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Tuesday, Dec 5, 2023

Leap Wireless Reappears on the Nasdaq Board

A little more than two years after Leap Wireless International filed for Chapter 11 bankruptcy protection, the restructured company’s stock returned to the Nasdaq National Markets stock exchange on June 29, under a different ticker , LEAP.

That’s little solace to the owners of Leap’s former shares, which traded under LWIN, and saw their investment evaporate when the wireless carrier emerged from the reorganization process in August.

Leap’s bankruptcy, which took 15 months to complete, converted some $2.4 billion in corporate debt to about $390 million in secured notes held by investors, most of whom purchased the debt owed to Leap’s equipment suppliers at deep discounts.

After emerging from bankruptcy, Leap’s closely held shares traded on the over-the-counter bulletin board. Yet Leap’s long-term goal was always to get back to Nasdaq, said Chief Executive Officer Doug Hutcheson, who replaced former CEO William Freeman in February.

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“Trading on Nasdaq underscores our strong commitment to improving the liquidity of our common stock and enhancing shareholder value for both current and prospective investors,” he said.

A spinoff wireless company from Qualcomm Inc. in 1998, Leap borrowed heavily to build out an extensive wireless network in 39 markets, primarily midsized cities such as Buffalo, N.Y., and Pittsburgh. Its flat rate, all-you-can-talk service looked like a winner back then, and its stock soared above $100 in early 2000. But after the Nasdaq tanked, so did many telecoms. Despite concerted efforts to restructure its debt with its equipment suppliers, Leap, then headed by former CEO Harvey White, defaulted on bond payments beginning in 2002. It filed for bankruptcy protection in April 2003.

Leap’s largest shareholders today are investors who realized what was happening to Leap and other troubled telecoms and bought up the firm’s debt for significant discounts.

The top two shareholders are Mark Rachesky, the founder and president of MHR Fund Management of New York, who owns about 11 million shares, or 18 percent of the total shares outstanding. Rachesky, who has worked in the past for noted corporate raider Carl Icahn, is Leap’s chairman.

The next largest shareholder is James Dondero, founder and president of Highland Capital Management of Dallas, who lists ownership of 4.7 million shares and is also a Leap director.

In all, Leap’s six directors hold a collective 28.7 percent of the company’s shares, an unusually high concentration among larger public companies.

This ownership may have something to do with Leap’s decision to hold its shareholder meeting Sept. 15 in Charlotte, N.C., rather than its headquarters in San Diego.

“We wanted to hold it in Charlotte because it’s one of our strongest markets,” said spokeswoman Kristin Atkins. “A lot of our investors are based in New York, so it’s convenient for everybody.”

While most of Leap’s former stockholders were probably from San Diego since they obtained shares by owning Qualcomm stock, following Leap’s Chapter 11, those shares were virtually worthless.

Leap’s employment at its Sorrento Mesa office is 250, while its total work force is about 1,400.

As of June 29, Leap traded at $28.25 on June 29, up 35 cents from the prior day’s close. That price gave it a market capitalization of $1.7 billion.

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Petco Refiles:

Petco Animal Supplies Inc., the San Diego-based retail chain, finished its internal review of past financial reports and avoided being delisted from Nasdaq.

Petco had been facing delisting since May after it failed to file its annual 10-K report on time. It also was late in filing its 10-Q first-quarter report with federal securities regulators, although it put out results in a press release.

In announcements made in April and May, Petco said it uncovered some errors involving the booking of expenses in its distribution system, requiring an internal review of the past year’s financials. The review lasted longer than expected and triggered a notice from Nasdaq that its stock would be delisted.

“While it was very disappointing to identify a control deficiency in any part of the our company, it is important to note that the comprehensive review, which included the participation of independent external experts, concluded that the errors in under-accruals were limited to our distribution operation,” said Chief Executive Officer James M. Myers.

In its latest report, Petco said it incurred an after-tax charge of $3.6 million related to the uncovered errors. That caused a decrease in net profits. Instead of net income of $83.6 million for 2004, the company’s revised profit for the year is $82.4 million, a difference of $1.2 million. The firm’s annual revenues, $1.8 billion, were not affected.

Petco said the filing of the late reports brings it into compliance, and should restore the firm’s ticker to PETC, without an “E,” that designates an extraordinary event was occurring.

PETCE closed at $28.25 June 29, down $1.70 from the prior day’s close.

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Sell-Off Continues:

Remec Inc., a Del Mar-based defense contractor that’s liquidating itself, included financial results from its defense and space unit into its first-quarter numbers, even though the sale of the unit was completed May 20.

For the quarter ended April 29, Remec reported net losses of $3.3 million on revenues of $112 million, compared with a net loss of $7 million on revenues of $108 million for the same period of 2004.

Remec transferred assets of the defense unit, including its 1,000 employees, to Chelton Microwave Corp. in a deal that netted the company about $253 million. The company paid out about $177 million of that amount to shareholders in a transaction that entailed converting each share of the existing stock into a new fractional share, and $2.80 in cash.

Remec is also selling its wireless unit, with some 4,000 employees, to Powerwave Technologies, Inc., a public firm based in Irvine, in a deal valued in March at $120 million. The transaction still requires approval from Remec’s shareholders, but that’s expected to happen at a special meeting scheduled for this summer. The company said it is filing its proxy on the deal with the Securities and Exchange Commission shortly, and should set the meeting date after the agency reviews the terms of the sale.

Most of Remec’s wireless employees work in overseas facilities in Costa Rica, the Philippines and China. Only 450 employees are based in the United States, including 160 in Poway and 120 in Escondido.

After Powerwave assumes control of the wireless unit, Remec still owns two smaller units: an electronics manufacturing service unit in Escondido, and a unit that makes outdoor radio equipment. Together, the two units generate about $75 million in revenues.

Remec general counsel Don Wilkins said Remec has been in discussions on the sale of the businesses but hasn’t struck an agreement.

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Patriot Scientific Settles Suit:

Patriot Scientific Corp., a Rancho Bernardo-based holder of a variety of semiconductor patents, settled a long-standing legal dispute with the TPL Group of Cupertino, providing the firm with what it says are real prospects for growth.

The legal tussle over 10 semiconductor patents arose when each firm claimed partial rights stemming from their purchase of these rights years ago from each of the two inventors. Patriot claimed it owned the rights once belonging to co-inventor Charles Fish III, and filed suits against some of the largest electronics manufacturers, including Sony, Fujitsu, Toshiba, NEC and Matsushita, for the illegal use of the technologies. In response, the defendants countersued, along with their partner, Intel Corp.

After several years of litigation, the parties came to an agreement that provides a formula to split the licensing revenues, said David Pohl, the newly appointed chairman, chief executive and president for Patriot Scientific.

Pohl, a longtime director for Patriot, wouldn’t say how much the new agreement with TPL could generate, but noted the amount may be “significant.”

Last year, Patriot lost $4.1 million on $76,417 in revenues.

In other news, Patriot announced Pohl was taking over the firm, replacing former CEO Jeff Whallin, who resigned, and that Chief Financial Officer Lowell Giffhorn also resigned.

Patriot Scientific, with only four employees, closed trading June 27 under PSMC on the over-the-counter bulletin board at 16.2 cents, up 0.7 cents.

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Community Joins Russell 2000:

Escondido-based Community Bancorp, with about $700 million in assets and 10 offices, joined the new Russell Microcap Index, a listing of the smallest 1,000 securities in the Russell 2000 Index, plus the next 1,000 companies, and based on a ranking of all U.S. equities on market capitalization.

Community Bancorp, which acquired Santee-based Cuyamaca Bank last year, signed a definitive agreement to acquire Rancho Bernardo Community Bank, which has $113.8 million in assets, in April.

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Ticket Takes:

Accredited Home Lenders Holding Co. said it signed a long-term lease on several buildings used for its corporate headquarters in Rancho Bernardo. BioMed Realty Trust, Inc. said its underwriters exercised an over-allotment option to purchase an additional 1.9 million shares of its common stock.

Send any news of San Diego-based public companies to Mike Allen at mallen@sdbj.com. He can be reached at (858) 277-6359.


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