[QUALCOMM LOGO]
5775 MOREHOUSE DR.
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 2001
TO THE STOCKHOLDERS OF QUALCOMM INCORPORATED:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of QUALCOMM
Incorporated, a Delaware corporation (the "Company"), will be held at Copley
Symphony Hall, 750 B Street, San Diego, CA 92101, on Tuesday, February 27, 2001
at 8:30 a.m. for previewing product displays, and 9:30 a.m. local time for the
following purposes:
1. To elect four Class I directors to hold office until the 2004 Annual Meeting
of Stockholders.
2. To approve the Company's 2001 Stock Option Plan.
3. To approve the Company's 2001 Employee Stock Purchase Plan.
4. To approve the Company's 2001 Non-Employee Directors' Stock Option Plan.
5. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the Company's fiscal year ending September 30,
2001.
6. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 29, 2000
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ IRWIN MARK JACOBS
Irwin Mark Jacobs
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
San Diego, California
January 15, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SUBMIT YOUR VOTE
ACCORDING TO THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. 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 WILL NOT BE PERMITTED TO VOTE
IN PERSON AT THE MEETING UNLESS YOU FIRST OBTAIN A PROXY ISSUED IN YOUR NAME
FROM THE RECORD HOLDER.
PLEASE REFER TO YOUR PROXY CARD TO DETERMINE IF YOU ARE ELIGIBLE TO VOTE
EITHER BY PHONE OR VIA THE INTERNET AT WWW.PROXYVOTE.COM.
- --------------------------------------------------------------------------------
QUALCOMM INCORPORATED
5775 MOREHOUSE DR.
SAN DIEGO, CALIFORNIA 92121
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 27, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
QUALCOMM Incorporated, a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Tuesday, February 27, 2001, at
9:30 a.m. local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting. The Annual Meeting will be held at Copley Symphony
Hall, 750 B Street, San Diego, CA 92101. The Company intends to mail this proxy
statement and accompanying proxy card on or about January 15, 2001 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company or, at the Company's request, D.F. King & Co., Inc., a professional
proxy solicitation firm. No additional compensation will be paid to directors,
officers or other regular employees for such services, but D.F. King &
Co., Inc. will be paid its customary fee, estimated to be about $10,000, if it
renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
December 29, 2000 (the "Record Date") will be entitled to notice of and to vote
at the Annual Meeting. At the close of business on the Record Date, the Company
had outstanding and entitled to vote 752,029,328 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon. With respect to the
election of directors, stockholders may exercise cumulative voting rights. Under
cumulative voting, each holder of Common Stock will be entitled to four votes
for each share held. Each stockholder may give one candidate, who has been
nominated prior to voting, all the votes such stockholder is entitled to cast or
may distribute such votes among as many such candidates as such stockholder
chooses. However, no stockholder will be entitled to cumulate votes unless the
candidate's name has been placed in nomination prior to the voting and at least
one stockholder has given notice at the meeting, prior to the voting, of his or
her intention to cumulate votes. Unless the proxyholders are otherwise
instructed, stockholders, by means of the accompanying proxy, will grant the
proxyholders discretionary authority to cumulate votes.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
secretary of the Company at the Company's principal executive offices, 5775
Morehouse Dr., San Diego, California 92121-1714, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2002 Annual
Meeting of Stockholders pursuant to Rule 14a-8, "Shareholder Proposals," of the
Securities and Exchange Commission (the "SEC") is September 10, 2001. The
deadline for submitting a stockholder proposal or a nomination for director that
is not to be included in such proxy statement and proxy is also September 10,
2001. Stockholders are also advised to review the Company's Bylaws, which
contain additional advance notice requirements, including requirements with
respect to advance notice of stockholder proposals and director nominations.
FINANCIAL INFORMATION
Attached in Appendix 2 is certain financial information of the Company that
was originally filed with the SEC on November 3, 2000 as part of the Company's
Annual Report on Form 10-K for the fiscal year ended September 24, 2000. The
Company has not undertaken any updates or revisions to such information since
the date it was originally filed with the SEC. Accordingly, you are encouraged
to review such financial information together with subsequent information filed
by the Company with the SEC and other publicly available information.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide that
the Board of Directors shall be divided into three classes, with each class
having a three-year term. Directors are assigned to each class in accordance
with a resolution or resolutions adopted by the Board of Directors, each class
consisting, as nearly as possible, of one-third the total number of directors.
Vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes may be filled by either the
affirmative vote of the holders of a majority of the then-outstanding shares or
by the affirmative vote of a majority of the remaining directors then in office,
even if less than a quorum of the Board of Directors. Newly created
directorships resulting from any increase in the number of directors may, unless
the Board of Directors determines otherwise, be filled only by the affirmative
vote of the directors then in office, even if less than a quorum of the Board of
Directors. A director elected by the Board of Directors to fill a vacancy
(including a vacancy created by an increase in the number of directors) shall
serve for the remainder of the full term of the class of directors in which the
vacancy occurred and until such director's successor is elected and qualified.
The Company's Restated Certificate of Incorporation provides that the number
of directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted from time to time by the Board of
Directors. The authorized number of directors is currently set at 13. Four seats
on the Board of Directors, currently held by Irwin Mark Jacobs, Adelia A.
Coffman, Neil Kadisha and Richard Sulpizio, have been designated as Class I
Board seats, with the term of the directors occupying such seats expiring as of
the Annual Meeting. Dr. Jacobs, Ms. Coffman and Messrs. Kadisha and Sulpizio
will stand for re-election at this Annual Meeting.
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Each of the nominees for election to this class, except for Mr. Sulpizio, is
currently a Board member of the Company who was previously elected by the
stockholders. Mr. Sulpizio was elected by the Board of Directors effective
December 2000 to fill the vacancy that was created by Dr. Viterbi's resignation.
If elected at the Annual Meeting, each of the four nominees would serve until
the 2004 Annual Meeting and until his or her successor is elected and qualified,
or until such director's earlier death, resignation or removal.
If no stockholder has exercised cumulative voting rights, the directors will
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. If a stockholder has exercised cumulative voting rights, the four
candidates receiving the highest number of affirmative votes of the shares
entitled to be voted for such directors will be elected directors of the
Company. Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the four nominees named below. 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 of Directors may propose. Each person nominated
for election has agreed to serve if elected, and the Board of Directors has no
reason to believe that any nominee will be unable to serve.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2004 ANNUAL MEETING
IRWIN MARK JACOBS
Irwin Mark Jacobs, age 67, one of the founders of the Company, has served as
chairman of the Board of Directors and chief executive officer of the Company
since it began operations in July 1985. He also held the title of president
prior to May 1992. Before joining the Company, Dr. Jacobs was executive vice
president and a director of M/A-COM, Inc., a telecommunications company. From
October 1968 to April 1985, Dr. Jacobs held various executive positions at
LINKABIT (M/A-COM LINKABIT after August 1980), a company he co-founded. During
most of his period of service with LINKABIT, he was chairman, president and
chief executive officer and was at all times a director. Dr. Jacobs received his
B.E.E. degree from Cornell University and his M.S. and Sc.D. degrees from the
Massachusetts Institute of Technology ("MIT"). He is a member of the National
Academy of Engineering and was awarded the National Medal of Technology in 1994.
ADELIA A. COFFMAN
Adelia A. Coffman, age 48, one of the founders of the Company, has served as
a Director of the Company from July 1985 to February 1989 and since
January 1992. She also served as chief financial officer of the Company from
July 1985 until April 1994 and held the titles of vice president and senior vice
president at the Company during that time. Ms. Coffman currently provides
financial consulting services and is also active in Oregon Diverse Industries,
LLC, a real estate investment and development company of which she is an owner.
From July 1970 until July 1985, Ms. Coffman held various positions at LINKABIT
and M/A-COM LINKABIT. Prior to joining the Company, Ms. Coffman was controller
of M/A-COM LINKABIT. Ms. Coffman received her B.S. degree in business from San
Diego State University.
NEIL KADISHA
Neil Kadisha, age 46, joined the Company as a Director in August 1988. He is
currently the chief executive officer of Omninet Capital, a venture capital firm
focused on investments in the fields of wireless communications and broadband
infrastructure. Mr. Kadisha is also the chairman and chief executive officer of
SwitchPoint Networks, Inc., a broadband Internet technology company. He serves
on the board
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of directors of various privately-held companies. Prior to joining QUALCOMM as a
director, Mr. Kadisha served as chairman of the board and chief executive
officer of Omninet Corporation. Mr. Kadisha's academic background is in
industrial management and economics from Manchester, England.
RICHARD SULPIZIO
Richard Sulpizio, age 51, was elected to the Board in December 2000 by the
Board of Directors to fill the vacancy created by Dr. Andrew Viterbi, who
resigned from the Board. Mr. Sulpizio currently serves as president of the
Company, a position he has held since July 1998, and has served as the Company's
chief operating officer since 1995. Mr. Sulpizio was president of QUALCOMM
Wireless Business Solutions (formerly QUALCOMM's OmniTRACS Division) from
February 1994 to August 1995. Prior to his assignment in the OmniTRACS division,
he held the position of chief operating officer from May 1992 to February 1994.
Mr. Sulpizio joined the Company in May 1991 as vice president, Information
Systems and was promoted to senior vice president in September 1991. Prior to
joining the Company, Mr. Sulpizio spent eight years with Unisys Corporation, a
diversified computer and electronics company. Mr. Sulpizio holds a B.A. degree
from California State University, Los Angeles and his M.S. degree in systems
management from the University of Southern California.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
ROBERT E. KAHN
Robert E. Kahn, age 62, became a Director of the Company in February 1997.
Dr. Kahn is chairman, chief executive officer and president of the Corporation
for National Research Initiatives (CNRI), which he founded in 1986. From 1972 to
1985, he was employed at the U.S. Defense Advanced Research Projects Agency,
where his last position was director of the Information Processing Techniques
Office. From 1966 to 1972, Dr. Kahn was a senior scientist with Bolt Beranek and
Newman, where he was responsible for the system design of the Arpanet, the first
packet-switched network. Dr. Kahn received numerous awards for his pioneering
work on the Internet for which he received the 1997 National Medal of
Technology. Dr. Kahn received a B.E.E. degree from the City College of New York
and M.A. and Ph.D. degrees from Princeton University. He is a member of the
National Academy of Engineering.
JEROME S. KATZIN
Jerome S. Katzin, age 82, became a Director of the Company in
November 1987. From 1953 until his retirement in 1990, Mr. Katzin was engaged in
investment banking with Kuhn Loeb & Co. and successor firms. He is a director of
the Coastal Corporation, an oil and gas business. Mr. Katzin is a graduate of
the University of Chicago and has a J.D. degree from the University of Chicago
Law School. He served on the legal staff of the U.S. Securities and Exchange
Commission from 1941 to 1953 and held the position of director of the Division
of Public Utilities. He is a member of the Board of Overseers of the University
of California at San Diego, is a trustee of the San Diego Foundation, and was
formerly a trustee and President of the U.C. San Diego Foundation.
DUANE A. NELLES
Duane A. Nelles, age 57, a certified public accountant, became a Director of
the Company in August 1988. Mr. Nelles has also served on the board of directors
of WFS Financial Inc., an automotive finance company, since July 1995, and has
served as chairman of the Board of Skydesk, a storage and systems management
services company, since October 2000. He has been in the personal investment
business since 1987. Prior to that time, Mr. Nelles was a partner in the
international public accounting firm of Coopers & Lybrand, L.L.P., which he
joined in 1968 after receiving his M.B.A. degree from the University of
Michigan.
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FRANK SAVAGE
Frank Savage, age 62, became a Director of the Company in February 1996. He
has served as chairman of Alliance Capital Management International and a
director of Alliance Capital Management Corporation since July 1993. He also
served as senior vice president of The Equitable Life Assurance Society of the
United States from February 1988 until March 1996. Alliance Capital is an
investment management subsidiary of The Equitable Life Assurance Society. He was
the chairman of Equitable Capital Management Corporation, an Equitable Life
investment management subsidiary, from April 1992 until it merged with Alliance
Capital in July 1993. From December 1970 to July 1985 he held various positions
with Equitable Life including investment officer and vice president. Mr. Savage
is a director of Lockheed Martin Corporation, an aero-technology corporation,
ENRON Corporation, an energy company, Essence Communications, Inc., a media
company and The Johns Hopkins and Howard Universities. He received a B.A. degree
from Howard University in 1962, an M.A. degree from The Johns Hopkins University
Nitze School of Advanced International Studies in 1968 and an honorary doctorate
degree in humane letters from Hofstra University.
BRENT SCOWCROFT
Brent Scowcroft, 75, became a Director of the Company in December 1994.
General Scowcroft is the president of The Scowcroft Group, Inc., an
international business consulting firm he founded in June 1994. He is also the
president of the Forum for International Policy, a non-profit organization that
he founded in 1993 that promotes American leadership and foreign policy. He
served as assistant to the president for national security affairs for President
George Bush from January 1989 until January 1993; he also held that position for
President Ford during his term. A retired U.S. Air Force lieutenant general,
General Scowcroft served in numerous national security posts in the Pentagon and
the White House prior to his appointments as assistant to the president for
national security affairs. Currently, General Scowcroft serves as a director of
Pennzoil-Quaker State, an automotive consumer car care company. He received his
B.S. degree from West Point and M.A. and Ph.D. degrees from Columbia University.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING
RICHARD C. ATKINSON
Richard C. Atkinson, age 71, became a Director of the Company in
January 1991. Dr. Atkinson has been serving as the president of the University
of California since October 1995. Prior to that time, he served as chancellor of
the University of California at San Diego since 1980. Dr. Atkinson joined the
board of directors of Cubic Corporation, a high-tech electronic company, in
May 1999. Dr. Atkinson is a former director of the National Science Foundation,
past president of the American Association for the Advancement of Science and
former chair of the Association of American Universities. He is one of the
founders of Computer Curriculum Corporation. He is a member of the National
Academy of Sciences, the Institute of Medicine, the National Academy of
Education and the American Philosophical Society. Dr. Atkinson holds a Ph.D.
degree from Indiana University and a Ph.B. degree from the University of
Chicago.
DIANA LADY DOUGAN
Diana Lady Dougan, age 58, became a Director of the Company in
December 1998. Ambassador Dougan is senior advisor and international
communications studies chair of the Center for Strategic and International
Studies and chairwoman of the Cyber Century Forum. She has served in senior
policy and management positions for more than three decades, including
appointments by both Republican and Democratic presidents in senate-confirmed
positions. From 1982 to 1988, as the first statutory U.S. coordinator for
International Communications and Information Policy, Ambassador Dougan
spearheaded international negotiations and policies involving telecom,
broadcast, and information technology services on behalf of 14 federal agencies
and served administratively as assistant secretary of state and holds the
5
permanent rank of ambassador. Early in her career, Ambassador Dougan was the
first CATV marketing director for Time, Inc. and an award-winning TV producer.
In addition to earning undergraduate degrees in industrial psychology and
English from the University of Maryland, Ambassador Dougan's studies also
include economics at the University of Utah and the Advanced Management Program
at Harvard University.
PETER M. SACERDOTE
Peter M. Sacerdote, age 63, became a Director of the Company in
October 1989. Mr. Sacerdote has been an advisory director of Goldman, Sachs &
Co. since May 1999 where he also serves as chairman of its Investment Committee.
In the five years prior to that time, he served as a limited partner of Goldman,
Sachs Group, L.P. He also serves as a director of AMF Group, Inc., a bowling
center operator and equipment manufacturer, and Franklin Resources, Inc., a
mutual fund management company. He received his B.E.E. degree from Cornell
University and an M.B.A. degree from the Harvard Graduate School of Business
Administration.
MARC I. STERN
Marc I. Stern, age 56, became a Director of the Company in February 1994. He
has been with the TCW Group, Inc., an asset management firm, since March 1990
and has served as its president since May 1992. From December 1988 to
March 1990, Mr. Stern served as president and a director of SunAmerica, Inc., a
financial services company. Prior to joining SunAmerica, Mr. Stern was managing
director and chief administrative officer of The Henley Group, Inc., a
diversified manufacturing company and prior thereto was senior vice president of
Allied-Signal Inc., a diversified manufacturing company. Mr. Stern is the
non-executive chairman of Apex Mortgage Capital, Inc., a financial services
company, and chairman of TCW Galileo Funds, Inc., a registered investment
company. He received a B.A. degree from Dickinson College, an M.A. degree from
the Columbia University Graduate School of Public Law and Government and a J.D.
degree from the Columbia University School of Law.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 24, 2000, the Board of Directors held
ten meetings. The Board has an Audit Committee, a Compensation Committee, a
Nominating Committee and a Stock Option Committee.
The Audit Committee meets at least quarterly with the Company's management
and independent accountants to, among other things, review the results of the
annual audit and quarterly reviews and discuss the financial statements,
recommend to the Board the independent accountants to be retained and receive
and consider the accountants' comments as to controls, adequacy of staff and
management performance and procedures in connection with audit and financial
controls. The Audit Committee, which as of the end of fiscal 2000 was composed
of Messrs. Nelles (Committee Chairman), Kadisha and Katzin and Ms. Coffman, met
seven times during such fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, administers and approves stock offerings under the
Company's 1991 Employee Stock Purchase Plan (the "1991 Purchase Plan") and the
1996 Non-Qualified Employee Stock Purchase Plan, administers the Company's 1991
Stock Option Plan (the "1991 Option Plan") and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board may
delegate. Subject to stockholder approval of Proposals 2 and 3, the Compensation
Committee will administer the Company's 2001 Employee Stock Purchase Plan (the
"2001 Purchase Plan") and the Company's 2001 Stock Option Plan (the "2001 Option
Plan"). The Compensation Committee, which as of the end of fiscal 2000 was
composed of Messrs. Katzin (Committee Chairman), Nelles and Stern and Ambassador
Dougan, met four times during such fiscal year.
6
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof. The Company's Bylaws provide for procedures for consideration of
nominees recommended by stockholders. Effective February 1999, the Nominating
Committee included Messrs. Scowcroft (Committee Chairman), Kahn, Katzin, Nelles
and Savage; this Committee did not meet during fiscal 2000. Effective
March 2000, the Nominating Committee was reconstituted to consist of
Dr. Atkinson (Committee Chairman), Messrs. Sacerdote and Stern and Ambassador
Dougan and did not meet during the remainder of fiscal 2000. This Committee met
in November 2000 to recommend the nomination of the Class I Director nominees to
the Board of Directors, subject to stockholder approval, as discussed in this
Proposal 1.
The Stock Option Committee administers and awards stock options to employees
and consultants (other than with respect to directors and executive officers of
the Company) under the Company's 1991 Option Plan and, subject to stockholder
approval, the 2001 Option Plan. The Stock Option Committee, which as of the end
of fiscal 2000 was composed of Mr. Nelles (Committee Chairman), and Drs. Jacobs
and Viterbi, met three times during such fiscal year.
During the fiscal year ended September 24, 2000, each Board member attended
at least 75% of the aggregate of the meetings of the Board and of the committees
on which he or she served and held during the period for which he or she was a
Board or Committee member, respectively.
PROPOSAL 2
APPROVAL OF THE 2001 STOCK OPTION PLAN
In December 2000, the Board of Directors adopted, subject to stockholder
approval, the Company's 2001 Option Plan to be effective as of February 27,
2001. The 2001 Option Plan is intended to replace the 1991 Option Plan, which
expires in the year 2001. As of December 11, 2000, of the total shares available
under the 1991 Option Plan, 109,240,216 shares were subject to outstanding
options and 50,300,301 shares were available for future grants, for a combined
total of 159,540,517 shares, which is the maximum number of shares that may be
issued under the 2001 Option Plan. The share reserve under the 2001 Option Plan
will be equal to the shares available for future grant under the 1991 Option
Plan on the date the 2001 Option Plan is approved by the Company's stockholders.
However, the share reserve under the 2001 Option Plan will be automatically
increased, without any further action by the Board of Directors or stockholders,
by an amount equal to the number of shares of Common Stock subject to any
outstanding option under the 1991 Option Plan that expires or is terminated or
cancelled following the date that the 2001 Option Plan is approved by
stockholders. Concurrently with the stockholder approval of the 2001 Option
Plan, the shares of the Company's Common Stock available for issuance under the
terms of the 1991 Option Plan will be reduced by the number of shares initially
reserved for issuance under the 2001 Option Plan. Similarly, in the event that
options under the 1991 Option Plan expire, terminate or are cancelled, the
shares of the Company's Common Stock subject to such expired, terminated or
cancelled options shall be subtracted from the then current share reserve under
the 1991 Option Plan as they are added to the share reserve under the 2001
Option Plan. Accordingly, the shares reserved for issuance under the 2001 Option
Plan will consist entirely of shares previously authorized by Company
stockholders, and the approval of the 2001 Option Plan will not authorize the
issuance of any greater number of shares than is currently authorized under the
1991 Option Plan.
The Board has full discretion to determine the number of options to be
granted to employees under the 2001 Option Plan, subject to an annual limitation
on the total number of options that may be granted to any employee. Prior to the
Annual Meeting, the Company will not grant any options under the 2001 Option
Plan. For your reference, details are presented on stock options granted under
the 1991 Option Plan during the last three years to each of the executive
officers of the Company named in the Summary Compensation Table under
"Compensation of Executive Officers" (the "Named Executive Officers").
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VOTE REQUIRED. Stockholders are requested in this Proposal 2 to approve the
2001 Option Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the 2001 Option Plan. Abstentions will be
considered shares entitled to vote in the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
SUMMARY OF THE 2001 OPTION PLAN
GENERAL
The 2001 Option Plan provides for the grant of both incentive and
nonstatutory stock options. Incentive stock options granted under the 2001
Option Plan are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the 2001 Option Plan are not
intended to qualify as incentive stock options under the Code. See "Federal
Income Tax Information" for a discussion of the tax treatment of incentive and
nonstatutory stock options.
PURPOSE
The purpose of the 2001 Option Plan is to advance the interests of the
Company and its stockholders by providing an incentive to attract and retain
persons eligible to receive options under the 2001 Option Plan and by motivating
such persons to contribute to the growth and profitability of the Company.
ADMINISTRATION
The 2001 Option Plan is administered by the Board of Directors and its
designees. The Board has the power to construe and interpret the 2001 Option
Plan and, subject to the provisions of the 2001 Option Plan, to determine the
persons to whom and the dates on which options will be granted, the number of
shares to be subject to each option, the time or times during the term of each
option within which all or a portion of such option may be exercised, the
exercise price, the type of consideration to be paid upon exercise of an option,
and other terms of the option. The Board of Directors is authorized to delegate
administration of the 2001 Option Plan to a committee of outside directors. The
Board has delegated administration of the 2001 Option Plan to the Compensation
Committee of the Board. The Board has also delegated administration of the 2001
Option Plan to the Stock Option Committee of the Board with respect to option
grants to persons other than directors and corporate officers of the Company. As
used herein with respect to the 2001 Option Plan, the "Board" refers to the
Compensation Committee and the Stock Option Committee, as well as to the Board
of Directors itself.
STOCK SUBJECT TO THE 2001 OPTION PLAN
The share reserve under the 2001 Option Plan will be equal to the shares
available for future grant under the 1991 Option Plan on the date the 2001
Option Plan is approved by the Company's stockholders. However, the share
reserve under the 2001 Option Plan will be automatically increased without any
further action by the Board of Directors or stockholders by an amount equal to
the number of shares of Common Stock subject to any outstanding option under the
1991 Option Plan that expires or is terminated or cancelled following the date
that the 2001 Option Plan is approved by stockholders. As of
December 11, 2000, of the total shares available under the 1991 Option Plan,
109,240,216 shares were subject to outstanding options and 50,300,301 shares
were available for future grants, for a combined total of 159,540,517 shares,
which is the maximum number of shares that may be issued under the 2001 Option
Plan. If options granted under the 2001 Option Plan expire, are cancelled or
otherwise terminate without
8
being exercised, the shares of Common Stock subject to such expired, cancelled
or terminated options will then be available for grant under the 2001 Option
Plan.
ELIGIBILITY
Nonstatutory stock options may be granted only to employees, directors and
consultants of the Company, or certain related entities or designated
affiliates. An incentive stock option can only be granted to a person who, on
the effective date of grant, is an employee of the Company, a parent corporation
or a subsidiary corporation. Any person who is not an employee on the effective
date of grant will be granted only a nonstatutory stock option. As of
December 11, 2000, approximately 6,036 persons would have been eligible to
receive grants under the 2001 Option Plan.
No incentive stock options may be granted under the 2001 Option Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company, or
any of its parent or subsidiary corporations, unless the option exercise price
is at least 110% of the fair market value of the stock subject to the option on
the date of grant, and the term of the option does not exceed 5 years from the
date of grant. The aggregate fair market value, determined at the time of grant,
of the shares of Common Stock with respect to which incentive stock options
granted under the 2001 Option Plan are exercisable for the first time by an
optionee during any calendar year (under all such plans of the Company and its
parent and subsidiary corporations) may not exceed $100,000.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
2001 Option Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 2001 Option Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair market
value. The exercise price of nonstatutory stock options may not be less than the
fair market value of the stock subject to the option on the date of the option
grant. At December 4, 2000, the closing price of the Company's Common Stock as
reported on the Nasdaq National Market was $69.63 per share. The exercise price
of options granted under the 2001 Option Plan must be paid: (i) in cash, by
check or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership of shares of Common Stock of the Company owned by the optionee having
a fair market value not less than the exercise price, (iii) pursuant to
Regulation T ("cashless exercise"), (iv) for optionees who are employees, in the
Company's sole and absolute discretion, by delivery of a promissory note,
(v) in any other form of legal consideration acceptable to the Board, or
(vi) any combination of the above.
OPTION REPRICING. In the event of a decline in the value of the Company's
Common Stock, the Board has the authority to offer employees the opportunity to
replace outstanding higher priced options, whether incentive or nonstatutory,
with new lower priced options. The Company has provided that opportunity to
employees (other than corporate officers) in the past only one time in 1994. The
Board has adopted a policy that it will not reprice options of the Company's
corporate officers or Directors.
OPTION EXERCISE. Options granted under the 2001 Option Plan may become
exercisable ("vest") in cumulative increments as determined by the Board. The
Company anticipates that options granted under the 2001 Option Plan generally
will be subject to vesting over a 5-year period, with a specified percentage of
each option vesting after a designated waiting period and on a monthly basis
thereafter, provided that the optionee's employment by, or service as a director
or consultant to the Company or certain related entities or designated
affiliates ("service") continues from the date of grant until the applicable
vesting date. Shares covered by options granted in the future under the 2001
Option Plan may be subject to different vesting terms. The Board has the power
to accelerate the time during which an option may be exercised. In addition,
options granted under the 2001 Option Plan may permit exercise prior to vesting,
which is commonly referred to as an "early exercise" feature, but in such event
the optionee may be
9
required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase unvested shares acquired pursuant to such option at
their original exercise price in the event that the optionee's service
terminates.
TERM. The maximum term of options under the 2001 Option Plan is ten years,
except that in certain cases (see "Eligibility" above) the maximum term is five
years. The 2001 Option Plan provides for earlier termination of an option due to
the optionee's cessation of service. Options under the 2001 Option Plan
generally will terminate 30 days after the optionee's cessation of service.
However, in the event the optionee's continuous service terminates due to the
optionee's disability, then the option shall continue under its original terms
for the period of such disability, and the optionee may exercise any of the
vested portion of the option at any time during the period of disability. If the
optionee's continuous service terminates due to the death of the optionee or due
to the optionee's disability and such termination due to disability is followed
by the death of the optionee, then the exercisability and vesting of the option
shall be accelerated in full as of the date of death of the optionee, and the
option shall be exercisable for a period of 12 months from the date of the
optionee's death. If the optionee's continuous service terminates due to
retirement (defined as age 60 with ten years of continuous service), then, to
the extent vested, the option shall be exercisable for a period of 12 months
from the date of the optionee's retirement. If the optionee's continuous service
terminates due to a layoff (defined as involuntary termination for any reason
other than "Cause" (as defined in the 2001 Option Plan), constructive
termination, death or disability), then subject to the optionee's execution of a
release of claims, the exercisability and vesting of the option shall be
accelerated effective as of the date of termination by 10% of the otherwise
unvested portion of the option on such termination date, and the optionee shall
have six months from the date of termination to exercise the option, subject to
certain conditions as set forth in the 2001 Option Plan. If the optionee's
continuous service terminates due to a transfer, at the request of the Company,
to an entity in which the Company has an ownership interest and which the Board
has designated as a "Non-Control Affiliate," then, subject to the optionee's
execution of a release of claims, to the extent vested the option shall be
exercisable for a period of 12 months from the date of such transfer. If,
following a Change in Control (as defined below) the optionee's continuous
service is involuntarily terminated without Cause, or the optionee resigns for
"Good Reason" (as defined in the 2001 Option Plan) within 24 months of such a
Change in Control, then the exercisability and vesting of the option shall be
accelerated effective as of the date of termination, and the optionee may
exercise the option for a period of six months from the termination date. In no
event, however, may an option be exercised later than the date of the expiration
of the option's term as set forth in the optionee's stock option agreement.
CHANGE IN CONTROL. The 2001 Option Plan defines a "Change in Control" of
the Company as any of the following events upon which the stockholders of the
Company immediately before the event do not retain immediately after the event,
in substantially the same proportions as their ownership of shares of the
Company's voting stock immediately before the event, direct or indirect
beneficial ownership of more than 50% of the total combined voting power of the
stock of the Company, its successor or the corporation to which the assets of
the Company were transferred: (i) a sale or exchange by the stockholders in a
single or series of related transactions of more than 50% of the Company's
voting stock; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.
RESTRICTIONS ON TRANSFER
Incentive stock options granted under the 2001 Option Plan may not be
transferred except by will or by the laws of descent and distribution, and may
be exercised during the lifetime of the person to whom the option is granted
only by such person. A nonstatutory stock option is not transferable in any
manner other than (i) by will or by the laws of descent and distribution,
(ii) by written designation of a beneficiary taking effect upon the death of the
optionee, (iii) by delivering written notice to the Company that the optionee
will be gifting to certain family members or other specific entities controlled
by or for the benefit of such family members, and such other transferees as the
Board may approve.
10
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the capital
structure of the Company, appropriate adjustments will be made in the number and
class of shares subject to the 2001 Option Plan and to any outstanding options,
in the Section 162(m) grant limit (see "Federal Income Tax
Information--Potential Limitation on Company Deductions," below), and in the
exercise price per share of any outstanding options. Any fractional share
resulting from an adjustment will be rounded down to the nearest whole number,
and at no time will the exercise price of any option be decreased to an amount
less than par value of the stock subject to the option.
If a Change in Control occurs, the surviving, continuing, successor or
purchasing corporation or parent corporation thereof may either assume the
Company's rights and obligations under the outstanding options or substitute
substantially equivalent options for such corporation's stock. However, if an
outstanding option is not assumed or replaced, the 2001 Option Plan provides
that the vesting and exercisability of the option shall be accelerated,
effective 10 days prior to the Change in Control. Options that are not assumed,
replaced or exercised prior to the Change in Control will terminate. The
acceleration of an award in the event of an acquisition or similar corporate
event may be viewed as an anti-takeover provision, which may have the effect of
discouraging a proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may amend or terminate the 2001 Option Plan at any time. This Plan
does not have an expiration date, however, incentive stock options may not be
granted under the Plan after December 10, 2010.
The Board may also amend the 2001 Option Plan at any time or from time to
time. However, no amendment authorized by the Board will be effective unless
approved by the stockholders of the Company if the amendment would:
(i) increase the number of shares reserved for options under the 2001 Option
Plan; (ii) change the class of persons eligible to receive incentive stock
options; or (iii) modify the 2001 Option Plan in any other way if such
modification requires stockholder approval under applicable law, regulation or
rule.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option. Optionees who do not dispose of their shares for two
years following the date the incentive stock option was granted or within one
year following the exercise of the option will normally recognize a long-term
capital gain or loss equal to the difference, if any, between the sale price and
the purchase price of the shares. If an optionee satisfies both such holding
periods upon a sale of the shares, the Company will not be entitled to any
deduction for federal income tax purposes. If an optionee disposes of shares
either within two years after the date of grant or within one year from the date
of exercise (referred to as a "disqualifying disposition"), the difference
between the fair market value of the shares on the exercise date and the option
exercise price (not to exceed the gain realized on the sale if the disposition
is a transaction with respect to which a loss, if sustained, would be
recognized) will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss is recognized,
there will be no ordinary income, and such loss will be a capital loss. A
capital gain or loss will be long-term if the optionee's holding period is more
than 12 months. Any ordinary income recognized by the optionee upon the
disqualifying disposition of the shares generally should be deductible by the
Company for federal income tax purposes, except to the extent such deduction is
limited by applicable provisions of the Code or the regulations thereunder. The
difference between the option exercise price and the fair market value of the
shares on the exercise date of an incentive stock
11
option is an adjustment in computing the optionee's alternative minimum taxable
income and may be subject to an alternative minimum tax which is paid if such
tax exceeds the regular tax for the year. Special rules may apply with respect
to certain subsequent sales of the shares in a disqualifying disposition,
certain basis adjustments for purposes of computing the alternative minimum
taxable income on a subsequent sale of the shares and certain tax credits which
may arise with respect to optionees subject to the alternative minimum tax.
NONSTATUTORY STOCK OPTIONS. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally does not recognize
taxable income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
an amount equal to the difference between the option exercise price and the fair
market value of the shares on the exercise date. If the optionee is an employee,
such ordinary income generally is subject to withholding of income and
employment taxes. Upon the sale of stock acquired by the exercise of a
nonstatutory stock option, any gain or loss, based on the difference between the
sale price and the fair market value on the exercise date, will be taxed as
capital gain or loss. A capital gain or loss will be long-term if the optionee's
holding period is more than 12 months. The Company generally should be entitled
to a deduction equal to the amount of ordinary income recognized by the optionee
as a result of the exercise of a nonstatutory stock option, except to the extent
such deduction is limited by applicable provisions of the Code or the
regulations thereunder. No tax deduction is available to the Company with
respect to the grant of a nonstatutory stock option or the sale of the stock
acquired pursuant to such grant.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Code Section 162(m) denies a
deduction to the Company for compensation paid to certain employees in a taxable
year to the extent that compensation exceeds $1 million for a covered employee.
It is possible that compensation attributable to stock options, when combined
with all other types of compensation received by a covered employee from the
Company, may cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with applicable regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that: (a) either (i) the option plan contains a per-employee limitation
on the number of shares for which options may be granted during a specified
period, (ii) the per-employee limitation is approved by the stockholders,
(iii) the option is granted by a Compensation Committee comprised solely of
"outside directors" (as defined in Section 162(m)) and (iv) the exercise price
of the option is no less than the fair market value of the stock on the date of
grant; or (b) the option is granted by a Compensation Committee comprised solely
of outside directors and is granted (or exercisable) only upon the achievement
(as certified in writing by the Compensation Committee) of an objective
performance goal established by the Compensation Committee while the outcome is
substantially uncertain and approved by the stockholders.
For the aforementioned reasons, the Company's 2001 Option Plan provides for
an annual per employee limitation as required under Section 162(m) and the
Company's Compensation Committee is comprised solely of outside directors.
Accordingly, options granted by the Compensation Committee will qualify as
performance-based compensation.
OTHER TAX CONSEQUENCES. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the 2001 Option Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the 2001 Option Plan who are residents of or
are employed in a country other than the United States may be subject to
taxation in accordance with the tax laws of that particular country in addition
to or in lieu of United States federal income taxes.
12
PROPOSAL 3
APPROVAL OF THE 2001 EMPLOYEE STOCK PURCHASE PLAN
In December 2000, the Board of Directors adopted, subject to stockholder
approval, the Company's 2001 Purchase Plan to be effective as of February 27,
2001. The 2001 Purchase Plan is intended to replace the 1991 Purchase Plan which
expires in the year 2001. As of December 11, 2000, 12,908,309 shares were
available for grant under the 1991 Purchase Plan. This total, reduced by the
number of shares of Common Stock purchased under the 1991 Purchase Plan
subsequent to December 11, 2000 and prior to the termination date of the 1991
Purchase Plan, shall be the maximum number of shares that may be issued under
the 2001 Purchase Plan. Accordingly, the shares reserved for issuance under the
2001 Purchase Plan will consist entirely of shares previously authorized by
Company stockholders, and the approval of the 2001 Purchase Plan will not
authorize the issuance of any greater number of shares than is currently
authorized under the 1991 Purchase Plan.
VOTE REQUIRED. Stockholders are requested in this Proposal 3 to approve the
2001 Purchase Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the 2001 Purchase Plan. Abstentions will be
considered shares entitled to vote in the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
SUMMARY OF THE 2001 PURCHASE PLAN
PURPOSE
The purpose of the 2001 Purchase Plan is to advance the interests of the
Company and its stockholders by providing an incentive to attract, retain and
reward employees and by motivating such employees to contribute to the growth
and profitability of the Company.
ADMINISTRATION
The 2001 Purchase Plan is administered by the Board of Directors, which has
the final power to construe and interpret the 2001 Purchase Plan and the rights
granted under it. The Board has the power, subject to the provisions of the 2001
Purchase Plan, to determine when and how rights to purchase Common Stock of the
Company will be granted, the provisions of each offering of such rights (which
need not be identical), and whether any parent or subsidiary of the Company
shall be eligible to participate in the 2001 Purchase Plan. The Board of
Directors is authorized to delegate administration of the 2001 Purchase Plan to
a committee designated by the Board. The Board has delegated administration of
the 2001 Purchase Plan to the Compensation Committee of the Board. As used
herein with respect to the 2001 Purchase Plan, the "Board" refers to the
Compensation Committee as well as to the Board of Directors itself.
STOCK SUBJECT TO THE 2001 PURCHASE PLAN
The 2001 Purchase Plan is intended to replace the 1991 Purchase Plan which
expires in the year 2001. As of December 11, 2000, 12,908,309 shares were
available for grant under the 1991 Purchase Plan. This total, reduced by the
number of shares of Common Stock purchased under the 1991 Purchase Plan
subsequent to December 11, 2000 and prior to the termination date of the 1991
Purchase Plan, shall be the maximum number of shares that may be issued under
the 2001 Purchase Plan. The final purchase date under the 1991 Purchase Plan is
scheduled to occur on June 30, 2001. If Purchase Rights granted under the
13
2001 Purchase Plan expire, lapse or otherwise terminate without being exercised,
the Common Stock not purchased under such Purchase Rights again becomes
available for issuance under the 2001 Purchase Plan.
OFFERINGS
The 2001 Purchase Plan will be implemented through sequential offerings,
each of which is referred to as an "Offering," the terms of which are referred
to herein as "Offering Periods." Generally, each such Offering Period will be
for six months duration or such other duration as the Board shall determine,
provided, however, that no Offering Period may exceed 27 months in duration. If
the 2001 Purchase Plan is approved by stockholders, the initial Offering Period
will commence on July 1, 2001 and end on March 31, 2002. Subsequent Offering
Periods shall commence on or about April 1 and October 1 of each year and end on
or about the next September 30 and March 31, respectively, occurring thereafter.
Upon the commencement of the initial Offering Period under the 2001 Purchase
Plan, the 1991 Purchase Plan shall immediately terminate and no further
offerings shall be made by the Company pursuant to the 1991 Purchase Plan.
ELIGIBILITY
Any employee of the Company or of any parent or subsidiary corporation of
the Company designated by the Board for inclusion in the 2001 Purchase Plan is
eligible to participate in an Offering under the 2001 Purchase Plan so long as
the employee has been employed by the Company or any designated parent or
subsidiary corporation of the Company for at least 30 days and is customarily
employed at least 20 hours per week and five months per calendar year. However,
no employee who owns or holds options to purchase, or as a result of
participation in the 2001 Purchase Plan would own or hold options to purchase,
5% or more of the total combined voting power or value of all classes of stock
of the Company or of any parent or subsidiary corporation of the Company is
entitled to participate in the 2001 Purchase Plan. In addition, no employee will
be granted Purchase Rights that would permit such employee to purchase more than
$25,000 worth of stock (determined based on the fair market value of the shares
at the time such rights are granted) under all employee stock purchase plans of
the Company (including, without limitation, the 1991 Purchase Plan) in any
calendar year.
PARTICIPATION IN THE 2001 PURCHASE PLAN
Generally, participation in the 2001 Purchase Plan is limited to eligible
employees who authorize payroll deductions prior to the start of an Offering
Period. Payroll deductions may not be less than 1% nor exceed 15% (or such other
rate as the Board determines) of an employee's compensation for any pay period
during the Offering Period. Once an employee becomes a participant in the 2001
Purchase Plan, that employee will automatically participate in each successive
Offering Period beginning immediately after the last day of the Offering Period
in which he or she had been participating until such time as that employee
withdraws from the 2001 Purchase Plan, becomes ineligible to participate in the
2001 Purchase Plan, or (except as described below in "Termination of
Employment") terminates employment.
PURCHASE PRICE
The purchase price per share at which shares are sold in an Offering under
the 2001 Purchase Plan cannot be less than the lower of (i) 85% of the fair
market value of a share of Common Stock on the date of commencement of the
Offering or (ii) 85% of the fair market value of a share of Common Stock on the
date of purchase.
14
PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the Offering Period. A participant may decrease his or her payroll deductions
during the course of an Offering only to the extent permitted under the terms of
the Offering. Generally, a participant may not increase payroll deductions after
the beginning of any Offering Period, but may decrease his or her participation
percentage at any time in accordance with rules established under the 2001
Purchase Plan. A participant who reduces his or her participation percentage to
zero shall nevertheless remain a participant in the current Offering Period
unless such participant withdraws from the 2001 Purchase Plan. All payroll
deductions made for a participant are credited to his or her account under the
2001 Purchase Plan and deposited with the general funds of the Company.
WITHDRAWAL
A participant may withdraw from a given Offering by terminating his or her
payroll deductions and by delivering a notice of withdrawal from the 2001
Purchase Plan to the Company. Such withdrawal may be elected at any time prior
to the end of the applicable Offering. However, at any time the Company may
impose a requirement that a notice of withdrawal from the 2001 Purchase Plan be
on file with the Company within a reasonable period of time prior to the
effective date of such withdrawal.
Upon any withdrawal from an Offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, and such employee's interest in the Offering will be automatically
terminated. The employee is not entitled to again participate in such Offering.
An employee's withdrawal from an Offering will not have any effect upon such
employee's eligibility to participate in subsequent Offerings under the 2001
Purchase Plan.
PURCHASE OF STOCK
By executing an agreement to participate in the 2001 Purchase Plan, an
eligible employee is entitled to purchase shares under the 2001 Purchase Plan,
hereafter referred to as a "Purchase Right". The Purchase Right shall consist of
an option to purchase the number of shares of Common Stock determined by either
dividing 15% of such eligible employee's compensation during the Offering Period
by the purchase price of a share of Common Stock for such Offering Period or by
dividing $12,500 by the fair market value of a share of Common Stock on the last
date of such Offering Period, whichever is less. If the aggregate number of
shares to be purchased upon exercise of Purchase Rights granted in the Offering
would exceed the maximum aggregate number of shares available for issuance under
the 2001 Purchase Plan, the Board would make a pro rata allocation of shares
available in a uniform and equitable manner. Unless the employee's participation
is discontinued, his or her right to purchase shares is exercised automatically
at the end of each Offering Period.
TERMINATION OF EMPLOYMENT
Generally, upon cessation of an employee's employment for any reason, or
upon the failure of a participant to remain an eligible employee, Purchase
Rights granted pursuant to any Offering under the 2001 Purchase Plan terminate
immediately and the Company will distribute to such employee all of his or her
accumulated payroll deductions, without interest. However, except in the case of
a termination resulting from the participant's death, a "Spinoff Transaction"
(as defined in the 2001 Purchase Plan) or a leave of absence, participation in
the 2001 Purchase Plan may continue for an additional 90 days if the terminated
employee executes a general release of claims against the Company.
RESTRICTIONS ON TRANSFER
Rights granted under the 2001 Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
15
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the capital
structure of the Company, appropriate adjustments will be made in the number and
class of shares subject to the 2001 Purchase Plan and to any Purchase Rights.
If a Change in Control (as defined above under Proposal 2) occurs, the
surviving, continuing, successor or purchasing corporation or parent corporation
thereof may either assume the Company's rights and obligations under the
outstanding Purchase Rights or substitute substantially equivalent purchase
rights for such corporation's stock. However, if an outstanding Purchase Right
is not assumed or replaced, the 2001 Purchase Plan provides that the purchase
date of the then current Offering Period shall be accelerated to a date before
the date of the Change in Control specified by the Board, but the number of
shares of Common Stock subject to outstanding Purchase Rights shall not be
adjusted. All Purchase Rights which are neither assumed, replaced or exercised
prior to the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2001 Purchase Plan at any time.
The Board may also amend the 2001 Purchase Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within 12 months before or after its adoption by the
Board if the amendment would: (i) increase the number of shares reserved for
issuance under the 2001 Purchase Plan; or (ii) change the definition of the
corporations which may be designated by the Board as participating companies in
the 2001 Purchase Plan.
Purchase Rights granted before amendment or termination of the 2001 Purchase
Plan will not be altered or impaired by any amendment or termination of such
plan without consent of the person to whom such rights were granted; except as
permitted under the 2001 Purchase Plan.
FEDERAL INCOME TAX INFORMATION
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law of participation in the
2001 Purchase Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances. A participant recognizes no taxable income either as a
result of commencing participation in the 2001 Purchase Plan or purchasing
Common Stock under the terms of the 2001 Purchase Plan. If a participant
disposes of shares purchased under the 2001 Purchase Plan within either two
years from the first day of the applicable Offering Period or within one year
from the purchase date, known as disqualifying dispositions, the participant
will realize ordinary income in the year of such disposition equal to the amount
by which the fair market value of the shares on the purchase date exceeds the
purchase price. The amount of the ordinary income will be added to the
participant's basis in the shares, and any additional gain or resulting loss
recognized on the disposition of the shares will be a capital gain or loss,
which will be long-term if the participant's holding period is more than
12 months. If the participant disposes of shares purchased under the 2001
Purchase Plan at least two years after the first day of the applicable Offering
Period and at least one year after the purchase date, the participant will
realize ordinary income in the year of disposition equal to the lesser of
(i) the excess of the fair market value of the shares on the date of disposition
over the purchase price or (ii) 15% of the fair market value of the shares on
the first day of the applicable Offering Period. The amount of any ordinary
income will be added to the participant's basis in the shares, and any
additional gain recognized upon the disposition after such basis adjustment will
be a long-term capital gain. If the fair market value of the shares on the date
of disposition is less than the purchase price, there will be no ordinary income
and any loss recognized will be a long-term capital loss. If the participant
still owns the shares at the time of death, the lesser of (i) the excess of the
fair market value of the shares on the date of death over the purchase price or
(ii) 15% of the
16
fair market value of the shares on the first day of the Offering Period in which
the shares were purchased will constitute ordinary income in the year of death.
The Company should be entitled to a deduction in the year of a disqualifying
disposition equal to the amount of ordinary income recognized by the participant
as a result of the disposition, except to the extent such deduction is limited
by applicable provisions of the Code or the regulations thereunder. In all other
cases, no deduction is allowed to the Company.
OTHER TAX CONSEQUENCES. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of Purchase Rights
granted under the 2001 Purchase Plan; tax consequences may vary depending on the
particular circumstances at hand. In addition, administrative and judicial
interpretations of the application of the federal income tax laws are subject to
change. Furthermore, no information is given with respect to state or local
taxes that may be applicable. Participants in the 2001 Purchase Plan who are
residents of or are employed in a country other than the United States may be
subject to taxation in accordance with the tax laws of that particular country
in addition to or in lieu of United States federal income taxes.
PROPOSAL 4
APPROVAL OF THE 2001 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In December 2000, the Board of Directors adopted, subject to stockholder
approval, the Company's 2001 Non-Employee Directors' Stock Option Plan (the
"2001 Directors' Plan") to be effective as of February 27, 2001. The 2001
Directors' Plan is intended to entirely replace the Company's 1998 Non-Employee
Directors' Stock Option Plan (the "1998 Directors' Plan") which will be
terminated by the Board as of the effective date of the 2001 Directors' Plan. As
of December 11, 2000, of the total shares available under the 1998 Directors'
Plan, 4,250,000 shares were subject to outstanding options and 2,050,000 shares
were available for future grants, for a combined total of 6,300,000 shares. The
initial share reserve under the 2001 Directors' Plan will be equal to the shares
available for future grant under the 1998 Directors' Plan on the date the 2001
Directors' Plan is approved by the Company's stockholders. However, the share
reserve under the 2001 Directors' Plan will be automatically increased, without
any further action by the Company's Board of Directors or stockholders, by an
amount equal to the number of shares of Common Stock subject to any outstanding
option under the 1998 Directors' Plan that expires or is terminated or cancelled
following the date that the 2001 Directors' Plan is approved by stockholders.
Concurrently with the stockholder approval of the 2001 Directors' Plan, the
shares of the Company's Common Stock available for issuance under the terms of
the 1998 Directors' Plan will be reduced by the number of shares initially
reserved for issuance under the 2001 Directors' Plan. Similarly, in the event
that options under the 1998 Directors' Plan expire, terminate or are cancelled,
the shares of the Company's Common Stock subject to such expired, terminated or
cancelled options shall be subtracted from the then current share reserve under
the 1998 Directors' Plan as they are added to the share reserve under the 2001
Directors' Plan. Accordingly, the shares reserved for issuance under the 2001
Directors' Plan will consist entirely of shares previously authorized by Company
stockholders, and the approval of the 2001 Directors' Plan will not authorize
the issuance of any greater number of shares than is currently authorized under
the 1998 Directors' Plan.
VOTE REQUIRED. Stockholders are requested in this Proposal 4 to approve the
2001 Directors' Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the 2001 Directors' Plan. Abstentions will
be considered shares entitled to vote in the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
17
SUMMARY OF THE 2001 DIRECTORS' PLAN
GENERAL
The 2001 Directors' Plan provides for the grant of nonstatutory stock
options to "Non-Employee Directors" (defined below in "Eligibility") of the
Company. Such options granted under the 2001 Directors' Plan are not intended to
qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of nonstatutory stock
options.
PURPOSE
The 2001 Directors' Plan was adopted to advance the interests of the Company
and its stockholders by providing an incentive to attract, retain and reward
Non-Employee Directors by creating an additional incentive for such members of
the Board of Directors to contribute to the growth and profitability of the
Company.
ADMINISTRATION
The 2001 Directors' Plan is administered by the Board of Directors. The
Board has the power to construe and interpret the 2001 Directors' Plan. The
Board of Directors is authorized to delegate administration of the 2001
Directors' Plan to the Compensation Committee or other committee of the Board.
As of the date of this Proxy Statement, the Board has not delegated
administration of the 2001 Directors' Plan to any committee.
STOCK SUBJECT TO THE 2001 DIRECTORS' PLAN
The initial share reserve under the 2001 Directors' Plan will be equal to
the shares available for future grant under the 1998 Directors' Plan on the date
the 2001 Directors' Plan is approved by the Company's stockholders. As of
December 11, 2000, of the total shares available under the 1998 Directors' Plan,
4,250,000 shares were subject to outstanding options and 2,050,000 shares were
available for future grants, for a combined total of 6,300,000 shares. However,
if options granted under the 1998 Directors' Plan expire, are cancelled or
otherwise terminate without being exercised, the shares of Common Stock subject
to such expired, cancelled or terminated options under the 1998 Directors' Plan
will be automatically added to the then current share reserve under the 2001
Directors' Plan without any further action by the Board or Directors or the
stockholders. In addition, if options granted under the 2001 Directors' Plan
expire or otherwise terminate without being exercised, the Common Stock not
purchased pursuant to such options again becomes available for issuance under
the 2001 Directors' Plan.
ELIGIBILITY
Stock options will be granted under the 2001 Directors' Plan only to
directors of the Company who are not otherwise employees of the Company or
certain related entities or designated affiliates of the Company ("Non-Employee
Directors"). As of December 11, 2000, there were 11 Non-Employee Directors.
NON-DISCRETIONARY GRANTS
The 2001 Directors' Plan provides for (i) a one-time, non-discretionary
grant to each Non-Employee Director of an option to purchase 20,000 shares of
the Company's Common Stock, effective upon the election of such person for the
first time to serve as a Non-Employee Director of the Company (an "Initial
Option"), except that a director who was an employee of the Company or certain
related entities or designated affiliates and who subsequently becomes a
Non-Employee Director as a result of the termination of such employment shall
not be eligible to receive an Initial Option and (ii) an annual grant to be
issued at the time of each annual meeting, to each Non-Employee Director who
continues to serve as
18
such, of an option to purchase 10,000 shares of the Company's Common Stock (an
"Annual Option"); provided, however, that a Non-Employee Director granted an
Initial Option on, or within a period of 270 days prior to, the date of an
annual meeting shall not be granted an Annual Option for such annual meeting.
Each person who is currently serving as a Non-Employee Director immediately
following the Annual Meeting, will receive an option grant to purchase 10,000
shares of Common Stock under the 2001 Directors' Plan. Accordingly, subject to
stockholder approval of this proposal, all Non-Employee Directors as a group
will be granted options to purchase an aggregate of 110,000 shares of Common
Stock under the 2001 Directors' Plan, at a price equal to the fair market value
per share of the Common Stock on February 27, 2001. Accordingly, it is expected
that following the Annual Meeting, options to purchase an aggregate of 110,000
shares of Common Stock will be outstanding under the 2001 Directors' Plan and
that the 1998 Directors' Plan will terminate.
TERMS OF OPTION
EXERCISE PRICE; PAYMENT. The exercise price of options granted under the
2001 Directors' Plan will be equal to the fair market value of the Common Stock
subject to the option on the date of the grant. The exercise price of options
granted under the 2001 Directors' Plan must be paid either: (i) in cash, by
check or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership of shares of Common Stock of the Company owned by the optionee having
a fair market value not less than the exercise price, (iii) pursuant to
Regulation T ("cashless exercise"), (iv) in any other form of legal
consideration acceptable to the Board, or (v) any combination of the above.
OPTION EXERCISE. Initial Options granted pursuant to the initial election
of the optionee to the Board granted under the 2001 Directors' Plan vest and
become exercisable over five years according to the following schedule: so long
as the optionee's service continues, 20% of the shares subject to the Initial
Option will vest and become exercisable on the first anniversary of the date of
grant, and the remaining portion of the Initial Option shall vest and become
exercisable monthly at the rate of 1/60th of the Initial Option each month
beginning on the date 13 months after the date of grant. Annual Options granted
under the 2001 Directors' Plan vest and become exercisable over five years
according to the following schedule: so long as the optionee's service
continues, 10% of the shares subject to the Annual Option will vest and become
exercisable on the date six months after the date of grant, and the remaining
portion of the Annual Option shall vest and become exercisable monthly at the
rate of 1/60th of the Annual Option each month beginning on the date seven
months after the date of grant.
TERM. The term of all options under the 2001 Directors' Plan will be ten
years, provided, however, such options generally terminate 12 months after the
optionee ceases to be a Non-Employee Director. In the event that an optionee
ceases to be a Non-Employee Director, employee or consultant due to the
optionee's (i) retirement at age 70 or older and after completing nine years of
continuous service or (ii) due to disability, then the optionee's service shall
be deemed to continue and the exercisability and vesting of the option shall
continue under the terms of the option, and the option will terminate upon
expiration of its term. In the event that an optionee terminates service due to
the optionee's death or due to the optionee's disability or retirement at age 70
or older and such termination is followed by death, the vesting of all unvested
shares will be accelerated in full as of the date of the optionee's death and
the option may be exercised in full at any time within one year of such
termination.
RESTRICTIONS ON TRANSFER
Stock options granted under the 2001 Directors' Plan are not transferable in
any manner other than (i) by will or by the laws of descent and distribution,
(ii) by written designation of a beneficiary taking effect upon the death of the
optionee, (iii) by delivering written notice to the Company that the optionee
19
will be gifting to certain family member or other specific entities controlled
by or for the benefit of such family members, and such other transferees as the
Board may approve.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the capital
structure of the Company, appropriate adjustments will be made in the number and
class of shares subject to the 2001 Directors' Plan and to any outstanding
options and in the exercise price per share of any outstanding options. Any
fractional share resulting from an adjustment will be rounded down to the
nearest whole number, and at no time will the exercise price of any option be
decreased to an amount less than par value of the stock subject to the option.
If a Change in Control (as defined above under Proposal 2) occurs,
outstanding options shall be immediately exercisable and fully vested as of the
date 10 days prior to the date of the Change in Control. In addition, the
surviving, continuing, successor or purchasing corporation or parent corporation
thereof may either assume the Company's rights and obligations under the
outstanding options or substitute substantially equivalent options for such
corporation's stock. Options that are not assumed, replaced or exercised prior
to the Change in Control will terminate.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 2001 Directors' Plan at any time.
The Board may also amend the 2001 Directors' Plan at any time or from time
to time. However, no amendment authorized by the Board will be effective unless
approved by the stockholders of the Company if the amendment would:
(i) increase the number of shares reserved for options under the 2001 Directors'
Plan; or (ii) modify the 2001 Directors' Plan in any other way if such
modification requires stockholder approval under applicable law, regulation or
rule.
FEDERAL INCOME TAX INFORMATION
NONSTATUTORY STOCK OPTIONS. Options granted under the 2001 Directors' Plan
will be nonstatutory stock options. Nonstatutory stock options have no special
tax status. An optionee generally does not recognize taxable income as the
result of the grant of such an option. Upon exercise of a nonstatutory stock
option, the optionee normally recognizes ordinary income in an amount equal to
the difference between the option exercise price and the fair market value of
the shares on the exercise date. Upon the sale of stock acquired by the exercise
of a nonstatutory stock option, any gain or loss, based on the difference
between the sale price and the fair market value on the exercise date, will be
taxed as capital gain or loss. A capital gain or loss will be long-term if the
optionee's holding period is more than 12 months. The Company generally should
be entitled to a deduction equal to the amount of ordinary income recognized by
the optionee as a result of the exercise of a nonstatutory stock option, except
to the extent such deduction is limited by applicable provisions of the Code or
the regulations thereunder. No tax deduction is available to the Company with
respect to the grant of a nonstatutory stock option or the sale of the stock
acquired pursuant to such grant.
OTHER TAX CONSEQUENCES. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the 2001 Directors' Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the 2001 Directors' Plan who are residents of
a country other than the United States may be subject to taxation in accordance
with the tax laws of that particular country in addition to or in lieu of United
States federal income taxes.
20
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending September 30, 2001
and has further directed that management submit the selection of independent
accountants for ratification by the stockholders at the Annual Meeting.
PricewaterhouseCoopers LLP has audited the Company's financial statements since
the Company commenced operations in 1985. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting,
will have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP as
the Company's independent accountants is not required by the Company's Bylaws or
otherwise. 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 the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to ratify the selection of PricewaterhouseCoopers LLP. Abstentions will
be counted toward the tabulation of votes cast on this Proposal 5 and will have
the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether this matter
has been ratified.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
21
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of December 4, 2000 by: (i) each director and
nominee for director; (ii) each of the executive officers of the Company named
in the Summary Compensation Table under "Compensation of Executive Officers"
(the "Named Executive Officers"); and (iii) all executive officers and directors
of the Company as a group. Based on currently available Schedules 13D and 13G
filed with the SEC, the Company does not know of any beneficial owners of more
than 5% of its Common Stock.
BENEFICIAL OWNERSHIP(2)
------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES TOTAL
- --------------------------------------- ----------- ----------
Irwin Mark Jacobs(3)................................... 25,955,281 3.43%
Steven R. Altman(4).................................... 428,143 *
Donald E. Schrock(15).................................. 466,114 *
Richard Sulpizio(5).................................... 1,293,906 *
Anthony S. Thornley(15)................................ 1,037,879 *
Richard C. Atkinson(6)(15)............................. 1,849,922 *
Adelia A. Coffman(7)(15)............................... 1,014,766 *
Diana Lady Dougan(15).................................. 97,666 *
Neil Kadisha(8)(15).................................... 9,153,234 1.22%
Robert E. Kahn(15)..................................... 161,666 *
Jerome S. Katzin(9)(15)................................ 1,755,838 *
Duane A. Nelles(10)(15)................................ 365,666 *
Peter M. Sacerdote(11)(15)............................. 875,666 *
Frank Savage(12)(15)................................... 179,746 *
Brent Scowcroft(15).................................... 570,658 *
Marc I. Stern(13)(15).................................. 577,666 *
All Executive Officers and Directors as a Group
(18 persons)(14)(15)................................. 54,084,138 7.08%
- ------------------------
* Less than 1%.
(1) Unless otherwise provided, the address for each "Beneficial Owner" is 5775
Morehouse Drive, San Diego, California 92121.
(2) This table is based upon information supplied by officers and directors.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, the Company believes that each of
the stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 749,843,883 shares outstanding on December 4,
2000, adjusted as required by rules promulgated by the SEC.
(3) Includes 19,545,172 shares held in family trusts and 118,720 shares held in
trust for the benefit of relatives. Also includes 6,291,389 shares issuable
upon exercise of options exercisable within 60 days of December 4, 2000 of
which 145,920 shares are held in trusts for the benefit of Dr. Jacobs
and/or his spouse, 8,081 shares are held by Dr. Jacobs' spouse and 10,692
shares are held in trusts for the benefit of Dr. Jacobs' relatives of which
neither Dr. Jacobs' or his spouse are trustees.
(4) Includes 148,842 shares held in family trusts. Also includes 279,301 shares
issuable upon exercise of options exercisable within 60 days of
December 4, 2000 of which 1,968 shares are held in trusts for the benefit
of Mr. Altman's children for which Mr. Altman's spouse is the trustee.
22
(5) Includes 113,506 shares held in family trusts and 8,400 shares held for the
benefit of Mr. Sulpizio's children. Also includes 1,172,000 shares issuable
upon exercise of options exercisable within 60 days of December 4, 2000 of
which 44,000 shares are held in trusts for the benefit of Mr. Sulpizio's
children for which Mr. Sulpizio's spouse is the trustee.
(6) Includes 104,000 shares held in a foundation of which Dr. Atkinson
disclaims beneficial ownership. Also includes 783,616 shares held in family
trusts, 408,000 shares held in a pension plan trust for the benefit of
employees of a business operated by Dr. Atkinson and 32,640 shares held in
trust for the benefit of relatives.
(7) Includes 693,100 shares held in family trusts.
(8) Includes 2,400,000 shares held in family trusts of which Mr. Kadisha is a
trustee and disclaims beneficial ownership.
(9) Includes 15,500 shares held in a foundation of which Mr. Katzin disclaims
beneficial ownership. Also includes 1,102,128 shares held in family trusts
and 220,544 shares held in trust for the benefit of Mr. Katzin's
grandchildren of which Mr. Katzin's spouse is the trustee.
(10) Includes 4,000 shares held by Mr. Nelles' children.
(11) Includes 154,000 shares held in a foundation of which Mr. Sacerdote
disclaims beneficial ownership.
(12) Includes 18,080 shares held in family trusts.
(13) Includes 496,000 shares held in family trusts.
(14) Includes 51,488 shares held for the benefit of executive officers'
children.
(15) Includes shares issuable upon exercise of options exercisable within
60 days of December 4, 2000 as follows: Mr. Schrock, 204,000 shares;
Mr. Thornley, 1,027,333 shares; Dr. Atkinson, 521,666 shares; Ms. Coffman,
321,666 shares; Ambassador Dougan, 97,666 shares; Mr. Kadisha, 33,666
shares; Dr. Kahn, 161,666 shares; Mr. Katzin, 417,666 shares; Mr. Nelles,
281,666 shares; Mr. Sacerdote, 561,666 shares; Mr. Savage, 161,666 shares;
Mr. Scowcroft, 529,666 shares; Mr. Stern, 81,666 shares; all directors and
executive officers as a group, 14,166,349 shares.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
(THE "EXCHANGE ACT")
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater-than-ten-percent
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 24, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater-than-ten-percent beneficial owners were complied with; except that one
report, covering one transaction, was filed late by Mr. Beckwith.
23
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each Non-Employee Director of the Company receives (i) a fee of $1,000 for
each Board or Board Committee meeting attended, (ii) a fee of $500 for each
Board or Board Committee meeting in which such director participates by
telephone, and (iii) except for the Nominating Committee, a fee of $2,500 per
annum for the Chairperson of each Board Committee. In the fiscal year ended
September 24, 2000, the total amount of such compensation paid to Non-Employee
Directors was approximately $143,500. When traveling from out-of-town, the
members of the Board of Directors are also eligible for reimbursement for their
travel expenses incurred in connection with attendance at Board meetings and
Board Committee meetings. Employee Directors do not receive any compensation for
their participation in Board or Board Committee meetings.
Non-Employee Directors of the Company were eligible to receive stock option
grants under the 1998 Directors' Plan however, if approved at the Annual
Meeting, they will instead be eligible to receive stock option grants under the
2001 Directors' Plan. Employee directors were not eligible to receive stock
options under the 1998 Directors' Plan nor are they eligible to receive stock
options under the 2001 Directors' Plan.
If approved at the Annual Meeting, the 2001 Directors' Plan will provide for
an Initial Option grant to purchase 20,000 shares of the Company's Common Stock
to Non-Employee Directors upon first joining the Board (except that a director
who was an employee of the Company or certain related entities or designated
affiliates and who subsequently becomes a Non-Employee Director as a result of
the termination of such employment shall not be eligible to receive an Initial
Option) and an Annual Option grant to purchase 10,000 shares of the Company's
Common Stock at the time of each annual meeting to Non-Employee Directors who
continue to serve on the Board.
Options granted on or after January 17, 2000 under the 1998 Directors' Plan,
have exercise prices equal to the fair market value of the underlying common
stock on the date of grant, and vest over five years according to the following
schedule: so long as the optionee continues to serve as a Non-Employee Director
or employee of, or consultant to, the Company, 1/60th of the shares subject to
the option will vest on each monthly anniversary of the date of grant. Options
granted between November 18, 1996 and January 16, 2000 under the Company's
Non-Employee Directors' Stock Option Plan (the "Prior Directors' Plan"), as
amended by the Board of Directors, and under the 1998 Directors' Plan, have
exercise prices equal to the fair market value of the underlying common stock on
the date of grant, and vest over five years according to the following schedule:
so long as the optionee continues to serve as a Non-Employee Director or
employee of, or consultant to, the Company, 20% of the shares subject to the
option will vest on each of the first, second, third, fourth and fifth
anniversaries of the date of grant. Options granted under the Prior Directors'
Plan prior to November 18, 1996 vest over five years according to the following
schedule: so long as the optionee continues to serve as a Non-Employee Director
(or, as such options have been amended by the Board, as an employee of or
consultant to the Company), 20% of the shares subject to the option will vest on
each of the second, third and fourth anniversaries of the date of grant, and the
remaining 40% of such shares will vest on the fifth anniversary of the date of
grant.
The term of all options under the Prior Directors' Plan and the 1998
Directors' Plan is ten years, but such options generally expire 30 days after
the optionee ceases to be a Non-Employee Director, employee or consultant
(including those options granted prior to November 18, 1996, as amended). In the
event that an optionee terminates service due to the optionee's (i) retirement
at age 70 or older after nine years of service on the Board ("Retirement") or
(ii) due to permanent and total disability as defined in Section 22(e)(3) of the
Code, the option will terminate only upon expiration of the option term. In the
event that an optionee terminates service due to the optionee's death or due to
the optionee's termination due to permanent and total disability or Retirement
and such termination is followed by death, the vesting of all unvested shares
will be accelerated in full as of the date of the optionee's death and the
option may be
24
exercised in full at any time within one year of such termination. In addition
to the foregoing, the vesting of options granted under both the Prior Directors'
Plan and the 1998 Directors' Plan accelerate in connection with specified change
of control transactions.
If any change is made in the stock subject to the Prior Directors' Plan or
the 1998 Directors' Plan, or subject to any option granted thereunder, the Prior
Directors' Plan and the 1998 Directors' Plan and options outstanding thereunder
will be appropriately adjusted as to the type(s) and maximum number of
securities subject to such plans and the type(s), number of securities and price
per share of stock subject to such outstanding options.
During the fiscal year ended September 24, 2000, Annual Options to purchase
an aggregate of 110,000 shares of the Company's Common Stock were granted
pursuant to the 1998 Directors' Plan to Non-Employee Directors serving on the
Board on March 7, 2000 (the annual meeting date).
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows, for each of the three fiscal years ended
September 24, 2000, compensation awarded or paid to, or earned by the Named
Executive Officers:
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION(2)
- --------------------------- -------- -------- -------- ------------ ---------------
Irwin Mark Jacobs ..................... 2000 $872,591 $851,000 400,000 $703,870
Chairman of the Board and 1999 $773,085 $975,000 -- $302,909
Chief Executive Officer 1998 $660,467 $555,000 3,840,000 $100,959
Richard Sulpizio ...................... 2000 $648,128 $475,000 240,000 $259,905
President and 1999 $537,323 $540,000 -- $ 32,133
Chief Operating Officer 1998 $413,154 $280,000 1,200,000 $ 50,801
Anthony S. Thornley ................... 2000 $479,818 $375,000 220,000 $235,862
Executive Vice President 1999 $402,125 $435,000 -- $ 47,432
and Chief Financial Officer 1998 $327,636 $225,000 1,640,000 $ 3,515
Steven R. Altman ...................... 2000 $402,140 $300,000 160,000 $161,431
Executive Vice President, General 1999 $323,862 $340,000 -- $ 27,015
Counsel and General Manager, 1998 $267,783 $175,000 880,000 $ 18,602
Technology Transfer and Strategic
Alliances Division
Donald E. Schrock ..................... 2000 $386,558 $285,000 120,000 $ 86,789
Senior Vice President, 1999 $329,814 $325,000 -- $559,975
President, QCT Products Division 1998 $261,354 $250,000 1,120,000 $ 4,579
- ------------------------
(1) As permitted by rules established by the SEC, no amounts are shown with
respect to certain "perquisites" where such amounts do not exceed in the
aggregate the lesser of 10% of bonus plus salary or $50,000.
(2) Includes all other compensation as follows:
25
COMPANY EXECUTIVE PAYOUT OF
MATCHING EXECUTIVE RETIREMENT FINANCIAL SPLIT-DOLLAR ACCRUED PERSONAL USE
401(K) BENEFITS STOCK PLANNING LIFE PERSONAL OF COMPANY
NAME YEAR CONTRIBUTIONS PAYMENTS MATCHING(1) SERVICES INSURANCE(2) TIME ASSETS
- ---- -------- ------------- --------- ----------- --------- ------------ --------- ------------
Irwin Mark Jacobs ...... 2000 $4,725 $2,948 $137,785 $19,670 $ 60,001 $453,236 $25,505
1999 $3,125 $2,948 $118,812 $31,246 $146,778 -- --
1998 $2,659 $2,948 $ 76,576 $ 6,545 $ 12,231 -- --
Richard Sulpizio ....... 2000 $4,725 $1,195 $103,587 $23,656 $ 1,341 $111,658 $13,742
1999 $3,125 $1,195 $ 17,589 $10,224 -- -- --
1998 $2,659 $1,195 $ 38,787 $ 8,160 -- -- --
Anthony S. Thornley .... 2000 $5,129 $1,260 $177,578 -- $ 988 $ 50,907 --
1999 $3,125 $1,260 $ 43,047 -- -- -- --
1998 $2,255 $1,260 -- -- -- -- --
Steven R. Altman ....... 2000 $4,725 $ 460 $ 69,872 $16,978 $ 200 $ 67,972 $ 1,224
1999 $3,125 $ 460 $ 23,430 -- -- -- --
1998 $2,659 $ 460 $ 14,244 $ 1,239 -- -- --
Donald E. Schrock ...... 2000 $4,725 $1,920 $ 80,144 -- -- -- --
1999 $3,125 $1,920 $554,930 -- -- -- --
1998 $2,659 $1,920 -- -- -- -- --
TOTAL OTHER
NAME COMPENSATION
- ---- ------------
Irwin Mark Jacobs ...... $703,870
$302,909
$100,959
Richard Sulpizio ....... $259,905
$ 32,133
$ 50,801
Anthony S. Thornley .... $235,862
$ 47,432
$ 3,515
Steven R. Altman ....... $161,431
$ 27,015
$ 18,602
Donald E. Schrock ...... $ 86,789
$559,975
$ 4,579
- ------------------------------
(1) The Company has a voluntary retirement plan that allows eligible executives
to defer up to 100% of their income on a pre-tax basis. The Company will
match in stock, subject to vesting, up to 50% of a participant's eligible
contributions. Eligible contributions refer to: (a) 15% of salary through
December 31, 1998; (b) 15% of bonus paid for fiscal years through 1997;
(c) 20% of bonus paid with respect to fiscal year 1998; and (d) 20% of income
on or after January 1, 1999. The values stated above are the values of the
Company's quarterly contributions on their respective dates of contribution.
Company contributions begin vesting based on certain minimum participation or
service requirements, and are fully vested at age 65. After the end of a full
year's contribution, that contribution will then vest over a four-year period
in equal installments of 25% per year. Employee and Company contributions are
unsecured and subject to the general creditors of the Company. The
Compensation Committee approved a contribution of 10,000 shares of Company
Common Stock to Mr. Schrock's account, subject to future vesting
requirements.
(2) Represents the economic benefit of the premiums paid by the Company for a
split-dollar life insurance policy during the applicable fiscal year.
26
2000 FISCAL YEAR STOCK OPTION GRANTS
The Company grants options to its executive officers under the 1991 Option
Plan. As of December 4, 2000, options to purchase a total of 111,055,287 shares
were outstanding under the 1991 Option Plan, and options to purchase 50,278,305
shares remained available for grant thereunder. During fiscal 2000, options to
purchase 1,140,000 shares were granted to Named Executive Officers.
The following tables show for the fiscal year ended September 24, 2000
certain information regarding options granted to, exercised by and held at year
end by the Named Executive Officers.
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED(1) FISCAL YEAR PRICE PER SHARE DATE 5% 10%
- ---- ---------- ------------ --------------- ---------- ----------- -----------
Irwin Mark Jacobs........ 400,000 4.2% $83.50 11/11/09 $20,997,809 $53,208,380
Richard Sulpizio......... 240,000 2.5% $83.50 11/11/09 $12,598,685 $31,925,028
Anthony S. Thornley...... 220,000 2.3% $83.50 11/11/09 $11,548,795 $29,264,609
Steve R. Altman.......... 160,000 1.7% $83.50 11/11/09 $ 8,399,123 $21,283,352
Donald E. Schrock........ 120,000 1.2% $83.50 11/11/09 $ 6,299,343 $15,962,514
- ------------------------
(1) These options were granted under the 1991 Option Plan. These options have a
grant price that is equal to the fair market value on the date of grant.
Such options vest according to the following schedule: 1/60th of the shares
subject to the option will vest on each monthly anniversary of the date of
grant, with vesting being contingent upon continued service with the
Company. Options granted under the 1991 Option Plan generally have a maximum
term of ten years.
(2) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, in accordance with the SEC's rules. Actual gains, if any, on stock
option exercises are dependent on the future performance of the common
stock, overall market conditions and the option holders continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
HELD AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 24, 2000 SEPTEMBER 24, 2000(2)
ACQUIRED VALUE --------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ------------ -------------
Irwin Mark Jacobs..... 1,944(1) $ 268,019 5,976,722 2,981,334 $401,704,499 $174,508,960
Richard Sulpizio...... 296,000 $27,509,360 1,156,000 1,368,000 $ 74,246,320 $ 77,430,720
Anthony S. Thornley... 80,000 $ 6,727,200 924,666 1,255,334 $ 58,841,440 $ 70,644,320
Steve R. Altman....... 194,032 $17,980,667 212,634 725,334 $ 12,357,209 $ 39,016,160
Donald E. Schrock..... 320,000 $18,803,760 20,000 964,000 -- $ 57,074,400
- ------------------------
(1) These reflect option shares transferred to family trusts on September 29,
1999, of which Dr. Jacobs is neither a trustee for nor a beneficiary of the
trusts.
(2) Represents the closing price per share of the underlying shares on the last
day of the fiscal year less the option exercise price multiplied by the
number of shares. The closing value per share was $73.00, on the last
trading day of the fiscal year as reported on the Nasdaq National Market.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee are also employees or
officers of the Company.
27
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
OVERVIEW
The Compensation Committee of the Board of Directors (the "Committee")
oversees the Company's executive compensation programs. The Committee is
composed of four outside directors. The Committee reviews and approves the
compensation philosophy and program design, and individual officer base salary,
annual cash bonus and stock option grants. Among other responsibilities, the
Compensation Committee reviews and approves various officer and general employee
compensation and benefits policies and practices.
EXECUTIVE OFFICER COMPENSATION PHILOSOPHY
During the past several years, the Company has successfully implemented an
employee compensation philosophy that delivers a total compensation approach
that includes market-sensitive base salary, performance-based individual
bonuses, equity participation, a unique package of benefits, and a workplace
environment that creates advantage for the Company within the extremely
competitive high technology business environment. Equity participation, and
broad-based employee ownership of the Company's stock, is achieved through a
stock option program in which most employees are eligible to participate, and an
Employee Stock Purchase Plan. This approach enables the Company to achieve
industry-competitive performance in attracting and retaining employees, and to
align the interests of employees to the interests of stockholders. The Company's
compensation philosophy for its officers is similar to that of all employees.
ANNUAL BASE SALARY
The Committee establishes the annual base salary for the executive officers
in line with their responsibilities and with external market practices. In
determining base salary, the Committee reviews information from third-party,
nationally recognized surveys of similar high technology companies. Individual
officer salaries are established at appropriate levels comparable to the 75th
percentile of base salary practices among the surveyed high technology
companies.
ANNUAL INCENTIVE BONUS
The Executive Bonus Plan rewards achievement of specified levels of
corporate revenue and earnings, division revenue and earnings where appropriate,
and individual performance. Officers are eligible to receive a pre-determined
portion of their base salary as a targeted annual incentive bonus. A
pre-determined formula, which takes into account revenue and earnings
performance against the annual plan approved by the Board of Directors, is used
to determine the financially-based component of the bonus award. The
individually-based component of the bonus award is based upon discretionary
assessment of each officer's performance and contribution to the Company during
the prior fiscal year.
LONG-TERM EQUITY COMPENSATION
The Company grants stock options throughout the organization to provide
long-term incentives and align employee and stockholder interests. Individual
grants are based on various factors, including performance and contribution,
value of current unexercisable options, estimated value of proposed option grant
and market practices.
- ------------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
28
Stock options are granted at an option price equal to the fair market value
of the Company's Common Stock on the date of the grant and are subject to
vesting over five years. The option vesting period is designed to encourage
employees to work with a long-term view of the Company's welfare and to
establish their long-term affiliation with the Company. It is also designed to
reduce employee turnover and to retain the knowledge and skills of valued staff.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based compensation" within the meaning of the
Code. The Compensation Committee has determined that the Executive Bonus Plan
and stock options granted by the Compensation Committee under the Company's 1991
Option Plan or the 2001 Option Plan with an exercise price at least equal to the
fair market value of the Company's Common Stock on the date of grant shall be
treated as "performance-based compensation."
CHAIRMAN AND CHIEF EXECUTIVE OFFICER SALARY
Dr. Irwin Mark Jacobs, a founder of the Company, led the Company to a
successful year in fiscal 2000. Although revenues for fiscal 2000 reflected a
19% decrease from fiscal 1999 revenues, after taking into account the reduction
in revenues resulting from the Company's divestiture of its terrestrial CDMA
wireless consumer phone and infrastructure businesses, the Company achieved a
173% increase in earnings per share over fiscal 1999. The Company completed
several major strategic initiatives during fiscal 2000, including the creation
of Wingcast, LLC with the Ford Motor Company, the acquisition of
SnapTrack, Inc., and the sale of the CDMA-based consumer phone business to
Kyocera. In accordance with the policies noted above, at the end of fiscal 1999
the Committee set Dr. Jacobs' fiscal 2000 base salary at $873,000, a 13%
increase over fiscal 1999. In consideration of his leadership during fiscal 2000
and the Company's financial performance, at the end of fiscal 2000 the Committee
awarded Dr. Jacobs a $850,000 bonus and a stock option grant to purchase 280,000
shares of the Common Stock at an exercise price of $86.00 per share. The
$850,000 bonus is 13% less than the bonus awarded to Dr. Jacobs for fiscal 1999,
and the stock option grant is 30% less than the stock option grant for fiscal
1999 performance.
COMPENSATION COMMITTEE
Jerome S. Katzin, Chairman
Diana Lady Dougan
Duane A. Nelles
Marc I. Stern
29
REPORT OF THE AUDIT COMMITTEE(1)
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended September 24,
2000.
The Audit Committee has reviewed and discussed the Company's audited
financial statements with management. The Audit Committee has discussed with
PricewaterhouseCoopers LLP, the Company's independent accountants, the matters
required to be discussed by Statement of Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES which includes, among other items, matters
related to the conduct of the audit of the Company's financial statements. The
Audit Committee has also received written disclosures and the letter from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard
No. 1, which relates to the accountant's independence from the Company and its
related entities, and has discussed with PricewaterhouseCoopers LLP their
independence from the Company.
The Audit Committee acts pursuant to the Audit Committee Charter, a copy of
which is attached as Appendix "1" to this Proxy Statement. Each of the members
of the Audit Committee qualifies as an "independent" Director under the current
listing standards of National Association of Securities Dealers.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Company's Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 24, 2000.
AUDIT COMMITTEE
Duane A. Nelles, Chairman
Adelia A. Coffman
Neil Kadisha
Jerome S. Katzin
- ------------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
30
PERFORMANCE MEASUREMENT COMPARISON
The following graph compares total stockholder return on the Company's
Common Stock since September 22, 1995 to two indices: the Standard & Poor's 500
Stock Index (the "S&P 500"), and the Nasdaq Total Return Index for
Communications Equipment Stocks, SIC 3660-3669 (the "Nasdaq-Industry"). The S&P
500 tracks the aggregate price performance of the equity securities of 500 U.S.
companies selected by Standard & Poor's Index Committee to include leading
companies in leading industries and to reflect the U.S. stock market. The
Nasdaq-Industry tracks the aggregate price performance of equity securities of
communications equipment companies traded on the Nasdaq National Market and the
Nasdaq SmallCap Market. The total return for the Company's stock and for each
index assumes the reinvestment of dividends, and is based on the returns of the
component companies weighted according to their capitalizations as of the end of
each annual period. Except for the shares of Leap Wireless International, Inc.
issued to stockholders as a dividend on September 23, 1998, dividends have never
been declared on the Company's stock. The Company's Common Stock is traded on
the Nasdaq National Market and is a component of each of the S&P 500 and the
Nasdaq-Industry.(1)
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT SINCE
SEPTEMBER 22, 1995(2)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PEER
Nasdaq
USE FOR Industry
GRAPH 3660-3669
last traded QC S & P 500 SIC baseline
9/22/95 100 100 100 $100.000
9/27/96 92.69 120.34 107.63 $100.000
9/26/97 119.28 169.01 120.52 $100.000
9/25/98 108.51 184.3 77.99 $100.000
9/24/99 806.38 235.54 184.06 $100.000
9/22/00 1242.55 266.83 305.53 $100.000
Note: Historical stock price
performance is not
necessarily indicative of future price
performance.
The Company's closing stock price on September 22, 2000, the last trading
day of the Company's 2000 fiscal year, was $73.00 per share.
- ------------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as
31
amended, or the Securities Exchange Act of 1934, as amended, whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
(2) Shows the cumulative total return on investment assuming an investment of
$100 in each of the Company, the S&P 500 and the Nasdaq-Industry on
September 22, 1995. All returns are reported as of the Company's fiscal year
end, which is the last Sunday of the month in which the quarter ends,
whereas the numbers for the S&P 500 are calculated as of the last day of the
month in which the quarter ends.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
A copy of the Company's Annual Report on Form 10-K for the fiscal year ended
September 24, 2000, as filed with the SEC, excluding exhibits, may be obtained
by stockholders without charge by written request addressed to Investor
Relations, 5775 Morehouse Dr., San Diego, California 92121-1714 or may be
accessed on the Internet at: http://www.qualcomm.com/IR.
By Order of the Board of Directors
/s/ IRWIN MARK JACOBS
Irwin Mark Jacobs
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
January 15, 2001
32
APPENDIX 1
ESTABLISHMENT OF AUDIT COMMITTEE.
WHEREAS, it is deemed to be in the best interests of the Company and its
stockholders to establish an Audit Committee, made up of independent members of
the Board of Directors, in order to assist, evaluate and make recommendations
regarding who will serve as the Company's independent public accountants, and to
monitor the propriety and ethical implications of certain transactions between
the Company and its employees, officers and members of the Board of Directors,
RESOLVED, that an Audit Committee of this Board of Directors be, and it
hereby is, established, with the members to be selected at a future meeting of
the Board of Directors;
RESOLVED FURTHER, that the purposes and objective of the Audit Committee
shall be to (1) study, review and evaluate the Company's accounting, auditing
and reporting practices, including internal audit and control functions, and to
serve as a focal point for communication between non-committee directors, the
independent accountants and the Company's management and (2) monitor
transactions between (a) the Company and (b) its employees, officers and members
of the Board of Directors, or any affiliates of the foregoing;
RESOLVED FURTHER, that the Audit Committee shall have full power and
authority to carry out the following responsibilities:
1. Make recommendations to the full Board of Directors annually regarding the
firm of certified public accountants to be employed by the Company as its
independent auditors for the ensuing year, and make recommendations
regarding other appropriate courses of action to be taken in connection with
services performed for the Company by the independent auditors;
2. Review the engagement of the independent auditors, including the scope,
extent and procedures of the audit, the compensation to be paid therefor and
all other matters the Committee deems appropriate;
3. Have familiarity, through the individual efforts of its members, with the
accounting and reporting principles and practices applied by the Company in
preparing its financial statements including without limitation the policies
for recognition of revenues in financial statements;
4. Review with management and the independent auditors, upon completion of
their audit, financial results for the year, as reported in the Company's
financial statements, supplemental disclosures to the Securities and
Exchange Commission or other disclosures;
5. Assist and interact with the independent auditors in order that they may
carry out their duties in the most efficient and cost effective manner;
6. Evaluate the cooperation received by the independent auditors during their
audit examination, including their access to all requested records, data and
information, and elicit the comments of management regarding the
responsiveness of the independent auditors to the Company's needs;
7. Review the Company's balance sheet, profit and loss statement and statements
of cash flows and stockholders' equity for each interim period, and any
changes in accounting policy that have occurred during the interim period;
8. Review and approve all professional services provided to the Company by its
independent auditors and consider the possible effect of such services on
the independence of such auditors;
9. Consult with the independent auditors and discuss with Company management
the scope and quality of internal accounting and financial reporting
controls in effect;
1
10. Investigate, review and report to the full Board of Directors the propriety
and ethical implications of any transactions, as reported or disclosed to
the Committee by the independent auditors, employees, officers, members of
the Board of Directors or otherwise, between (a) the Company and (b) any
employee, officer or member of the Board of Directors of the Company, or
any affiliates of the foregoing;
11. The Audit Committee is responsible for ensuring its receipt from the
independent auditors of a formal written statement delineating all
relationships between the independent auditor and the Company, consistent
with Independence Standards Board Standard 1, and the Audit Committee is
responsible for actively engaging in a dialogue with the independent
auditor with respect to any disclosed relationships or services that may
impact the objectivity and independence of the independent auditor and for
taking, or recommending that the full board take, appropriate action to
oversee the independence of the independent auditor;
12. The independent auditor is ultimately accountable to the Board of Directors
and the Audit Committee. The composition of the Audit Committee shall be
compliant with applicable NASD listing standards; and
13. Perform such other functions and have such power as may be necessary or
convenient in the efficient and lawful discharge of the foregoing.
RESOLVED FURTHER, that the Audit Committee is to meet at least three
(3) times per year, and as many additional times as the Committee deems
appropriate; and
RESOLVED FURTHER, that minutes of each meeting are to be prepared and sent
to committee members, members of the Board of Director who are not members of
the Audit Committee and the Secretary of the Company.
2
APPENDIX 2
FINANCIAL INFORMATION
The following is certain financial information of the Company that was
originally filed with the SEC on November 3, 2000 as part of the Company's
Annual Report on Form 10-K for the fiscal year ended September 24, 2000. The
Company has not undertaken any updates or revisions to such information since
the date it was originally filed with the SEC. Accordingly, you are encouraged
to review such financial information together with subsequent information filed
by the Company with the SEC and other publicly available information.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol "QCOM." The following table sets forth the
range of high and low sales prices on the National Market of the Common Stock
for the periods indicated, as reported by Nasdaq. Such quotations represent
inter-dealer prices without retail markup, markdown or commission and may not
necessarily represent actual transactions.
HIGH ($) LOW ($)
-------- --------
FISCAL 1999
First Quarter 7.50 4.72
Second Quarter 14.99 6.33
Third Quarter 34.38 13.56
Fourth Quarter 49.75 31.28
FISCAL 2000
First Quarter 130.53 45.33
Second Quarter 200.00 105.63
Third Quarter 162.56 59.98
Fourth Quarter 78.75 51.50
As of October 31, 2000, there were 9,793 holders of record of the Common
Stock. On October 31, 2000, the last sale price reported on the Nasdaq National
Market for the Common Stock was $65.11 per share. The Company has never paid
cash dividends on its Common Stock and has no present intention to do so.
On April 14, 1999, the Company's Board of Directors declared a two-for-one
stock split of the Company's common stock in the form of a stock dividend. The
stock dividend was distributed on May 10, 1999 to stockholders of record on
April 21, 1999.
On November 2, 1999, the Company's Board of Directors declared a
four-for-one stock split of the Company's common stock and an increase in the
number of authorized shares of common stock to three billion shares. The stock
was distributed on December 30, 1999 to stockholders of record on December 20,
1999.
All references to per share amounts have been restated to reflect each of
these stock splits.
SELECTED CONSOLIDATED FINANCIAL DATA
The following balance sheet data and statements of income for the five years
ended September 30, 2000 has been derived from the Company's audited
consolidated financial statements. Consolidated balance sheets at September 30,
2000 and 1999 and the related consolidated statements of income and of cash
flows for each of the three years in the period ended September 30, 2000 and
notes thereto appear
1
elsewhere herein. The data should be read in conjunction with the annual
consolidated financial statements, related notes and other financial information
appearing elsewhere herein.
YEARS ENDED SEPTEMBER 30(1)
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues.............................. $3,196,780 $3,937,299 $3,347,870 $2,096,365 $ 813,850
---------- ---------- ---------- ---------- ----------
Operating expenses:
Cost of revenues.................... 1,507,122 2,485,072 2,333,399 1,518,006 535,861
Research and development............ 340,407 381,139 349,483 235,922 162,340
Selling, general and
administrative.................... 342,940 425,118 409,291 235,816 123,085
Amortization of goodwill and other
acquisition-related intangible
assets............................ 145,643 823 1,056 372 --
Purchased in-process technology..... 60,030 -- 6,976 -- --
Other(2)............................ 78,000 240,007 5,000 8,792 --
---------- ---------- ---------- ---------- ----------
Total operating expenses.......... 2,474,142 3,532,159 3,105,205 1,998,908 821,286
---------- ---------- ---------- ---------- ----------
Operating income (loss)............... 722,638 405,140 242,665 97,457 (7,436)
Interest expense.................... (4,923) (14,698) (8,058) (11,012) (3,354)
Investment income (expense), net.... 494,191 24,576 (46,663) 45,266 37,417
Distributions on Trust Convertible
Preferred Securities of subsidiary
trust............................. (13,039) (39,297) (39,270) (23,277) --
Other(3)............................ (2,062) (69,035) -- -- --
---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 1,196,805 306,686 148,674 108,434 26,627
Income tax expense(4)............... (526,594) (105,807) (40,142) (16,500) (5,600)
---------- ---------- ---------- ---------- ----------
Net income.......................... $ 670,211 $ 200,879 $ 108,532 $ 91,934 $ 21,027
========== ========== ========== ========== ==========
Net earnings per common share(5):
Basic............................... $ 0.93 $ 0.34 $ 0.20 $ 0.17 $ 0.04
Diluted............................. $ 0.85 $ 0.31 $ 0.18 $ 0.16 $ 0.04
Shares used in per share
calculations(5):
Basic............................... 717,205 594,714 553,623 538,681 524,460
Diluted............................. 800,121 649,889 591,697 575,097 562,678
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.......................... $2,520,914 $1,684,926 $ 303,324 $ 808,858 $ 354,281
Working capital....................... 2,257,687 2,101,861 655,611 982,117 425,231
Total assets.......................... 6,062,982 4,534,950 2,566,713 2,274,680 1,185,330
Bank lines of credit.................. -- 112,000 151,000 110,000 80,700
Company-obligated mandatorily
redeemable Trust Preferred
Securities of a subsidiary trust
holding debt securities of the
Company............................. -- 659,555 660,000 660,000 --
Total stockholders' equity............ $5,516,328 $2,871,755 $ 957,596 $1,024,178 $ 844,913
- ------------------------
(1) The Company's fiscal year ends on the last Sunday in September. As a result,
fiscal 1996 includes 53 weeks.
2
(2) Consists of charges related to the sale of the terrestrial-based CDMA
consumer phone business and employee termination costs in 2000, asset
impairment and other charges related to the sale of the terrestrial CDMA
wireless infrastructure business and restructuring charges in 1999, and
asset impairment charges in 1998 and 1997 (see--"Management's Discussion and
Analysis of Financial Condition and Results of Operation").
(3) In 2000, consists of non-operating charges related to amounts advanced to
Metrosvyaz and the release of a contingent liability due to a settlement. In
1999, consists of financial guarantees on projects which the Company will no
longer pursue as a result of the sale of the terrestrial CDMA wireless
infrastructure business and the write-off of assets related to an investment
in the Ukraine and loans to an investee of Leap Wireless (see--"Management's
Discussion and Analysis of Financial Condition and Results of Operation").
(4) Includes the tax benefit of $22 million in 1997 from a reduction in the
valuation allowance to recognize deferred tax assets.
(5) The Company effected a two-for-one stock split in May 1999 and a
four-for-one stock split in December 1999. All references to number of
shares and per share amounts have been restated to reflect these stock
splits.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. QUALCOMM's future results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to: potential declines in the rate of
growth in the CDMA subscriber base; risks associated with the scale-up,
acceptance and operations of CDMA systems, including high data rate, now known
as 1xEV (previously HDR), and 3G technology; potential component shortages;
risks associated with strategic opportunities or acquisitions, divestitures and
investments the Company may pursue, including investments in new ventures and
operators, and the proposed spin-off of its integrated circuit and system
software business; risks related to the ability to sustain or improve
operational efficiency and profitability; risks relating to the success of the
Globalstar business; developments in current or future litigation; the ability
to develop and introduce cost effective new products in a timely manner; the
Company's ability to effectively manage growth; the intense competition in the
wireless communications industry; risks associated with the timing and
collection of license fees and royalties; risk associated with international
business activities; and risks related to accounts receivable and finance
receivables, as well as the other risks detailed in the Company's report on
Form 10-K. The Company's consolidated financial data includes SnapTrack, Inc.
and other consolidated subsidiaries of the Company.
OVERVIEW
QUALCOMM designs, develops, manufactures, and markets digital wireless
communications products and services based on its CDMA technology. The Company
licenses and receives royalty payments on its CDMA technology from major
domestic and international telecommunications suppliers. In addition, the
Company designs, manufactures and distributes products and provides services for
its OmniTRACS system. The Company has contracts with Globalstar to design,
develop and manufacture consumer and ground communications equipment. On
July 25, 2000, QUALCOMM announced that it intends to spin-off its integrated
circuits and system software solutions business. In connection with this
announcement, QUALCOMM filed a Current Report on Form 8-K dated July 25, 2000.
Revenues from hardware product sales are recorded upon shipment, or when
risk of loss passes to the customer, if later. Revenue from services is recorded
when earned. Revenue from long-term contracts, including technology development
agreements, is recognized using the percentage-of-completion method, based on
costs incurred to date compared with total estimated costs. Billings on
uncompleted contracts in
3
excess of incurred cost and accrued profits are classified as unearned revenue.
Estimated contract losses are recognized when determined.
License fees are recognized when delivery requirements have been met and
collection is probable. Royalty revenue is recorded as earned in accordance with
the specific terms of each license agreement when reasonable estimates of such
amounts can be made. Beginning with the second quarter of fiscal 1998, the
Company began to accrue its estimate of certain royalty revenues earned that
previously could not be reasonably estimated prior to being reported by its
licensees.
The Company recognizes software license revenue when all of the following
criteria are met: execution of a written agreement; delivery of software; the
license fee is fixed and determinable; collectibility of the proceeds is
assessed as being probable; and vendor-specific objective evidence exists to
allocate the total fee to elements of multiple-element arrangements.
Vendor-specific objective evidence is based on the price charged when an element
is sold separately, or if not yet sold separately, the price established by
authorized management or a substantive renewal rate for post-contract customer
support. Unearned revenue consists primarily of fees related to software
licenses under which the Company has not met delivery requirements or fulfilled
other contractual obligations.
STRATEGIC INVESTMENTS
In July 2000, Ford Motor Company and QUALCOMM announced the creation of a
new company, Wingcast, that will develop and deliver wireless mobility services,
including safety and security, information and communications, and entertainment
and mobile commerce, into cars and trucks. QUALCOMM committed to contribute
$125 million to the initial capital of Wingcast, of which $75 million is payable
in cash and $50 million is payable in non-cash consideration. QUALCOMM may be
further committed to fund an additional $75 million in cash upon vehicle
manufacturers committing to enable certain volumes of vehicles to use Wingcast's
services.
In March 2000, the Company purchased 42 million Series B Preferred units,
representing an approximate 13% undiluted interest, in Ignition, a venture firm
formed to fund, mentor and build wireless Internet start-up companies. The
Company also received a warrant to purchase four million common units at $0.46
per unit. The Company made capital contributions of $17 million during fiscal
2000 and will be required to provide $25 million in additional equity
contributions over five years.
QUALCOMM also makes strategic investments in marketable equity and debt
securities from time to time. During fiscal 2000, QUALCOMM invested
$144 million in NetZero, Inc., $150 million in Leap Wireless
International, Inc., and $196 million in Korea Telecom Freetel. For a discussion
of these investments, see Note 4 to the Consolidated Financial Statements.
In June 2000, the FCC awarded a $125 million Auction Discount Voucher (ADV)
to QUALCOMM to use in any FCC spectrum auction for one or more licenses over a
period of up to three years. Fully transferable, the ADV may be used in whole or
in part by any entity in any auction, including those in which QUALCOMM is not a
participant. The FCC award is in response to a July 1999 U.S. Court of Appeals
decision in which the FCC was ordered to designate QUALCOMM a "pioneer" under
the Commission's Pioneer's Preference program, and grant QUALCOMM spectrum
forthwith. The FCC awarded the ADV to QUALCOMM in lieu of granting spectrum. Two
auctions, one in the 700 MHz band and one for licenses reclaimed from former
C-block license holders, have been scheduled by the FCC over the next several
months. The Company is currently exploring opportunities to participate in these
auctions directly or through a partnership or consortium with other parties or
to sell the ADV to a third party. The Company will record the realized value of
the ADV if it is sold.
4
ACQUISITION
In March 2000, the Company completed the acquisition of all of the
outstanding capital stock of SnapTrack, a developer of wireless position
location technology, in a transaction accounted for as a purchase. The purchase
price was approximately $1 billion, representing the value of QUALCOMM shares
issued to effect the purchase, the value of vested and unvested options and
warrants exchanged at the closing date and estimated transaction costs of
$2 million. The preliminary allocation of purchase price, based on the estimated
fair values of the acquired assets and assumed liabilities, reflects acquired
goodwill of $948 million, purchased in-process technology of $60 million and
other intangible assets of $34 million. Tangible assets acquired and liabilities
assumed were not material to the Company's financial statements. The Company
expects to finalize the purchase price allocation within one year and does not
anticipate material adjustments to the preliminary purchase price allocation.
Amounts allocated to goodwill and other intangible assets are amortized on a
straight-line basis over their estimated useful lives of 4 years. The
acquisition has been treated as a non-cash transaction in the statement of cash
flows.
Purchased in-process technology was expensed upon acquisition because
technological feasibility had not been established and no future alternative
uses existed. The fair values for each of the in-process technologies were
determined by estimating the resulting net cash flows from such products after
their completion and commercialization, discounting the net cash flows to
present value, and applying the percentage completion of the projects thereto.
The fair value of in-process technology was determined to be $60 million,
including Multimedia ASIC ($27 million), Server Release 2.0 ($23 million), DSP
Release 2.0 ($8 million) and the pager product ($2 million). Net cash flow
projections were made based on an assessment of customer needs and the expected
pricing and cost structure. Due to the limited operational history of SnapTrack,
its relatively new technologies and lack of operating profit before the
acquisition date, the expense and margin assumptions on which the cash flow
projections were based, differ significantly from the historical performance. A
meaningful comparison between projections and historical performance could not
be made at the date of acquisition.
DSP Release 2.0 is the software solution for position determination to be
implemented on cellular phones. DSP Release 2.0 was expected to be completed in
June 2000, with commercialization and material cash flows beginning in 2001. As
an alternative technology, SnapTrack was also developing Multimedia ASIC, a
standalone hardware solution based on a time domain approach. The Multimedia
ASIC is intended to provide a low cost solution and time-to-market advantage for
SnapTrack's customers. At the date of the acquisition, the project was expected
to be completed and commercialized in September 2000, with material cash flows
beginning in 2001. The pager product was intended to allow the use of a pager
product as a tracking device by providing a position location enabled two-way
paging solution. The project was scheduled for completion in May 2000;
commercialization and material cash flows were expected to begin in 2001. The
Server Release 2.0 was being developed to support cellular phones for position
determination. Server Release 2.0 was also designed to support SnapTrack's pager
product.
The cost of equity was determined by combining a risk-free rate of return
with an equity risk premium multiplied by a volatility factor that is based on
the performance of common stock prices of similar publicly traded companies.
Employing these data, the discount rate attributable to the business was 19.0%,
which was used for valuing completed technology. The discount rate includes a
factor that takes into account the uncertainty surrounding the successful
development of the purchased in-process technology. Considering the stage of
completion and the technological risks, the risk-adjusted discount rate used in
the discounted cash flow model was 24% for DSP Release 2.0, Multimedia ASIC and
the Server Release 2.0, and 26.5% for the pager product.
All of the in-process technologies mentioned above had their system design
and detailed hardware and software designs completed; testing, software
implementation, integration testing phases had either not started or were
incomplete at the date of acquisition. Stage of completion was estimated by
considering time, cost, and complexity of tasks completed prior to the
acquisition as a percentage of total time, cost
5
and effort required for the total project to achieve technological feasibility.
The concluded completion percentages were 77% for DSP Release 2.0, 67% for
Multimedia ASIC, 67% for Server Release 2.0, and 47% for the pager product.
An inability to complete the in-process technology within the expected
timeframes could materially impact future revenues and earnings. QUALCOMM began
to benefit from the purchased in-process technology in fiscal 2000 and is
continuously monitoring its development projects. Management believes that the
assumptions used on the valuation of purchased in-process technology reasonably
estimate the future benefits attributable to the purchased in-process
technology. No assurance can be given that actual results will not deviate from
those assumptions in future periods.
GLOBALSTAR
The Company continues to provide services and sell products under a number
of development and production contracts involving the Globalstar System.
Revenues resulting from the agreements with Globalstar for fiscal 2000, 1999 and
1998 were $219 million, $435 million and $373 million, respectively. Because
telephone systems using low-Earth-orbit satellites are a new commercial
technology, demand for Globalstar's service is uncertain. If Globalstar fails to
generate sufficient cash flow from operations through the marketing efforts of
its service providers, it might be unable to fund its operating costs or service
its debt. On June 30, 2000, Globalstar defaulted on a $250 million bank facility
that QUALCOMM partially guaranteed in 1996. As a result of this default,
QUALCOMM's guaranty was called, and QUALCOMM paid $22 million to the subject
banks in full satisfaction of this guaranty. Pursuant to an agreement entered
into in 1996, Globalstar caused QUALCOMM to accept, in satisfaction of
QUALCOMM's subrogation rights, a subordinated promissory note issued by
Globalstar with a principal amount equal to the amount QUALCOMM paid under its
guaranty (the Globalstar Promissory Note). The Globalstar Promissory Note bears
interest at LIBOR plus 3%, and principal and interest are due and payable in
full on June 30, 2003.
In September 2000, Globalstar Telecommunications Limited (GTL) announced an
agreement with Bear Stearns & Co. Inc. under which Bear Stearns will invest,
subject to certain conditions, up to $105 million in GTL common shares. GTL is a
publicly traded company that owns an approximate 40% interest in Globalstar.
Globalstar has drawn down approximately $33 million of this financing.
Additional draws are contingent upon the GTL stock price trading above a price
of $4.50 per share. Globalstar concurrently announced that five of its founding
partners and a sixth partner will provide additional equity financing. Under the
terms of their subscription agreements, QUALCOMM, Loral Space & Communications,
Vodafone, Elsacom, T.E.S.A.M., and ChinaSat agreed to invest $68 million in GTL
common shares. Of this amount, $56 million has been funded to date, including
$12 million from QUALCOMM. GTL will use all proceeds to purchase partnership
interests in Globalstar, which, in turn, will use the proceeds for general
corporate purposes including capital expenditures, operations and interest
payments.
At September 24, 2000, the Company had approximately $618 million in net
asset exposure related to its business with Globalstar, including receivables,
inventory, deferred costs, unearned revenues, and investment-related assets. The
value of QUALCOMM's investment in and future business with Globalstar, as well
as QUALCOMM's ability to collect outstanding receivables from Globalstar,
depends on the success of Globalstar and the Globalstar System.
DIVESTITURE
In February 2000, the Company sold its terrestrial-based CDMA wireless
consumer phone business, including its phone inventory, manufacturing equipment
and customer commitments, to Kyocera. Under the agreement with Kyocera, Kyocera
agreed to purchase a majority of its CDMA integrated circuit sets and system
software requirements from QUALCOMM for a period of five years. Kyocera will
continue its existing royalty-bearing CDMA license agreement with QUALCOMM.
QUALCOMM received $242 million, including interest, during fiscal 2000 for the
net assets sold.
6
As part of the agreement with Kyocera, QUALCOMM formed a new subsidiary that
has a substantial number of employees from QUALCOMM Consumer Products business
to provide services to Kyocera on a cost-plus basis to support Kyocera's phone
business for up to three years. In addition, selected employees of QPE, a 51%
owned consolidated subsidiary of the Company and manufacturer of phones for
QUALCOMM, were transferred to Kyocera. As a condition of the purchase, QPE paid
down and cancelled its two revolving credit agreements.
FISCAL 2000 COMPARED TO FISCAL 1999
Total revenues for fiscal 2000 were $3,197 million compared to
$3,937 million for fiscal 1999. The decrease in revenue for fiscal 2000 was
primarily due to a decrease in the terrestrial CDMA wireless consumer phone
product revenue as a result of the sale of this business in February 2000, a
decrease in the wireless infrastructure product revenue related to the sale of
this business in May 1999 and a decrease in average selling prices of integrated
circuits, offset by significant increases in royalty revenues and in CDMA
integrated circuits unit volume. Revenue from one South Korean customer, Samsung
Electronics Company, by the QCT and QTL segments comprised an aggregate of 11%
and 9% of total revenues in fiscal 2000 and fiscal 1999.
Cost of revenues for fiscal 2000 was $1,507 million compared to
$2,485 million for fiscal 1999. The decrease in cost of revenues was primarily
due to a decrease in the terrestrial CDMA wireless consumer phone product costs
as a result of the sale of the business in February 2000, a decrease in the
wireless infrastructure product costs related to the sale of this business in
May 1999, and a reduction in the unit cost of integrated circuits, offset by a
significant increase in CDMA integrated circuits unit volume. Cost of revenues
decreased as a percentage of revenues to 47% for fiscal 2000 from 63% for fiscal
1999. This is primarily due to a change in business strategy resulting in a
higher percentage of revenues from high margin integrated circuits and system
software and royalties and lower revenues from lower gross margin terrestrial
CDMA wireless consumer phones and infrastructure businesses exited in fiscal
2000 and fiscal 1999, respectively. Cost of revenues as a percentage of revenues
may fluctuate in future quarters depending on mix of products sold, competitive
pricing, new product introduction costs and other factors.
For fiscal 2000, research and development expenses were $340 million or 11%
of revenues, compared to $381 million or 10% of revenues for fiscal 1999. The
decrease in research and development expenses was due to a decrease in
terrestrial CDMA wireless consumer phone and infrastructure product research and
development as a result of exiting these businesses, offset by increased
integrated circuit product initiatives and software development efforts and new
1xEV products.
For fiscal 2000, selling, general and administrative expenses were
$343 million or 11% of revenues, compared to $425 million or 11% of revenues for
fiscal 1999. The dollar decrease in selling, general and administrative expenses
from fiscal 1999 was due to a decrease in marketing costs in terrestrial CDMA
wireless consumer phone products as a result of the sale of the business in
February 2000 and a decrease in selling, general and administrative expenses for
terrestrial CDMA wireless infrastructure products as a result of the sale of
this business in May 1999, partially offset by continued growth in personnel and
associated overhead expenses necessary to support other growing business
operations, employer payroll tax on employee non-qualified stock option
exercises and investor relations expenses.
Amortization of goodwill and other acquisition-related intangible assets
increased to $146 million for fiscal 2000 compared to $1 million for fiscal
1999, primarily due to the acquisition of SnapTrack in March 2000.
Purchased in-process technology of $60 million for fiscal 2000 resulted from
the acquisition of SnapTrack. Purchased in-process technology was expensed upon
acquisition because technological feasibility had not been established and no
future alternative uses existed.
For fiscal 2000, other operating expenses were $78 million, compared to
$240 million for fiscal 1999. Other operating expenses during fiscal 2000 were
comprised primarily of charges to reflect the estimated
7
difference between the carrying value of the net assets and the consideration
received from Kyocera related to the sale of the terrestrial CDMA wireless
consumer phone business, less costs to sell, and employee termination costs.
During fiscal 1999, the Company recorded $66 million in charges to reflect the
difference between the carrying value of the net assets to be sold to Ericsson
and the net consideration received and various license and settlement agreements
in connection therewith, $43 million in charges to reduce the carrying value of
certain other assets related to its terrestrial CDMA wireless infrastructure
business, $15 million in restructuring charges and $74 million in compensation
benefits provided to employees transferred to Ericsson.
Interest expense was $5 million for fiscal 2000, compared to $15 million for
fiscal 1999. The decrease was due to decreased bank borrowings by QPE and the
subsequent payoff and cancellation of the QPE bank lines of credit in
February 2000.
Net investment income was $494 million for fiscal 2000 compared to
$25 million for fiscal 1999. The increase was primarily due to a $270 million
realized gain on the sale of marketable securities, interest earned on higher
cash balances and interest earned on finance receivables.
Distributions on Trust Convertible Preferred Securities decreased to
$13 million for fiscal 2000 compared to $39 million for fiscal 1999 as a result
of conversions of the 5 3/4% Trust Convertible Preferred Securities outstanding
into common stock. During the second quarter of fiscal 2000, all remaining Trust
Convertible Preferred Securities were converted into common stock.
During fiscal 2000, the Company recorded $2 million in net non-operating
other charges, including $6 million in charges relating to amounts advanced to
Metrosvyaz, and the release of a $4 million contingent liability due to a
settlement. During fiscal 1999, the Company recorded $69 million in
non-operating charges, including $37 million related to the Ericsson transaction
and $15 million related to the write-off of non-operating assets.
Income tax expense was $527 million for fiscal 2000 compared to
$106 million for fiscal 1999. The annual effective tax rate was 44% for fiscal
2000, compared to 35% for fiscal 1999. The higher tax rate is primarily a result
of nondeductible charges for purchased in-process technology and amortization of
goodwill and higher pre-tax earnings relative to tax deductions. The Company has
provided a valuation allowance on its net deferred tax assets because of
uncertainty regarding their realizability due to the expectation that deductions
from future employee stock option exercises and related deductions will exceed
future taxable income.
FISCAL 1999 COMPARED TO FISCAL 1998
Total revenues for fiscal 1999 were $3,937 million compared to
$3,348 million for fiscal 1998. Revenue growth for 1999 was primarily due to
increased sales of CDMA integrated circuits and phone products, significant
growth in royalties and deployment of commercial gateways in the Globalstar
System.
Cost of revenues for fiscal 1999, which consisted primarily of cost of sales
of CDMA integrated circuits and phone products, was $2,485 million compared to
$2,333 million for fiscal 1998. The increase in cost of revenues primarily
reflects increased shipments of phone products and deployment of commercial
gateways. The decrease in cost of revenues as a percentage of revenues to 63% in
fiscal 1999 from 70% in fiscal 1998 primarily reflects operational efficiencies,
volume discounts obtained from suppliers and increased royalty revenue.
For fiscal 1999 research and development expenses were $381 million or 10%
of revenues, compared to $349 million or 10% of revenues for fiscal 1998. The
increase in research and development expenses was primarily due to new
integrated circuit product initiatives and software development efforts, offset
by a decrease in terrestrial CDMA wireless infrastructure product research and
development as a result of the sale of the business in May 1999.
8
For fiscal 1999, selling, general and administrative expenses were
$425 million or 11% of revenues, compared to $409 million or 12% of revenues for
fiscal 1998. The increase in selling, general and administrative expenses for
fiscal 1999 was primarily attributable to continued growth in personnel and
associated overhead expenses necessary to support the overall growth in the
Company's operations and increased patent and information technology expenses,
offset by a decrease in marketing expense for terrestrial CDMA wireless
infrastructure products, including reduced headcount and proposal activity.
Amortization of goodwill and other acquisition-related intangible assets was
$1 million for each of fiscal 1999 and fiscal 1998.
During fiscal 1998, the Company acquired substantially all of the assets of
Now Software, Inc. for $10 million. In connection with this asset purchase,
acquired in-process research and development of $7 million, representing the
fair value of software products still in the development stage that had not yet
reached technological feasibility, was expensed at the acquisition date.
During fiscal 1999, other operating expenses were $240 million, compared to
$5 million for fiscal 1998. In March 1999, the Company sold certain assets
related to its terrestrial CDMA wireless infrastructure business to Ericsson.
Other operating expenses during fiscal 1999 were comprised primarily of
$74 million in compensation benefits provided to employees transferred to
Ericsson, $66 million in charges to reflect the difference between the carrying
value of the net assets to be sold and the net consideration received and
various license and settlement agreements in connection therewith, $43 million
in charges to reduce the carrying value of certain other assets related to its
terrestrial CDMA wireless infrastructure business, $34 million related to the
impairment of receivables and other assets in connection with Leap Wireless'
decision to withdraw its support for Metrosvyaz, Ltd., and $15 million in
restructuring charges. In fiscal 1998, the Company recorded a $5 million
non-cash charge to operations relating to the impairment of leased manufacturing
equipment that is no longer used in the manufacturing process. The $5 million
charge represented the estimated total cost of related lease obligations, net of
estimated recoveries.
For fiscal 1999, interest expense was $15 million compared to $8 million for
fiscal 1998. This increase is the result of increased bank borrowings during
fiscal 1999.
Investment income, net was $25 million in fiscal 1999 compared to investment
expense, net of $47 million for fiscal 1998. During fiscal 1999, the Company
recognized interest income of $50 million, minority interest in income of
consolidated subsidiaries of $13 million, and $15 million equity in losses of
investees as compared to interest income of $39 million, minority interest in
income of consolidated subsidiaries of $48 million, and $21 million in equity in
losses of investees in fiscal 1998. The minority interest represents other
parties' or stockholders' share of the income or losses of consolidated
subsidiaries, including QPE, a joint venture with Sony. Minority interest for
fiscal 1998 includes the impact of restructuring QPE. Equity in losses of
investees for all periods indicated relates to the Company's ownership interests
in domestic and international CDMA-based wireless telecommunications businesses
and joint ventures. The majority of these investments were transferred to Leap
Wireless as part of the spin-off. The Company also recorded a $20 million
non-cash charge to write-off its investment in NextWave Telecom Inc. during
fiscal 1998 as a result of subsidiaries of NextWave Telecom, Inc. filing for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in
June 1998.
Distributions on Trust Convertible Preferred Securities of $39 million in
each of fiscal 1999 and fiscal 1998 relate to the private placement of
$660 million of 5 3/4% Trust Convertible Preferred Securities by QUALCOMM in
February 1997.
During fiscal 1999, the Company recorded $69 million in non-operating
charges, including $37 million in reserves provided for financial guarantees on
projects which the Company will no longer pursue as a result of the Ericsson
transaction, $17 million related to the impairment of non-trade receivables from
Metrosvyaz, and $15 million related to the write off of TOU assets.
9
Income tax expense was $106 million for fiscal 1999 compared to $40 million
for fiscal 1998, resulting primarily from higher pretax earnings and a higher
effective tax rate for fiscal 1999 as compared to fiscal 1998. The annual
effective tax rate for fiscal 1999 was 35%, excluding the effect of the
reinstatement of the 1998 R&D tax credit recorded in fiscal 1999, compared to
30% for fiscal 1998. The higher tax rate was a result of higher earnings
relative to the growth of R&D tax credits.
QUALCOMM SEGMENT RESULTS
CDMA TECHNOLOGIES SEGMENT (QCT)
QCT segment revenues for fiscal 2000 were $1,239 million compared to
$1,133 million for fiscal 1999. Earnings before taxes for fiscal 2000 were
$392 million compared to $428 million for fiscal 1999. Revenue growth was
primarily due to increased customer demand for CDMA integrated circuits in the
United States, South Korea, and Japan, offset by a decrease in average selling
prices of integrated circuits. The decrease in earnings before taxes was due to
increased research and development related to integrated circuit product
initiatives, including new 1xEV products, and software development efforts.
Approximately 52 million MSM integrated circuits were sold during fiscal 2000,
compared to approximately 39 million for fiscal 1999.
TECHNOLOGY LICENSING SEGMENT (QTL)
QTL segment revenues for fiscal 2000 were $705 million compared to
$454 million for fiscal 1999. Earnings before taxes for fiscal 2000 were
$633 million compared to $405 million for fiscal 1999. Growth in revenue and
earnings before taxes was primarily due to additional license fees and royalties
received from licensees resulting from an increase in worldwide demand for CDMA
products.
WIRELESS SYSTEMS SEGMENT (QWS)
QWS segment revenues for fiscal 2000 were $721 million compared to
$940 million for fiscal 1999. Earnings before taxes for fiscal 2000 were
$272 million compared to $20 million for fiscal 1999. Revenues decreased due to
the sale of certain assets of the Company's terrestrial CDMA wireless
infrastructure business in May 1999 to Ericsson, the completion of the delivery
of the Globalstar gateways and nearing completion of the Globalstar development
work, offset by increased OmniTRACS domestic and international unit demand and
messaging revenue and increased Globalstar phone sales. The Company shipped
approximately 56,000 OmniTRACS and other related communication systems during
fiscal 2000, compared to approximately 49,000 in fiscal 1999. The Company
shipped approximately 28,000 Globalstar portable and fixed phones in fourth
quarter of fiscal 2000, for a cumulative total of approximately 99,000
Globalstar portable and fixed phone units shipped since production began in
September 1999.
Earnings before taxes increased due to the sale of certain assets related to
the Company's terrestrial CDMA wireless infrastructure business in May 1999 to
Ericsson and an increase in interest income and fees on finance receivables.
During fiscal 2000, the Company recognized previously unamortized loan fees in
connection with the pay off and cancellation of certain credit facilities,
including the Leap facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that its cash and cash equivalents and marketable
securities balances of $2,521 million at September 24, 2000, including interest
to be earned thereon, will be used to fund its working and other capital
requirements, including investments in other companies and other assets to
support the growth of its business, financing for customers of CDMA
infrastructure products in accordance with the agreement with Ericsson, and
other commitments. In the event additional needs for cash arise, the Company may
raise additional funds from a combination of sources including potential debt
and equity issuance. On July 25, 2000, QUALCOMM filed a Registration Statement
on Form S-1 related to an initial public offering of shares of common stock for
Spinco. Spinco would add the net proceeds of the offering to
10
funds available for its working capital and general corporate purposes,
including product development and selling and marketing.
The Company has an unsecured credit facility under which banks are committed
to make up to $400 million in revolving loans to the Company. The facility
expires in March 2001 and may be extended on an annual basis upon maturity. The
Company is currently obligated to pay commitment fees equal to 0.175% per annum
on the unused amount of the facility. The facility includes certain restrictive
financial and operating covenants. At September 24, 2000, there were no amounts
or letters of credit issued or outstanding under the facility.
In fiscal 2000, $812 million in cash was provided by operating activities,
compared to $182 million in cash provided by operating activities in fiscal
1999. Cash provided by operating activities in fiscal 2000 includes
$1,296 million of net cash flow provided by operations offset by $484 million of
net working capital requirements. The improved cash flow from operations
primarily reflects the increase in net income resulting from improved gross
margins and higher interest income. Net working capital requirements of
$484 million primarily reflect increases in finance receivables and decreases in
accounts payable and accrued liabilities, offset by a decrease in accounts
receivable. The increase in finance receivables in fiscal 2000 resulted from the
financing of contract payments under the development agreement with Globalstar
and customers of CDMA infrastructure products in accordance with the agreement
with Ericsson, and the decreases in accounts payable, accrued liabilities and
accounts receivable are primarily attributed to the sale of the terrestrial CDMA
wireless consumer phone business.
In fiscal 2000, $786 million in cash was used by the Company in investing
activities, including $274 million for business acquisitions and investments in
unconsolidated entities, $596 million in net purchases of marketable securities
and $163 million in capital expenditures, offset by $242 million in proceeds
from the sale of the terrestrial-based CDMA wireless consumer phone business.
The Company is increasing its strategic investment activities to promote the
worldwide adoption of CDMA technology products and the growth of CDMA-based
wireless data and CDMA-based wireless Internet products and solutions. The
Company generally enters into strategic transactions with CDMA carriers and
companies that have developed or are developing innovative technologies for the
wireless industry. The Company also provides equipment financing to facilitate
the marketing and sale of CDMA equipment by licensed manufacturers and enters
into joint ventures with strategic partners that are designed to increase
wireless usage and dependence on wireless devices. The Company also makes
investments in entities such as venture funds or incubators focused on the
wireless market. The Company expects to continue making significant investments
in other entities.
In fiscal 2000, the Company's financing activities provided $28 million,
including $144 million from the issuance of common stock under the Company's
stock option and employee stock purchase plans, offset by $112 million in net
repayments under bank lines of credit. In fiscal 1999, the Company's financing
activities provided net cash of $1,270 million, primarily from the sale of
common stock.
At September 30, 2000, commitments to extend long-term financing to CDMA
customers of Ericsson totaled approximately $255 million, which the Company
expects to fund over the next two years. Such commitments are subject to the
customers meeting certain conditions established in the financing arrangements
and, in most cases, to Ericsson also financing a portion of such sales.
Commitments represent the estimated amounts to be financed under these
arrangements; actual financing may be in lesser amounts.
The Company intends to provide up to $400 million of financing to entities
deploying CDMA wireless telecommunications networks to enable such entities to
finance the purchase of CDMA infrastructure equipment and associated services.
At September 30, 2000 and 1999, $504 million and $349 million in interest
bearing financed amounts and $36 million and $171 million in accounts
receivable, respectively, were outstanding from Globalstar. In
11
May 2000, the Company and Globalstar signed definitive agreements to finance
current and future contract payments. The financing bears interest at 6% and is
payable in quarterly installments beginning January 15, 2001 through August 15,
2003. At September 30, 2000, $18 million in future contract billings, including
unbilled receivables at September 30, 2000, are expected to be eligible for
financing under the financing agreement with Globalstar.
The Company makes strategic investments in companies that have developed or
are developing innovative wireless data applications and wireless carriers that
promote the worldwide deployment of CDMA and 1xEV systems. The Company is
committed to invest $150 million in Ignition and Wingcast over the next five
years. Funding commitments related to other strategic investments total
$66 million at September 30, 2000, which the Company expects to fund in fiscal
2001. Such commitments are subject to the investees meeting certain conditions;
actual equity funding may be in lesser amounts. It is not practicable to
estimate the fair value of these investments as the investments are
predominantly closely held and not publicly traded. An investee's failure to
successfully develop and provide competitive products and services due to lack
of financing, market demand or unfavorable economic environment could adversely
affect the value of the Company's investment in the investee. There can be no
assurance that the investees will be successful in their efforts.
Negotiations are underway whereby QUALCOMM would advance up to $200 million
to fund certain Latin American telecommunications projects. The financing is
expected to be in the form of convertible debt with a 5-year term, bearing
interest at LIBOR ranging from plus 4% to 12% depending on the final terms.
On December 22, 1999 and April 25, 2000, the Company and Pegaso
Telecomunicaciones, S.A. de C.V. (Pegaso), a wireless telecommunications
operating company investee of Leap Wireless, executed commitment letters, in
which the Company agreed to underwrite up to $500 million of debt financing to
Pegaso and its wholly-owned subsidiary, Pegaso Comunicaciones y Sistemas, a CDMA
wireless operating company in Mexico. The debt financing would consist of a
$250 million senior secured facility and a $250 million unsecured facility. The
debt facilities are expected to have final maturities of seven to eight years.
The Company currently has approximately $206 million in interest bearing
receivables from Pegaso and has guaranteed a $175 million bridge facility. The
Company is negotiating an amendment to the $175 million facility to increase the
amount available to $300 million and to extend the term from November 2000 to
June 2001. The bridge facility will be prepaid and cancelled upon funding of
either the $250 million senior secured facility or the $250 million unsecured
facility.
In addition to the debt financing commitment to Pegaso, the Company has
$6 million of letters of credit and $16 million of other financial guarantees
outstanding as of September 30, 2000, none of which are collateralized.
On October 24, 2000, the Company agreed to invest $200 million in the
convertible preferred shares of Inquam Limited (Inquam). Inquam is a venture
fund formed to acquire, own, develop and manage wireless telecommunication
systems, either directly or indirectly, with the primary intent of deploying
CDMA-based technology. In October 2000, the Company funded $40 million of this
investment and advanced an additional $10 million under a promissory note that
matures on October 31, 2001 and bears interest at 10%. The Company expects to
fund its remaining equity commitment over three years.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for
Derivative Instruments and Hedging Activities." In May 1999, the FASB delayed
the effective date of FAS 133 by one year. The Company will be required to adopt
FAS 133 for fiscal year 2001. This statement establishes a new model for
accounting for derivatives and hedging activities. Under FAS 133, certain
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company is not currently engaged in hedging activities. The
12
Company will record certain derivative assets and liabilities at fair value as a
result of the adoption of this standard. Upon adoption, the Company expects to
record a gain on derivative instruments of approximately $217 million as a
cumulative effect of a change in accounting principle. Future gains and losses
on these instruments will be recorded in the income statement.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company will be required to adopt
SAB 101 by the fourth quarter of fiscal 2001. The Company does not expect the
adoption of SAB 101 to have a material effect on its consolidated financial
position or results of operation.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE MARKET RISK. The Company has fixed income securities
consisting of cash equivalents and investments in marketable debt securities.
Investments in marketable debt securities are classified as available-for-sale
and held-to-maturity. Interest income earned on the Company's short-term fixed
income investment portfolio is affected by changes in the general level of U.S.
interest rates, while interest income earned on long-term investments is not
affected in the near term. (See Note 4 to the Consolidated Financial Statements
for information about investments in marketable debt securities.)
Finance receivables bear interest at both fixed and variable rates (see
Note 5 to the Consolidated Financial Statements for information about finance
receivables). Interest earned on certain finance receivables is at variable
interest rates and is affected by changes in the general level of U.S. interest
rates and/or LIBOR. Fair values will vary as interest rates change.
The Company has other notes receivable from third parties included in other
assets. These facilities bear interest at variable rates. Interest earned on
credit facilities included in other assets is affected by changes in LIBOR, and
fair value will vary as interest rates change.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. All financial
instruments are held for purposes other than trading. For the Company's fixed
income investment portfolio, finance receivables and credit facilities in other
assets, the table presents principal cash flows and related weighted-average
yield at cost and contractual interest rates for fixed income securities and
finance receivables or other credit facilities, respectively, by expected
maturity dates. Additionally, the Company has assumed that its fixed income
securities are similar enough to aggregate those securities for presentation
purposes.
INTEREST RATE SENSITIVITY PRINCIPAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST RATE (DOLLARS IN MILLIONS)
NO SINGLE
2001 2002 2003 2004 2005 THEREAFTER MATURITY TOTAL
--------- --------- --------- --------- --------- ---------- --------- ---------
Fixed income securities.......... $1,206 $ 364 $ 136 $ 15 $ 13 $ -- $ 148 $1,882
Interest rate.................... 6.6% 7.1% 7.2% 7.5% 7.4% 7.3%
Finance receivables:
Fixed rate..................... $ 106 $ 152 $ 301 $ 1 $ 1 $ 115 $ 675
Interest rate.................. 8.4% 9.3% 9.3% 12.0% 12.0% 9.2%
Variable rate (LIBOR).......... $ 22 -- $ 23 $ 110 $ 77 $ 32 $ 264
Margin over LIBOR.............. 5.0% 5.0% 5.5% 5.1% 5.6%
Credit facilities in other
assets......................... $ 4 -- $ 22 $ -- $ -- $ -- $ 26
Margin over LIBOR................ 4.5% 3.0%
FAIR
VALUE
---------
Fixed income securities.......... $1,882
Interest rate....................
Finance receivables:
Fixed rate..................... $ 562
Interest rate..................
Variable rate (LIBOR).......... $ 264
Margin over LIBOR..............
Credit facilities in other
assets......................... $ 26
Margin over LIBOR................
EQUITY PRICE RISK. The Company received a warrant in connection with the
Leap Wireless spin-off to purchase Leap Wireless common stock at $6.11 per
share. At September 24, 2000, the Company is entitled to purchase 4.5 million
shares of Leap Wireless common stock (see Notes 1 and 2 to the Consolidated
Financial Statements for a description of the Company's accounting policy for
this instrument and further
13
information). The recorded and fair values of the warrant are $28 million and
$250 million, respectively, at September 24, 2000. The estimated fair value of
the warrant is directly correlated to movements in the price of the Leap
Wireless stock. The warrant is held for purposes other than trading.
The Company holds available-for-sale securities subject to equity price
risk. The recorded and fair values of available-for-sale securities total
$426 million at September 24, 2000. The fair values of these securities are
directly correlated to the market prices of the securities. The
available-for-sale securities are held for purposes other than trading.
The Company's investments in other entities consist substantially of
investments accounted for under the equity and cost methods that are
predominantly closely held and not publicly traded. These investments are held
for purposes other than trading. Accordingly, the Company believes that its
exposure to market risk from these investments is not material.
FOREIGN EXCHANGE MARKET RISK. See Note 1 to the Consolidated Financial
Statements for a description of the Company's foreign currency accounting
policies and information about the Company's currency exposure management
practices. The Company manages its exposure to foreign exchange market risks,
when deemed appropriate, through the use of derivative financial instruments,
consisting primarily of forward contracts. Derivative financial instruments are
viewed as risk management tools and are not used for speculative or trading
purposes. At September 24, 2000, the Company had no foreign currency forward
contracts outstanding.
Financial instruments held by consolidated subsidiaries and equity method
investees which are not denominated in the functional currency of those entities
are subject to the effects of currency fluctuations, which may affect reported
earnings. As a global concern, the Company faces exposure to adverse movements
in foreign currency exchange rates. At the present time, the Company may hedge
currency exposures associated with certain assets and liabilities denominated in
nonfunctional currencies and certain anticipated nonfunctional currency
transactions. As a result, the Company could suffer unanticipated gains or
losses on anticipated foreign currency cash flows, as well as economic loss with
respect to the recoverability of investments. While the Company may hedge
certain transactions with non-U.S. customers, declines in currency values in
certain regions may, if not reversed, adversely affect future product sales
because the Company's products may become more expensive to purchase in the
countries of the affected currencies.
Finance receivables from the Company's international customers that do not
use the U.S. dollar as their functional currencies subject the Company to credit
risk. Because the Company's financing is dollar denominated, any significant
change in the value of the dollar against the debtors' functional currencies
could result in an increase in the debtor's cash flow requirements and could
thereby affect the ability of the Company to collect its receivables. At
September 24, 2000, finance receivables from international customers totaled
$397 million.
The analysis methods used by the Company to assess and mitigate risk
discussed above should not be considered projections of future risks.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of QUALCOMM Incorporated:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of QUALCOMM
Incorporated and its subsidiaries at September 30, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 2000 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Diego, California
November 3, 2000
15
QUALCOMM INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30,
-----------------------
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 716,871 $ 660,016
Marketable securities..................................... 1,055,522 954,415
Accounts receivable, net.................................. 606,979 883,640
Finance receivables....................................... 128,515 26,377
Inventories, net.......................................... 85,366 257,941
Other current assets...................................... 136,727 195,849
---------- ----------
Total current assets.................................. 2,729,980 2,978,238
Property, plant and equipment, net.......................... 431,705 555,991
Marketable securities....................................... 748,521 70,495
Finance receivables, net.................................... 799,404 548,482
Goodwill, net............................................... 821,834 1,833
Other assets................................................ 531,538 379,911
---------- ----------
Total assets.......................................... $6,062,982 $4,534,950
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 112,856 $ 309,701
Payroll and other benefits related liabilities............ 128,836 148,710
Other current liabilities................................. 162,182 249,896
Unearned revenue.......................................... 68,419 56,070
Bank lines of credit...................................... -- 112,000
---------- ----------
Total current liabilities............................. 472,293 876,377
Other liabilities........................................... 27,718 75,667
---------- ----------
Total liabilities..................................... 500,011 952,044
---------- ----------
Commitments and contingencies (Notes 4, 12 and 15)
Minority interest in consolidated subsidiaries (Note 12).... 46,643 51,596
---------- ----------
Company-obligated mandatorily redeemable Trust Convertible
Preferred Securities of a subsidiary trust holding solely
debt securities of the Company............................ -- 659,555
---------- ----------
Stockholders' equity:
Preferred stock, $0.0001 par value; issuable in series;
8,000 shares authorized; none outstanding at
September 30, 2000 and 1999............................. -- --
Common stock, $0.0001 par value; 3,000,000 shares
authorized; 747,651 and 646,363 shares outstanding at
September 30, 2000 and 1999 (Note 9).................... 75 65
Paid-in capital........................................... 4,653,818 2,587,899
Retained earnings......................................... 871,090 200,879
Accumulated other comprehensive (loss) income............. (8,655) 82,912
---------- ----------
Total stockholders' equity............................ 5,516,328 2,871,755
---------- ----------
Total liabilities and stockholders' equity............ $6,062,982 $4,534,950
========== ==========
See accompanying notes.
16
QUALCOMM INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED SEPTEMBER 30,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Revenues................................................. $3,196,780 $3,937,299 $3,347,870
---------- ---------- ----------
Operating expenses:
Cost of revenues....................................... 1,507,122 2,485,072 2,333,399
Research and development............................... 340,407 381,139 349,483
Selling, general and administrative.................... 342,940 425,118 409,291
Amortization of goodwill and other acquisition-related
intangible assets.................................... 145,643 823 1,056
Purchased in-process technology........................ 60,030 -- 6,976
Other.................................................. 78,000 240,007 5,000
---------- ---------- ----------
Total operating expenses................................. 2,474,142 3,532,159 3,105,205
---------- ---------- ----------
Operating income......................................... 722,638 405,140 242,665
Interest expense......................................... (4,923) (14,698) (8,058)
Investment income (expense), net......................... 494,191 24,576 (46,663)
Distributions on Trust Convertible Preferred Securities
of subsidiary trust.................................... (13,039) (39,297) (39,270)
Other.................................................... (2,062) (69,035) --
---------- ---------- ----------
Income before income taxes............................... 1,196,805 306,686 148,674
Income tax provision..................................... (526,594) (105,807) (40,142)
---------- ---------- ----------
Net income............................................... $ 670,211 $ 200,879 $ 108,532
========== ========== ==========
Net earnings per common share:
Basic.................................................. $ 0.93 $ 0.34 $ 0.20
========== ========== ==========
Diluted................................................ $ 0.85 $ 0.31 $ 0.18
========== ========== ==========
Shares used in per share calculations:
Basic.................................................. 717,205 594,714 553,623
========== ========== ==========
Diluted................................................ 800,121 649,889 591,697
========== ========== ==========
See accompanying notes.
17
QUALCOMM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED SEPTEMBER 30,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
OPERATING ACTIVITIES:
Net income............................................. $ 670,211 $ 200,879 $ 108,532
Depreciation and amortization.......................... 243,842 158,429 141,892
Purchased in-process technology........................ 60,030 -- 6,976
Restructuring, impairments and other non-cash charges
and credits.......................................... 88,953 269,449 25,000
Gain on sale of available-for-sale securities.......... (270,132) (5,663) --
Minority interest in income of consolidated
subsidiaries......................................... 6,264 13,066 48,366
Equity in losses of investees.......................... 15,117 15,140 20,731
Non-cash income tax provision (benefit)................ 481,621 (96,595) (55,581)
Increase (decrease) in cash resulting from changes in:
Accounts receivable, net............................. 233,281 (275,846) (166,827)
Finance receivables, net............................. (372,072) (304,546) (232,451)
Inventories, net..................................... (68,776) 40,102 (161,380)
Other current assets................................. (21,507) (7,048) (66,603)
Trade accounts payable............................... (164,756) (5,826) 100,706
Accrued liabilities.................................. (99,976) 179,633 174,113
Unearned revenue..................................... 10,012 (10,495) 22,039
Other liabilities...................................... -- 11,554 9,820
----------- ----------- -----------
Net cash provided (used) by operating activities......... 812,112 182,233 (24,667)
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures................................... (163,182) (180,237) (321,566)
Purchases of available-for-sale securities............. (993,512) -- --
Proceeds from sale of available-for-sale securities.... 571,492 7,163 --
Purchases of held-to-maturity investments.............. (1,392,310) (858,108) (269,833)
Maturities of held-to-maturity investments............. 1,218,189 150,873 702,376
Issuance of notes receivable........................... (229,916) (171,982) (124,765)
Collection of notes receivable......................... 229,654 45,754 --
Proceeds from sale of businesses....................... 246,990 98,097 --
Business acquisitions and investments in other
entities............................................. (273,668) (43,568) (117,217)
Other items, net....................................... 281 (3,350) (2,995)
----------- ----------- -----------
Net cash used by investing activities.................... (785,982) (955,358) (134,000)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net reduction in borrowings under bank lines of
credit............................................... (112,000) (39,000) 41,000
Net proceeds from issuance of common stock............. 143,768 1,311,925 51,556
Spin-off of Leap Wireless International, Inc........... -- -- (10,000)
Other items, net....................................... (4,148) (2,621) 3,120
----------- ----------- -----------
Net cash provided by financing activities................ 27,620 1,270,304 85,676
----------- ----------- -----------
Effect of exchange rate changes on cash.................. 3,105 (13,009) --
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 56,855 484,170 (72,991)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........... 660,016 175,846 248,837
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR................. $ 716,871 $ 660,016 $ 175,846
=========== =========== ===========
See accompanying notes.
18
QUALCOMM INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK OTHER
----------------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) TOTAL
------------- ------------- ------------- ------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1997..... 544,995 $ 54 $ 906,266 $ 117,798 $ 60 $1,024,178
Components of comprehesive income:
Net income...................... -- -- -- 108,532 -- 108,532
Foreign currency translation.... -- -- -- -- (1,738) (1,738)
----------
Total comprehensive income.... 106,794
----------
Exercise of stock options......... 10,317 1 32,147 -- -- 32,148
Tax benefit from exercise of stock
options......................... -- -- 17,125 -- -- 17,125
Issuance for Employee Stock
Purchase and Executive
Retirement Plans................ 3,774 -- 19,408 -- -- 19,408
Issuance of common stock upon
exercise of warrant (Note 9).... 5,640 1 (1) -- -- --
Spin-off of Leap Wireless
International, Inc. (Note 2).... -- -- (15,727) (226,330) -- (242,057)
------- ---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1998..... 564,726 56 959,218 -- (1,678) 957,596
Components of comprehesive income:
Net income...................... -- -- -- 200,879 -- 200,879
Foreign currency translation.... -- -- -- -- (26,100) (26,100)
Change in unrealized gain on
securities, net of income
taxes of $74,410.............. -- -- -- -- 110,690 110,690
----------
Total comprehensive income.... 285,469
----------
Exercise of stock options......... 48,994 5 205,223 -- -- 205,228
Tax benefit from exercise of stock
options......................... -- -- 290,817 -- -- 290,817
Issuance for Employee Stock
Purchase and Executive
Retirement Plans................ 4,994 1 31,570 -- -- 31,571
Stock based compensation
expense......................... -- -- 8,613 -- -- 8,613
Sale of common stock.............. 27,600 3 1,079,312 -- -- 1,079,315
Issuance of common stock upon
conversion of Trust Convertible
Preferred Securities............ 49 -- 445 -- -- 445
Spin-off of Leap Wireless
International, Inc. (Note 2).... -- -- 12,701 -- -- 12,701
------- ---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1999..... 646,363 65 2,587,899 200,879 82,912 2,871,755
Components of comprehesive income:
Net income...................... -- -- -- 670,211 -- 670,211
Foreign currency translation.... -- -- -- -- 2,756 2,756
Change in unrealized gain on
securities, net of income
taxes of $45,185.............. -- -- -- -- 67,216 67,216
Reclassification adjustment for
gains included in net income,
net of income taxes of
$108,593...................... -- -- -- -- (161,539) (161,539)
----------
Total comprehensive income.... 578,644
----------
Exercise of stock options and
warrants........................ 22,101 2 109,825 -- -- 109,827
Tax benefit from exercise of stock
options......................... -- -- 217,846 -- -- 217,846
Issuance for Employee Stock
Purchase and Executive
Retirement Plans................ 749 -- 31,186 -- -- 31,186
Stock based compensation
expense......................... -- -- 25,400 -- -- 25,400
Shares issued for business
acquisitions.................... 5,815 1 1,036,940 -- -- 1,036,941
Issuance of common stock upon
conversion of Trust Convertible
Preferred Securities............ 72,623 7 644,722 -- -- 644,729
------- ---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 2000..... 747,651 $ 75 $4,653,818 $ 871,090 $ (8,655) $5,516,328
======= ========== ========== ========== ========== ==========
See accompanying notes.
19
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
QUALCOMM Incorporated (the Company or QUALCOMM), a Delaware corporation,
designs, develops, manufactures, and markets digital wireless communications
products and services based on its Code Division Multiple Access (CDMA)
technology. The Company licenses and receives royalty payments on its CDMA
technology from major domestic and international telecommunications suppliers.
In addition, the Company designs, manufactures and distributes products and
provides services for its OmniTRACS system. The Company has contracts with
Globalstar L.P. (Globalstar), a partnership formed to develop, own, and operate
a worldwide, low-Earth-orbit satellite-based telecommunications system (the
Globalstar System), to design, develop and manufacture consumer and ground
communications equipment.
PRINCIPLES OF CONSOLIDATION
The Company's consolidated financial statements include the assets,
liabilities and results of operations of majority-owned subsidiaries and other
subsidiaries controlled by the Company. The ownership of the other interest
holders of consolidated subsidiaries is reflected as minority interest. All
significant intercompany accounts and transactions have been eliminated.
FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts and the disclosure of
contingent amounts in the Company's financial statements and the accompanying
notes. Actual results could differ from those estimates. Certain prior year
amounts have been reclassified to conform with the current year presentation.
FISCAL YEAR
The Company operates and reports using a fiscal year ending on the last
Sunday in September. For presentation purposes, the Company has indicated its
fiscal year as ending on September 30.
REVENUES
Revenues from hardware product sales are recorded upon shipment, or when
risk of loss passes to the customer, if later. Revenue from services are
recorded when earned. Revenue from long-term contracts, including technology
development agreements, is recognized using the percentage-of-completion method,
based on costs incurred to date compared with total estimated costs. Billings on
uncompleted contracts in excess of incurred cost and accrued profits are
classified as unearned revenue. Estimated contract losses are recognized when
determined.
License fees are recognized when delivery requirements have been met and
collection is probable. Royalty revenue is recorded as earned in accordance with
the specific terms of each license agreement when reasonable estimates of such
amounts can be made. Beginning with the second quarter of fiscal 1998, the
Company began to accrue its estimate of certain royalty revenues earned that
previously could not be reasonably estimated prior to being reported by its
licensees.
The Company recognizes software license revenue when all of the following
criteria are met: execution of a written agreement; delivery of software; the
license fee is fixed and determinable;
20
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
collectibility of the proceeds is assessed as being probable; and
vendor-specific objective evidence exists to allocate the total fee to elements
of multiple-element arrangements. Vendor-specific objective evidence is based on
the price charged when an element is sold separately, or if not yet sold
separately, the price established by authorized management or a substantive
renewal rate for post-contract customer support. Unearned revenue consists
primarily of fees related to software licenses under which the Company has not
met delivery requirements or fulfilled other contractual obligations.
CONCENTRATIONS
A significant portion of the Company's revenues are concentrated with a
limited number of customers as the worldwide market for wireless telephone
systems and products is dominated by a small number of large corporations and
government agencies. The Company also derives significant revenues from the
North American trucking industry, particularly providers of long-haul
transportation of goods and equipment.
Revenues from international customers, consisting of export sales and
license and royalty fees, were approximately 47%, 38% and 34% of total revenues
in fiscal 2000, 1999 and 1998, respectively. During fiscal 2000, 1999 and 1998,
sales to one South Korean customer by the QCT and QTL segments (Note 16)
comprised 11%, 9% and 11% of consolidated revenues, respectively. During fiscal
2000, 1999 and 1998, revenues from Globalstar (Note 12) accounted for 7%, 11%
and 11% of revenues, respectively.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are comprised
of money market funds, certificates of deposit, commercial paper, loan
participations, medium-term notes, U.S. treasuries and government agencies'
securities. The carrying amounts approximate fair value due to the short
maturities of these instruments.
The Company's policy is to place its cash, cash equivalents and investments
with high quality financial institutions, government agencies and corporate
entities to limit the amount of credit exposure.
MARKETABLE SECURITIES
Management determines the appropriate classification of marketable
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Held-to-maturity securities are carried at amortized cost,
which approximates fair value. Available-for-sale securities are stated at fair
value as determined by the most recently traded price of each security at the
balance sheet date. The net unrealized gains or losses on available-for-sale
securities are reported as a component of comprehensive income, net of tax. The
specific identification method is used to compute the realized gains and losses
on debt and equity securities.
WARRANTS
The Company holds warrants to purchase equity interests in certain other
companies related to its strategic investment and financing activities. Warrants
are not held for trading purposes. Warrants to purchase equity interests in
publicly traded companies that will be accounted for as available-for-sale
securities are stated at fair value. All other warrants are carried at cost.
21
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated or
amortized using the straight-line method over their estimated useful lives.
Direct external and internal computer software development costs subsequent to
the preliminary stage of development are capitalized. Buildings and building
improvements are depreciated over thirty years and fifteen years, respectively.
Leasehold improvements are amortized over the shorter of their estimated useful
lives or the remaining term of the related lease. Other property, plant and
equipment have useful lives ranging from two to five years. Maintenance,
repairs, and minor renewals and betterments are charged to expense.
INVESTMENTS IN OTHER ENTITIES
Investments in corporate entities with less than a 20% voting interest are
generally accounted for under the cost method. The Company uses the equity
method to account for investments in corporate entities in which it has a voting
interest of 20% to 50%, or in which it otherwise has the ability to exercise
significant influence, and for 50% or less ownership interests in partnerships
and limited liability corporations. Under the equity method, the investment is
originally recorded at cost and adjusted to recognize the Company's share of net
earnings or losses of the investee, limited to the extent of the Company's
investment in, advances to and financial guarantees that create additional basis
in the investee.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible and identifiable intangible assets of
businesses acquired. Goodwill is amortized on a straight-line basis over its
useful life, ranging from three to four years. Other intangible assets are
amortized on a straight-line basis over their useful lives, ranging from three
to twenty years.
LONG-LIVED AND INTANGIBLE ASSETS
The Company assesses potential impairments to its long-lived assets and
intangible assets when there is evidence that events or changes in circumstances
indicate that the carrying amount of an asset may not be recovered. An
impairment loss is recognized when the undiscounted cash flows expected to be
generated by an asset (or group of assets) is less than its carrying amount. Any
required impairment loss would be measured as the amount by which the asset's
carrying value exceeds its fair value, and would be recorded as a reduction in
the carrying value of the related asset and a charge to results of operations.
WARRANTY
Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related revenue is
recognized.
22
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation using the intrinsic value method and provides pro forma disclosures
of net income and net earnings per common share as if the fair value method had
been applied in measuring compensation expense.
Equity instruments issued to non-employees for goods or services are
accounted for at fair value and are marked to market until service is complete
or a performance commitment date is reached.
FOREIGN CURRENCY
Foreign subsidiaries operating in a local currency environment use the local
currency as the functional currency. Assets and liabilities are translated to
U.S. dollars at year-end exchange rates; revenues, expenses, gains and losses
are translated at rates of exchange that approximate the rates in effect at the
transaction date. Resulting remeasurement gains or losses are recognized as a
component of other comprehensive income. During fiscal 1999, a significant
devaluation of the Brazilian real resulted in a $25 million translation loss
that was recorded as a component of other comprehensive income. The functional
currency of the Company's foreign investees that do not use local currencies is
the U.S. dollar. Where the U.S. dollar is the functional currency, the monetary
assets and liabilities are translated into U.S. dollars at the exchange rate in
effect at the balance sheet date. Revenues, expenses, gains and losses
associated with the monetary assets and liabilities are translated at the rates
of exchange that approximate the rates in effect at the transaction date.
Non-monetary assets and liabilities and related elements of expense, gains and
losses are translated at historical rates. Resulting remeasurement gains or
losses of these foreign investees are recognized in the statement of income.
The Company enters into foreign currency forward contracts to hedge certain
foreign currency transactions and probable anticipated foreign currency
transactions. Gains and losses arising from foreign currency forward contracts
offset gains and losses resulting from the underlying hedged transaction. The
Company had no foreign currency forward contracts outstanding as of
September 30, 2000 or 1999. During fiscal 2000 and 1998, net foreign currency
transaction gains and (losses) included in the Company's statements of income
totaled approximately $(1) million and $6 million, respectively. During fiscal
1999, net foreign currency transaction gains were not material.
INCOME TAXES
Current income tax expense is the amount of income taxes expected to be
payable for the current year, prior to the recognition of benefits from stock
option deductions. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to more likely than not be realized
in future tax returns. Tax law and rate changes are reflected in income in the
period such changes are enacted.
23
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Components of accumulated other comprehensive income (loss) consist of the
following (in thousands):
SEPTEMBER 30,
------------------------------
2000 1999 1998
-------- -------- --------
Foreign currency translation................... $(25,022) $(27,778) $ (1,678)
Unrealized gain on securities, net of income
taxes........................................ 16,367 110,690 --
-------- -------- --------
$ (8,655) $ 82,912 $ (1,678)
======== ======== ========
STOCK SPLIT
On April 14, 1999, the Company's Board of Directors declared a two-for-one
stock split of the Company's common stock in the form of a stock dividend. The
stock dividend was distributed on May 10, 1999 to stockholders of record on
April 21, 1999. On November 2, 1999, the Company's Board of Directors declared a
four-for-one stock split of the Company's common stock and an increase in the
number of authorized shares of common stock to three billion shares. The stock
was distributed on December 30, 1999 to stockholders of record on December 20,
1999. All references to per share amounts have been restated to reflect these
stock splits.
NET EARNINGS PER COMMON SHARE
Basic earnings per common share are calculated by dividing net income by the
weighted average number of common shares outstanding during the reporting
period. Diluted earnings per common share (diluted EPS) reflect the potential
dilutive effect, calculated using the treasury stock method, of additional
common shares that are issuable upon exercise of outstanding stock options and
warrants and the potential dilutive effect for the period prior to conversion of
shares issuable upon conversion of Trust Convertible Preferred Securities,
determined on an if-converted basis, as follows (in thousands):
YEAR ENDED SEPTEMBER 30,
------------------------------
2000 1999 1998
-------- -------- --------
Options............................................. 64,802 55,175 32,996
Warrants............................................ -- -- 5,078
Trust Convertible Preferred Securities.............. 18,114 -- --
------ ------ ------
82,916 55,175 38,074
====== ====== ======
Options outstanding during the years ended September 30, 2000, 1999 and 1998
to purchase approximately 2,625,000, 13,494,000, and 28,643,000 shares of common
stock, respectively, were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market prices of the
common stock during the period and, therefore, the effect would be
anti-dilutive. Net income in the computation of diluted EPS for fiscal 2000 is
increased by $7 million, representing the assumed savings of distributions, net
of taxes, on the Trust Convertible Preferred Securities. The additional common
shares assuming the conversion of the Trust Convertible Preferred
24
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities (Note 8) are not included for purposes of computing diluted EPS for
fiscal 1999 and 1998 because the effect would have been anti-dilutive.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (FAS 133), "Accounting for
Derivative Instruments and Hedging Activities." In May 1999, the FASB delayed
the effective date of FAS 133 by one year. The Company will be required to adopt
FAS 133 for fiscal year 2001. This statement establishes a new model for
accounting for derivatives and hedging activities. Under FAS 133, certain
derivatives must be recognized as assets and liabilities and measured at fair
value. The Company is not currently engaged in hedging activities. The Company
will record certain derivative assets and liabilities at fair value as a result
of the adoption of this standard. Upon adoption, the Company expects to record a
gain on derivative instruments of approximately $217 million as a cumulative
effect of a change in accounting principle. Future gains and losses on these
instruments will be recorded in the income statement.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants
with additional time to implement SAB 101. The Company will be required to adopt
SAB 101 by the fourth quarter of fiscal 2001. The Company does not expect the
adoption of SAB 101 to have a material effect on its consolidated financial
position or results of operation.
NOTE 2. SPIN-OFF OF LEAP WIRELESS INTERNATIONAL, INC.
On September 23, 1998, the Company completed the spin-off and distribution
(the Distribution or Leap Wireless Spin-off) to its stockholders of shares of
Leap Wireless International, Inc., a Delaware corporation (Leap Wireless). In
connection with the Distribution, the Company transferred to Leap Wireless its
joint venture and equity interests in certain domestic and international
emerging terrestrial-based wireless telecommunications operating companies and
recorded a $17 million liability in connection with its agreement to transfer
its ownership interest in Telesystems of Ukraine (TOU), a wireless
telecommunications company in Ukraine, and its working capital loan receivable
from TOU (TOU assets) to Leap Wireless if certain events occurred within
18 months of the Leap Wireless Spin-off. During the first six months of fiscal
1999, the Company provided an additional $2 million working capital loan to TOU
and recorded 100% of the losses of TOU, net of eliminations, because the other
investors' equity interests were depleted. In March 1999, the Company reassessed
the recoverability of TOU assets in light of certain developments affecting the
TOU business and the disposition of other assets related to the terrestrial CDMA
wireless infrastructure business (Note 13). As a result, the Company recorded a
$15 million non-operating charge to write off the TOU assets, as well as a
$12 million charge to operations to write off other assets related to the TOU
contract, and the adjusted liability to transfer TOU to Leap Wireless of
$15 million was reversed against equity as an adjustment to the Distribution. As
of September 30, 1999, all TOU assets were written off.
In connection with the Distribution, Leap Wireless issued to QUALCOMM a
warrant to purchase 5,500,000 shares of Leap Wireless common stock at $6.10625
per share. The Company recorded the warrant at its predecessor basis of
$24 million net of the related deferred tax liability. In March 1999, the
Company agreed to reduce the number of shares under warrant to 4,500,000 in
exchange for $3 million in consideration from Leap Wireless, resulting in a
pre-tax loss of $3 million. The Company agreed to the
25
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SPIN-OFF OF LEAP WIRELESS INTERNATIONAL, INC. (CONTINUED)
cancellation to enable Leap Wireless to meet Federal Communications Commission
regulatory requirements. The estimated fair values of the warrant at
September 30, 2000 and 1999 are $250 million and $90 million, respectively, as
calculated using the Black-Scholes option-pricing model.
NOTE 3. ACQUISITIONS
SNAPTRACK, INC.
In March 2000, the Company completed the acquisition of all of the
outstanding capital stock of SnapTrack, Inc. (SnapTrack), a developer of
wireless position location technology, in a transaction accounted for as a
purchase. The purchase price was approximately $1 billion, representing the
value of QUALCOMM shares issued to effect the purchase, the value of vested and
unvested options and warrants exchanged at the closing date and estimated
transaction costs of $2 million. The preliminary allocation of purchase price,
based on the estimated fair values of the acquired assets and assumed
liabilities, reflects acquired goodwill of $948 million, purchased in-process
technology of $60 million and other intangible assets of $34 million. Tangible
assets acquired and liabilities assumed were not material to the Company's
financial statements. The Company expects to finalize the purchase price
allocation within one year and does not anticipate material adjustments to the
preliminary purchase price allocation. Amounts allocated to goodwill and other
intangible assets are amortized on a straight-line basis over their estimated
useful lives of four years. The acquisition has been treated as a non-cash
transaction in the statement of cash flows.
Purchased in-process technology was expensed upon acquisition because
technological feasibility had not been established and no future alternative
uses existed. The fair values for each of the in-process technologies were
determined by estimating the resulting net cash flows from such products after
their completion and commercialization, discounting the net cash flows to
present value, and applying the percentage completion of the projects thereto.
The fair value of in-process technology was determined to be $60 million,
including Multimedia ASIC ($27 million), Server Release 2.0 ($23 million), DSP
Release 2.0 ($8 million) and the pager product ($2 million). Net cash flow
projections were made based on an assessment of customer needs and the expected
pricing and cost structure. If these projects are not developed, future revenue
and profitability of QUALCOMM may be adversely affected. Additionally, the value
of other intangible assets acquired may become impaired.
The consolidated financial statements include the operating results of
SnapTrack from the date of acquisition. Unaudited pro forma operating results
for the Company, assuming the acquisition of SnapTrack had been made at the
beginning of the years ended September 30, are as follows (in thousands, except
per share data):
2000 1999
---------- ----------
(UNAUDITED)
Revenues............................................. $3,197,119 $3,937,364
---------- ----------
Net income (loss).................................... $ 619,226 $ (50,915)
========== ==========
Basic earnings (loss) per common share............... $ 0.86 $ (0.08)
========== ==========
Diluted earnings (loss) per common share............. $ 0.78 $ (0.08)
========== ==========
26
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS (CONTINUED)
These pro forma results have been prepared for comparative purposes only and
may not be indicative of the results of operations which actually would have
occurred had the combination been in effect at the beginning of the respective
periods or of future results of operations of the consolidated entities.
TECHNOLOGY DEVELOPMENT GROUP OF TELLIT COMMUNICATIONS LTD.
In February 2000, the Company purchased the Technology Development Group of
Tellit Communications Limited (Tellit), a U.K.-based company. The initial
purchase price of $12 million was paid in cash. An additional $9 million in
consideration is payable in cash through March 31, 2001 if certain performance
and other milestones are reached. The preliminary allocation of purchase price,
based on the estimated fair values of acquired assets and liabilities assumed,
reflects acquired goodwill of $11 million and assembled workforce of
$1 million. The Company expects to finalize the purchase price allocation within
one year and does not anticipate material adjustments to the preliminary
purchase price allocation. Any adjustments to the purchase price related to
contingent consideration are expected to increase goodwill. Amounts allocated to
goodwill and assembled workforce are amortized on a straight-line basis over
their estimated useful lives of three years. The consolidated financial
statements include the operating results of the Technology Development Group of
Tellit from the date of acquisition. Pro forma results of operations have not
been presented because the effect of this acquisition is not material.
NOTE 4. MARKETABLE SECURITIES
Marketable securities are comprised as follows (in thousands):
CURRENT NONCURRENT
----------------------- -----------------------
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Held-to-maturity:
Certificates of deposit..................... $ 201,338 $ 193,534 $ -- $ 10,000
Commercial paper............................ 289,761 465,953 -- --
U.S. government securities.................. -- -- 10,000 --
Corporate medium-term notes................. 194,576 107,662 312,791 57,564
---------- ---------- ---------- ----------
685,675 767,149 322,791 67,564
Available-for-sale:
Commercial paper............................ 2,956 -- -- --
U.S. government securities.................. 110,256 -- -- --
Corporate medium-term notes................. 108,748 -- -- --
Mortgage-backed securities.................. 28,347 -- -- --
Asset-backed securities..................... 119,540 -- -- --
Equity securities........................... -- 187,266 425,730 2,931
---------- ---------- ---------- ----------
369,847 187,266 425,730 2,931
---------- ---------- ---------- ----------
$1,055,522 $ 954,415 $ 748,521 $ 70,495
========== ========== ========== ==========
27
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. MARKETABLE SECURITIES (CONTINUED)
As of September 30, 2000, the contractual maturities of debt securities are
as follows (in thousands):
YEARS TO MATURITY
-----------------------
LESS THAN ONE TO NO SINGLE
ONE YEAR FIVE YEARS MATURITY DATE
---------- ---------- -------------
Held-to-Maturity...................... $ 685,675 $ 322,791 $ --
Available-for-sale.................... 15,550 206,410 147,887
--------- --------- ---------
$ 701,225 $ 529,201 $ 147,887
========= ========= =========
Securities with no single maturity date include mortgage-backed securities
and asset-backed securities.
Available-for-sale securities are comprised as follows at September 30 (in
thousands):
UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
--------- ---------- ---------- ----------
2000
Equity securities................ $ 400,114 $ 180,787 $(155,171) $ 425,730
Debt securities.................. 368,095 2,446 (694) 369,847
--------- --------- --------- ---------
Total...................... $ 768,209 $ 183,233 $(155,865) $ 795,577
========= ========= ========= =========
1999
Equity securities................ $ 5,097 $ 185,100 $ -- $ 190,197
========= ========= ========= =========
The fair values of held-to-maturity debt securities at September 30, 2000
and 1999 approximate cost.
In April 2000, the Company purchased approximately 11,500,000 shares of the
common stock of NetZero, Inc. (NetZero), representing a 9.9% interest, for
$144 million in cash. NetZero is a publicly traded company that provides
Internet access and services to consumers and on-line direct marketing services
to advertisers. The fair value of the NetZero investment is $35 million at
September 30, 2000.
In February 2000, the Company purchased 308,000 units of Leap Wireless'
senior discount notes with warrants for $150 million. The notes mature in
April 2010 and bear interest at 14.5%. The warrants are detachable and entitle
each holder to purchase 2.503 common shares per each senior discount note unit
held. The exercise price is $96.80 per common share. Leap Wireless used
$227 million of the proceeds from the issuance of senior discount notes and
senior notes to pay down its credit facility with the Company. The credit
facility was cancelled in the second quarter of fiscal 2000. The fair value of
the senior discount notes with warrants is $136 million at September 30, 2000.
In November 1999, the Company purchased 2,565,000 common shares of Korea
Telecom Freetel (KT Freetel), representing a 1.9% interest, for $110 million and
an $86 million zero coupon bond with warrants to purchase approximately
1,851,000 additional shares. If KT Freetel meets certain obligations related to
the commercial deployment of 1xEV technology, the Company will be required to
exercise the warrants. The exercise price of the warrants is expected to be paid
by tendering the bond as payment in full. If KT Freetel does not meet such
obligations, the Company will have the right to redeem the bond at face value
plus a premium equal to 10% per year. The Company uses the cost method to
account for 1,924,000 of the common shares and approximately 1,388,000 shares
under warrant as those shares are restricted through
28
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. MARKETABLE SECURITIES (CONTINUED)
June 1, 2002; the recorded value of the restricted securities is $147 million.
The remaining shares and warrants, with a cost basis of $49 million, are
recorded at fair value and classified as marketable securities; the fair value
of these marketable securities is $38 million at September 30, 2000.
NOTE 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
ACCOUNTS RECEIVABLE
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Trade, net of allowance for doubtful accounts of
$9,610 and $22,276, respectively.................... $ 542,288 $ 674,211
Long-term contracts:
Billed.............................................. 38,059 128,208
Unbilled............................................ 21,185 69,409
Other............................................... 5,447 11,812
--------- ---------
$ 606,979 $ 883,640
========= =========
Unbilled receivables represent costs and profits recorded in excess of
amounts billable pursuant to contract provisions and are expected to be realized
within one year.
FINANCE RECEIVABLES
Finance receivables result from arrangements in which the Company has agreed
to provide its customers or certain Code Division Multiple Access (CDMA)
customers of Telefonaktiebolaget LM Ericsson (Ericsson) (Note 13) with long-term
interest bearing debt financing for the purchase of equipment and/or services.
Such financing is generally collateralized by the related equipment. Finance
receivables are comprised as follows:
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Finance receivables................................... $ 939,063 $ 585,482
Allowance for doubtful receivables.................... (11,144) (10,623)
--------- ---------
927,919 574,859
Current maturities.................................... 128,515 26,377
--------- ---------
Non-current finance receivables, net.................. $ 799,404 $ 548,482
========= =========
At September 30, 2000 and 1999, the fair value of finance receivables
approximated $826 million and $541 million, respectively. The fair value of
finance receivables is estimated by discounting the future cash flows using
current interest rates at which similar financing would be provided to similar
customers for the same remaining maturities.
29
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (CONTINUED)
Maturities of finance receivables at September 30, 2000 are as follows (in
thousands):
FISCAL YEAR ENDING SEPTEMBER 30,
- --------------------------------------------------------------------
2001..................................................... $ 128,515
2002..................................................... 151,517
2003..................................................... 323,928
2004..................................................... 110,326
2005..................................................... 77,818
Thereafter............................................... 146,959
---------
$ 939,063
=========
At September 30, 2000, commitments to extend long-term financing to CDMA
customers of Ericsson (Note 13) totaled approximately $255 million, which the
Company expects to fund over the next two years. Such commitments are subject to
the customers meeting certain conditions established in the financing
arrangements and, in most cases, to Ericsson also financing a portion of such
sales. Commitments represent the estimated amounts to be financed under these
arrangements; actual financing may be in lesser amounts.
INVENTORIES
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Raw materials......................................... $ 47,952 $ 161,481
Work-in-process....................................... 8,370 51,003
Finished goods........................................ 29,044 45,457
--------- ---------
$ 85,366 $ 257,941
========= =========
PROPERTY, PLANT AND EQUIPMENT
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Land.................................................. $ 37,953 $ 36,310
Buildings and improvements............................ 279,265 285,762
Computer equipment.................................... 254,675 244,605
Machinery and equipment............................... 193,194 274,353
Furniture and office equipment........................ 14,424 16,515
Leasehold improvements................................ 33,798 33,207
--------- ---------
813,309 890,752
Less accumulated depreciation and amortization........ (381,604) (334,761)
--------- ---------
$ 431,705 $ 555,991
========= =========
30
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (CONTINUED)
At September 30, 2000, buildings and leasehold improvements with a net book
value of $145 million, including accumulated depreciation of $36 million, are
leased or held for lease to third parties.
INTANGIBLE ASSETS
At September 30, 2000 and 1999, goodwill is presented net of $144 million
and $2 million in accumulated amortization, respectively. At September 30, 2000
and 1999, intangible assets totaling $45 million and $17 million, respectively,
are presented net of $8 million and $3 million in accumulated amortization,
respectively.
NOTE 6. INVESTMENT INCOME (EXPENSE), NET
Investment income (expense), net for the years ended September 30 is
comprised as follows (in thousands):
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
Interest income............................................ $ 245,440 $ 50,392 $ 39,484
Realized gains on marketable securities.................... 270,132 5,663 2,950
Loss on cancellation of warrants (Note 2).................. -- (3,273) --
Write-off of investment in other entity.................... -- -- (20,000)
Minority interest in income of consolidated subsidiaries... (6,264) (13,066) (48,366)
Equity in losses of investees.............................. (15,117) (15,140) (20,731)
--------- --------- ---------
$ 494,191 $ 24,576 $ (46,663)
========= ========= =========
NOTE 7. DEBT AND CREDIT FACILITIES
The Company has an unsecured credit facility under which banks are committed
to make up to $400 million in revolving loans to the Company. The credit
facility expires in March 2001. The facility may be extended on an annual basis
upon maturity. The Company is currently obligated to pay commitment fees equal
to 0.175% per year on the unused amount of the credit facility. The credit
facility includes certain restrictive financial and operating covenants. At
September 30, 2000 and 1999, there were no amounts or letters of credit issued
or outstanding under the credit facility.
Under terms of two identical revolving credit agreements, cancelled in
February 2000 as a condition of the sale of the Company's terrestrial-based CDMA
wireless consumer phone business (Note 13), QUALCOMM Personal Electronics (QPE)
(Note 12) could borrow a total of $150 million. Borrowings under the facilities
totaled $112 million at September 30, 1999. The interest under the facilities
was at the applicable LIBOR rate plus 0.5%. The weighted average interest rate
on outstanding borrowings was 6.4%, 5.9% and 6.2% during fiscal 2000, 1999 and
1998, respectively, and 6.0% at September 30, 1999.
The fair value of the Company's bank lines of credit are estimated based on
comparison with similar issues or current rates offered to the Company for debt
of the same remaining maturities. At September 30, 1999, the estimated fair
value of the Company's bank lines of credit approximated their carrying value.
31
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEBT AND CREDIT FACILITIES (CONTINUED)
Cash amounts paid for interest were $5 million in fiscal 2000 and
$11 million in each of fiscal years 1999 and 1998.
NOTE 8. TRUST CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY
In February 1997, QUALCOMM Financial Trust I (the Trust), the Company's
wholly-owned subsidiary trust created under the laws of the State of Delaware,
completed a private placement of $660 million of 5 3/4% Trust Convertible
Preferred Securities. The sole assets of the Trust were QUALCOMM Incorporated
5 3/4% Convertible Subordinated Debentures due February 24, 2012. The
obligations of the Trust related to the Trust Convertible Preferred Securities
were fully and unconditionally guaranteed by the Company. The Trust Convertible
Preferred Securities were convertible into Company common stock at the rate of
5.5056 shares of Company common stock for each Trust Convertible Preferred
Security (equivalent to a conversion price of $9.082054 per share of common
stock). Distributions on the Trust Convertible Preferred Securities were payable
quarterly by the Trust. The Trust Convertible Preferred Securities were subject
to mandatory redemption on February 24, 2012, at a redemption price of $50 per
preferred security. The Company had the right to convert the Trust Convertible
Preferred Securities, in whole or in part, on or after March 4, 2000. The
Company was required to pay a premium over the initial conversion price if
securities were converted prior to March 4, 2002. As a result of the Leap
Wireless Spin-off, and pursuant to a resolution of the Board of Directors of
QUALCOMM, each QUALCOMM Trust Convertible Preferred Security was convertible,
subject and pursuant to the terms of the Convertible Subordinated Debentures,
into both QUALCOMM common stock and Leap Wireless common stock at the rate of
5.5056 and 0.17205 shares, respectively, for each QUALCOMM Trust Convertible
Preferred Security.
During fiscal 2000 and 1999, approximately 13,191,000 and 8,910 Trust
Convertible Preferred Securities were converted into approximately 72,623,000
and 49,000 shares of common stock, respectively. All Trust Convertible Preferred
Securities have been converted into common stock.
NOTE 9. CAPITAL STOCK
COMMON STOCK WARRANTS
In November 1991, the Company issued seven-year warrants to purchase
6,252,000 shares of common stock at $0.6875 per share to a company for the
relinquishment of all its claims to participate in certain future royalties,
license fees and profits. During August 1998, the Company issued 5,640,000
shares of common stock upon the full net exercise of the warrants.
In March 2000, the Company assumed warrants to purchase 11,000, 68,000, and
7,000 shares of common stock at $10.21, $2.91, and $6.56 per share,
respectively, as a result of the acquisition of SnapTrack. In April 2000, the
Company issued 86,000 shares of common stock upon the full cash exercise of the
warrants.
PREFERRED STOCK
The Company has 8,000,000 shares of preferred stock authorized for issuance
in one or more series, at a par value of $0.0001 per share. In conjunction with
the distribution of Preferred Share Purchase Rights, the Company's Board of
Directors designated 1,500,000 shares of preferred stock as Series A Junior
Participating Preferred Stock and reserved such shares for issuance upon
exercise of the Preferred Share Purchase Rights. At September 30, 2000 and 1999,
no shares of preferred stock were outstanding.
32
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. CAPITAL STOCK (CONTINUED)
PREFERRED SHARE PURCHASE RIGHTS PLAN
During fiscal 1996, the Board of Directors implemented a Preferred Share
Purchase Rights Plan (Rights Plan) to protect stockholders' rights in the event
of a proposed takeover of the Company. Under the Rights Plan, the Company
declared a dividend of one preferred share purchase right (a Right) for each
share of the Company's common stock outstanding. Pursuant to the Rights Plan,
each Right entitles the registered holder to purchase from the Company a one
one-hundredth share of Series A Junior Participating Preferred Stock, $0.0001
par value per share, at a purchase price of $250. In November 1999, the Rights
Plan was amended to provide that the purchase price be set at $400. The Rights
are exercisable only if a person or group (an Acquiring Person) acquires
beneficial ownership of 15% or more of the Company's outstanding shares of
common stock. Upon exercise, holders, other than an Acquiring Person, will have
the right, subject to termination, to receive the Company's common stock or
other securities, cash or other assets having a market value, as defined, equal
to twice such purchase price. The Rights, which expire on September 25, 2005,
are redeemable in whole, but not in part, at the Company's option at any time
for a price of $0.005 per Right.
NOTE 10. INCOME TAXES
The components of income tax provision for the years ended September 30 are
as follows (in thousands):
2000 1999 1998
--------- --------- ---------
Current provision:
Federal.................................. $ 289,135 $ 143,534 $ 86,488
State.................................... 54,423 22,211 1,916
Foreign.................................. 62,385 36,657 7,319
--------- --------- ---------
405,943 202,402 95,723
--------- --------- ---------
Deferred provision (benefit):
Federal.................................. 97,522 (86,996) (46,862)
State.................................... 23,129 (9,599) (8,719)
--------- --------- ---------
120,651 (96,595) (55,581)
--------- --------- ---------
$ 526,594 $ 105,807 $ 40,142
========= ========= =========
33
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INCOME TAXES (CONTINUED)
The following is a reconciliation from the expected statutory federal income
tax provision to the Company's actual income tax provision for the years ended
September 30 (in thousands):
2000 1999 1998
--------- --------- ---------
Expected income tax provision at federal statutory tax
rate..................................................... $ 418,881 $ 107,363 $ 52,036
State income tax provision, net of federal benefit......... 62,234 15,951 7,732
Foreign taxes.............................................. 62,385 36,657 7,075
Permanent differences...................................... 16,278 2,108 5,754
Goodwill amortization and purchased in-process
technology............................................... 79,811 -- --
Tax credits................................................ (104,497) (56,800) (34,015)
Other...................................................... (8,498) 528 1,560
--------- --------- ---------
Actual income tax provision................................ $ 526,594 $ 105,807 $ 40,142
========= ========= =========
U.S. income taxes and foreign withholding taxes were not provided for on a
cumulative total of approximately $13 million of undistributed earnings for
certain non-U.S. subsidiaries. The Company intends to reinvest these earnings
indefinitely in operations outside the United States. At September 30, 2000 and
1999, the Company had net deferred tax assets as follows (in thousands):
2000 1999
--------- ---------
Accrued liabilities......................................... $ 144,095 $ 232,397
Unrealized loss on marketable securities.................... 62,658 --
Unused net operating losses................................. 289,613 73,962
Tax credits................................................. 214,349 51,864
--------- ---------
Total gross assets.................................... 710,715 358,223
Valuation allowance......................................... (584,001) --
--------- ---------
Total deferred assets................................. 126,714 358,223
--------- ---------
Purchased intangible assets................................. (11,496) --
Unrealized gain on marketable securities.................... (73,659) (74,409)
Other basis differences..................................... (41,559) (41,809)
--------- ---------
Total deferred liabilities............................ (126,714) (116,218)
--------- ---------
$ -- $ 242,005
========= =========
The Company has provided a valuation allowance on its net deferred tax
assets because of uncertainty regarding their realizability due to the
expectation that deductions from future employee stock option exercises and
related deductions will exceed future taxable income. If or when recognized, the
tax benefit of these deferred assets will be accounted for as a credit to
shareholders' equity rather than as a reduction of the income tax provision.
At September 30, 2000, the Company had unused net operating losses,
manufacturing, research, foreign tax and alternative minimum tax credits
expiring from 2002 through 2019. The unused net operating tax losses were
generated by the exercise of non-qualified employee stock options.
34
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. INCOME TAXES (CONTINUED)
Cash amounts paid for income taxes were $44 million, $68 million and
$58 million for fiscal 2000, 1999 and 1998, respectively.
NOTE 11. EMPLOYEE BENEFIT PLANS
EMPLOYEE SAVINGS AND RETIREMENT PLAN
The Company has a 401(k) plan that allows eligible employees to contribute
up to 15% of their salary, subject to annual limits. The Company matches a
portion of the employee contributions and may, at its discretion, make
additional contributions based upon earnings. The Company's contribution expense
for fiscal 2000, 1999 and 1998 was $17 million, $17 million and $10 million,
respectively.
STOCK OPTION PLANS
The Board of Directors may grant options to selected employees, directors
and consultants to the Company to purchase shares of the Company's common stock
at a price not less than the fair market value of the stock at the date of
grant. The 1991 Stock Option Plan (the Plan), as amended, authorizes up to
295,200,000 shares to be granted no later than August 2001. The Plan provides
for the grant of both incentive stock options and non-qualified stock options.
Generally, options outstanding vest over periods not exceeding six years and are
exercisable for up to ten years from the grant date. At September 30, 2000,
options for 46,124,000 shares were exercisable at prices ranging from $2.19 to
$147.87 for an aggregate exercise price of $336 million.
The Company has a Non-Employee Directors' Stock Option Plan that authorizes
8,560,000 shares to be granted no later than February 2013. This plan provides
for non-qualified stock options to be granted to non-employee directors at fair
market value, vesting over periods not exceeding five years and are exercisable
for up to ten years from the grant date. At September 30, 2000, options for
2,555,000 shares were exercisable at prices ranging from $2.78 to $133.00 per
share for an aggregate exercise price of $12 million.
In March 2000, the Company assumed 1,560,000 outstanding stock options under
the SnapTrack, Inc. 1995 Stock Option Plan (the SnapTrack Plan), as amended with
respect to the acquisition. The SnapTrack Plan expired on the date of
acquisition, and no additional shares may be granted under that plan. The
SnapTrack Plan provided for the grant of both incentive stock options and
non-qualified stock options. Generally, options outstanding vest over periods
not exceeding four years and are exercisable for up to ten years from the grant
date. At September 30, 2000, options for 171,000 shares were exercisable at
prices ranging from $0.02 to $5.30 for an aggregate exercise price of
$0.2 million.
35
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of stock option transactions for the plans follows (number of
shares in thousands):
OPTIONS OUTSTANDING
---------------------------------------
EXERCISE PRICE PER SHARE
OPTIONS ---------------------------
AVAILABLE NUMBER OF WEIGHTED
FOR GRANT SHARES RANGE AVERAGE
--------- --------- ---------------- --------
BALANCE AT SEPTEMBER 30, 1997.................. 31,104 147,849 $0.63 to $7.80 $ 4.50
Additional shares reserved................... 43,760 -- -- --
Options granted.............................. (49,232) 49,232 5.57 to 8.75 7.28
Options canceled............................. 6,472 (6,472) 1.94 to 8.75 5.40
Options exercised............................ -- (10,317) 0.85 to 7.22 3.12
------- -------
BALANCE AT SEPTEMBER 23, 1998 (A).............. 32,104 180,292 $0.63 to $8.75 $ 5.30
Options granted.............................. (384) 384 2.25 to 8.56 6.11
Options canceled............................. 104 (104) 5.11 to 7.80 6.73
------- -------
BALANCE AT SEPTEMBER 30, 1998.................. 31,824 180,572 $0.61 to $8.56 $ 5.19
Additional shares reserved................... 28,000 -- -- --
Options granted.............................. (18,964) 18,964 4.95 to 48.10 13.03
Options canceled............................. 25,336 (25,336) 0.61 to 29.39 5.85
Options exercised............................ -- (48,994) 0.61 to 8.56 4.39
------- -------
BALANCE AT SEPTEMBER 30, 1999.................. 66,196 125,206 $1.09 to $48.10 $ 6.56
Additional shares reserved (b)............... 1,560 -- -- --
Options exchanged (b)........................ (1,560) 1,560 0.02 to 5.30 1.32
Options granted.............................. (9,523) 9,523 46.93 to 172.38 84.30
Options canceled............................. 4,306 (4,306) 2.06 to 140.00 13.94
Options exercised............................ -- (22,015) 0.02 to 112.50 4.96
------- -------
BALANCE AT SEPTEMBER 30, 2000.................. 60,979 109,968 $0.02 to $172.38 $13.25
======= =======
- ------------------------
(a) On September 23, 1998, in connection with the Leap Wireless Spin-off, the
Company adjusted the option exercise prices to maintain the economic value
of the options that existed at the time of the Spin-off. The range and
weighted average exercise prices of options outstanding at September 23,
1998 were $0.61 to $8.56 and $5.19, respectively, as adjusted in connection
with the Leap Wireless Spin-off.
(b) Represents activity related to options that were assumed as a result of the
acquisition of SnapTrack in March 2000.
36
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at September 30, 2000 (number of shares in thousands):
OPTIONS OUTSTANDING
--------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE --------------------------
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER OF CONTRACTUAL LIFE AVERAGE NUMBER OF AVERAGE
EXERCISE PRICES SHARES (IN YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- -------------------------------- --------- ---------------- -------------- --------- --------------
$0.02 to $3.38.................. 11,380 4.23 $ 2.84 10,546 $ 2.95
$3.39 to $6.05.................. 40,301 5.48 4.95 23,271 4.75
$6.06 to $8.02.................. 41,016 7.40 7.10 12,060 7.02
$8.09 to $19.25................. 6,367 8.42 16.08 1,506 16.85
$23.83 to $51.82................ 4,075 8.94 44.05 746 42.57
$53.31 to $83.50................ 4,089 8.96 80.15 568 83.01
$86.63 to $172.38............... 2,740 9.49 118.35 153 115.41
------- -------
109,968 6.59 13.25 48,850 7.13
======= =======
EMPLOYEE STOCK PURCHASE PLANS
The Company has employee stock purchase plans for all eligible employees to
purchase shares of common stock at 85% of the lower of the fair market value on
the first or the last day of each six-month offering period. Employees may
authorize the Company to withhold up to 15% of their compensation during any
offering period, subject to certain limitations. The 1991 Employee Stock
Purchase Plan, as amended, authorizes up to 33,600,000 shares to be granted no
later than August 2001. The 1996 Non-Qualified Employee Stock Purchase Plan
authorizes up to 200,000 shares to be granted at anytime. During fiscal 2000,
1999 and 1998, shares totaling 749,000, 4,774,000 and 3,511,000 were issued
under the plans at an average price of $37.75, $5.44 and $5.52 per share,
respectively. At September 30, 2000, 12,998,000 shares were reserved for future
issuance.
EXECUTIVE RETIREMENT PLANS
The Company has voluntary retirement plans that allow eligible executives to
defer up to 100% of their income on a pretax basis. On a quarterly basis, the
Company matches up to 10% of the participants' deferral in Company common stock
based on the then-current market price, to be distributed to the participant
upon eligible retirement. The income deferred and the Company match held in
trust are unsecured and subject to the claims of general creditors of the
Company. Company contributions begin vesting based on certain minimum
participation or service requirements, and are fully vested at age 65.
Participants who terminate employment forfeit their unvested shares. All shares
forfeited are used to reduce the Company's future matching contributions. The
plans authorize up to 800,000 shares to be allocated to participants at anytime.
During fiscal 2000 no shares, and during fiscal 1999 and 1998, 220,000 and
263,000 shares net of forfeitures, respectively, were issued under the plans.
The Company's matching contribution net of amounts forfeited during fiscal 2000,
1999 and 1998 amounted to $2 million, $1 million and $2 million, respectively.
At September 30, 2000, 341,000 shares, including 163,000 issued and unallocated
forfeited shares, were reserved for future allocation.
37
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. EMPLOYEE BENEFIT PLANS (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
Pro forma information regarding net income and net earnings per common share
has been estimated at the date of grant using the Black-Scholes option-pricing
model based on the following assumptions:
EMPLOYEE STOCK
STOCK OPTION PLANS PURCHASE PLANS
------------------------------------ ------------------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
Risk-free interest rate.......... 6.3% 5.2% 5.5% 5.7% 4.7% 5.1%
Volatility....................... 57.0% 51.0% 50.0% 72.0% 51.0% 50.0%
Dividend yield................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expected life (years)............ 5.5 6.0 6.0 0.5 0.5 0.5
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable and negotiable in a free trading market. In addition, option
valuation models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Company's options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in the opinion of management, the existing models do not
necessarily provide a reliable single measure of the fair value of its options.
The weighted average estimated fair values of stock options granted during
fiscal years 2000, 1999 and 1998 were $48.62, $7.14 and $3.97 per share,
respectively. The weighted average estimated fair values of shares granted under
the Employee Stock Purchase Plans during fiscal years 2000, 1999 and 1998 were
$31.95, $2.80 and $1.99, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is assumed to be amortized to expense over the options' vesting periods.
The pro forma effects of recognizing compensation expense under the fair value
method on net income and net earnings per common share for the years ended
September 30 are as follows (in thousands, except for net earnings per share):
2000 1999 1998
----------------------- ----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
Net income................... $670,211 $570,044 $200,879 $149,100 $108,532 $ 57,747
Net earnings per common
share:
Basic...................... $ 0.93 $ 0.79 $ 0.34 $ 0.25 $ 0.20 $ 0.10
Diluted.................... $ 0.85 $ 0.71 $ 0.31 $ 0.23 $ 0.18 $ 0.10
The effects on pro forma disclosures of applying the fair value method are
not likely to be representative of the effects on pro forma disclosures of
future years because the fair value method is applicable only to options granted
subsequent to September 30, 1995.
NOTE 12. INVESTMENTS IN OTHER ENTITIES
GLOBALSTAR L.P.
Through partnership interests held in certain intermediate limited
partnerships and other indirect interests, the Company owns an approximate 6.3%
interest in Globalstar, a limited partnership formed to
38
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. INVESTMENTS IN OTHER ENTITIES (CONTINUED)
develop, own and operate the Globalstar System. The Company accounts for its
investment under the equity method. As a result of the intermediate limited
partnership agreements, Globalstar profits and losses are allocated to the
Company in accordance with its percentage ownership interest, provided that no
loss shall be allocated to the Company if such allocation would create negative
balances in the Company's intermediate partnership adjusted capital accounts.
For financial reporting purposes, the Company's investment in the intermediate
partnerships had no basis during each of fiscal 2000, 1999 and 1998, and, as a
result, the Company has not recorded any equity losses during those respective
fiscal years.
The Company continues to provide services and sell products under a number
of development and production contracts involving the Globalstar System.
Revenues resulting from the agreements with Globalstar for fiscal 2000, 1999 and
1998 were $219 million, $435 million and $373 million, respectively.
At September 30, 2000 and 1999, $504 million and $349 million in interest
bearing financed amounts and $37 million and $171 million in accounts
receivable, respectively, were outstanding from Globalstar. In May 2000, the
Company and Globalstar signed definitive agreements to finance current and
future contract payments. The financing bears interest at 6% and is payable in
quarterly installments beginning January 15, 2001 through August 15, 2003. The
Company received warrants to purchase 3,450,000 ordinary partnership interests
in Globalstar as part of the financing arrangement for $42.25 per unit, which
approximates the market value of the common shares of Globalstar
Telecommunications Ltd. (GTL) on the transaction date assuming a just over
one-to-four relationship. GTL is a publicly traded company that owns an
approximate 40% interest in Globalstar. Seventy-five percent of the warrants are
vested and the remaining twenty-five percent of the warrants vest on
September 1, 2001. The vested warrants were recorded at an estimated fair value
of $36 million, resulting in a corresponding discount to the finance
receivables. The Company changed its estimate of amounts collectible under
Globalstar contracts and recorded previously unrecognized revenue of $8 million
and interest income of $10 million during fiscal 2000. At September 30, 2000,
$18 million in future contract billings, including unbilled receivables at
September 30, 2000, are expected to be eligible for financing under the
financing agreement with Globalstar.
On June 30, 2000, Globalstar defaulted on a $250 million bank facility that
QUALCOMM partially guaranteed in 1996. As a result of this default, QUALCOMM's
guaranty was called, and QUALCOMM paid $22 million to the subject banks in full
satisfaction of this guaranty. Pursuant to an agreement entered into in 1996,
with respect to the original provision of this guaranty, Globalstar caused
QUALCOMM to accept, in satisfaction of QUALCOMM's subrogation rights, a
subordinated promissory note issued by Globalstar with a principal amount equal
to the amount QUALCOMM paid under its guaranty (the Globalstar Promissory Note).
The Globalstar Promissory Note bears interest at LIBOR plus 3%, and principal
and interest are due and payable in full on June 30, 2003.
In September 2000, Globalstar announced that five of its founding partners
and a sixth partner will provide the company with additional equity financing.
Under the terms of their subscription agreements, QUALCOMM, Loral Space &
Communications, Vodafone, Elsacom, T.E.S.A.M., and ChinaSat will invest
$68 million in GTL common shares. GTL will use all proceeds to purchase
partnership interests in Globalstar, which, in turn, will use the proceeds for
general corporate purposes including capital expenditures, operations and
interest payments. In the first quarter of fiscal 2001, QUALCOMM funded its
$12 million commitment and received 1,120,187 shares of GTL common stock.
The value of the Company's investment in and future business with
Globalstar, as well as its ability to collect outstanding receivables from
Globalstar, depends on the success of Globalstar and the Globalstar
39
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. INVESTMENTS IN OTHER ENTITIES (CONTINUED)
System. If Globalstar fails to generate sufficient cash flow from operations
through the marketing efforts of its service providers, it might be unable to
fund its operating costs or service its debt.
IGNITION, LLC
In March 2000, the Company purchased 42 million Series B Preferred units,
representing an approximate 13% undiluted interest, in Ignition, LLC (Ignition),
a venture firm formed to fund, mentor and build wireless Internet start-up
companies. The Company also received a warrant to purchase four million common
units at $0.46 per unit. The Company made capital contributions of $17 million
during fiscal 2000 and will be required to provide $25 million in additional
equity contributions over five years.
WINGCAST, LLC
In July 2000, Ford Motor Company and QUALCOMM announced the creation of a
new company, Wingcast, LLC (Wingcast), that will develop and deliver wireless
mobility services, including safety and security, information and
communications, and entertainment and mobile commerce, into cars and trucks.
QUALCOMM committed to contribute $125 million to the initial capital of
Wingcast, of which $75 million is payable in cash and $50 million is payable in
non-cash consideration. QUALCOMM may be further committed to fund an additional
$75 million in cash upon vehicle manufacturers committing to enable certain
volumes of vehicles to use Wingcast's services. QUALCOMM holds a 15% interest in
Wingcast.
QUALCOMM PERSONAL ELECTRONICS
In fiscal 1994, a subsidiary of the Company and a subsidiary of Sony
Electronics Inc. (Sony Electronics) entered into a general partnership, QUALCOMM
Personal Electronics (QPE), to manufacture CDMA consumer equipment for cellular,
PCS and other wireless applications. The Company owns 51% of the venture and
consolidates QPE in its financial statements. Sony Electronics' 49% general
partnership share in QPE is presented as a minority interest in the Company's
financial statements. In February 2000, the Company sold its terrestrial-based
CDMA wireless consumer phone business (Note 13). As a result, QPE has no
on-going operations.
During fiscal 2000, 1999 and 1998, QPE sales to Sony Electronics amounted to
$6 million, $249 million and $684 million, respectively. Purchases of inventory
and capital equipment from Sony Electronics and other Sony affiliates during
fiscal 2000, 1999 and 1998 amounted to $3 million, $80 million and
$138 million, respectively. At September 30, 2000 and 1999, outstanding accounts
receivable from Sony Electronics amounted to $2 million and $26 million,
respectively. The $2 million receivable at September 30, 2000 is the result of
on-going business unrelated to QPE. At September 30, 1999, accounts payable to
all Sony Electronics affiliated companies amounted to $14 million.
NEXTWAVE TELECOM INC.
In November 1995, the Company paid $5 million to purchase 1,666,666 shares
of Series B Common Stock and provided a $25 million short-term note receivable
to NextWave Telecom Inc. (NextWave), a privately held company. As part of the
share purchase, the Company also received warrants to buy 1,111,111 additional
shares of Series B Common Stock at $3 per share. During March 1996, the Company
converted $15 million of the note receivable into 5,000,000 shares of Series B
Common Stock. The conversion was treated as a non-cash transaction for the
consolidated statement of cash flows. In June 1998, the Company recorded a
$20 million non-cash charge to write-off its investment in NextWave.
40
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. INVESTMENTS IN OTHER ENTITIES (CONTINUED)
Subsidiaries of NextWave filed for bankruptcy protection in June 1998 under
Chapter 11 of the U.S. Bankruptcy Code. There is significant uncertainty as to
the outcome of the bankruptcy proceedings.
OTHER INVESTMENTS
The Company makes strategic investments in companies that have developed or
are developing innovative wireless data applications and wireless carriers that
promote the worldwide deployment of CDMA and high data rate, 1xEV, systems.
Other strategic investments as of September 30, 2000 and 1999, amounted to
$148 million and $51 million, respectively. At September 30, 2000, effective
ownership interests in the investees ranged from 1% to 50%. Funding commitments
related to these investments total $66 million at September 30, 2000, which the
Company expects to fund in fiscal 2001. Such commitments are subject to the
investees meeting certain conditions; actual equity funding may be in lesser
amounts. It is not practicable to estimate the fair value of these investments
as the investments are predominantly closely held and not publicly traded. An
investee's failure to successfully develop and provide competitive products and
services due to lack of financing, market demand or unfavorable economic
environment could adversely affect the value of the Company's investment in the
investee. There can be no assurance that the investees will be successful in
their efforts.
NOTE 13. DISPOSITION OF ASSETS AND OTHER CHARGES
In February 2000, the Company sold its terrestrial-based CDMA wireless
consumer phone business, including its phone inventory, manufacturing equipment
and customer commitments, to Kyocera Wireless (Kyocera). Under the agreement
with Kyocera, Kyocera agreed to purchase a majority of its CDMA integrated
circuit sets and system software requirements from QUALCOMM for a period of five
years. Kyocera will continue its existing royalty-bearing CDMA license agreement
with QUALCOMM. QUALCOMM received $242 million, including interest, during fiscal
2000 for the net assets sold.
As part of the agreement with Kyocera, QUALCOMM formed a new subsidiary that
has a substantial number of employees from QUALCOMM Consumer Products business
to provide services to Kyocera on a cost-plus basis to support Kyocera's phone
business for up to three years. In addition, selected employees of QPE were
transferred to Kyocera. As a condition of the purchase, QPE paid down and
cancelled its two revolving credit agreements. QUALCOMM recorded $83 million in
charges during fiscal 2000 to reflect the estimated difference between the
carrying value of the net assets and the consideration received from Kyocera,
less costs to sell, and employee termination costs.
In May 1999, the Company sold certain of its assets related to its
terrestrial CDMA wireless infrastructure business to Ericsson and entered into
various license and settlement agreements with Ericsson. Pursuant to the
Company's agreement with Ericsson, the Company has and will extend financing for
possible future sales by Ericsson of infrastructure equipment and related
services to specific customers in certain geographic areas, including Brazil,
Chile, Mexico, and Russia or in other areas selected by Ericsson (Note 5). The
Company recorded charges of $251 million during fiscal 1999 related to the sales
of its terrestrial CDMA wireless infrastructure business. Ericsson has notified
the Company that it is disputing the purchase price (Note 15).
The Company leases certain facilities to Ericsson and Kyocera under
noncancelable operating leases, with provisions for cost-of-living increases.
The leases expire on various dates through May 31, 2004 and February 20, 2005,
respectively, and generally provide for renewal options thereafter. Future
minimum
41
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. DISPOSITION OF ASSETS AND OTHER CHARGES (CONTINUED)
rentals in each of the next five years from fiscal 2001 to 2005 are
$22 million, $22 million, $23 million, $19 million and $5 million, including
$1 million in fiscal 2001 and 2002 related to subleases.
On July 25, 2000, QUALCOMM announced that it intends to spin-off its
integrated circuits and system software solutions business. In connection with
this announcement, QUALCOMM filed a Current Report on Form 8-K dated July 25,
2000.
NOTE 14. RESTRUCTURING
During January 1999, the Company completed a review of its operating
structure to identify opportunities to improve operating effectiveness in
connection with the Company's plan to exit certain activities in its
infrastructure equipment business. As a result of this review, management
approved a formal restructuring plan that eliminated 651 positions. The Company
recorded charges to operations of $15 million during the second quarter of
fiscal 1999, including $10 million in employee termination costs, $3 million in
asset impairments and $1 million in estimated net losses on subleases or lease
cancellation penalties. The activities related to the restructuring have been
completed. The following table presents the roll forward from the initial
provision during fiscal 1999 to September 30, 2000 (in thousands):
SEPTEMBER 30, SEPTEMBER 30,
PROVISIONS DEDUCTIONS 1999 DEDUCTIONS 2000
---------- ---------- ------------- ---------- -------------
Employee termination costs.... $ 10,162 $(10,162) $ -- $ -- $ --
Facility exit costs........... 4,397 (3,866) 531 (531) --
-------- -------- -------- -------- --------
Total......................... $ 14,559 $(14,028) $ 531 $ (531) $ --
======== ======== ======== ======== ========
NOTE 15. COMMITMENTS AND CONTINGENCIES
LITIGATION
On or about June 5, 1997, Elisra Electronic Systems Ltd. (Elisra) submitted
to the International Chamber of Commerce a Request for Arbitration of a dispute
with the Company based upon a Development and Supply Agreement (DSA) entered
into between the parties effective November 15, 1995, alleging that the Company
wrongfully terminated the DSA, seeking monetary damages. The Company thereafter
submitted a Reply and Counterclaim, alleging that Elisra breached the DSA,
seeking monetary damages. Subsequently, the parties stipulated that the dispute
be heard before an arbitrator under the jurisdiction of the American Arbitration
Association, and to bifurcate the resolution of liability issues from damage
issues. To date, the arbitrator has heard testimony regarding the liability or
non-liability of the parties, post-hearing briefs have been filed, and the
parties have submitted oral argument. Although there can be no assurance that
the resolution of these claims will not have a material adverse effect on the
Company's results of operations, liquidity or financial position, the Company
believes that the claims made by Elisra are without merit and will vigorously
defend against the claims.
On October 27, 1998, the Electronics and Telecommunications Research
Institute of Korea (ETRI) submitted to the International Chamber of Commerce a
Request for Arbitration (the Request) of a dispute with the Company arising out
of a Joint Development Agreement (JDA) dated April 30, 1992, between ETRI and
the Company. In the Request, ETRI alleged that the Company breached certain
provisions of the JDA and sought monetary damages and an accounting. The Company
filed an answer and counterclaims denying the allegations, seeking a declaration
establishing the termination of the JDA
42
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
and monetary damages and injunctive relief against ETRI. The arbitration hearing
has concluded, and all argument has been submitted to the arbitral panel. A
decision is pending. Although there can be no assurance that the resolution of
these claims will not have a material adverse effect on the Company's results of
operations, liquidity or financial position, the Company believes that the
claims are without merit and will vigorously defend the action.
On May 6, 1999, Thomas Sprague, a former employee of the Company, filed a
putative class action against the Company, ostensibly on behalf of himself and
those of the Company's former employees who were offered employment with
Ericsson in conjunction with the sale to Ericsson of certain of the Company's
infrastructure division assets and liabilities and who elected not to
participate in a Retention Bonus Plan being offered to such former employees.
The complaint was filed in California Superior Court in and for the County of
San Diego and purports to state eight causes of action arising primarily out of
alleged breaches of the terms of the Company's 1991 Stock Option Plan, as
amended from time to time. The putative class sought to include former employees
of the Company whom, among other things, "have not or will not execute the Bonus
Retention Plan and accompanying full and complete release of QUALCOMM." The
complaint seeks an order accelerating all unvested stock options for the members
of the class. Of the 1,053 transitioning former employees who had unvested stock
options, 1,016 elected to participate in the Retention Bonus Plan offered by
QUALCOMM and Ericsson, which provides several benefits including cash
compensation based upon a portion of the value of their unvested options, and
includes a written release of claims against the Company. On July 30, 1999,
plaintiffs filed a First Amended Complaint incorporating the allegations set
forth in the original complaint, adding two new causes of action and expanding
the putative class to also include those former employees who chose to
participate in the Bonus Retention Plan. In October 1999, the court sustained
the Company's demurrer to the plaintiffs' cause of action for breach of
fiduciary duty. Counsel for the putative class filed a Second Amended Complaint,
including substantially the same allegations as the First Amended Complaint, on
November 1, 1999. On March 10, 2000, counsel for plaintiffs and QUALCOMM filed a
Stipulation of Settlement with the court that would allocate a settlement
payment of $9 million, which will be funded by third parties, to all plaintiffs
who do not elect to opt out of the settlement on or before April 17, 2000. The
number of employees electing to opt out exceeded the limit, and the Company
elected to void the settlement. On September 15, 2000, the Court certified the
case as a class action. Although there can be no assurance that an unfavorable
outcome of the dispute would not have a material adverse effect on the Company's
results of operations, liquidity or financial position, the Company believes the
claims are without merit and will vigorously defend the action.
On June 29, 1999, GTE Wireless, Incorporated (GTE) filed an action in the
U.S. District Court for the Eastern District of Virginia asserting that wireless
telephones sold by the Company infringe a single patent allegedly owned by GTE.
On September 15, 1999, the court granted the company's motion to transfer the
action to the U.S. District Court for the Southern District of California. Trial
is scheduled to commence in this case on February 27, 2001. Although there can
be no assurance that an unfavorable outcome of the dispute would not have a
material adverse effect on the Company's results of operations, liquidity or
financial position, the Company believes the action is without merit and will
vigorously defend the action.
43
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
QUALCOMM and Ericsson are currently participating in an arbitration in which
Ericsson is disputing the determination of the purchase price under the asset
purchase agreement pursuant to which Ericsson acquired certain assets related to
the Company's terrestrial wireless infrastructure business in May 1999. QUALCOMM
has also received notice from Ericsson that Ericsson intends to assert claims
for indemnification under the subject asset purchase agreement. QUALCOMM and
Ericsson are having on-going discussions aimed at potentially resolving these
claims. In the event the parties are unable to otherwise resolve these claims,
the pending arbitration with respect to the purchase price determination shall
continue to proceed forward and Ericsson's claims for indemnification will be
subject to resolution pursuant to the dispute resolution procedures set forth in
the asset purchase agreement. Although there can be no assurance that the
resolution of these claims will not have a material adverse effect on the
Company's results of operations, liquidity or financial position, the Company
believes the claims are without merit and will vigorously defend them.
On February 2, 2000, Thomas Durante, James Curley, Curtis Parker and Joseph
Edwards, filed a putative class action against the Company, ostensibly on behalf
of themselves and those former employees of the Company whose employment was
terminated in April 1999. Virtually all of the purported class of plaintiffs
received severance packages at the time of the termination of their employment,
in exchange for a release of claims, other than federal age discrimination
claims, against the Company. The complaint was filed in California Superior
Court in and for the County of Los Angeles and purports to state ten causes of
action including breach of contract, age discrimination, violation of Labor Code
ss. 200, violation of Labor Code ss. 970, unfair business practices, intentional
infliction of emotional distress, unjust enrichment, breach of the covenant of
good faith and fair dealing, declaratory relief and undue influence. The
complaint seeks an order accelerating all unvested stock options for the members
of the class. On June 27, 2000, the case was ordered transferred from Los
Angeles County Superior Court to San Diego County Superior Court. On July 3,
2000, the Company removed the case to the United States District Court for the
Southern District of California. Although there can be no assurance that an
unfavorable outcome of the dispute would not have a material adverse effect on
the Company's results of operations, liquidity or financial position, the
Company believes the claims are without merit and will vigorously defend the
action.
On June 13, 2000, Van May, Ruth Ann Feldman, Jeffrey Alan MacGuire and
Maurice Clark filed a putative class action lawsuit in San Diego County Superior
Court against the Company and against QUALCOMM Personal Electronics (QPE),
ostensibly on behalf of themselves and other former employees of QPE who were
offered benefits in QPE's Performance Unit Plan. The complaint purports to state
seven causes of action, including breach of contract, violation of California
Labor Code Section. 970, fraud, unfair business practices, unjust enrichment,
breach of the covenant of good faith and fair dealing and declaratory relief.
Although there can be no assurance that an unfavorable outcome of the dispute
would not have a material adverse effect on the Company's results of operations,
liquidity or financial position, the Company believes the claims are without
merit and will vigorously defend the action.
The Company is engaged in other legal actions arising in the ordinary course
of its business and believes that the ultimate outcome of these actions will not
have a material adverse effect on its results of operations, liquidity or
financial position.
OPERATING LEASES
The Company leases certain of its facilities and equipment under
noncancelable operating leases, with terms ranging from two to ten years and
with provisions for cost-of-living increases. Rental expense for
44
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
these facilities and equipment for fiscal 2000, 1999 and 1998 was $19 million,
$17 million and $11 million, respectively. Future minimum lease payments in each
of the next five years from fiscal 2001 through 2005 are $20 million,
$16 million, $10 million, $7 million and $5 million, respectively, and
$5 million thereafter.
PURCHASE OBLIGATIONS
The Company has agreements with certain suppliers to purchase certain
components, and estimates its noncancelable obligations under these agreements
to be approximately $30 million through fiscal 2003. The Company also has a
commitment to purchase communications services for approximately $25 million in
fiscal 2001, $26 million in fiscal 2002, $21 million in fiscal 2003 and
$15 million in each of the subsequent fiscal years through 2006.
LETTERS OF CREDIT, FINANCIAL GUARANTEES AND OTHER FINANCIAL COMMITMENTS
On December 22, 1999 and April 25, 2000, the Company and Pegaso
Telecomunicaciones, S.A. de C.V. (Pegaso), a wireless telecommunications
operating company investee of Leap Wireless, executed commitment letters, in
which the Company agreed to underwrite up to $500 million of debt financing to
Pegaso and its wholly owned subsidiary, Pegaso Comunicaciones y Sistemas, a CDMA
wireless operating company in Mexico. The debt financing would consist of a
$250 million senior secured facility and a $250 million unsecured facility. The
debt facilities are expected to have final maturities of seven to eight years.
The Company currently has approximately $206 million in interest-bearing
receivables from Pegaso and has guaranteed a $175 million bridge facility. The
Company is negotiating an amendment to the $175 million facility to increase the
amount available to $300 million and to extend the term from November 2000 to
June 2001. The bridge facility will be prepaid and cancelled upon funding of
either the $250 million senior secured facility or the $250 million unsecured
facility.
In addition to the debt financing commitment to Pegaso, the Company has
$6 million of letters of credit and $16 million of other financial guarantees
outstanding as of September 30, 2000, none of which are collateralized.
METROSVYAZ LTD.
In fiscal 1999, the Company recorded $51 million in charges to reflect the
impairment of assets related to Metrosvyaz Ltd. (Metrosvyaz), a company formed
to develop and manage investments in wireless operating companies in Russia, as
a result of Leap Wireless' announcement of its intention to withdraw its support
for Metrosvyaz. In February 2000, as a result of ongoing discussions and
QUALCOMM's continued interest in promoting CDMA in Russia, the Company signed a
Memorandum of Understanding (MOU) with Metrosvyaz, pursuant to which, the
Company advanced $6 million under a previously existing loan facility. The
amount advanced was deemed to be nonrecoverable, and the $6 million charge was
recorded as other non-operating expense. In March 2000, the parties agreed to
accelerate certain provisions of the MOU, and as a result, QUALCOMM will receive
a 30% interest in Metrosvyaz before Metrosvyaz meets additional funding
milestones. The MOU provides specific milestones that Metrosvyaz must meet to
obtain an additional $10 million in funding. If the additional funding occurs,
QUALCOMM will receive an additional 5% interest in Metrosvyaz. The Company also
has a commitment to provide up to approximately $30 million in vendor financing
to Metrosvyaz related to potential future sales made by Ericsson to Metrosvyaz
(Note 5).
45
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
PERFORMANCE GUARANTEES
Certain of the Company's contracts provide for performance guarantees to
protect customers against late delivery of its products or a failure to perform.
These performance guarantees generally provide for contract offsets to the
extent the products are not delivered by scheduled delivery dates or the systems
fail to meet specified performance criteria. The Company is dependent in part on
the performance of its suppliers and strategic partners to provide products and
services for the various systems that are the subject of the guarantees. Thus,
the Company's ability to deliver such products and services in a timely manner
may be outside of its control. If the Company is unable to meet its performance
obligations, the performance guarantees could amount to a significant portion of
the contract value and would have a material adverse effect on product margins
and on the Company's results of operations, liquidity and financial position.
NOTE 16. SEGMENT INFORMATION
The Company is organized on the basis of products and services. Reportable
segments are as follows: QUALCOMM CDMA Technologies (QCT) is a leading developer
and supplier worldwide of CDMA-based wireless communication integrated circuits
and system and applications software solutions for voice and data communications
products and services; QUALCOMM Technology Licensing (QTL) licenses third
parties to design, manufacture, and sell products incorporating the Company's
technologies; and QUALCOMM Wireless Systems (QWS) designs, manufactures,
markets, and deploys infrastructure and handset products for use in terrestrial
and non-terrestrial CDMA wireless and satellite networks and provides
satellite-based two-way data messaging, position reporting equipment and
services to transportation companies. The Company sold its terrestrial-based
CDMA wireless consumer phone business, the former operating segment, QUALCOMM
Consumer Products (QCP), to Kyocera in February 2000 (Note 13).
The Company evaluates the performance of its segments based on earnings
before income taxes (EBT). EBT includes the allocation of certain corporate
expenses to the segments, including depreciation and amortization expense
related to unallocated corporate assets. Segment data includes intersegment
revenues. Segment assets are comprised of accounts receivable, finance
receivables and inventory. Total segment assets differ from total assets on a
consolidated basis as a result of unallocated corporate assets.
46
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. SEGMENT INFORMATION (CONTINUED)
The table below presents information about reported segments for the years
ended September 30 (in thousands):
QCT QTL QWS RECONCILING ITEMS TOTAL
----------- ----------- ----------- ----------------- -----------
2000
Revenues................. $ 1,238,702 $ 705,484 $ 720,907 $ 531,687 $ 3,196,780
EBT...................... 391,519 633,336 272,202 (100,252) 1,196,805
Total assets............. 296,054 160,604 1,118,644 4,487,680 6,062,982
1999
Revenues................. $ 1,133,422 $ 454,163 $ 939,780 $ 1,409,934 $ 3,937,299
EBT...................... 427,994 404,947 20,220 (546,475) 306,686
Total assets............. 187,517 91,368 868,143 3,387,922 4,534,950
1998
Revenues................. $ 879,858 $ 289,934 $ 1,048,957 $ 1,129,121 $ 3,347,870
EBT...................... 258,369 256,401 (53,054) (313,042) 148,674
Total assets............. 156,626 49,728 599,166 1,761,193 2,566,713
Other reconciling items for the years ended September 30 are comprised as
follows (in thousands):
2000 1999 1998
---------- ---------- ----------
REVENUES
Revenues from external customers of QCP segment sold..... $ 541,856 $1,469,637 $ 855,101
Elimination of intersegment revenue...................... (190,950) (382,796) (458,259)
Other products........................................... 180,781 323,093 732,279
---------- ---------- ----------
Reconciling items...................................... $ 531,687 $1,409,934 $1,129,121
========== ========== ==========
EARNINGS BEFORE INCOME TAXES
Unallocated corporate expenses........................... $ (337,456) $ (337,723) $ (19,413)
EBT of QCP segment sold.................................. (70,073) (39,983) (168,714)
Unallocated interest expense............................. (2,204) (11,595) (4,579)
Unallocated investment income, net....................... 391,749 26,610 22,434
Distributions on Trust Convertible Preferred Securities
of subsidiary trust.................................... (13,039) (39,297) (39,270)
Intracompany profit...................................... (73,848) (130,676) (102,418)
Other.................................................... 4,619 (13,811) (1,082)
---------- ---------- ----------
Reconciling items...................................... $ (100,252) $ (546,475) $ (313,042)
========== ========== ==========
Generally, revenues between operating segments are based on prevailing
market rates or an approximation thereof. Unallocated corporate expenses for
fiscal 2000 include $83 million in charges related to the sale of the
terrestrial-based CDMA phone business, $60 million for in-process technology
related to the SnapTrack acquisition, and $146 million for amortization of
goodwill and other acquisition-related intangible assets. Unallocated corporate
expenses for fiscal 1999 include $331 million related to the sale of certain
assets of the Company's terrestrial CDMA wireless infrastructure business
(Note 13), restructuring
47
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. SEGMENT INFORMATION (CONTINUED)
charges (Note 14), and the impairment of assets in connection with Leap
Wireless' decision to withdraw its support of Metrosvyaz (Note 2).
Specified items included in segment EBT for years ended September 30 are as
follows (in thousands):
QCT QTL QWS
---------- ---------- ----------
2000
Revenues from external customers....................... $1,130,216 $ 628,766 $ 715,161
Intersegment revenues.................................. 108,486 76,718 5,746
Interest income........................................ -- -- 110,419
Equity in losses of investees.......................... -- -- (1,206)
1999
Revenues from external customers....................... $ 896,484 $ 343,242 $ 928,696
Intersegment revenues.................................. 236,938 110,921 11,084
Interest income........................................ -- -- 16,889
Equity in losses of investees.......................... -- -- (7,074)
1998
Revenues from external customers....................... $ 583,111 $ 218,480 $1,012,344
Intersegment revenues.................................. 296,747 71,454 36,613
Equity in losses of investees.......................... -- -- (20,551)
Sales information by geographic area for the years ended September 30 is as
follows (in thousands):
2000 1999 1998
---------- ---------- ----------
United States............................................ $1,681,104 $2,459,838 $2,213,738
South Korea.............................................. 711,588 881,494 633,142
Other Foreign............................................ 804,088 595,967 500,990
---------- ---------- ----------
$3,196,780 $3,937,299 $3,347,870
========== ========== ==========
The Company distinguishes revenues from external customers by geographic
areas based on customer location.
The net book value of long-lived assets located outside of the United States
was $10 million, $16 million and $15 million at September 30, 2000, 1999 and
1998, respectively.
NOTE 17. SUBSEQUENT EVENTS
In October 2000, the Company agreed to invest $200 million in the
convertible preferred shares of Inquam Limited (Inquam). Inquam is a venture
fund formed to acquire, own, develop and manage wireless telecommunication
systems, either directly or indirectly, with the primary intent of deploying
CDMA-based technology. In October 2000, the Company funded $40 million of this
investment and advanced an additional $10 million under a promissory note that
matures on October 31, 2001 and bears interest at 10%. The Company expects to
fund its remaining equity commitment over three years.
48
QUALCOMM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18. SUMMARIZED QUARTERLY DATA (UNAUDITED)
The following financial information reflects all normal recurring
adjustments that are, in the opinion of management, necessary for a fair
statement of the results of the interim periods. Summarized quarterly data for
fiscal 2000 and 1999 is as follows (in thousands, except per share data):
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
2000
Revenues (1).................................. $1,120,073 $ 727,741 $ 713,521 $ 635,445
Gross profit (2).............................. 471,325 377,345 438,569 402,419
Operating income.............................. 259,921 71,791 217,434 173,492
Net income.................................... 177,119 199,716 154,701 138,675
Basic net earnings per common share (3)....... $ 0.27 $ 0.28 $ 0.21 $ 0.19
Diluted net earnings per common share (3)..... $ 0.23 $ 0.25 $ 0.19 $ 0.17
1999
Revenues...................................... $ 941,223 $ 932,395 $1,004,066 $1,059,615
Gross profit(2)............................... 298,833 308,620 406,399 438,375
Operating income.............................. 77,948 5,189 98,379 223,624
Net income (loss)............................. 48,530 (42,620) 58,948 136,021
Basic net earnings (loss) per common share
(3)......................................... $ 0.09 $ (0.07) $ 0.10 $ 0.21
Diluted net earnings (loss) per common share
(3)......................................... $ 0.08 $ (0.07) $ 0.09 $ 0.18
- ------------------------
(1) The decrease in revenues from the first quarter to the second quarter of
fiscal 2000 was primarily due to a decrease in the terrestrial-based CDMA
consumer product revenue as a result of the sale of the business in
February 2000.
(2) Gross profit is calculated by subtracting cost of revenues from total
revenues.
(3) Earnings per share are computed independently for each quarter and the full
year based upon respective average shares outstanding. Therefore, the sum of
the quarterly net earnings per share amounts may not equal the annual
amounts reported.
49
QUALCOMM INCORPORATED
2001 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The QUALCOMM Incorporated 2001
Stock Option Plan (the "PLAN") is hereby established effective as of February
27, 2001 (the "EFFECTIVE DATE"), subject to the approval by Company
shareholders.
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by
providing an incentive to attract and retain persons eligible to receive
Options under the Plan and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect
until the earlier of its termination by the Board or the date on which all of
the shares of Stock available for issuance under the Plan have been issued
and all restrictions on such shares under the terms of the Plan and the
agreements evidencing Options granted under the Plan have lapsed. However,
all Incentive Stock Options shall be granted, if at all, within ten (10)
years from the earlier of the date the Plan is adopted by the Board or the
date the Plan is duly approved by the stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following
terms shall have their respective meanings set forth below:
(a) "AFFILIATE" means (i) an entity, other
than a Parent Corporation, that directly, or indirectly through one or more
intermediary entities, controls the Company or (ii) an entity, other than a
Subsidiary Corporation, that is controlled by the Company directly, or
indirectly through one or more intermediary entities, or (iii) an entity
which the Board designates as an Affiliate. For this purpose, the term
"control" (including the term "controlled by") means the possession, direct
or indirect, of the power to direct or cause the direction of the management
and policies of the relevant entity, whether through the ownership of voting
securities, by contract or otherwise; or shall have such other meaning
assigned such term for the purposes of registration on Form S-8 under the
Securities Act.
(b) "BOARD" means the Board of Directors of
the Company. If one or more Committees have been appointed by the Board to
administer the Plan, "BOARD" also means such Committee(s).
(c) A "CHANGE IN CONTROL" shall mean an
Ownership Change Event or a series of related Ownership Change Events
(collectively, a "TRANSACTION") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately after the
Transaction, in substantially the same proportions as their ownership of
shares of the Company's voting stock immediately before the Transaction,
direct or indirect beneficial
1
ownership of more than fifty percent (50%) of the total combined voting power
of the outstanding voting securities of the Company or, in the case of a
Transaction described in Section 2.1(u)(iii), the corporation or other
business entity to which the assets of the Company were transferred (the
"TRANSFEREE"), as the case may be. The Board shall determine in its
discretion whether multiple sales or exchanges of the voting securities of
the Company or multiple Ownership Change Events are related. Notwithstanding
the preceding sentence, a Change in Control shall not include a Spinoff
Transaction.
(d) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.
(e) "COMMITTEE" means the Compensation
Committee or other committee of the Board duly appointed to administer the
Plan and having such powers as shall be specified by the Board. Unless the
powers of the Committee have been specifically limited, the Committee shall
have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to
the terms of the Plan and any applicable limitations imposed by law.
(f) "COMPANY" means QUALCOMM Incorporated, a
Delaware corporation, or any Successor.
(g) "CONSULTANT" means a person engaged to
provide consulting or advisory services (other than as an Employee or a
Director) to a Participating Company.
(h) "DIRECTOR" means a member of the Board or
of the board of directors of any other Participating Company.
(i) "DISABILITY" means the Participant has
been determined by the long-term disability insurer of the Participating
Company Group as eligible for disability benefits under the long-term
disability plan of the Participating Company Group or the Participant has
been determined eligible for Supplemental Security Income benefits by the
Social Security Administration of the United States of America.
(j) "EMPLOYEE" means any person treated as an
employee (including an Officer or a Director who is also treated as an
employee) in the records of a Participating Company and, with respect to any
Incentive Stock Option granted to such person, who is an employee for
purposes of Section 422 of the Code; provided, however, that neither Service
as a Director nor payment of a Director's fee shall be sufficient to
constitute employment for purposes of the Plan. The Company shall determine
in good faith and in the exercise of its discretion whether an individual has
become or has ceased to be an Employee and the effective date of such
individual's employment or termination of employment, as the case may be.
(k) "EXCHANGE ACT" means the Securities
Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any
date, the value of the Stock determined as follows:
2
(i) If the Stock is listed on any
established stock exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, the Fair Market Value of a share of Stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or if the stock is traded on
more than one exchange or market, the exchange or market with the greatest
volume of trading in the Stock) on the last market trading day prior to the
day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable.
(ii) In the absence of such markets
for the Stock, the Fair Market Value shall be determined in good faith by the
Board.
(m) "INCENTIVE STOCK OPTION" means an Option
intended to be (as set forth in the Option Agreement) and which qualifies as
an incentive stock option within the meaning of Section 422(b) of the Code.
(n) "INSIDER" means an Officer, a Director of
the Company or other person whose transactions in Stock are subject to
Section 16 of the Exchange Act.
(o) "NON-CONTROL AFFILIATE" means any entity
in which any Participating Company has an ownership interest and which the
Board shall designate as a Non-Control Affiliate.
(p) "NONSTATUTORY STOCK OPTION" means an
Option not intended to be (as set forth in the Option Agreement) or which
does not qualify as an Incentive Stock Option.
(q) "NORMAL RETIREMENT AGE" means the date on
which a Participant has attained the age of sixty (60) years and has
completed ten years of continuous Service.
(r) "OFFICER" means any person designated by
the Board as an officer of the Company.
(s) "OPTION" means a right to purchase Stock
pursuant to the terms and conditions of the Plan. An Option may be either an
Incentive Stock Option or a Nonstatutory Stock Option.
(t) "OPTION AGREEMENT" means an agreement, in
such form as the Board may approve, between the Company and a Participant
setting forth the terms, conditions and restrictions of an Option granted to
the Participant and any shares acquired upon the exercise thereof.
(u) An "OWNERSHIP CHANGE EVENT" shall be
deemed to have occurred if any of the following occurs with respect to the
Company: (i) the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company; (ii) a merger or
consolidation in which the Company is a party; (iii) the sale, exchange, or
transfer of all or substantially all, as determined by the Board in its
discretion, of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
3
(v) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of
the Code.
(w) "PARTICIPANT" means any eligible person
who has been granted one or more Options.
(x) "PARTICIPATING COMPANY" means the Company
or any Parent Corporation or Subsidiary Corporation or Affiliate.
(y) "PARTICIPATING COMPANY GROUP" means, at
any point in time, all entities collectively which are then Participating
Companies.
(z) "PRIOR PLAN OPTION" means, any option
granted pursuant to the Company's 1991 Stock Option Plan which is outstanding
on or after the date on which the Board adopts the Plan or which is granted
thereafter and prior to the Effective Date.
(aa) "RULE 16b-3" means Rule 16b-3 under the
Exchange Act, as amended from time to time, or any successor rule or
regulation.
(bb) "SECTION 162(m)" means Section 162(m) of
the Code.
(cc) "SECURITIES ACT" means the Securities Act
of 1933, as amended.
(dd) "SERVICE" means
(i) a Participant's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. A Participant's Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders Service to the Participating Company Group or a
change in the Participating Company for which the Participant renders such
Service, provided that there is no interruption or termination of the
Participant's Service. Furthermore, only to such extent as may be provided by
the Company's leave policy, a Participant's Service with the Participating
Company Group shall not be deemed to have terminated if the Participant takes
any military leave, sick leave, or other leave of absence approved by the
Company. Notwithstanding the foregoing, a leave of absence shall be treated
as Service for purposes of vesting only to such extent as may be provided by
the Company's leave policy. The Participant's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the entity
for which the Participant performs Service ceasing to be a Participating
Company; except that if the entity for which Participant performs Service is
a Subsidiary Corporation and ceases to be a Participating Company as a result
of the distribution of the voting stock of such Subsidiary Corporation to the
shareholders of the Company, Service shall not be deemed to have terminated
as a result of such distribution. Subject to the foregoing, the Company, in
its discretion, shall determine whether the Participant's Service has
terminated and the effective date of such termination.
(ii) Notwithstanding any other
provision of this Section, a Participant's Service shall not be deemed to
have terminated merely because the Participating Company for which the
Participant renders Service ceases to be a member of the Participating
4
Company Group by reason of a Spinoff Transaction, nor shall Service be deemed
to have terminated upon resumption of Service from the Spinoff Company to a
Participating Company. For all purposes under this Plan, a Participant's
Service shall include Service, whether in the capacity of an Employee,
Director or a Consultant, for the Spinoff Company provided a Participant was
employed by the Participating Company Group immediately prior to the Spinoff
Transaction. Notwithstanding the foregoing, if the Company's auditors
determine that the provisions or operation of the preceding two sentences
would cause the Company to incur a compensation expense and provided further
that in the absence of the preceding two sentences no such compensation
expense would be incurred, then the two preceding sentences shall be without
force or effect, and the vesting and exercisability of each outstanding
Option and any shares acquired upon the exercise thereof shall be determined
under any other applicable provision of the Plan or the Option Agreement
evidencing such Option.
(ee) "SPINOFF COMPANY" means a Participating
Company which ceases to be such as a result of a Spinoff Transacton.
(ff) "SPINOFF TRANSACTION" means a transaction
in which the voting stock of an entity in the Participating Company Group is
distributed to the shareholders of a parent corporation as defined by Section
424(e) of the Code, of such entity.
(gg) "STOCK" means the common stock of the
Company, as adjusted from time to time in accordance with Section 4.2.
(hh) "SUBSIDIARY CORPORATION" means any
present or future "subsidiary corporation" of the Company, as defined in
Section 424(f) of the Code.
(ii) "SUCCESSOR" means a corporation into or
with which the Company is merged or consolidated or which acquires all or
substantially all of the assets of the Company and which is designated by the
Board as a Successor for purposes of the Plan.
(jj) "TEN PERCENT STOCKHOLDER" means a person
who, at the time an Option is granted to such person, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of a Participating Company within the meaning of Section 422(b)(6)
of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are
for convenience only and shall not affect the meaning or interpretation of
any provision of the Plan. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board and its designees.
3.2 AUTHORITY OF OFFICERS. Any Officer shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election
5
which is the responsibility of or which is allocated to the Company herein,
provided the Board has delegated such authority to the Officer with respect
to such matter, right, obligation, determination or election.
3.3 POWERS OF THE BOARD. In addition to any other
powers set forth in the Plan and subject to the provisions of the Plan, the
Board shall have the power and authority:
(a) to determine the persons to whom, and the
time or times at which, Options shall be granted and the number of shares of
Stock to be subject to each Option;
(b) to designate Options as Incentive Stock
Options or Nonstatutory Stock Options;
(c) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction
of any tax withholding obligation arising in connection with the Option or
such shares, including by the withholding or delivery of shares of Stock,
(iv) the timing, terms and conditions of the exercisability of the Option or
the vesting of any shares acquired upon the exercise thereof, (v) the time of
the expiration of the Option, (vi) the effect of the Participant's
termination of Service on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(d) to approve one or more forms of Option
Agreement;
(e) to amend, modify, extend, cancel (subject
to the limitations in Section 11) or renew any Option or to waive any
restrictions or conditions applicable to any Option or any shares acquired
upon the exercise thereof;
(f) to accelerate, continue, extend or defer
the exercisability of any Option or the vesting of any shares acquired upon
the exercise thereof, including with respect to the period following a
Participant's termination of Service;
(g) to delegate to any proper Officer the
authority to grant one or more Options, without further approval of the
Board, to any person eligible pursuant to Section 5, other than a person who,
at the time of such grant, is an Insider; provided, however, that (i) the
exercise price per share of each such Option shall be equal to the Fair
Market Value per share of the Stock on the effective date of grant, and (ii)
each such Option shall be subject to the terms and conditions of the
appropriate standard form of Option Agreement approved by the Board and shall
conform to the provisions of the Plan and such other guidelines as shall be
established from time to time by the Board;
(h) to determine the Fair Market Value of
shares of Stock or other property;
(i) to construe, interpret and apply the
provisions of the Plan and Options granted under it, in its discretion; to
establish, amend and revoke rules and regulations
6
for its administration; and to take all such actions and make all such
decisions as may be necessary or appropriate for the operation and
administration of the Plan, including, without limitation, all such decisions
and determinations as may be expressly delegated to the Board by the terms of
the Plan. The Board, in the exercise of this power, may correct any defect,
omission or inconsistency in the Plan or in any Option Agreement, in a manner
and to the extent it shall deem, in its discretion, necessary, desirable,
appropriate or expedient to make the Plan fully effective.
3.4 SCOPE OF REVIEW OF BOARD ACTION.
(a) The Board's action taken pursuant to the
authority set forth in Sections 3.3(a) through (g) above, and any action,
decision or determination with respect to any matter reserved to the Board in
its sole and absolute discretion under the terms of this Plan shall be final,
binding, and conclusive on the Participating Company Group, any Participant
and any person having an interest in the Plan or any Option granted hereunder.
(b) Except as otherwise provided in Section
3.4(a), the Board's determination of the construction and interpretation of
any provision of the Plan and any actions, decisions or determinations
reserved to the Board in its discretion which are made in good faith shall be
final, binding and conclusive on the Participating Company Group, any
Participant, and any person having an interest in the Plan or any Option
granted hereunder.
3.5 ADMINISTRATION WITH RESPECT TO INSIDERS. With
respect to participation by Insiders in the Plan, at any time that any class
of equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, the Plan shall be administered in compliance with the
requirements, if any, of Rule 16b-3.
3.6 COMMITTEE COMPLYING WITH SECTION 162(m). If the
Company is a "publicly held corporation" within the meaning of Section
162(m), the Board may establish a Committee of "outside directors" within the
meaning of Section 162(m) to approve the grant of any Option which might
reasonably be anticipated to result in the payment of employee remuneration
that would otherwise exceed the limit on employee remuneration deductible for
income tax purposes pursuant to Section 162(m).
3.7 INDEMNIFICATION. In addition to such other rights
of indemnification as they may have as members of the Board or Officers or
Employees of the Participating Company Group, members of the Board and any
Officers or Employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit
or proceeding, or in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan, or any right granted hereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such person is liable for gross negligence,
bad faith or intentional misconduct in duties; provided, however, that within
sixty
7
(60) days after the institution of such action, suit or proceeding, such
person shall offer to the Company, in writing, the opportunity at its own
expense to handle and defend the same, and to retain complete control over
the litigation and/or settlement of such suit, action or proceeding.
3.8 ARBITRATION. Any dispute or claim concerning any
Options granted (or not granted) pursuant to this Plan and any other disputes
or claims relating to or arising out of the Plan shall be fully, finally and
exclusively resolved by binding arbitration conducted pursuant to the
Commercial Arbitration Rules of the American Arbitration Association in San
Diego, California. By accepting an Option, Participants and the Company waive
their respective rights to have any such disputes or claims tried by a judge
or jury.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, the maximum aggregate number of shares
of Stock that may be issued under the Plan shall be One Hundred Fifty Nine
Million, Five Hundred and Forty Thousand, Five Hundred and Seventeen
(159,540,517). The share reserve shall consist of authorized but unissued or
reacquired shares of Stock or any combination thereof. However, the share
reserve, determined at any time, shall be reduced by the number of shares
subject to the Prior Plan Options. If an outstanding Option, including a
Prior Plan Option, for any reason expires or is terminated or canceled or if
shares of Stock are acquired upon the exercise of an Option subject to a
Company repurchase option and are repurchased by the Company at the
Participant's exercise or purchase price, the shares of Stock allocable to
the unexercised portion of such Option or Prior Plan Option or such
repurchased shares of Stock shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In
the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, appropriate adjustments shall be made in
the number and class of shares subject to the Plan and to any outstanding
Options, in the ISO Share Issuance Limit set forth in Section 4.1, in the
Section 162(m) Grant Limit set forth in Section 5.3, and in the exercise
price per share of any outstanding Options. If a majority of the shares which
are of the same class as the shares that are subject to outstanding Options
are exchanged for, converted into, or otherwise become (whether or not
pursuant to an Ownership Change Event, as defined in Section 2.1(u) shares of
another corporation (the "NEW SHARES"), the Board may unilaterally amend the
outstanding Options to provide that such Options are exercisable for New
Shares. In the event of any such amendment, the number of shares subject to,
and the exercise price per share of, the outstanding Options shall be
adjusted in a fair and equitable manner as determined by the Board, in its
discretion. Notwithstanding the foregoing, any fractional share resulting
from an adjustment pursuant to this Section shall be rounded down to the
nearest whole number, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the Stock subject
to the Option.
8
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS.
(a) Except as otherwise provided in this
Section 5.1, Options may be granted only to Employees, Consultants, and
Directors. Options are granted in the sole and absolute discretion of the
Board and eligibility in accordance with this Section shall not entitle any
person to be granted an Option, or, having been granted an Option, to be
granted an additional Option.
(b) INCENTIVE STOCK OPTIONS. An Incentive
Stock Option may be granted only to a person who, on the effective date of
grant, is an Employee of the Company, a Parent Corporation or a Subsidiary
Corporation (each being an "ISO-QUALIFYING CORPORATION"). Any person who is
not an Employee of an ISO-Qualifying Corporation on the effective date of the
grant of an Option to such person may be granted only a Nonstatutory Stock
Option.
(c) CONSULTANT OPTIONS. A Consultant shall
not be eligible for the grant of an Option if, at the time of grant, a Form
S-8 Registration Statement under the Securities Act ( "FORM S-8") is not
available to register either the offer or the sale of the Company's
securities to such Consultant because of the nature of the services that the
Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by the rules governing the use of
Form S-8, unless the Company determines both (i) that such grant (A) shall be
registered in another manner under the Securities Act (E.G., on a Form S-3
Registration Statement) or (B) does not require registration under the
Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities
laws of all other relevant jurisdictions.
5.2 FAIR MARKET VALUE LIMITATION. To the extent that
Options designated as Incentive Stock Options (granted under all stock plans
of the ISO-Qualifying Corporation, including the Plan) become exercisable by
a Participant for the first time during any calendar year for stock having a
Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the
portions of such Options which exceed such amount shall be treated as
Nonstatutory Stock Options. For purposes of this Section, Options designated
as Incentive Stock Options shall be taken into account in the order in which
they were granted, and the Fair Market Value of stock shall be determined as
of the time the Option with respect to such stock is granted. If the Code is
amended to provide for a different limitation from that set forth in this
Section, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required or
permitted by such amendment to the Code. If an Option is treated as an
Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section, the Participant may
designate which portion of such Option the Participant is exercising. In the
absence of such designation, the Participant shall be deemed to have
exercised the Incentive Stock Option portion of the Option first.
5.3 SECTION 162(m) GRANT LIMIT. Subject to adjustment
as provided in Section 4.2, at any such time as the Company is a "publicly
held corporation" within the meaning of Section 162(m), no Employee or
prospective Employee shall be granted one or more Options within any fiscal
year of the Company which in the aggregate are for the purchase of
9
more than Three Million (3,000,000) shares (the "SECTION 162(m) GRANT
LIMIT"). An Option which is canceled in the same fiscal year of the Company
in which it was granted shall continue to be counted against the Section
162(m) Grant Limit for such period.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying,
among other things, the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. No Option or purported
Option shall be a valid and binding obligation of the Company unless
evidenced by a fully executed Option Agreement or by communicating with the
Company in such other manner as the Company may authorize. Option Agreements
may incorporate all or any of the terms of the Plan by reference and shall
comply with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option
shall be established in the discretion of the Board; provided, however, that
(A) the exercise price per share for an Option shall be not less than the
Fair Market Value of a share of Stock on the effective date of grant of the
Option, and (B) no Incentive Stock Option granted to a Ten Percent
Stockholder shall have an exercise price per share less than one hundred ten
percent (110%) of the Fair Market Value of a share of Stock on the effective
date of grant of the Option. Notwithstanding the foregoing, an Option
(whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set
forth above if such Option is granted pursuant to an assumption or
substitution for another option in a manner qualifying under the provisions
of Section 424(a) of the Code.
6.2 EXERCISABILITY AND TERM OF OPTIONS.
(a) OPTION EXERCISABILITY. Options shall be
exercisable at such time or times, or upon such event or events, and subject
to such terms, conditions, performance criteria and restrictions as shall be
determined by the Board and set forth in the Option Agreement evidencing such
Option; provided, however, that (A) no Incentive Stock Option shall be
exercisable after the expiration of ten (10) years after the effective date
of grant of such Option, and (B) no Incentive Stock Option granted to a Ten
Percent Stockholder shall be exercisable after the expiration of five (5)
years after the effective date of grant of such Option. Subject to the
foregoing, unless otherwise specified by the Board in the grant of an Option,
any Option granted hereunder shall terminate ten (10) years after the
effective date of grant of the Option, unless earlier terminated in
accordance with its provisions, or the terms of the Plan.
(b) PARTICIPANT RESPONSIBILITY FOR EXERCISE
OF OPTION. Each Participant is responsible for taking any and all actions as
may be required to exercise any Option in a timely manner, and for properly
executing any documents as may be required for the exercise of an Option in
accordance with such rules and procedures as may be established from time to
time. By signing an Option Agreement each Participant acknowledges that
information regarding the procedures and requirements for the exercise of any
Option is available upon such Participant's request. The Company shall have
no duty or obligation to notify any Participant of the expiration date of any
Option.
10
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED.
Except as otherwise provided below, payment of the exercise price for the
number of shares of Stock being purchased pursuant to any Option shall be
made (i) in cash, by check or cash equivalent, (ii) by tender to the Company,
or attestation to the ownership, of shares of Stock owned by the Participant
having a Fair Market Value not less than the exercise price, (iii) by
delivery of a properly executed notice together with irrevocable instructions
to a broker providing for the assignment to the Company of the proceeds of a
sale or loan with respect to some or all of the shares being acquired upon
the exercise of the Option (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) provided that the Participant is an Employee
(unless otherwise not prohibited by law, including, without limitation, any
regulation promulgated by the Board of Governors of the Federal Reserve
System) and in the Company's sole and absolute discretion at the time the
Option is exercised, by delivery of the Participant's promissory note in a
form approved by the Company for the aggregate exercise price, provided that,
if the Company is incorporated in the State of Delaware, the Participant
shall pay in cash that portion of the aggregate exercise price not less than
the par value of the shares being acquired, (v) by such other consideration
as may be approved by the Board from time to time to the extent permitted by
applicable law, or (vi) by any combination thereof. The Board may at any time
or from time to time, by approval of or by amendment to the standard forms of
Option Agreement described in Section 7, or by other means, grant Options
which do not permit all of the foregoing forms of consideration to be used in
payment of the exercise price or which otherwise restrict one or more forms
of consideration.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding
the foregoing, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company, or attestation to the ownership, of shares of Stock
unless such shares either have been owned by the Participant for more than
six (6) months (and were not used for another Option exercise by attestation
during such period) or were not acquired, directly or indirectly, from the
Company.
(ii) CASHLESS EXERCISE. The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve or terminate any program or
procedures for the exercise of Options by means of a Cashless Exercise.
(iii) PAYMENT BY PROMISSORY NOTE. No
promissory note shall be permitted if the exercise of an Option using a
promissory note would be a violation of any law. Any permitted promissory
note shall be on such terms as the Board shall determine. The Board shall
have the authority to permit or require the Participant to secure any
promissory note used to exercise an Option with the shares of Stock acquired
upon the exercise of the Option or with other collateral acceptable to the
Company. Unless otherwise provided by the Board, if the
11
Company at any time is subject to the regulations promulgated by the Board of
Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's
securities, any promissory note shall comply with such applicable
regulations, and the Participant shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TRANSFERABILITY. An Incentive Stock Option shall
not be transferable except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the person to
whom the Incentive Stock Option is granted only by such person. A
Nonstatutory Stock Option shall not be transferable in any manner (including
without limitation, sale, alienation, anticipation, pledge, encumbrance, or
assignment) other than, (i) by will or by the laws of descent and
distribution, (ii) by written designation of a beneficiary, in a form
acceptable to the Company, with such designation taking effect upon the death
of a Participant, (iii) by delivering written notice to the Company, in a
form acceptable to the Company (including such representations, warranties
and indemnifications as the Company shall require a Participant to make to
protect the Company's interests and ensure that this Nonstatutory Stock
Option has been transferred under the circumstances approved by the Company),
by gift to a Participant's spouse, former spouse, children, stepchildren,
grandchildren, parent, stepparent, grandparent, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, persons having one of the foregoing types of relationship with
a Participant due to adoption, any person sharing a Participant's household
(other than a tenant or employee), a foundation in which these persons or the
Participant control the management of assets, and any other entity in which
these persons (or the Participant) own more than fifty percent of the voting
interests. A transfer to an entity in which more than fifty percent of the
voting interests are owned by these persons (or the Participant) in exchange
for an interest in that entity is specifically included as a permissible type
of transfer. In addition, a transfer to a trust created solely for the
benefit (i.e., a Participant and/or any or all of the foregoing persons hold
more than 50 percent of the beneficial interest in the trust) of a
Participant and/or any or all of the foregoing persons is also a permissible
transferee, or (iv) such other transferees as may be authorized by the Board
in its sole and absolute discretion. During a Participant's life this
Nonstatutory Stock Option is exercisable only by the Participant or a
transferee satisfying the above conditions. Except in the event of a
Participant's death, upon transfer of a Nonstatutory Stock Option to any or
all of the foregoing persons, the Participant, as the Optionee, is liable for
any and all taxes due upon exercise of those transferred Nonstatutory Stock
Options. At no time will a transferee who is considered an affiliate under
Rule 144(a)(1) be able to sell any or all such Stock without complying with
Rule 144. The right of a transferee to exercise the transferred portion of
this Nonstatutory Stock Option shall terminate in accordance with the
Participant's right of exercise under this Nonstatutory Stock Option and is
further subject to such representations, warranties and indemnifications from
the transferee that the Company requires the transferee to make to protect
the Company's interests and ensure that this Nonstatutory Stock Option has
been transferred under the circumstances approved by the Company. Once a
portion of a Nonstatutory Stock Option is transferred, no further transfer
may be made of that portion of the Nonstatutory Stock Option.
12
6.5 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to
earlier termination of the Option as otherwise provided herein and unless
otherwise provided by the Board in the grant of an Option and set forth in
the Option Agreement, an Option shall be exercisable after a Participant's
termination of Service only during the applicable time period determined in
accordance with this Section and thereafter shall terminate.
(i) DISABILITY. If the Participant's
Service terminates because of the Disability of the Participant, the Option
shall continue for the period of such Disability under the terms and
conditions of the Option Agreement and may be exercised by the Participant at
any time during the period of Disability but in any event no later than the
date of expiration of the Option's term as set forth in the Option Agreement
evidencing such Option (the "OPTION EXPIRATION DATE").
(ii) DEATH. If the Participant's
Service terminates because of the death or because of the Disability of the
Participant and such termination is subsequently followed by the death of the
Participant, (A) the exercisability and vesting of the Option and, in the
case of an immediately exercisable Option, any Shares acquired upon exercise
thereof shall be accelerated effective upon the Participant's death, and (B)
the Option, to the extent unexercised and exercisable on the date of the
Participant's death, may be exercised by the Participant's legal
representative or other person who acquired the right to exercise the Option
by reason of the Participant's death at any time prior to the expiration of
twelve (12) months after the date of the Participant's death, but in any
event no later than the Option Expiration Date.
(iii) NORMAL RETIREMENT AGE. If the
Participant's Service terminates at or after Normal Retirement Age of the
Participant, the Option, to the extent unexercised and exercisable on the
date on which the Participant's Service terminated, may be exercised by the
Participant at any time prior to the expiration of twelve (12) months after
the date on which the Participant's Service terminated, but in any event no
later than the Option Expiration Date.
(iv) TERMINATION AFTER LAYOFF. If the
Participant's Service ceases as a result of "Layoff" (as defined below),
then, subject to the Participant's execution of a general release of claims
satisfactory to the Company, (A) the exercisability and vesting of the Option
and, in the case of an immediately exercisable Option, any shares acquired
upon the exercise thereof shall be accelerated effective as of the date on
which the Participant's Service terminated by ten percent (10%) of the shares
which would otherwise be unvested on such date, and (B) the Option, to the
extent unexercised and exercisable on the date on which the Participant's
Service terminated, may be exercised by the Participant (or the Participant's
guardian or legal representative) at any time prior to the expiration of six
(6) months after the date on which the Participant's Service terminated, but
in any event no later than the Option Expiration Date. Notwithstanding the
foregoing, if the Company's auditors determine that the provisions or
operation of the preceding sentence would cause the Company to incur a
compensation expense and provided further that in the absence of the
preceding sentence no such compensation expense would be incurred, then the
preceding sentence shall be without force or effect, and the vesting and
exercisability of each outstanding Option and any shares acquired
13
upon the exercise thereof shall be determined under any other applicable
provision of the Plan or the Option Agreement evidencing such Option.
(v) TERMINATION UPON TRANSFER TO
NON-CONTROL AFFILIATE. If at the request of the Company, Participant
transfers Service to a Non-Control Affiliate and the Participant's Service
ceases as a result, then, subject to the Participant's execution of a general
release of claims form reasonably satisfactory to the Company, the Option, to
the extent unexercised and exercisable on the date on which the Participant's
Service terminated, may be exercised by the Participant (or the Participant's
guardian or legal representative) at any time prior to the expiration of
twelve (12) months after the date on which the Participant's Service
terminated, but in any event no later than the Option Expiration Date.
(vi) TERMINATION AFTER CHANGE IN
CONTROL. If the Participant's Service ceases as a result of Termination After
Change in Control (as defined below), then (A) the exercisability and vesting
of the Option and, in the case of an immediately exercisable Option, any
shares acquired upon the exercise thereof shall be accelerated effective as
of the date on which the Participant's Service terminated, and (B) the
Option, to the extent unexercised and exercisable on the date on which the
Participant's Service terminated, may be exercised by the Participant (or the
Participant's guardian or legal representative) at any time prior to the
expiration of six (6) months after the date on which the Participant's
Service terminated, but in any event no later than the Option Expiration Date.
(vii) OTHER TERMINATION OF SERVICE. If
the Participant's Service with the Participating Company Group terminates
prior to Normal Retirement Age for any reason except Disability, death,
Layoff, Transfer to a Non-Control Affiliate, or Termination after Change in
Control, the Option, to the extent unexercised and exercisable by the
Participant on the date on which the Participant's Service terminates, may be
exercised by the Participant at any time prior to the expiration of thirty
(30) days after the date on which the Participant's Service terminates, but
in any event no later than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, other than termination for Cause, if the
exercise of an Option within the applicable time periods set forth in Section
6.5(a) is prevented by the provisions of Section 10 below, the Option shall
remain exercisable until three (3) months after the date the Participant is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) EXTENSION IF PARTICIPANT SUBJECT TO
SECTION 16(b). Notwithstanding the foregoing, other than termination for
Cause, if a sale within the applicable time periods set forth in Section
6.5(a) of shares acquired upon the exercise of the Option would subject the
Participant to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Participant would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th)
day after the Participant's termination of Service, or (iii) the Option
Expiration Date.
14
(d) CERTAIN DEFINITIONS.
(i) "CAUSE" shall mean any of the
following: (1) the Participant's theft, dishonesty, or falsification of any
Participating Company documents or records; (2) the Participant's improper
use or disclosure of a Participating Company's confidential or proprietary
information; (3) any action by the Participant which has a detrimental effect
on a Participating Company's reputation or business; (4) the Participant's
failure or inability to perform any reasonable assigned duties after written
notice from a Participating Company of, and a reasonable opportunity to cure,
such failure or inability; (5) any material breach by the Participant of any
employment or service agreement between the Participant and a Participating
Company, which breach is not cured pursuant to the terms of such agreement;
(6) the Participant's conviction (including any plea of guilty or nolo
contendere) of any criminal act which impairs the Participant's ability to
perform his or her duties with a Participating Company; or (7) violation of a
material Company policy.
(ii) "GOOD REASON" shall mean any one
or more of the following:
(1) without the
Participant's express written consent, the assignment to the Participant of
any duties, or any limitation of the Participant's responsibilities,
substantially inconsistent with the Participant's positions, duties,
responsibilities and status with the Participating Company Group immediately
prior to the date of the Change in Control;
(2) without the
Participant's express written consent, the relocation of the principal place
of the Participant's employment or service to a location that is more than
fifty (50) miles from the Participant's principal place of employment or
service immediately prior to the date of the Change in Control, or the
imposition of travel requirements substantially more demanding of the
Participant than such travel requirements existing immediately prior to the
date of the Change in Control;
(3) any failure by the
Participating Company Group to pay, or any material reduction by the
Participating Company Group of, (A) the Participant's base salary in effect
immediately prior to the date of the Change in Control (unless reductions
comparable in amount and duration are concurrently made for all other
employees of the Participating Company Group with responsibilities,
organizational level and title comparable to the Participant's), or (B) the
Participant's bonus compensation, if any, in effect immediately prior to the
date of the Change in Control (subject to applicable performance requirements
with respect to the actual amount of bonus compensation earned by the
Participant);
(4) any failure by the
Participating Company Group to (A) continue to provide the Participant with
the opportunity to participate, on terms no less favorable than those in
effect for the benefit of any employee or service provider group which
customarily includes a person holding the employment or service provider
position or a comparable position with the Participating Company Group then
held by the Participant, in any benefit or compensation plans and programs,
including, but not limited to, the Participating Company Group's life,
disability, health, dental, medical, savings, profit sharing, stock purchase
15
and retirement plans, if any, in which the Participant was participating
immediately prior to the date of the Change in Control, or their equivalent,
or (B) provide the Participant with all other fringe benefits (or their
equivalent) from time to time in effect for the benefit of any employee group
which customarily includes a person holding the employment or service
provider position or a comparable position with the Participating Company
Group then held by the Participant;
(5) any breach by the
Participating Company Group of any material agreement between the Participant
and a Participating Company concerning Participant's employment; or
(6) any failure by the
Company to obtain the assumption of any material agreement between
Participant and the Company concerning Participant's employment by a
successor or assign of the Company.
(iii) "LAYOFF" shall mean the
involuntary termination of the Participant's Service for reasons other than
Cause, constructive termination, death, or Disability.
(iv) "TERMINATION AFTER CHANGE IN
CONTROL" shall mean either of the following events occurring within
twenty-four (24) months after a Change in Control:
(1) termination by the
Participating Company Group of the Participant's Service with the
Participating Company Group for any reason other than for Cause; or
(2) the Participant's
resignation for Good Reason from all capacities in which the Participant is
then rendering Service to the Participating Company Group within a reasonable
period of time following the event constituting Good Reason.
Notwithstanding any provision herein to the contrary, Termination After
Change in Control shall not include any termination of the Participant's
Service with the Participating Company Group which (1) is for Cause; (2) is a
result of the Participant's death or Disability; (3) is a result of the
Participant's voluntary termination of Service other than for Good Reason; or
(4) occurs prior to the effectiveness of a Change in Control.
7. STANDARD FORMS OF AGREEMENTS.
7.1 OPTION AGREEMENT. Unless otherwise provided by the
Board at the time the Option is granted, an Option shall comply with and be
subject to the terms and conditions set forth in the form of Option Agreement
approved by the Board concurrently with its adoption of the Plan and as
amended from time to time.
7.2 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any standard form of
agreement described in this Section either in connection with the grant or
amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and
conditions of any such new, revised or amended standard form or forms of
agreement are not inconsistent with the terms of the Plan.
16
8. CHANGE IN CONTROL. In the event of a Change in Control, the
surviving, continuing, successor, or purchasing corporation or other business
entity or parent thereof, as the case may be (the "ACQUIRING CORPORATION"),
may, without the consent of any Participant, either assume the Company's
rights and obligations under outstanding Options or substitute for
outstanding Options substantially equivalent options for the Acquiring
Corporation's stock. In the event the Acquiring Corporation elects not to
assume or substitute for outstanding Options in connection with a Change in
Control, the exercisability and vesting of each such outstanding Option and
any shares acquired upon the exercise thereof held by Participants whose
Service has not terminated prior to such date shall be accelerated, effective
as of the date ten (10) days prior to the date of the Change in Control. The
exercise or vesting of any Option and any shares acquired upon the exercise
thereof that was permissible solely by reason of this Section and the
provisions of such Option Agreement shall be conditioned upon the
consummation of the Change in Control. Any Options which are neither assumed
or substituted for by the Acquiring Corporation in connection with the Change
in Control nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding effective as of the date of the Change
in Control. Notwithstanding the foregoing, shares acquired upon exercise of
an Option prior to the Change in Control and any consideration received
pursuant to the Change in Control with respect to such shares shall continue
to be subject to all applicable provisions of the Option Agreement evidencing
such Option except as otherwise provided in such Option Agreement.
Furthermore, notwithstanding the foregoing, if the corporation the stock of
which is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 2.1(u)(i) constituting a Change in Control
is the surviving or continuing corporation and immediately after such
Ownership Change Event less than fifty percent (50%) of the total combined
voting power of its voting stock is held by another corporation or by other
corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section
1504(b) of the Code, the outstanding Options shall not terminate unless the
Board otherwise provides in its discretion.
9. TAX WITHHOLDING.
9.1 TAX WITHHOLDING IN GENERAL. The Company shall have the
right to deduct from any and all payments made under the Plan, or to require
the Participant, through cash payment or otherwise, including by means of a
Cashless Exercise of an Option, to make adequate provision for, the federal,
state, local and foreign taxes, if any, required by law to be withheld by the
Participating Company Group with respect to an Option or the shares acquired
pursuant thereto. The Company shall have no obligation to deliver shares of
Stock or to release shares of Stock from an escrow established pursuant to an
Option Agreement until the Participating Company Group's tax withholding
obligations have been satisfied by the Participant.
9.2 WITHHOLDING IN SHARES. The Company shall have the
right, but not the obligation, to deduct from the shares of Stock issuable to
a Participant upon the exercise of an Option, or to accept from the
Participant the tender of, a number of whole shares of Stock having a Fair
Market Value, as determined by the Company, equal to all or any part of the
tax withholding obligations of the Participating Company Group. The Fair
Market Value of any shares of Stock withheld or tendered to satisfy any such
tax withholding obligations shall not exceed the amount determined by the
applicable minimum statutory withholding rates.
17
10. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock
upon exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such
securities. Options may not be exercised if the issuance of shares of Stock
upon exercise would constitute a violation of any applicable federal, state
or foreign securities laws or other law or regulations or the requirements of
any stock exchange or market system upon which the Stock may then be listed.
In addition, no Option may be exercised unless (A) a registration statement
under the Securities Act shall at the time of exercise of the Option be in
effect with respect to the shares issuable upon exercise of the Option or (B)
in the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities
Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to
be necessary to the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of any Option, the Company may
require the Participant to satisfy any qualifications that may be necessary
or appropriate, to evidence compliance with any applicable law or regulation
and to make any representation or warranty with respect thereto as may be
requested by the Company.
11. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time.
However, subject to changes in applicable law, regulations or rules that
would permit otherwise, without the approval of the Company's stockholders,
there shall be (A) no increase in the maximum aggregate number of shares of
Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), (B) no change in the class of persons eligible to
receive Incentive Stock Options, and (C) no other amendment of the Plan that
would require approval of the Company's stockholders under any applicable
law, regulation or rule. No termination or amendment of the Plan shall affect
any then outstanding Option unless expressly provided by the Board. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option without the consent of the Participant, unless such
termination or amendment is required to enable an Option designated as an
Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law, regulation or rule.
12. MISCELLANEOUS PROVISIONS.
12.1 REPURCHASE RIGHTS. Shares issued under the Plan
may be subject to a right of first refusal, one or more repurchase options,
or other conditions and restrictions as determined by the Board in its sole
and absolute discretion at the time the Option is granted. The Company shall
have the right to assign at any time any repurchase right it may have,
whether or not such right is then exercisable, to one or more persons as may
be selected by the Company. Upon request by the Company, each Participant
shall execute any agreement evidencing such transfer restrictions prior to
the receipt of shares of Stock hereunder and shall promptly present to the
Company any and all certificates representing shares of Stock acquired
hereunder for the placement on such certificates of appropriate legends
evidencing any such transfer restrictions.
18
12.2 PROVISION OF INFORMATION. Each Participant shall
be given access to information concerning the Company equivalent to that
information generally made available to the Company's common stockholders.
19
PLAN HISTORY
December 11, 2000 Board adopts Plan, with an initial reserve
of 159,540,517 shares.
___________, 2001 Stockholders approve Plan.
QUALCOMM INCORPORATED
2001 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The QUALCOMM Incorporated 2001
Employee Stock Purchase Plan (the "PLAN") is hereby established effective as
of February 27, 2001 (the "EFFECTIVE DATE"), subject to the approval by
Company shareholders.
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of Company and its stockholders by providing an incentive to
attract, retain and reward Eligible Employees of the Participating Company
Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group. The Plan provides such
Eligible Employees with an opportunity to acquire a proprietary interest in
the Company through the purchase of Stock. The Company intends that the Plan
qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments or replacements of such section), and the Plan
shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect
until the earlier of its termination by the Board or the date on which all of
the shares of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the
Plan but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(a) "BOARD" means the Board of Directors of
the Company. If one or more Committees have been appointed by the Board to
administer the Plan, "BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation
Committee or other committee of the Board duly appointed to administer the
Plan and having such powers as shall be specified by the Board. Unless the
powers of the Committee have been specifically limited, the Committee shall
have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to
the terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means QUALCOMM Incorporated, a
Delaware corporation, or any Successor.
(e) "COMPENSATION" means, with respect to any
Offering Period, all salary, wages (including amounts elected to be deferred
by the employee, that would otherwise
1
have been paid, under any cash or deferred arrangement established by the
Company) and overtime pay, but excluding commissions, bonuses, payments under
the 2-for1 vacation program, profit sharing, the cost of employee benefits
paid for by the Company, education or tuition reimbursements, imputed income
arising under any Company group insurance or benefit program, traveling
expenses, business and moving expense reimbursements, income received in
connection with stock options, contributions made by the Company under any
employee benefit plan, and similar items of compensation. Compensation shall
also include payments while on a leave of absence during which participation
continues pursuant to Section 2.1(g) to such extent as may be provided by the
Company's leave policy.
(f) "ELIGIBLE EMPLOYEE" means an Employee who
meets the requirements set forth in Section 5 for eligibility to participate
in the Plan.
(g) "EMPLOYEE" means a person treated as an
employee of a Participating Company for purposes of Section 423 of the Code.
A Participant shall be deemed to have ceased to be an Employee either upon an
actual termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the Plan,
an individual shall not be deemed to have ceased to be an Employee while on
any military leave or other leave of absence approved by the Company of
ninety (90) days or less. If an individual's leave of absence exceeds ninety
(90) days, the individual shall be deemed to have ceased to be an Employee on
the ninety-first (91st) day of such leave unless the individual's right to
reemployment with the Participating Company Group is guaranteed either by
statute or by contract.
(h) "FAIR MARKET VALUE" means, as of any date:
(i) If the Stock is listed on any
established stock exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, the Fair Market Value of a share of Stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or if the stock is traded on
more than one exchange or market, the exchange or market with the greatest
volume of trading in the Stock) on the last market trading day prior to the
day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable. In the absence of such markets for the
Stock, the Fair Market Value shall be determined in good faith by the Board.
(ii) For purposes of this Plan, if the
date as of which the Fair Market Value is to be determined is not a market
trading day, then solely for the purpose of determining Fair Market Value
such date shall be: (A) in the case of the Offering Date, the first market
trading day following the Offering Date; (B) in the case of the Purchase
Date, the last market trading day prior to the Purchase Date.
(i) "OFFERING" means an offering of Stock as
provided in Section 6.
(j) "OFFERING DATE" means, for any Offering,
the first day of the Offering Period.
(k) "OFFERING PERIOD" means a period established
in accordance with Section 6.
2
(l) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of
the Code.
(m) "PARTICIPANT" means an Eligible Employee
who has become a participant in an Offering Period in accordance with Section
7 and remains a participant in accordance with the Plan.
(n) "PARTICIPATING COMPANY" means the Company
and any Parent Corporation or Subsidiary Corporation designated by the Board
as a corporation the Employees of which may, if Eligible Employees,
participate in the Plan. The Board shall have the sole and absolute
discretion to determine from time to time which Parent Corporations or
Subsidiary Corporations shall be Participating Companies.
(o) "PARTICIPATING COMPANY GROUP" means, at
any point in time, the Company and all other corporations collectively which
are then Participating Companies.
(p) "PRIOR PLAN PURCHASE RIGHT" means, a
purchase right granted under the Company's 1991 Employee Stock Purchase Plan
which is outstanding on or after the date on which the Board adopts the Plan.
(q) "PURCHASE DATE" means, for any Offering,
the last day of the Offering Period; provided, however, that the Board in its
discretion may establish one or more additional Purchase Dates during any
Offering Period.
(r) "PURCHASE PRICE" means the price at which
a share of Stock may be purchased under the Plan, as determined in accordance
with Section 9.
(s) "PURCHASE RIGHT" means an option granted
to a Participant pursuant to the Plan to purchase such shares of Stock as
provided in Section 8, which the Participant may or may not exercise during
the Offering Period in which such option is outstanding. Such option arises
from the right of a Participant to withdraw any accumulated payroll
deductions of the Participant not previously applied to the purchase of Stock
under the Plan and to terminate participation in the Plan during an Offering
Period, in accordance with such rules and procedures as may be established by
Board.
(t) "SPINOFF TRANSACTION" means a transaction
in which the voting stock of an entity in the Participating Company Group is
distributed to the shareholders of a parent corporation as defined by Section
424(e) of the Code, of such entity.
(u) "STOCK" means the common stock of the
Company, as adjusted from time to time in accordance with Section 4.2.
(v) "SUBSCRIPTION AGREEMENT" means an
agreement in such form as specified by the Company which is delivered in
written form or by communicating with the Company in such other manner as the
Company may authorize, stating an Employee's election to participate in the
Plan and authorizing payroll deductions under the Plan from the Employee's
Compensation.
3
(w) "SUBSCRIPTION DATE" means the Offering
Date of an Offering Period, or such earlier date as the Company shall
establish.
(x) "SUBSIDIARY CORPORATION" means any
present or future "subsidiary corporation" of the Company, as defined in
Section 424(f) of the Code.
(y) "SUCCESSOR" means a corporation into or
with which the Company is merged or consolidated or which acquires all or
substantially all of the assets of the Company and which is designated by the
Board as a Successor for purpose of the Plan.
2.2 CONSTRUCTION. Captions and titles contained herein
are for convenience only and shall not affect the meaning or interpretation
of any provision of the Plan. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board and its designees. Subject to the provisions of the
Plan, the Board shall determine all of the relevant terms and conditions of
Purchase Rights; provided, however, that all Participants granted Purchase
Rights pursuant to an Offering shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code in such Offering. All
expenses incurred in connection with the administration of the Plan shall be
paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election that is the
responsibility of or that is allocated to the Company herein, provided that
the officer has actual authority with respect to such matter, right,
obligation, determination or election. Any decision or determination of the
Company made by an Officer having actual authority with respect thereto,
shall be final, binding and conclusive on the Participating Company Group,
any Participant, and all persons having an interest in the Plan, or any
Option granted hereunder, unless such Officer's decision or determination is
arbitrary or capricious, fraudulent, or made in bad faith.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE
COMPANY. The Company may, from time to time, consistent with the Plan and the
requirements of Section 423 of the Code, establish, interpret change or
terminate such rules, guidelines, policies, procedures, limitations, or
adjustments as deemed advisable by the Company, in its discretion, for the
proper administration of the Plan, including, without limitation, (a) a
minimum payroll deduction amount required for participation in an Offering,
(b) a limitation on the frequency or number of changes permitted in the rate
of payroll deduction during an Offering, (c) an exchange ratio applicable to
amounts withheld in a currency other than United States dollars, (d) a
payroll deduction greater than or less than the amount designated by a
Participant in order to adjust for the Company's delay or mistake in
processing a Subscription Agreement or in otherwise effecting a Participant's
election under the Plan or as advisable to comply with the requirements
4
of Section 423 of the Code, and (e) determination of the date and manner by
which the Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan.
The Board's determination of the construction and interpretation of
any provision of the Plan, and any actions taken, and any decisions or
determinations made pursuant to the terms of the Plan, shall be final,
binding and conclusive on the Participating Company Group, any Participant,
and any person having an interest in the Plan or any Option granted hereunder
unless the Board's action, decision or determination is arbitrary or
capricious, fraudulent, or made in bad faith.
3.4 INDEMNIFICATION. In addition to such other rights
of indemnification as they may have as members of the Board or Officers or
Employees of the Participating Company Group, members of the Board and any
Officers or Employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit
or proceeding, or in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan, or any right granted hereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such person is liable for gross negligence,
bad faith or intentional misconduct in duties; provided, however, that within
sixty (60) days after the institution of such action, suit or proceeding,
such person shall offer to the Company, in writing, the opportunity at its
own expense to handle and defend the same and to retain complete control over
the litigation and/or settlement of such suit, action or proceeding.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, the maximum aggregate number of shares
of Stock that may be issued under the Plan shall be Twelve Million, Nine
Hundred and Eight Thousand, Three Hundred and Nine (12,908,309), less the
number of shares issued pursuant to exercise of a Prior Plan Purchase Right,
and shall consist of authorized but unissued or reacquired shares of Stock,
or any combination thereof. If an outstanding Purchase Right or Prior Plan
Purchase Right for any reason expires or is terminated or canceled, the
shares of Stock allocable to the unexercised portion of that Purchase Right
or Prior Plan Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In
the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, or in the event of any merger (including a
merger effected for the purpose of changing the Company's domicile), sale of
assets or other reorganization in which the Company is a party, appropriate
adjustments shall be made in the number and class of shares subject to the
Plan, each Purchase Right, and in the Purchase Price. If a majority of the
shares of the same class as the shares subject to outstanding Purchase Rights
are exchanged for, converted into, or otherwise become (whether or not
pursuant to an
5
Ownership Change Event) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights shall be adjusted in a fair and equitable manner,
as determined by the Board, in its discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section
4.2 shall be rounded down to the nearest whole number, and in no event may
the Purchase Price be decreased to an amount less than the par value, if any,
of the stock subject to the Purchase Right.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee
of a Participating Company is eligible to participate in the Plan and shall
be deemed an Eligible Employee, except any Employee who is either: (a)
customarily employed by the Participating Company Group for twenty (20) hours
or less per week (b) customarily employed by the Participating Company Group
for not more than five (5) months in any calendar year or (c) has not
completed thirty (30) days of service with a Participating Company, or such
other service requirement, up to a maximum of 2 years, which the Board may
require.
5.2 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding
any provision of the Plan to the contrary, no Employee shall be treated as an
Eligible Employee and granted a Purchase Right under the Plan if, immediately
after such grant, the Employee would own or hold options to purchase stock of
the Company or of any Parent Corporation or Subsidiary Corporation possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of such corporation, as determined in accordance with
Section 423(b)(3) of the Code. For purposes of this Section 5.2, the
attribution rules of Section 424(d) of the Code shall apply in determining
the stock ownership of such Employee.
5.3 DETERMINATION BY COMPANY. The Company shall
determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee or an Eligible Employee
and the effective date of such individual's attainment or termination of such
status, as the case may be. For purposes of an individual's eligibility to
participate in or other rights, if any, under the Plan as of the time of the
Company's determination, all such determinations by the Company shall be
final, binding and conclusive, unless the Company's determination is
arbitrary or capricious, fraudulent, or made in bad faith notwithstanding
that the Company or any court of law or governmental agency subsequently
makes a contrary determination.
6. OFFERINGS.
The Plan shall be implemented by sequential Offerings of
approximately six (6) months duration or such other duration as the Board
shall determine (an "OFFERING PERIOD"); provided, however, that the first
Offering Period (the "INITIAL OFFERING PERIOD") shall commence on July 1,
2001 and end on March 31, 2002. Subsequent Offering Periods shall commence on
or about April 1 and October 1 of each year and end on or about the next
September 30 and March 31, respectively, occurring thereafter.
Notwithstanding the foregoing, the Board, in its sole and absolute
discretion, may establish a different duration for one or more Offering
Periods
6
or different commencing or ending dates for such Offering Periods including
the Initial Offering Period; provided, however, that no Offering Period may
have a duration exceeding twenty-seven (27) months.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may
become a Participant in an Offering Period by delivering a properly completed
Subscription Agreement, in accordance with such rules and procedures as may
be specified by the Company. An Eligible Employee who does not deliver a
properly completed Subscription Agreement to the Company in the required time
period shall not participate in the Plan for that Offering Period.
Furthermore, the Eligible Employee may not participate in a subsequent
Offering Period unless a properly completed Subscription Agreement is
delivered to the Company on or before the Subscription Date for such
subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall
automatically participate in the next Offering Period commencing immediately
after the Purchase Date of each Offering Period in which the Participant
participates provided that the Participant remains an Eligible Employee on
the Offering Date of the new Offering Period and has not either (a) withdrawn
from the Plan pursuant to Section 12.1 or (b) terminated employment as
provided in Section 13. A Participant who may automatically participate in a
subsequent Offering Period, as provided in this Section, is not required to
deliver any additional Subscription Agreement for the subsequent Offering
Period in order to continue participation in the Plan. However, a Participant
may deliver a new Subscription Agreement for a subsequent Offering Period in
accordance with the procedures set forth in Section 7.1 if the Participant
desires to change any of the elections contained in the Participant's then
effective Subscription Agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT.
(i) Except as set forth below (or as
otherwise specified by the Board prior to the Offering Date), on the Offering
Date of each Offering Period, each Participant in that Offering Period shall
be granted automatically a Purchase Right consisting of an option to purchase
that number of whole shares of Stock determined by either dividing fifteen
percent (15%) of such Participant's Compensation during the Offering Period
by the Purchase Price of a share of Stock for such Offering Period or by
dividing Twelve Thousand Five Hundred Dollars ($12,500) by the Fair Market
Value of a share of Stock on such Offering Date, whichever is less. In
connection with any Offering made under this Plan, the Board or the Committee
may specify a maximum number of shares of Common Stock which may be purchased
by any employee as well as a maximum aggregate number of shares of Common
Stock which may be purchased by all eligible employees pursuant to such
Offering. In addition, in connection with any Offering which contains more
than one Purchase Date, the Board or the Committee may specify a maximum
aggregate number of shares which may be purchased by all eligible employees
on any given Purchase Date under the Offering.
7
(ii) Notwithstanding the foregoing,
the aggregate number of shares for which Purchase Rights may be granted in
any Offering Period may not exceed the maximum number of shares which have
been, prior to the Offering Date for such Offering Period, reserved for the
Plan and approved by the stockholders of the Company and not previously been
purchased upon the exercise of Purchase Rights in any prior Offering Period.
(iii) If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering
would exceed any such maximum aggregate number, the Board or the Committee
shall make a pro rata allocation of the shares of Common Stock available in
as nearly a uniform manner as shall be practicable and as it shall deem to be
equitable. No Purchase Right shall be granted on an Offering Date to any
person who is not, on such Offering Date, an Eligible Employee.
8.2 SUBSTITUTION OF RIGHTS. The grant of rights under an
Offering may be done to carry out the substitution of rights under the Plan
for pre-existing rights granted under another employee stock purchase plan,
if such substitution is pursuant to a transaction described in Section 424(a)
of the Code (or any successor provision thereto) and the characteristics of
such substitute rights conform to the requirements of Section 424(a) of the
Code (or any successor provision thereto) and will not cause the
disqualification of this Plan under Section 423 of the Code. Notwithstanding
the other terms of the Plan, such substitute rights shall have the same
characteristics as the characteristics associated with such pre-existing
rights, including, but not limited to, the following:
(i) the date on which such
pre-existing right was granted shall be the "Offering Date" of such
substitute right for purposes of determining the date of grant of the
substitute right;
(ii) the Offering (as defined below)
for such substitute right shall begin on its Offering Date and end coincident
on the applicable Purchase Date, but no later than the end of the offering
(as determined under the terms of such offering) under which the pre-existing
right was granted.
8.3 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. If the
Board establishes an Offering Period of any duration other than six months,
then any limitation on the number of shares of Stock subject to each Purchase
Right granted on the Offering Date of such Offering Period set forth in
Section 8.1(i) shall be prorated based upon the ratio which the number of
months in such Offering Period bears to six (6).
8.4 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding
any provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock
under the Plan to accrue at a rate which, when aggregated with such
Participant's rights to purchase shares under all other employee stock
purchase plans of a Participating Company intended to meet the requirements
of Section 423 of the Code, exceeds Twenty-Five Thousand Dollars ($25,000) in
Fair Market Value (or such other limit, if any, as may be imposed by the
Code) for each calendar year in which such Purchase Right is outstanding at
any time. For purposes of the preceding sentence, the Fair Market Value of
shares purchased during a given Offering Period shall be determined as of the
Offering Date for such
8
Offering Period. The limitation described in this Section shall be applied in
conformance with applicable regulations under Section 423(b)(8) of the Code.
9. PURCHASE PRICE.
The Purchase Price for an Offering Period shall be
eighty-five percent (85%) of the lesser of (a) the Fair Market Value of a
share of Stock on the Offering Date of the Offering Period, or (b) the Fair
Market Value of a share of Stock on the Purchase Date. Notwithstanding the
foregoing, the Board, in its sole discretion, may establish the Purchase
Price at which each share of Stock may be acquired in an Offering Period upon
the exercise of all or any portion of a Purchase Right; provided, however,
that the Purchase Price shall not be less than eighty-five percent (85%) of
the lesser of (a) the Fair Market Value of a share of Stock on the Offering
Date of the Offering Period or (b) the Fair Market Value of a share of Stock
on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or
any portion of a Purchase Right may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the
Offering Period for which such Purchase Right was granted, and, if a payroll
deduction is not permitted under a statute, regulation, rule of a
jurisdiction, or is not administratively feasible, such other payments as may
be approved by the Company, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a
Participant's Compensation on each payday during an Offering Period shall be
determined by the Participant's Subscription Agreement. The Subscription
Agreement shall set forth the percentage of the Participant's Compensation to
be deducted on each payday during an Offering Period in whole percentages, up
to fifteen percent (15%). The Board may change the foregoing limits on
payroll deductions effective as of any Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll
deductions shall commence on the first payday following the Offering Date and
shall continue through the last payday prior to the end of the Offering
Period unless sooner altered or terminated as provided herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS.
During an Offering Period, to the extent provided for in the Offering, a
Participant may elect to decrease the rate of or to stop deductions from his
or her Compensation by delivering to the Company an amended Subscription
Agreement, in such form and manner as specified by the Company, authorizing
such change on or before the Change Notice Date, as defined below. A
Participant who elects, effective following the first payday of an Offering
Period, to decrease the rate of his or her payroll deductions to zero percent
(0%) shall nevertheless remain a Participant in the current Offering Period
unless such Participant withdraws from the Plan as provided in Section 12.1.
The "CHANGE NOTICE DATE" shall be the day established in accordance with
procedures established by the Company.
9
10.4 COMPANY'S HOLDING OF DEDUCTION. All payroll
deductions from a Participant's Compensation shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose. Interest shall
not be paid on sums deducted from a Participant's Compensation pursuant to
the Plan.
10.5 VOLUNTARY WITHDRAWAL OF DEDUCTIONS. A Participant
may withdraw payroll deductions credited to the Plan and not previously
applied toward the purchase of Stock only as provided in Section 12.1.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date,
each Participant's accumulated payroll deductions and other additional
payments specifically permitted by the Plan (without any increase for
interest), will be applied to the purchase of whole shares of Stock, up to
the maximum number of shares permitted pursuant to the terms of the Plan and
the applicable Offering, at the Purchase Price for such Offering. No
fractional shares shall be issued upon the exercise of Purchase Rights
granted under the Plan. The amount, if any, of each Participant's accumulated
payroll deductions remaining after the purchase of shares which is less than
the amount required to purchase one share of Stock on the final Purchase Date
of an Offering shall be retained in each such Participant's account for the
purchase of shares under the next Offering under the Plan, unless such
Participant withdraws from such next Offering, as provided in Section 12.1,
or is no longer eligible to be granted rights under the Plan, as provided in
Section 5, in which case such amount shall be distributed to the Participant
after said final Purchase Date, without interest. The amount, if any, of each
Participant's accumulated payroll deductions remaining after the purchase of
shares which is equal to the amount required to purchase whole shares of
Stock on the final Purchase Date of an Offering shall be refunded in full to
the Participant after such Purchase Date, without interest.
11.2 PRO RATA ALLOCATION OF SHARES. If the number of
shares of Stock which might be purchased by all Participants in the Plan on a
Purchase Date exceeds the number of shares of Stock available in the Plan as
provided in Section 4.1, the Company shall make a pro rata allocation of the
remaining shares in as uniform a manner as practicable and as the Company
determines to be equitable. Any fractional share resulting from such pro rata
allocation to any Participant shall be disregarded.
11.3 DELIVERY OF SHARES. As soon as practicable after
each Purchase Date, the Company shall arrange the delivery to each
Participant of the shares acquired by the Participant on such Purchase Date;
provided that the Company may deliver such shares to a broker designated by
the Company that will hold such shares for the benefit of the Participant.
Shares to be delivered to a Participant under the Plan shall be registered,
or held in an account, in the name of the Participant, or, if requested by
the Participant, such other name or names as the Company may permit under
rules established for the operation and administration of the Plan.
11.4 TAX WITHHOLDING. At the time a Participant's
Purchase Right is exercised, in whole or in part, or at the time a
Participant disposes of some or all of the shares of Stock he or she acquires
under the Plan, the Participant shall make adequate provision for the
10
federal, state, local and foreign tax withholding obligations, if any, of the
Participating Company Group which arise upon exercise of the Purchase Right
or upon such disposition of shares, respectively. The Participating Company
Group may, but shall not be obligated to, withhold from the Participant's
compensation the amount necessary to meet such withholding obligations.
11.5 EXPIRATION OF PURCHASE RIGHT. A Purchase Right
shall expire immediately upon the end of the Offering Period to the extent it
exceeds the number of shares of Stock which are purchased with a
Participant's accumulated payroll deductions or other permitted contribution
during any Offering Period.
11.6 PROVISION OF REPORTS AND STOCKHOLDER INFORMATION
TO PARTICIPANTS. Each Participant who has exercised all or part of his or her
Purchase Right shall receive, as soon as practicable after the Purchase Date,
a report of such Participant's account setting forth the total payroll
deductions accumulated prior to such exercise, the number of shares of Stock
purchased, the Purchase Price for such shares, the date of purchase and the
cash balance, if any, remaining immediately after such purchase that is to be
refunded or retained on behalf of the Participant pursuant to Section 11.1.
The report required by this Section may be delivered in such form and by such
means, including by electronic transmission, as the Company may determine. In
addition, each Participant shall be given access to information concerning
the Company equivalent to that information provided generally to the
Company's common stockholders.
12. WITHDRAWAL FROM PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant
may withdraw from the Plan by signing and delivering to the Company's
designated office a written notice of withdrawal on a form provided by the
Company for this purpose or by communicating with the Company in such other
manner as the Company may authorize. A Participant who voluntarily withdraws
from the Plan is prohibited from resuming participation in the Plan in the
same Offering from which he or she withdrew, but may participate in any
subsequent Offering by again satisfying the requirements of Sections 5 and
7.1. The Company may impose, from time to time, a requirement that the notice
of withdrawal from the Plan be on file with the Company's designated office
for a reasonable period prior to the effectiveness of the Participant's
withdrawal.
12.2 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Section 12.1, the
Participant's accumulated payroll deductions which have not been applied
toward the purchase of shares shall be refunded to the Participant as soon as
practicable after the withdrawal, without the payment of any interest, and
the Participant's participation in the Plan shall terminate. Such accumulated
payroll deductions to be refunded in accordance with this Section may not be
applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
13.1 Upon a Participant's ceasing, prior to a Purchase
Date, to be an Employee of the Participating Company Group for any reason, or
upon the failure of a Participant to remain
11
an Eligible Employee, the Participant's participation in the Plan shall
terminate immediately, except as otherwise provided in Section 2.1(g) and
Section 13.3.
13.2 Upon termination of participation, the terminated
Participant's accumulated payroll deductions which have not been applied
toward the purchase of shares shall, as soon as practicable, be returned to
the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned
pursuant to this Section 13. A Participant whose participation has been so
terminated may again become eligible to participate in future Offerings under
the Plan by satisfying the requirements of Sections 5 and 7.1.
13.3 Upon a Participant's ceasing, prior to a Purchase
Date, to be an Employee of the Participating Company Group for any reason, or
upon the failure of a Participant to remain an Eligible Employee, the
Participant's participation in the Plan shall continue, subject to the
Participant's execution of a general release of claims satisfactory to the
Company, for an additional ninety (90) days; provided, however, this Section
shall not apply in the event of the Participant's death, a Spinoff
Transaction, or to any Participant on a leave of absence governed by Section
2.1(g).
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be
deemed to have occurred if any of the following occurs with respect to the
Company: (i) the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company; (ii) a merger or
consolidation in which the Company is a party; (iii) the sale, exchange, or
transfer of all or substantially all, as determined by the Board in its sole
discretion, of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an
Ownership Change Event or a series of related Ownership Change Events
(collectively, a "TRANSACTION") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately after the
Transaction, in substantially the same proportions as their ownership of
shares of the Company's voting stock immediately before the Transaction,
direct or indirect beneficial ownership of more than fifty percent (50%) of
the total combined voting power of the outstanding voting securities of the
Company or, in the case of a Transaction described in Section 14.1(a)(iii),
the corporation or other business entity to which the assets of the Company
were transferred (the "TRANSFEREE"), as the case may be. The Board shall
determine in its sole discretion whether multiple sales or exchanges of the
voting securities of the Company or multiple Ownership Change Events are
related. Notwithstanding the preceding sentence, a Change in Control shall
not include any Transaction in which the voting stock of an entity in the
Participating Company Group is distributed to the shareholders of a parent
corporation, as defined in Section 424(e) of the Code, of such entity. Any
Ownership Change resulting from an underwritten public offering of the
Company's Stock or the stock of any Participating Company shall not be deemed
a Change in Control for any purpose hereunder.
12
14.2 EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In
the event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may assume the Company's rights and obligations
under the Plan. If the Acquiring Corporation elects not to assume the
Company's rights and obligations under outstanding Purchase Rights, the
Purchase Date of the then current Offering Period shall be accelerated to a
date before the date of the Change in Control specified by the Board, but the
number of shares of Stock subject to outstanding Purchase Rights shall not be
adjusted. All Purchase Rights which are neither assumed by the Acquiring
Corporation in connection with the Change in Control nor exercised as of the
date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
Neither payroll deductions nor a Participant's Purchase
Right may be assigned, transferred, pledged or otherwise disposed of in any
manner other than as provided by the Plan or by will or the laws of descent
and distribution. Any such attempted assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such
act as an election to withdraw from the Plan as provided in Section 12.1. A
Purchase Right shall be exercisable during the lifetime of the Participant
only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or
regulations or the requirements of any securities exchange or market system
upon which the Stock may then be listed. In addition, no Purchase Right may
be exercised unless (a) a registration statement under the Securities Act of
1933, as amended, shall at the time of exercise of the Purchase Right be in
effect with respect to the shares issuable upon exercise of the Purchase
Right, or (b) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Purchase Right may be issued in accordance with
the terms of an applicable exemption from the registration requirements of
said Act. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal
counsel to be necessary to the lawful issuance and sale of any shares under
the Plan shall relieve the Company of any liability in respect of the failure
to issue or sell such shares as to which such requisite authority shall not
have been obtained. As a condition to the exercise of a Purchase Right, the
Company may require the Participant to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation, and to make any representation or warranty with respect thereto
as may be requested by the Company.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE.
A Participant shall have no rights as a stockholder by
virtue of the Participant's participation in the Plan until the date of the
issuance of shares purchased pursuant to the
13
exercise of the Participant's Purchase Right (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of
the Company). No adjustment shall be made for dividends, distributions or
other rights for which the record date is prior to the date such share is
issued, except as provided in Section 4.2. Nothing herein shall confer upon a
Participant any right to continue in the employ of the Participating Company
Group or interfere in any way with any right of the Participating Company
Group to terminate the Participant's employment at any time.
18. DISTRIBUTION ON DEATH.
If a Participant dies, the Company shall deliver any shares
or cash credited to the Participant to the Participant's legal representative.
19. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
20. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan,
except that (a) such termination shall not affect Purchase Rights previously
granted under the Plan, except as permitted under the Plan, and (b) no
amendment may adversely affect a Purchase Right previously granted under the
Plan (except to the extent permitted by the Plan or as may be necessary to
qualify the Plan as an employee stock purchase plan pursuant to Section 423
of the Code or to obtain qualification or registration of the shares of Stock
under applicable federal, state or foreign securities laws). In addition, an
amendment to the Plan must be approved by the stockholders of the Company
within twelve (12) months of the adoption of such amendment if such amendment
would increase the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.1
or Section 4.2) or would change the definition of the corporations that may
be designated by the Board as Participating Companies.
14
PLAN HISTORY
December 11, 2000 Board adopts Plan, with an initial
reserve of 12,908,309 shares.
___________, 2001 Stockholders approve Plan.
QUALCOMM INCORPORATED
2001 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The QUALCOMM Incorporated 2001
Non-Employee Directors' Stock Option Plan (the "PLAN") is hereby established
effective as of February 27, 2001 (the "EFFECTIVE DATE"), subject to the
approval by Company shareholders.
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by
providing an incentive to attract, retain and reward Non-Employee Directors
of the Company by creating an additional incentive for such persons to
contribute to the growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect
until the earlier of its termination by the Board or the date on which all of
the shares of Stock available for issuance under the Plan have been issued
and all restrictions on such shares under the terms of the Plan have lapsed.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following
terms shall have their respective meanings set forth below:
(a) "AFFILIATE" means (i) an entity, other
than a Parent Corporation, that directly, or indirectly through one or more
intermediary entities, controls the Company or (ii) an entity, other than a
Subsidiary Corporation, that is controlled by the Company directly, or
indirectly through one or more intermediary entities, or (iii) an entity
which the Board designates as an Affiliate. For this purpose, the term
"control" (including the term "controlled by") means the possession, direct
or indirect, of the power to direct or cause the direction of the management
and policies of the relevant entity, whether through the ownership of voting
securities, by contract or otherwise; or shall have such other meaning
assigned such term for the purposes of registration on Form S-8 under the
Securities Act.
(b) "BOARD" means the Board of Directors of
the Company. If one or more Committees have been appointed by the Board to
administer the Plan, "BOARD" also means such Committee(s).
(c) A "CHANGE IN CONTROL" shall mean an
Ownership Change Event or a series of related Ownership Change Events
(collectively, a "TRANSACTION") wherein the stockholders of the Company
immediately before the Transaction do not retain immediately after the
Transaction, in substantially the same proportions as their ownership of
shares of the Company's voting stock immediately before the Transaction,
direct or indirect beneficial ownership of more than fifty percent (50%) of
the total combined voting power of the outstanding voting securities of the
Company or, in the case of a Transaction described in Section 2.1(u)(iii),
the corporation or other business entity to which the assets of the Company
1
were transferred (the "TRANSFEREE"), as the case may be. The Board shall
determine in its sole discretion whether multiple sales or exchanges of the
voting securities of the Company or multiple Ownership Change Events are
related. Notwithstanding the preceding sentence, a Change in Control shall
not include a Spinoff Transaction.
(d) "CODE" means the Internal Revenue Code of
1986, as amended, and any applicable regulations promulgated thereunder.
(e) "COMMITTEE" means the Compensation
Committee or other committee of the Board duly appointed to administer the
Plan and having such powers as shall be specified by the Board. Unless the
powers of the Committee have been specifically limited, the Committee shall
have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to
the terms of the Plan and any applicable limitations imposed by law.
(f) "COMPANY" means QUALCOMM Incorporated, a
Delaware corporation, or any Successor.
(g) "CONSULTANT" means a person engaged to
provide consulting or advisory services (other than as an Employee or a
Director) to a Participating Company.
(h) "DIRECTOR" means a member of the Board or
of the board of directors of any other Participating Company.
(i) "DIRECTOR FEES" mean a Non-Employee
Director's annual retainer fee, meeting fees and any other compensation
payable with respect to such individual's Service as a Director.
(j) "DISABILITY" means the Participant has
been determined eligible for supplemental Security Income benefits by the
Social Security Administration of the United States of America and also means
the inability of the Participant, in the opinion of a qualified physician
acceptable to the Company, to perform the duties of the Participant's
position with the Participating Company Group because of sickness or other
physical or mental incapacity.
(k) "EMPLOYEE" means any person treated as an
employee (including an Officer or a Director who is also treated as an
employee) in the records of a Participating Company; provided, however, that
neither Service as a Director nor payment of a Director Fee shall be
sufficient to constitute employment for purposes of the Plan.
(l) "EXCHANGE ACT" means the Securities
Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any
date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on
any established stock exchange or traded on the Nasdaq National Market system
or the Nasdaq SmallCap Market system of the Nasdaq Stock Market established
by the National Association of Securities
2
Dealers, Inc., the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or if the stock is traded on
more than one exchange or market, the exchange or market with the greatest
volume of trading in the Common Stock) on the last market trading day prior
to the day of determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable.
(ii) In the absence of such markets
for the Common Stock, the Fair Market Value shall be determined in good faith
by the Board.
(n) "NON-CONTROL AFFILIATE" means any entity
in which any Participating Company has an ownership interest and which the
Board shall designate as a Non-Control Affiliate.
(o) "NON-EMPLOYEE DIRECTOR" means a member
of the Board who is not an Employee of a Participating Company Group.
(p) "NONSTATUTORY STOCK OPTION" means an
Option not intended to be (as set forth in the Option Agreement) or which
does not qualify as an incentive stock option within the meaning of Section
422(b) of the Code.
(q) "NORMAL RETIREMENT AGE" means the date on
which a Participant has attained the age of seventy (70) years and has
completed nine years of continuous Service.
(r) "OFFICER" means any person designated by
the Board as an officer of the Company.
(s) "OPTION" means a right to purchase Stock
(subject to adjustment as provided in Section 4.2) pursuant to the terms and
conditions of the Plan.
(t) "OPTION AGREEMENT" means an agreement, in
such form as the Board may approve, between the Company and a Participant
setting forth the terms, conditions and restrictions of an Option granted to
the Participant and any shares acquired upon the exercise thereof.
(u) An "OWNERSHIP CHANGE EVENT" shall be
deemed to have occurred if any of the following occurs with respect to the
Company: (i) the direct or indirect sale or exchange in a single or series of
related transactions by the stockholders of the Company of more than fifty
percent (50%) of the voting stock of the Company; (ii) a merger or
consolidation in which the Company is a party; (iii) the sale, exchange, or
transfer of all or substantially all, as determined by the Board in its
discretion, of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(v) "PARENT CORPORATION" means any present or
future "parent corporation" of the Company, as defined in Section 424(e) of
the Code.
(w) "PARTICIPANT" means any eligible person
who has been granted one or more Options.
3
(x) "PARTICIPATING COMPANY" means the Company
or any Parent Corporation or Subsidiary Corporation or Affiliate.
(y) "PARTICIPATING COMPANY GROUP" means, at
any point in time, all entities collectively which are then Participating
Companies.
(z) "PRIOR PLAN OPTION" means, any option
granted pursuant to the Company's 1998 Non-Employee Directors' Stock Option
Plan which is outstanding on or after the date on which the Board adopts the
Plan or which is granted thereafter and prior to the Effective Date.
(aa) "RULE 16b-3" means Rule 16b-3 under the
Exchange Act, as amended from time to time, or any successor rule or
regulation.
(bb) "SECURITIES ACT" means the Securities Act
of 1933, as amended.
(cc) "SERVICE" means
(i) a Participant's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. A Participant's Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders Service to the Participating Company Group or a
change in the Participating Company for which the Participant renders such
Service, provided that there is no interruption or termination of the
Participant's Service. The Participant's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the entity
for which the Participant performs Service ceasing to be a Participating
Company; except that if the entity for which the Participant performs Service
is a Subsidiary Corporation and ceases to be a Participating Company as a
result of the distribution of the voting stock of such Subsidiary Corporation
to the shareholders of the Company or a Parent Corporation, Service shall not
be deemed to have terminated as a result of such distribution. Subject to the
foregoing, the Company, in its discretion, shall determine whether the
Participant's Service has terminated and the effective date of such
termination.
(ii) Notwithstanding any other
provision of this Section, a Participant's Service shall not be deemed to
have terminated merely because the Participating Company for which the
Participant renders Service ceases to be a member of the Participating
Company Group by reason of a Spinoff Transaction, nor shall Service be deemed
to have terminated upon resumption of Service from the Spinoff Company to a
Participating Company. For all purposes under this Plan, a Participant's
Service shall include Service, whether in the capacity of an Employee,
Director or a Consultant, for the Spinoff Company provided a Participant was
employed by the Participating Company Group immediately prior to the Spinoff
Transaction. Notwithstanding the foregoing, if the Company's auditors
determine that the provisions or operation of the preceding two sentences
would cause the Company to incur a compensation expense and provided further
that in the absence of the preceding two sentences no such compensation
expense would be incurred, then the two preceding sentences shall be without
force or effect, and the vesting and exercisability of each outstanding
Option and any shares
4
acquired upon the exercise thereof shall be determined under any other
applicable provision of the Plan or the Option Agreement evidencing such
Option.
(dd) "SPINOFF COMPANY" means a Participating
Company which ceases to be such as a result of a Spinoff Transacton.
(ee) "SPINOFF TRANSACTION" means a transaction
in which the voting stock of an entity in the Participating Company Group is
distributed to the shareholders of a parent corporation as defined by Section
424(e) of the Code, of such entity.
(ff) "STOCK" means the common stock of the
Company, as adjusted from time to time in accordance with Section 4.2.
(gg) "SUBSIDIARY CORPORATION" means any
present or future "subsidiary corporation" of the Company, as defined in
Section 424(f) of the Code.
(hh) "SUCCESSOR" means a corporation into or
with which the Company is merged or consolidated or which acquires all or
substantially all of the assets of the Company and which is designated by the
Board as a Successor for purposes of the Plan.
2.2 CONSTRUCTION. Captions and titles contained herein
are for convenience only and shall not affect the meaning or interpretation
of any provision of the Plan. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board and its designees.
3.2 AUTHORITY OF OFFICERS. Any Officer shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election which is the responsibility of or which
is allocated to the Company herein, provided the Officer has actual authority
with respect to such matter, right, obligation, determination or election.
Any decision or determination of the Company made by an Officer having actual
authority with respect thereto, shall be final, binding and conclusive on the
Participating Company Group, any Participant, and all persons having an
interest in the Plan, or any Option granted hereunder, unless such Officer's
decision or determination is arbitrary or capricious, fraudulent, or made in
bad faith.
3.3 POWERS OF THE BOARD. In addition to any other
powers set forth in the Plan and subject to the provisions of the Plan, the
Board shall have the full and final power and authority, in its discretion:
(a) To construe and interpret the provisions
of the Plan and Options granted under it, in its discretion; to establish,
amend and revoke rules and regulations for its administration, and to take
all such actions and make all such decisions as may be necessary or
5
appropriate for the operation and administration of the Plan, including,
without limitation, all such decisions and determinations as may be expressly
delegated to the Board by the terms of the Plan. The Board, in the exercise
of this power, may correct any defect, omission or inconsistency in the Plan
or in any Option Agreement, in a manner and to the extent it shall deem, in
its discretion, necessary, desirable, appropriate or expedient to make the
Plan fully effective.
(b) To amend the Plan or an Option as provided in
Section 11.
(c) Generally, to exercise such powers and to
perform such acts as the Board deems necessary, desirable, appropriate or
expedient to promote the best interests of the Company which are not in
conflict with the provisions of the Plan.
(d) The Board's determination of the
construction and interpretation of any provision of the Plan, and any actions
taken, and any decisions or determinations made pursuant to the terms of the
Plan which are made in good faith shall be final, binding and conclusive on
the Participating Company Group, any Participant, and any person having an
interest in the Plan or any Option granted hereunder.
3.4 POWERS OF THE COMMITTEE. If administration is
delegated to the Committee, then the Committee shall have, in connection with
the administration of the Plan, the powers theretofore possessed by the Board
(and references in this Plan to the Board shall thereafter be deemed to refer
also to such Committee), except as may be expressly limited in the delegation
of power or as provided in the next sentence. Notwithstanding the foregoing,
the powers of the Committee are limited as follows: (i) construction and
interpretation of the Plan by the Committee shall be subject to review by the
Board, as determined by the Board in its sole discretion, (ii) the
requirements of the Delaware General Corporation Law shall be complied with
at all times, and (iii) the Committee cannot make a discretionary grant under
the Plan, nor amend the terms of an automatic grant under the Plan unless
such grant would still be exempt from the application of Section 16 of the
Exchange Act. The Board may abolish, or limit the powers of, the Committee at
any time and revest in the Board all or some of the administration of the
Plan.
3.5 INDEMNIFICATION. In addition to such other rights
of indemnification as they may have as members of the Board or Officers or
Employees of the Participating Company Group, members of the Board and any
Officers or Employees of the Participating Company Group to whom authority to
act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any action, suit
or proceeding, or in connection with any appeal therein, to which they or any
of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan, or any right granted hereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such person is liable for gross negligence,
bad faith or intentional misconduct in duties; provided, however, that within
sixty (60) days after the institution of such action, suit or proceeding,
such person shall offer to the
6
Company, in writing, the opportunity at its own expense to handle and defend
the same, and to retain complete control over the litigation and/or
settlement of such suit, action or proceeding.
3.6 ARBITRATION. Any dispute or claim concerning any
Options granted (or not granted) pursuant to this Plan and any other disputes
or claims relating to or arising out of the Plan shall be fully, finally and
exclusively resolved by binding arbitration conducted pursuant to the
Commercial Arbitration Rules of the American Arbitration Association in San
Diego, California. By accepting an Option, Participants and the Company waive
their respective rights to have any such disputes or claims tried by a judge
or jury.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to
adjustment as provided in Section 4.2, the maximum aggregate number of shares
of Stock that may be issued under the Plan shall be Six Million Three Hundred
Thousand (6,300,000). The share reserve shall consist of authorized but
unissued or reacquired shares of Stock or any combination thereof. However,
the share reserve, determined at any time, shall be reduced by the number of
shares subject to the Prior Plan Options. If an outstanding Option, including
a Prior Plan Option, for any reason expires or is terminated or canceled or
if shares of Stock are acquired upon the exercise of an Option subject to a
Company repurchase option and are repurchased by the Company at the
Participant's exercise or purchase price, the shares of Stock allocable to
the unexercised portion of such Option or Prior Plan Option or such
repurchased shares of Stock shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In
the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification or similar change in the
capital structure of the Company, appropriate adjustments shall be made in
the number and class of shares subject to the Plan and in the exercise price
per share of any outstanding Options. If a majority of the shares which are
of the same class as the shares that are subject to outstanding Options are
exchanged for, converted into, or otherwise become (whether or not pursuant
to an Ownership Change Event, as defined in Section 2.1(u)) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the
outstanding Options to provide that such Options are exercisable for New
Shares. In the event of any such amendment, the number of shares subject to,
and the exercise price per share of, the outstanding Options shall be
adjusted in a fair and equitable manner as determined by the Board, in its
discretion. Notwithstanding the foregoing, any fractional share resulting
from an adjustment pursuant to this Section shall be rounded down to the
nearest whole number, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the stock subject
to the Option.
5. ELIGIBILITY FOR PARTICIPATION.
Only those persons who, at the time of grant, are serving as
Non-Employee Directors shall be eligible to become Participants and to be
granted an Option.
7
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying, among
other things, the number of shares of Stock covered thereby, in such form as
the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 AUTOMATIC GRANT. Subject to the execution by a
Non-Employee Director of an appropriate Option Agreement, Options shall be
granted automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each Non-Employee
Director shall be granted an Option to purchase twenty thousand (20,000)
shares of Stock (an "INITIAL OPTION") on the date such person first becomes a
Non-Employee Director after the Effective Date; provided, however, that an
Initial Option shall not be granted to a Director who is an Employee and who
subsequently becomes a Non-Employee Director as a result of the termination
of his or her status as an Employee.
(b) ANNUAL OPTION. Each Non-Employee
Director (including any Non-Employee Director who previously did not qualify
as a Non-Employee Director because of his or her status as an Employee) shall
be granted on the date of each annual meeting of the stockholders of the
Company (an "ANNUAL MEETING") immediately following which such person remains
a Non-Employee Director, an Option to purchase ten thousand (10,000) shares
of Stock (an "ANNUAL OPTION"); provided, however, that a Non-Employee
Director granted an Initial Option on, or within a period of 270 days prior
to, the date of an Annual Meeting shall not be granted an Annual Option for
such Annual Meeting.
(c) RIGHT TO DECLINE OPTION. Notwithstanding
the foregoing, any person may elect not to receive an Option pursuant to this
Section by delivering written notice of such election to the Board no later
than the day prior to the date such Option would otherwise be granted. A
person so declining an Option shall receive no payment or other consideration
in lieu of such declined Option. A person who has declined an Option may
revoke such election by delivering written notice of such revocation to the
Board no later than the day prior to the date such Option would be granted
pursuant to Section 6.1(a) or (b), as the case may be.
6.2 EXERCISE PRICE. The exercise price per share of
Stock subject to an Option shall be the Fair Market Value of a share of Stock
on the date of grant of the Option.
6.3 EXERCISABILITY AND TERM OF OPTIONS. Each Option
shall vest and become exercisable as set forth below and shall terminate and
cease to be exercisable on the tenth (10) anniversary date of grant of the
Option, unless earlier terminated in accordance with the terms of the Plan or
the Option Agreement evidencing such Option.
(a) INITIAL OPTIONS. Except as otherwise
provided in the Plan or in the Option Agreement evidencing such Option, each
Initial Option shall vest and become exercisable as follows: (i) twenty
percent (20%) of the Initial Option shall vest and become exercisable on the
first anniversary of the date of grant of the Option, and (ii) 1/60th of the
Initial Option shall vest and become exercisable each month, beginning on the
date thirteen 13 months
8
after the date of grant of the Option, provided the Participant's Service has
not been terminated prior to such date.
(b) ANNUAL OPTIONS. Except as otherwise
provided in the Plan or in the Option Agreement evidencing such Option, each
Annual Option shall vest and become exercisable as follows: (i) ten percent
(10%) of the Annual Option shall vest and become exercisable on the date six
(6) months after the grant of the Option, and (ii) 1/60th of the Annual
Option shall vest and become exercisable each month, beginning on the date
seven (7) months after the date of grant of the Option, provided the
Participant's Service has not terminated prior to such date.
6.4 EARLY EXERCISE. The Option may, but need not,
include a provision whereby the Optionholder may elect at any time while an
Employee, Director or Consultant to exercise the Option as to any part or all
of the shares subject to the Option prior to the full vesting of the Option.
Any unvested shares so purchased shall be subject to a repurchase right in
favor of the Company, with the repurchase price to be equal to the original
purchase price of the Common Stock, or to any other restriction the Board
determines to be appropriate; provided, however, that (i) the right to
repurchase at the original purchase price shall lapse at the same rate as the
Option vests as described elsewhere in the Plan, and (ii) such right shall be
exercisable only within (A) the ninety (90) day period following the
termination of the Participant's Service or (B) such longer period as may be
agreed to by the Company and the Participant.
6.5 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except
as otherwise provided below, payment of the exercise price for the number of
shares of Stock being purchased pursuant to any Option shall be made (i) in
cash, by check or cash equivalent, (ii) by tender to the Company, or
attestation to the ownership, of shares of Stock owned by the Participant
having a Fair Market Value not less than the exercise price, (iii) by
delivery of a properly executed notice together with irrevocable instructions
to a broker providing for the assignment to the Company of the proceeds of a
sale or loan with respect to some or all of the shares being acquired upon
the exercise of the Option (including, without limitation, through an
exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) by such other consideration as may be approved by
the Board from time to time to the extent permitted by applicable law, or (v)
by any combination thereof. The Board may at any time or from time to time,
by approval of or amendment to the standard form of Option Agreement, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding
the foregoing, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock to the extent such tender or
attestation would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company, or
9
attestation to the ownership, of shares of Stock unless such shares either
have been owned by the Participant for more than six (6) months (and were not
used for another Option exercise by attestation during such period) or were
not acquired, directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company
reserves, at any and all times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve or terminate any program or
procedures for the exercise of Options by means of a Cashless Exercise.
6.6 TRANSFERABILITY. An Option shall not be
transferable in any manner (including without limitation, sale, alienation,
anticipation, pledge, encumbrance, or assignment) other than, (i) by will or
by the laws of descent and distribution, (ii) by written designation of a
beneficiary, in a form acceptable to the Company, with such designation
taking effect upon the death of a Participant, (iii) by delivering written
notice to the Company, in a form acceptable to the Company (including such
representations, warranties and indemnifications as the Company shall require
a Participant to make to protect the Company's interests and ensure that this
Option has been transferred under the circumstances approved by the Company),
by gift to a Participant's spouse, former spouse, children, stepchildren,
grandchildren, parent, stepparent, grandparent, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, persons having one of the foregoing types of relationship with
a Participant due to adoption, any person sharing a Participant's household
(other than a tenant or employee), a foundation in which these persons or the
Participant control the management of assets, and any other entity in which
these persons (or the Participant) own more than fifty percent of the voting
interests. A transfer to an entity in which more than fifty percent of the
voting interests are owned by these persons (or the Participant) in exchange
for an interest in that entity is specifically included as a permissible type
of transfer. In addition, a transfer to a trust created solely for the
benefit (i.e., a Participant and/or any or all of the foregoing persons hold
more than 50 percent of the beneficial interest in the trust) of a
Participant and/or any or all of the foregoing persons is also a permissible
transferee, or (iv) such other transferees as may be authorized by the Board
in its sole and absolute discretion. During a Participant's life this Option
is exercisable only by the Participant or a transferee satisfying the above
conditions. Except in the event of a Participant's death, upon transfer of a
Option to any or all of the foregoing persons, the Participant, as the
Optionee, is liable for any and all taxes due upon exercise of those
transferred Options. At no time will a transferee who is considered an
affiliate under Rule 144(a)(1) be able to sell any or all such Stock without
complying with Rule 144. The right of a transferee to exercise the
transferred portion of this Option shall terminate in accordance with the
Participant' s right of exercise under this Option and is further subject to
such representations, warranties and indemnifications from the transferee
that the Company requires the transferee to make to protect the Company's
interests and ensure that this Option has been transferred under the
circumstances approved by the Company. Once a portion of a Option is
transferred, no further transfer may be made of that portion of the Option.
6.7 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to
earlier termination of the Option as otherwise provided herein and unless
otherwise provided by the Board in the grant of an Option and set forth in
the Option Agreement, an Option shall be exercisable after a
10
Participant's termination of Service only during the applicable time period
determined in accordance with this Section and thereafter shall terminate.
(i) DISABILITY AND NORMAL RETIREMENT
AGE. If a Participant's Service terminates because of the Participant's
Disability or after the Participant reaches Normal Retirement Age, then
except as otherwise provided in Section 6.7(a)(ii), (A) the Participant's
Service shall be deemed to continue and the exercisability and vesting of the
Option and, in the case of an immediately exercisable option, the shares
acquired upon exercise thereof shall continue under the terms and conditions
of the Option Agreement, and (B) the Option to the extent unexercised and
exercisable may be exercised by the Participant (or, the Participant's
guardian or legal representative) at any time prior to the expiration of the
Option's term as set forth in the Option Agreement evidencing such Option
(the "Option Expiration Date").
(ii) DEATH. If the Participant's
Service terminates because of the death of the Participant, or if the
Participant dies after attaining Normal Retirement Age, or after the
Disability of the Participant then, (A) the exercisability and vesting of the
Option and any shares acquired on the exercise thereof shall be accelerated
effective as of the date of the Participant's death, and (B) the Option, to
the extent unexercised and exercisable on the date of the Participant's
death, may be exercised by the Participant's legal representative or other
person who acquired the right to exercise the Option by reason of the
Participant's death at any time prior to the expiration of twelve (12) months
after the date of the Participant's death, but in any event no later than the
Option Expiration Date.
(iii) OTHER TERMINATION OF SERVICE. If
the Participant's Service with the Participating Company Group terminates
prior to Normal Retirement Age for any reason except Disability, or death,
the Option, to the extent unexercised and exercisable by the Participant on
the date on which the Participant's Service terminates, may be exercised by
the Participant at any time prior to the expiration of twelve (12) months
after the date on which the Participant's Service terminates, but in any
event no later than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.7(a) is prevented by the
provisions of Section 10 below, the Option shall remain exercisable until
three (3) months after the date the Participant is notified by the Company
that the Option is exercisable, but in any event no later than the Option
Expiration Date.
(c) EXTENSION IF PARTICIPANT SUBJECT TO
SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable
time periods set forth in Section 6.7(a) of shares acquired upon the exercise
of the Option would subject the Participant to suit under Section 16(b) of
the Exchange Act, the Option shall remain exercisable until the earliest to
occur of (i) the tenth (10th) day following the date on which a sale of such
shares by the Participant would no longer be subject to such suit, (ii) the
one hundred and ninetieth (190th) day after the Participant's termination of
Service, or (iii) the Option Expiration Date.
11
7. STANDARD FORMS OF AGREEMENTS.
7.1 OPTION AGREEMENT. Unless otherwise provided by the
Board at the time the Option is granted, an Option shall comply with and be
subject to the terms and conditions set forth in the form of Option Agreement
approved by the Board concurrently with its adoption of the Plan and as
amended from time to time.
7.2 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any standard form of
agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and
conditions of any such new, revised or amended standard form or forms of
agreement are not inconsistent with the terms of the Plan.
8. CHANGE IN CONTROL. In the event of a Change in Control, any
unexercisable or unvested portions of outstanding Options and any shares
acquired upon the exercise thereof held by Participants whose Service has not
terminated prior to such date shall be immediately exercisable and vested in
full as of the date ten (10) days prior to the date of the Change in Control.
The exercise or vesting of any Option and any shares acquired upon the
exercise thereof that was permissible solely by reason of this Section shall
be conditioned upon the consummation of the Change in Control. In addition,
the surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may
either assume the Company's rights and obligations under outstanding Options
or substitute for outstanding Options substantially equivalent options for
the Acquiring Corporation's stock. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Change in
Control nor exercised as of the date of the Change in Control shall terminate
and cease to be outstanding effective as of the date of the Change in
Control. Notwithstanding the foregoing, if the corporation the stock of which
is subject to the outstanding Options immediately prior to an Ownership
Change Event described in Section 2.1(u)(i) constituting a Change in Control
is the surviving or continuing corporation and immediately after such
Ownership Change Event less than fifty percent (50%) of the total combined
voting power of its voting stock is held by another corporation or by other
corporations that are members of an affiliated group within the meaning of
Section 1504(a) of the Code without regard to the provisions of Section
1504(b) of the Code, the outstanding Options shall not terminate unless the
Board otherwise provides in its discretion.
9. TAX WITHHOLDING.
9.1 TAX WITHHOLDING IN GENERAL. The Company shall have
the right to deduct from any and all payments made under the Plan, or to
require the Participant, through cash payment or otherwise, including by
means of a Cashless Exercise of an Option, to make adequate provision for,
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to an Option or the
shares acquired pursuant thereto. The Company shall have no obligation to
deliver shares of Stock or to release shares of Stock from an escrow
established pursuant to an Option Agreement until the Participating Company
Group's tax withholding obligations have been satisfied by the Participant.
12
9.2 WITHHOLDING IN SHARES. The Company shall have the
right, but not the obligation, to deduct from the shares of Stock issuable to
a Participant upon the exercise of an Option, or to accept from the
Participant the tender of, a number of whole shares of Stock having a Fair
Market Value, as determined by the Company, equal to all or any part of the
tax withholding obligations of the Participating Company Group. The Fair
Market Value of any shares of Stock withheld or tendered to satisfy any such
tax withholding obligations shall not exceed the amount determined by the
applicable minimum statutory withholding rates.
10. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock
upon exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such
securities. Options may not be exercised if the issuance of shares of Stock
upon exercise would constitute a violation of any applicable federal, state
or foreign securities laws or other law or regulations or the requirements of
any stock exchange or market system upon which the Stock may then be listed.
In addition, no Option may be exercised unless (a) a registration statement
under the Securities Act shall at the time of exercise of the Option be in
effect with respect to the shares issuable upon exercise of the Option or (b)
in the opinion of legal counsel to the Company, the shares issuable upon
exercise of the Option may be issued in accordance with the terms of an
applicable exemption from the registration requirements of the Securities
Act. The inability of the Company to obtain from any regulatory body having
jurisdiction the authority, if any, deemed by the Company's legal counsel to
be necessary to the lawful issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the failure to issue or
sell such shares as to which such requisite authority shall not have been
obtained. As a condition to the exercise of any Option, the Company may
require the Participant to satisfy any qualifications that may be necessary
or appropriate, to evidence compliance with any applicable law or regulation
and to make any representation or warranty with respect thereto as may be
requested by the Company.
11. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time.
However, subject to changes in applicable law, regulations or rules that
would permit otherwise, without the approval of the Company's stockholders,
there shall be (a) no increase in the maximum aggregate number of shares of
Stock that may be issued under the Plan (except by operation of the
provisions of Section 4.2), and (b) no other amendment of the Plan that would
require approval of the Company's stockholders under any applicable law,
regulation or rule. No termination or amendment of the Plan shall affect any
then outstanding Option unless expressly provided by the Board. In any event,
no termination or amendment of the Plan may adversely affect any then
outstanding Option without the consent of the Participant, unless such
termination or amendment is necessary to comply with any applicable law,
regulation or rule.
12. MISCELLANEOUS PROVISIONS.
12.1 REPURCHASE RIGHTS. Shares issued under the Plan
may be subject to a right of first refusal, one or more repurchase options,
or other conditions and restrictions as determined by the Board in its sole
and absolute discretion at the time the Option is granted. The
13
Company shall have the right to assign at any time any repurchase right it
may have, whether or not such right is then exercisable, to one or more
persons as may be selected by the Company. Upon request by the Company, each
Participant shall execute any agreement evidencing such transfer restrictions
prior to the receipt of shares of Stock hereunder and shall promptly present
to the Company any and all certificates representing shares of Stock acquired
hereunder for the placement on such certificates of appropriate legends
evidencing any such transfer restrictions.
12.2 PROVISION OF INFORMATION. Each Participant shall
be given access to information concerning the Company equivalent to that
information generally made available to the Company's common stockholders.
14
PLAN HISTORY
December 11, 2000 Board adopts Plan, with an initial
reserve of 6,300,000 shares.
___________, 2001 Stockholders approve Plan.
PROXY PROXY
QUALCOMM INCORPORATED
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 2001.
The undersigned hereby appoints Irwin Mark Jacobs, Anthony S. Thornley
and Steven R. Altman, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, to vote all of the shares of
stock of QUALCOMM Incorporated (the "Company") which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held at Copley Symphony Hall, 750 B Street, San Diego, CA 92101, on Tuesday,
February 27, 2001 at 9:30 a.m. local time and at any and all adjournments or
postponements thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as
to any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
YOUR VOTE IS IMPORTANT. If you will not be voting by telephone, you are
urged to complete, sign, date and promptly return the accompanying proxy in
the enclosed envelope.
(Continued and to be signed on reverse side.)
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FOLD AND DETACH HERE
QUALCOMM INCORPORATED
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. /X/
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR EACH OF THE NOMINEES FOR DIRECTOR AND FOR PROPOSALS 2, 3, 4 AND 5.
1. To elect four Class I directors whether by cumulative For Withhold For All
voting or otherwise, to hold office until the 2004 All All Except
Annual Meeting of Stockholders. / / / / / /
NOMINEES: 01 Irwin Mark Jacobs 03 Neil Kadisha
02 Adelia A. Coffman 04 Richard Sulpizio
2. To approve the Company's 2001 Stock Option Plan. For Against Abstain
/ / / / / /
3. To approve the Company's 2001 Employee Stock Purchase Plan. For Against Abstain
/ / / / / /
4. To approve the Company's 2001 Non-Employee Directors' For Against Abstain
Stock Option Plan. / / / / / /
5. To ratify the selection of PricewaterhouseCoopers LLP as For Against Abstain
the Company's independent accountants for the Company's / / / / / /
fiscal year ending September 30, 2001.
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Nominee Exception (INSTRUCTION: To withhold authority to vote for any nominee(s) write such nominee(s)' name(s) above.)
If not voting by telephone, please vote, date and promptly return this proxy in the enclosed return envelope which is postage
prepaid if mailed in the United States.
Dated , 2001
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Signature
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Signature
Please sign exactly as your name appears hereon. If the stock is registered in the names of two or more persons, each should
sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation,
please give full corporate name and have a duly authorized officer sign, stating title. If signer is a partnership, please sign
in partnership name by authorized person.
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CONTROL NUMBER FOLD AND DETACH HERE
VOTE BY TELEPHONE
CALL **TOLL FREE** ON A TOUCH TONE TELEPHONE
1-888-776-5661
THERE IS NO CHARGE FOR THIS CALL
Your telephone vote authorizes the voting of your shares in the same manner as if you marked, signed and returned your proxy
card.
You will be asked to enter a Control Number which is located in the box on the left side of this form. If you enter your
Control Number, but do not make a choice on any proposal, your shares will be voted FOR PROPOSALS 1, 2, 3, 4 AND 5.
OPTION #1: To vote as the Board of Directors recommends on ALL proposals: Press 1
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1
OPTION #2: If you choose to vote on each proposal separately, press 0 and listen to the instructions:
Proposal 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the instructions.
Proposal 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1
Proposal 3: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1
Proposal 4: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1
Proposal 5: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0
WHEN ASKED, PLEASE CONFIRM YOUR VOTE BY PRESSING 1
If you vote by telephone, DO NOT mail back your proxy.
THANK YOU FOR VOTING.