, 2012.

 

(11) Includes (a) restricted stock awards for 75,000 shares, of which 18,750 shares vest on February 14, 2013, 18,750 shares vest on February 14, 2014 and 37,500 shares vest on February 14, 2015; and (b) restricted stock awards for 80,000 shares which vest on February 14, 2015. Also includes 25,000 shares issuable upon exercise of vested stock options.

 

(12) Includes (a) restricted stock awards for 37,500 shares, of which 12,500 shares vest on December 31, 2012, 12,500 shares vest on December 31, 2013 and 12,500 shares vest on December 31, 2014; and (b) restricted stock awards for 50,000 shares which vest on December 31, 2014. Also includes 12,500 shares issuable upon exercise of vested stock options.

 

(13) Includes (a) restricted stock awards for 12,930 shares which vest on September 19, 2012; (b) restricted stock awards for 7,500 shares, of which 2,500 shares vest on April 14, 2012 and 5,000 shares vest on April 14, 2013; (c) restricted stock awards for 7,500 shares, of which 2,500 shares vest on March 15, 2013 and 5,000 shares vest on March 15, 2014; (d) restricted stock awards for 12,000 shares, of which 4,000 shares vest on March 15, 2013 and 8,000 shares vest on March 15, 2014, subject to certain performance-based vesting conditions; and (e) restricted stock awards for 14,000 shares, of which 2,800 shares vest on November 2, 2012, 2,800 shares vest on November 2, 2013, 2,800 shares vest on November 2, 2014 and 5,600 shares vest on November 2, 2015, subject to certain performance-based vesting conditions. Also includes 23,970 shares issuable upon exercise of vested stock options.

 

(14) Includes (a) restricted stock awards for 10,000 shares which vest on August 6, 2012; (b) restricted stock awards for 18,750 shares, of which 6,250 shares vest on April 14, 2012 and 12,500 shares vest on April 14, 2013; (c) restricted stock awards for 15,000 shares, of which 5,000 shares vest on March 15, 2013 and 10,000 shares vest on March 15, 2014; and (d) restricted stock awards for 24,000 shares, of which 8,000 shares vest on March 15, 2013 and 16,000 shares vest on March 15, 2014, subject to certain performance-based vesting conditions. Also includes 226,910 shares issuable upon exercise of vested stock options.

 

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2011 with respect to equity compensation plans (including individual compensation arrangements) under which Leap common stock is authorized for issuance.

 

Plan Category

   Number of Securities
to be Issued Upon
Exercise of
Outstanding Options or
Rights
    Weighted-Average
Exercise Price of
Outstanding Options and
Rights
     Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
 

Equity compensation plans approved by security holders

     2,966,672 (1)(3)    $ 26.71         1,987,164 (4) 

Equity compensation plans not approved by security holders

     179,782 (2)(3)    $ 13.05         101,793   
  

 

 

   

 

 

    

 

 

 

Total

     3,146,454      $ 25.93         2,088,957   
  

 

 

   

 

 

    

 

 

 

 

(1) Represents shares reserved for issuance under the 2004 Plan, adopted by the Compensation Committee of our Board of Directors on December 30, 2004 (as contemplated by our confirmed plan of reorganization) and as amended on March 8, 2007. Stock options granted prior to May 17, 2007 were granted prior to the approval of the 2004 Plan by Leap stockholders. The material features of the 2004 Plan are described above under “Discussion of Summary Compensation and Grants of Plan-Based Awards Tables — 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan.”

 

(2) Represents shares reserved for issuance under the 2009 Inducement Plan, which was adopted in February 2009 without stockholder approval, as permitted under the rules and regulations of the NASDAQ Stock Market. The material features of the 2009 Inducement Plan are described above under “Discussion of Summary Compensation and Grants of Plan-Based Awards Tables — 2009 Employment Inducement Equity Incentive Plan.” The 2009 Inducement Plan was amended on January 14, 2010 by our Board to increase the number of shares reserved for issuance under the 2009 Inducement Plan by 100,000 shares of Leap common stock.

 

(3) Excludes 1,946,777 and 109,475 shares of restricted stock issued under the 2004 Plan and 2009 Inducement Plan, respectively, which are subject to release upon vesting of the shares.

 

(4) Consists of 216,254 shares reserved for issuance under the ESP Plan, and 1,770,910 shares reserved for issuance under the 2004 Plan.

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Historically, we have reviewed potential related party transactions on a case-by-case basis. On March 8, 2007 the Board approved a “Related Party Transaction Policy and Procedures.” Under the policy and procedures, the Audit Committee, or alternatively, those members of the Board who are disinterested, reviews the material facts of specified transactions for approval or disapproval, taking into account, among other factors that it deems appropriate, the extent of the related person’s interest in the transaction and whether the transaction is fair to Leap and is in, or is not inconsistent with, the best interests of Leap and its stockholders. Transactions to be reviewed under the policy and procedures include transactions, arrangements or relationships (including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) Leap or any of its subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater-than-five-percent beneficial owner of our common stock, or (c) immediate family member, of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less-than-ten-percent beneficial owner of another entity). Terms of director and officer compensation that are disclosed in proxy statements or that are approved by the Board or Compensation Committee and are not required to be disclosed in our proxy statement, and transactions where all holders of our common stock receive the same benefit on a pro rata basis, are not subject to review under the policy and procedures.

For a description of the registration rights agreement between Leap and certain affiliates of Dr. Mark H. Rachesky, our Chairman of the Board, see “Compensation Committee Interlocks and Insider Participation” set forth above in this proxy statement.

STOCKHOLDER PROPOSALS

To be included in our proxy statement, proposals of stockholders that are intended to be presented at our 2013 annual meeting of stockholders must be received no later than , 2013 and must satisfy the conditions established by the SEC for such proposals. However, if Leap changes the date of its 2013 annual meeting by more than thirty days from the anniversary date of the Annual Meeting, the deadline for proposals that stockholders wish to include in the proxy statement for the 2013 annual meeting of stockholders will be a reasonable time before we begin to print and mail the proxy materials for that meeting.

In order for a stockholder proposal that is not included in our proxy statement for the 2013 annual meeting to be eligible for presentation at the 2013 annual meeting of stockholders, the stockholder presenting such proposal must give timely notice of the proposal to us in writing and otherwise comply with the provisions of our Bylaws. For a proposal to be timely, Article II, Section 8 of the Bylaws provides that we must have received the stockholder’s notice not less than seventy days nor more than ninety days prior to the anniversary of our annual meeting, meaning between February 16, 2013 and March 8, 2013 for the 2013 annual meeting. In the event that the 2013 annual meeting of stockholders is advanced by more than thirty days or delayed by more than seventy days from the anniversary date of the Annual Meeting, proposals that stockholders wish to present at the 2013 annual meeting must be received by Leap no earlier than the ninetieth day prior to the date of the 2013 annual meeting of stockholders and no later than the later of the seventieth day prior to such annual meeting date or the date which is ten days after the day on which public announcement of the date of such meeting is first made.

All proposals should be sent to Leap’s Secretary at our principal executive offices, 5887 Copley Drive, San Diego, California 92111.

OTHER MATTERS

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires Leap’s directors and executive officers, and persons who beneficially own more than ten percent of a registered class of Leap’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity

 

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securities of Leap. Officers, directors and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish Leap with copies of all Section 16(a) forms they file.

To Leap’s knowledge, based solely on a review of the copies of such reports furnished to Leap and written representations that no other reports were required, during the fiscal year ended December 31, 2011, all Section 16(a) filing requirements applicable to its officers, directors and greater-than-ten-percent beneficial owners were complied with.

“Householding” of Proxy Materials

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements, annual reports and notices of Internet availability of proxy materials with respect to two or more stockholders sharing the same address by delivering a single proxy statement, annual report or notice of Internet availability of proxy materials, as applicable, addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies. Brokers with account holders who are Leap stockholders may be “householding” our proxy materials. If you hold your shares in an account with one of those brokers, a single proxy statement, annual report, or notice of Internet availability of proxy materials, as applicable, may be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement, annual report or notice of Internet availability of proxy materials, as applicable, please notify your broker. “Householding” for bank and brokerage accounts is limited to accounts within the same bank or brokerage firm. If two individuals share the same last name and address but have accounts containing our stock at two different banks or brokerage firms, your household will receive two copies of our proxy statement, annual report or notice of Internet availability of proxy materials, as applicable — one from each firm. Stockholders who currently receive multiple copies of our proxy statement, annual report or notice of Internet availability of proxy materials, as applicable, from one bank or brokerage firm and would like to request “householding” of their communications should contact their bank or brokerage firm.

We will deliver promptly upon written or oral request a separate proxy statement, annual report or notice of Internet availability of proxy materials, as applicable, to a stockholder at a shared address to which a single copy of the documents was delivered. Please direct such requests to Leap Wireless International, Inc., Attn. Investor Relations, 5887 Copley Drive, San Diego, California 92111, or to our Investor Relations Dept. by telephone at (858) 882-9876.

Annual Report on Form 10-K

A copy of Leap’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed with the SEC, including the financial statements and the financial statement schedules, but excluding exhibits, may be obtained by stockholders without charge by written request addressed to Leap Wireless International, Inc., Attn: Director of Investor Relations, 5887 Copley Drive, San Diego, California 92111. The exhibits to the Annual Report on Form 10-K are available upon payment of charges that approximate our cost of reproduction.

 

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Other Business

The Board knows of no other matters that will be presented for consideration at the Annual Meeting, or any continuation, adjournment or postponement thereof. If any other matters are properly brought before the Annual Meeting, or any continuation, adjournment or postponement thereof, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

All stockholders are urged to complete, sign, date and return the accompanying proxy card in the enclosed envelope as promptly as possible.

By Order of the Board of Directors

 

LOGO

S. Douglas Hutcheson

President and Chief Executive Officer

                , 2012

 

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APPENDIX A

ADJUSTED OIBDA AND ARPU DEFINITIONS AND RECONCILIATIONS

Adjusted OIBDA

Adjusted OIBDA is a non-GAAP financial measure defined as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of: gain/(loss) on sale, exchange or disposal of assets, net; impairments and other charges; and share-based compensation expense. Adjusted OIBDA should not be construed as an alternative to operating income (loss) or net income (loss) as determined in accordance with GAAP, or as an alternative to cash flows from operating activities as determined in accordance with GAAP or as a measure of liquidity.

In a capital-intensive industry such as wireless telecommunications, management believes that adjusted OIBDA, and the associated percentage margin calculations, are meaningful measures of our operating performance. We use adjusted OIBDA as a supplemental performance measure because management believes it facilitates comparisons of our operating performance from period to period and comparisons of our operating performance to that of other companies by backing out potential differences caused by the age and book depreciation of fixed assets (affecting relative depreciation expenses) as well as the items described above for which additional adjustments were made. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Because adjusted OIBDA facilitates internal comparisons of our historical operating performance, management also uses this metric for business planning purposes and to measure our performance relative to that of our competitors. In addition, we believe that adjusted OIBDA and similar measures are widely used by investors, financial analysts and credit rating agencies as measures of our financial performance over time and to compare our financial performance with that of other companies in our industry.

Adjusted OIBDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

 

  Ÿ  

it does not reflect capital expenditures;

 

  Ÿ  

although it does not include depreciation and amortization, the assets being depreciated and amortized will often have to be replaced in the future and adjusted OIBDA does not reflect cash requirements for such replacements;

 

  Ÿ  

it does not reflect costs associated with share-based awards exchanged for employee services;

 

  Ÿ  

it does not reflect the interest expense necessary to service interest or principal payments on current or future indebtedness;

 

  Ÿ  

it does not reflect expenses incurred for the payment of income taxes and other taxes; and

 

  Ÿ  

other companies, including companies in our industry, may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

Management understands these limitations and considers adjusted OIBDA as a financial performance measure that supplements but does not replace the information provided to management by our GAAP results.

 

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The following table reconciles adjusted OIBDA to operating income (loss), which we consider to be the most directly comparable GAAP financial measure to adjusted OIBDA (in thousands):

 

     Year Ended
December 31,
2011
    Year Ended
December 31,
2010
 

Operating income (loss)

   $ (25,352   $ (450,738

Plus depreciation and amortization

     548,426        457,035   
  

 

 

   

 

 

 

OIBDA

   $ 523,074      $ 6,297   

Plus (gain) loss on sale, exchange or disposal of assets, net

     (2,622     5,061   

Plus impairments and other charges

     26,770        477,327   

Plus share-based compensation expense

     15,328        36,609   
  

 

 

   

 

 

 

Adjusted OIBDA

   $ 562,550      $ 525,294   

ARPU

ARPU is service revenues, less pass-through regulatory fees and telecommunications taxes, divided by the weighted-average number of customers, divided by the number of months during the period being measured. Management uses ARPU to identify average revenue per customer, to track changes in average customer revenues over time, to help evaluate how changes in our business, including changes in our service offerings, affect average revenue per customer, and to forecast future service revenue. In addition, ARPU provides management with a useful measure to compare our subscriber revenue to that of other wireless communications providers. Customers of our Cricket Wireless and Cricket Broadband service are generally disconnected from service approximately 30 days after failing to pay a monthly bill. Cricket PAYGo customers generally have 60 days from the date they activated their account, were charged a daily or monthly access fee for service or last “topped-up” their account (whichever is later) to do so again, or they will have their account suspended for a subsequent 60-day period before being disconnected. We currently plans to modify our disconnection policies in mid-2012 to eliminate this subsequent 60-day grace period and disconnect customers who have not been charged an access fee or “topped-up” their account during the preceding 60-days. Because our calculation of weighted-average number of customers includes customers who are not currently paying for service but who have not yet been disconnected from service because they have not paid their last bill or have not replenished their account, ARPU may appear lower during periods in which we have significant disconnect activity. We believe investors use ARPU primarily as a tool to track changes in our average revenue per customer and to compare our per customer service revenues to those of other wireless communications providers. Other companies may calculate this measure differently.

The following table reconciles total service revenues used in the calculation of ARPU to service revenues, which we consider to be the most directly comparable GAAP financial measure to ARPU (unaudited; in thousands, except weighted-average number of customers and ARPU):

 

     Year Ended
December 31,
2011
    Year Ended
December 31,
2010
 

Service revenues

   $ 2,829,281      $ 2,482,601   

Less pass-through regulatory fees and telecommunications taxes

     (32,570     (108,376
  

 

 

   

 

 

 

Total service revenues used in the calculation of ARPU

   $ 2,796,711      $ 2,374,225   

Weighted-average number of customers

     5,724,152        5,239,638   
  

 

 

   

 

 

 

ARPU

   $ 40.72      $ 37.76   

 

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APPENDIX B

LEAP WIRELESS INTERNATIONAL, INC.

EXECUTIVE INCENTIVE BONUS PLAN

The Leap Wireless International, Inc. Executive Incentive Bonus Plan (the “Plan”) is designed to motivate and reward certain executive officers of Leap Wireless International, Inc., a Delaware corporation (the “Company”), and its Subsidiaries (as defined below) to produce results that increase stockholder value and to encourage individual and corporate performance that helps the Company achieve both short and long-term corporate objectives.

The Board of Directors of the Company (the “Board”) has adopted this Plan, effective with respect to bonus awards for periods beginning on or after January 1, 2007, subject to approval of the Plan by the stockholders of the Company.

ARTICLE I.

Certain Definitions

SECTION 1.1 — Base Compensation. “Base Compensation” of a Participant for a Plan Year, or portion of a Plan Year, shall mean the Participant’s regular base salary, excluding bonuses, expense reimbursements, moving expenses, fringe benefits, stock options, restricted stock and other stock based awards, and other payments which are not considered part of regular base salary, payable during such Plan Year or such portion of the Plan Year, determined prior to any reduction under a plan subject to Section 125 or 401(k) of the Code or any deferral under a non-qualified deferred compensation plan.

SECTION 1.2 — Code. “Code” shall mean the Internal Revenue Code of 1986, as amended.

SECTION 1.3 — Committee. “Committee” shall mean the Compensation Committee of the Board, or such other committee as may be appointed by the Board consisting solely of two or more Directors, each of whom qualifies as an “outside director” for purposes of Section 162(m) of the Code.

SECTION 1.4 — Common Stock. “Common Stock” shall mean the common stock, par value $.0001 per share, of the Company.

SECTION 1.5 — Director. “Director” shall mean a member of the Board.

SECTION 1.6 — Eligible Individual. “Eligible Individual” shall mean any Senior Vice President or more senior officer of the Company or any Subsidiary.

SECTION 1.7 — Fair Market Value. “Fair Market Value” shall have the meaning given to such term in the Stock Option, Restricted Stock and Deferred Stock Unit Plan.

SECTION 1.8 — Participant. “Participant” shall mean any Eligible Individual selected by the Committee to receive a bonus award under the Plan.

SECTION 1.9 — Performance Period. “Performance Period” shall mean the period of time specified by the Committee for which the achievement of a Performance Goal (as defined below) shall be determined. The “Performance Period” with respect to a Performance Goal may be a Plan Year, or one or more fiscal quarters of a Plan Year.

SECTION 1.10 — Plan Year. A “Plan Year” shall be the fiscal year of the Company, including the fiscal year ending December 31, 2007.

SECTION 1.11 — Stock Option, Restricted Stock and Deferred Stock Unit Plan. “Stock Option, Restricted Stock and Deferred Stock Unit Plan” shall mean the 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan of Leap Wireless International, Inc., as amended from time to time.

SECTION 1.12 — Subsidiary. “Subsidiary” shall mean any “subsidiary corporation,” as defined in Section 424(f) of the Code, of the Company.

 

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ARTICLE II.

Bonus Awards

SECTION 2.1 — Participants; Bonus Awards. The Committee may, in its discretion, grant bonus awards (“Bonus Award”) under the Plan with regard to any specified Performance Period to one or more of the Eligible Individuals. At the time a Bonus Award is granted pursuant to this Section 2.1, the Committee shall specify a bonus amount (“Bonus Amount”) to be paid upon the achievement of the Performance Goals established in accordance Section 2.2, which Bonus Amount may be a specific dollar amount, or a specified percentage of the Participant’s Base Compensation for the Performance Period, subject to Section 2.4.

SECTION 2.2 — Performance Goals.

(a) For each Performance Period with regard to which one or more Eligible Individuals is selected by the Committee to receive a Bonus Award under the Plan, the Committee shall establish in writing one or more objectively determinable performance goals (“Performance Goals”) for such Bonus Award, based upon one or more of the following business criteria, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to the results of a peer group:

 

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revenue;

 

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sales;

 

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cash flow;

 

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earnings (including earnings before any one or more of the following: (i) interest, (ii) taxes, (iii) depreciation, and (iv) amortization);

 

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earnings (including earnings before any one or more of the following: (i) interest, (ii) taxes, (iii) depreciation, and (iv) amortization) per share of Common Stock;

 

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operating income (including operating income before any one or more of the following: (i) depreciation and (ii) amortization);

 

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operating income (including operating income before any one or more of the following: (i) depreciation and (ii) amortization) per share of Common Stock;

 

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return on equity;

 

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total stockholder return;

 

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return on capital;

 

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return on assets or net assets;

 

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income or net income;

 

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operating profit or net operating profit;

 

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operating margin;

 

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cost reductions or savings;

 

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end of period customers, or change in customers across a period;

 

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working capital;

 

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market share; and

 

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Fair Market Value per share of Common Stock.

(b) With respect to any Bonus Award which the Committee determines should constitute qualified performance-based compensation as described in Section 162(m)(4)(C) of the Code and the Treasury Regulations thereunder, the applicable Performance Goals specified pursuant to Section 2.2 (including any adjustments specified pursuant to Section 2.3) shall be established in writing no later than the ninetieth day following the

 

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commencement of the period of service to which the Performance Goals relate; provided, however, that in no event shall the Performance Goals be established after 25% of the period of service (as scheduled in good faith at the time the Performance Goals are established) has elapsed. The achievement of any Performance Goals established by the Committee shall be substantially uncertain at the time such Performance Goals are established in writing.

(c) Depending on the business criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance, Subsidiary performance or the performance of a division or business unit of the Company and/or the Subsidiaries. The Committee may, in its discretion, specify different Performance Goals for each Bonus Award granted under the Plan. The Committee shall, within the time prescribed by Section 162(m) of the Code, define in an objective fashion the manner of determining whether and to what extent the specified Performance Goal has been achieved for the Performance Period; provided, however, that, subject to Section 2.3, the achievement of each Performance Goal shall be determined in accordance with United States generally accepted accounting principles (“GAAP”) to the extent applicable.

SECTION 2.3 — Adjustments to Performance Components. For each Bonus Award granted under the Plan, the Committee may, in its discretion, at the time of grant, specify in the Bonus Award that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals established under Section 2.2. Such adjustments may include or exclude one or more of the following:

 

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items related to a change in accounting principle;

 

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items related to financing activities;

 

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expenses for restructuring or productivity initiatives;

 

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other non-operating items;

 

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items related to acquisitions;

 

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items attributable to the business operations of any entity acquired by the Company during the Plan Year;

 

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items related to dispositions;

 

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items that relate to the launch of one or more new markets or the disposition of one or more markets;