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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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EARTHLINK NETWORK, INC.
(Name of Subject Company)
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EARTHLINK NETWORK, INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $0.01 PER SHARE
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(Title of Class of Securities)
270322100
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(CUSIP Number of Class of Securities)
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CHARLES G. BETTY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EARTHLINK NETWORK, INC.
3100 NEW YORK DRIVE
PASADENA, CALIFORNIA 91107
(626) 296-2400
(Name, address and telephone number of person authorized to receive
notices and communications on behalf of the person(s) filing statement)
Copies to:
J. STEPHEN HUFFORD, ESQ.
HUNTON & WILLIAMS
600 PEACHTREE STREET
SUITE 4100
ATLANTA, GEORGIA 30308
(404) 888-4000
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This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9" or "Statement") pursuant to Section 14(d)(4) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), relates to a tender offer
by Sprint Corporation, a Kansas corporation ("Sprint" or the "Purchaser"), to
purchase 1,250,000 shares (the "Shares") of the common stock, $.01 par value per
share (the "Common Stock"), of EarthLink Network, Inc., a Delaware corporation
(the "Company"), at $45 per share, net to each seller in cash.
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is EarthLink Network, Inc., a Delaware
corporation. The address of the principal executive offices of the Company is
3100 New York Dr., Pasadena, California 91107. The title of the class of equity
securities to which this Statement relates is the common stock, par value $.01
per share, of the Company (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1 dated February 18, 1998 (as amended or supplemented,
the "Schedule 14D-1") filed with the Securities and Exchange Commission (the
"SEC") by Sprint relating to its tender offer to purchase 1,250,000 Shares
of Common Stock at $45.00 per share, net to each seller in cash, for
an aggregate cash consideration of $56,250,000, upon the terms and subject to
the conditions set forth in the Offer to Purchase (the "Offer to Purchase") and
the related Letter of Transmittal included as part of the Schedule 14D-1. The
address of the principal executive offices of Sprint is 2330 Shawnee Mission
Parkway, Westwood, Kansas 66205.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) The Investment Agreement and the auxillary agreements to the Investment
Agreement are filed as exhibits hereto. Summaries thereof will be filed by
amendment.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
The letter of recommendation of the Board of Directors is attached as
Exhibit (a)(3) hereto and incorporated herein by reference.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Deutsche Morgan Grenfell, Inc. ("DMG") has been retained by the Company to
render financial advisory services to the Company in connection with potential
equity investments by and commercial arrangements with other entities. In
exchange for such services, the Company is obligated to pay DMG a fee of
approximately $7.4 million upon Closing. In addition, the Company agreed to
reimburse DMG for its reasonable, out-of-pocket expences incurred in connection
with its engagement. The Company also agreed to indemnify DMG and certain
related persons against certain liabilities and expenses arising out of or in
conjunction with DMG's engagement by the Company, including certain liabilities
under the federal securities laws. In addition, the Company has agreed to pay
Mr. Carl Peterson, the General Manager of the Kansas City Chiefs, a fee of
$200,000 for introducing the Company to Sprint.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Following are the transactions in the Common Stock effected during the
past 60 days by the Company and, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
On February 4, 1998, the following persons were granted incentive stock
options under the Company's 1995 Stock Option Plan to acquire the indicated
amount of Company Common Stock:
Person/Title Number of Shares
- ------------ ----------------
Dr. Richard Edmiston, 10,000
Vice President--Research and Development
Robert Johnson, 10,000
Vice President--Marketing and Marketing Development
Brinton Young 50,000
Vice President--Strategic Planning
David Tommela, 10,000
Vice President--Operations
(b) Pursuant to the Agreement to Tender and Vote (and the related
Irrevocable Proxies), (i) Sky D. Dayton, Chairman of the Board of the Company,
has agreed to tender all of the shares of Common Stock owned beneficially or of
record by him (1,500,000 shares) to Sprint in connection with the Offer, and
(ii) Kevin M. O'Donnell, a director of the Company, has agreed to tender all of
the shares of Common Stock owned beneficially or of record by him (944,614) to
Sprint in connection with the Offer.
Pursuant to the Agreement to Vote, Reed E. Slatkin and Sidney Azeez,
directors of the Company, each agreed to vote all the shares of Common Stock
owned beneficially or of record by
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each of them (1,042,473 shares and 236,884 shares, respectively) in favor of the
Company Stockholder Vote Matters, all as set forth in the Investment Agreement
and applicable Ancillary Documents. However, such persons did not agree to
tender their Common Stock to Sprint in the Offer.
Mr. Paul McNulty, a director of the Company, is a Managing Director of
Soros Fund Management LLC ("SFM"), of which Mr. George Soros is the Chairman.
Mr. Soros may be deemed to be the beneficial owner of shares held for the
account of Quantum Industrial Partners LDC ("QIP") and for his personal account.
Mr. Soros and QIP each are parties to the Agreement to Vote, pursuant to which
Mr. Soros and QIP each agreed, pursuant to the terms and conditions of the
Agreement to Vote, to vote all the shares of Common Stock owned beneficially or
of record by each of them (214,545 shares and 1,456,480 shares, respectively) in
favor of the Company Stockholder Vote Matters. However, neither Mr. Soros nor
QIP agreed to tender their respective Common Stock to Sprint in the Offer.
Other than as identified above, the Company, to the best of its knowledge,
does not otherwise know the intentions of its directors, executive officers,
affiliates or subsidiaries regarding tendering their shares of Common Stock to
Sprint in the Offer.
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ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) None, except as set forth in response to Item 3(b) above.
(b) None, except as described in response to Item 3(b) and Item 4(b) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The information contained in all of the Exhibits referenced to in Item
9 below is incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
Exhibit (a)(1) Offer to Purchase dated February 18, 1998.
Exhibit (a)(2) Letter of Transmittal.
Exhibit (a)(3) Letter to Stockholders of EarthLink Network, Inc., dated
February 18, 1998, from Charles G. Betty, President and
Chief Executive Officer of the Company.
Exhibit (a)(4) Opinion of Deutsche Morgan Grenfell Inc.
Exhibit (a)(5) Text of Press Release, dated February 11, 1998, issued
jointly by Sprint Corporation and EarthLink Network, Inc.
announcing commencement of the Offer.
Exhibit (c)(1) Investment Agreement, dated as of February 10, 1998, by and
among EarthLink Network, Inc., Sprint Corporation, Sprint
Communications Company L.P., Dolphin, Inc. and Dolphin Sub,
Inc. (Incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K (Date of Earliest
Reported Event: February 10, 1998)).
Exhibit (c)(2) Governance Agreement, dated as of February 10, 1998, by and
among EarthLink Network, Inc., Sprint Corporation, Sprint
Communications Company L.P. and Dolphin, Inc. (Incorporated
by reference to Exhibit 10.1 of the Company's Current
Report on Form 8-K (Date of Earliest Reported Event:
February 10, 1998)).
Exhibit (c)(3) Stockholders' Agreement, dated as of February 10, 1998, by
and among the EarthLink Network, Inc., Sprint Corporation,
Sprint Communications Company L.P. and Dolphin, Inc. and
certain stockholders of the Company (Incorporated by
reference to Exhibit 99.2 of the Company's Current Report
on Form 8-K (Date of Earliest Reported Event: February 10,
1998)).
Exhibit (c)(4) Registration Rights Agreement, dated as of February 10,
1998, by and among Dolphin, Inc., Sprint Corporation and
Sprint Communications Company L.P. (Incorporated by
reference to Exhibit 99.1 of the Company's Current Report
on Form 8-K (Date of Earliest Reported Event:
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February 10, 1998)).
Exhibit (c)(5) Credit Agreement, dated as of February 10, 1998, by and
among EarthLink Network, Inc., Dolphin, Inc. and Sprint
Corporation (Incorporated by reference to Exhibit 10.3 of
the Company's Current Report on Form 8-K (Date of Earliest
Reported Event: February 10, 1998)).
Exhibit (c)(6) Proposed form of Certificate of Designation, Preferences
and Rights of Series A Convertible Preferred Stock of
Dolphin, Inc. (Incorporated by reference to Exhibit 10.2 of
the Company's Current Report on Form 8-K (Date of Earliest
Reported Event: February 10, 1998)).
Exhibit (c)(7) Agreement to Vote and Tender Stock, dated as of February
10, 1998, by and among Sprint Corporation, Sprint
Communications L.P. and certain Stockholders of the Company
(Incorporated by referenced to Exhibit 99.3 of the
Company's Current Report on Form 8-K (Date of Earliest
Reported Event: February 10, 1998)).
Exhibit (c)(8) Agreement to Vote and Tender Stock, dated as of February
10, 1998, by and among Sprint Corporation, Sprint
Communications L.P. and certain Stockholders of the Company
(Incorporated by reference to Exhibit 99.4 of the Company's
Current Report on Form 8-K (Date of Earliest Reported
Event: February 10, 1998)).
Exhibit (c)(9) Agreement and Plan of Merger, dated as of February 10,
1998, by and among EarthLink Network Inc., Dolphin, Inc.
and Dolphin Sub, Inc.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
EARTHLINK NETWORK, INC.
By: /s/ Charles G. Betty
---------------------------------
Charles G. Betty
President and Chief Executive Officer
Dated: February 18, 1998
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OFFER TO PURCHASE FOR CASH
1,250,000 SHARES OF COMMON STOCK
OF
EARTHLINK NETWORK, INC.
AT
$45.00 NET PER SHARE
BY
SPRINT CORPORATION
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MARCH 20, 1998, UNLESS THE OFFER IS
EXTENDED.
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THE OFFER IS CONDITIONED UPON (1) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER 1,250,000 SHARES (AS DEFINED
HEREIN), (2) THE CONDITIONS TO THE OBLIGATIONS OF SPRINT CORPORATION, SPRINT
COMMUNICATIONS COMPANY L.P., EARTHLINK NETWORK, INC., DOLPHIN, INC., AND
DOLPHIN SUB, INC. TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE
INVESTMENT AGREEMENT (AS DEFINED HEREIN) (OTHER THAN THE ACCEPTANCE FOR
PAYMENT OF SHARES PURSUANT TO THE OFFER) HAVING BEEN SATISFIED OR WAIVED AND
(3) THE EXPIRATION OR TERMINATION OF ALL WAITING PERIODS IMPOSED UPON
CONSUMMATION OF THE OFFER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE
INVESTMENT AGREEMENT BY THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976, AS AMENDED, AND THE REGULATIONS THEREUNDER, AS WELL AS THE OTHER
CONDITIONS DESCRIBED HEREIN.
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THE BOARD OF DIRECTORS OF EARTHLINK NETWORK, INC. HAS, BY UNANIMOUS VOTE OF
ALL DIRECTORS, APPROVED THE OFFER AND THE OTHER TRANSACTIONS DESCRIBED IN THIS
OFFER TO PURCHASE AND DETERMINED THAT THE TERMS OF THE OFFER AND SUCH OTHER
TRANSACTIONS, TAKEN TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
STOCKHOLDERS OF THE COMPANY AND RECOMMENDS THAT ALL STOCKHOLDERS OF THE
COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
---------------
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S
SHARES SHOULD EITHER (I) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL (OR A
FACSIMILE COPY THEREOF) IN ACCORDANCE WITH THE INSTRUCTIONS IN THE LETTER OF
TRANSMITTAL, HAVE SUCH STOCKHOLDER'S SIGNATURE THEREON GUARANTEED IF REQUIRED
BY INSTRUCTION 1 TO THE LETTER OF TRANSMITTAL, AND MAIL OR DELIVER THE LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO THE DEPOSITARY AND EITHER
DELIVER THE CERTIFICATES FOR SUCH SHARES TO THE DEPOSITARY ALONG WITH THE
LETTER OF TRANSMITTAL OR DELIVER SUCH SHARES PURSUANT TO THE PROCEDURE FOR
BOOK-ENTRY TRANSFER SET FORTH IN SECTION 2 PRIOR TO THE EXPIRATION OF THE
OFFER OR (II) REQUEST SUCH STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK,
TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER.
A STOCKHOLDER HAVING SHARES REGISTERED IN THE NAME OF A BROKER, DEALER,
COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT SUCH BROKER,
DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE IF SUCH STOCKHOLDER
DESIRES TO TENDER SUCH SHARES.
A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES FOR SUCH
SHARES ARE NOT IMMEDIATELY AVAILABLE OR WHO CANNOT COMPLY IN A TIMELY MANNER
WITH THE PROCEDURE FOR BOOK-ENTRY TRANSFER DESCRIBED HEREIN, OR WHO CANNOT
DELIVER ALL REQUIRED DOCUMENTS TO THE DEPOSITARY PRIOR TO THE EXPIRATION OF
THE OFFER, MAY TENDER SUCH SHARES BY FOLLOWING THE PROCEDURE FOR GUARANTEED
DELIVERY SET FORTH IN SECTION 2.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THIS OFFER
TO PURCHASE, THE LETTER OF TRANSMITTAL, THE NOTICE OF GUARANTEED DELIVERY AND
ALL OTHER TENDER OFFER MATERIALS MAY BE DIRECTED TO THE INFORMATION AGENT OR
THE DEALER MANAGER AT THEIR ADDRESS AND TELEPHONE NUMBERS SET FORTH ON THE
BACK COVER OF THIS OFFER TO PURCHASE.
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THE DEALER MANAGER FOR THE OFFER IS:
SBC WARBURG DILLON READ INC.
FEBRUARY 18, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction.............................................................. 1
1. Terms of the Offer.................................................... 4
2. Procedure for Tendering Shares........................................ 7
3. Withdrawal Rights..................................................... 10
4. Acceptance for Payment and Payment.................................... 10
5. Certain Federal Income Tax Consequences............................... 12
6. Price Range of the Shares; Dividends on the Shares.................... 12
7. Effect of the Offer on the Market for the Shares, Stock Quotation and
Exchange Act Registration................................................ 13
8. Certain Information Concerning the Company............................ 13
9. Certain Information Concerning the Purchaser.......................... 15
10. Source and Amount of Funds............................................ 16
11. Contacts with the Company; Background of the Offer.................... 17
12. Purpose of the Offer; The Investment Agreement; Ancillary Agreements.. 19
13. Dividends and Distributions........................................... 34
14. Certain Conditions of the Offer....................................... 34
15. Certain Legal Matters................................................. 37
16. Fees and Expenses..................................................... 39
17. Miscellaneous......................................................... 39
Schedule I--Directors and Executive Officers.............................. S-1
</TABLE>
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To the Holders of the Common Stock of EarthLink Network, Inc.:
INTRODUCTION
THE OFFER
Sprint Corporation, a Kansas corporation (the "Purchaser" or "Sprint"),
hereby offers to purchase 1,250,000 shares of Common Stock, par value $0.01
per share (the "Shares" or "Common Stock"), of EarthLink Network, Inc., a
Delaware corporation (the "Company"), at $45.00 per Share (the "Offer Price"),
net to the seller in cash, upon the terms and subject to the conditions set
forth in this Offer to Purchase and in the related Letter of Transmittal
(which, together with any amendments or supplements hereto or thereto,
collectively constitute the "Offer"). The Offer is being made pursuant to the
Investment Agreement dated as of February 10, 1998 (the "Investment
Agreement"), among the Purchaser, Sprint Communications Company L.P., a
Delaware limited partnership ("Sprint L.P."), the Company, Dolphin, Inc., a
Delaware corporation ("Newco"), and Dolphin Sub, Inc., a Delaware corporation
and a wholly-owned subsidiary of Newco ("Newco Sub"), and certain related
agreements described in this Offer to Purchase.
Sprint L.P. operates the long distance communications services division of
Sprint and is owned by affiliates of Sprint. Newco and Newco Sub are nominally
capitalized and were established to facilitate the transfer of assets to Newco
in exchange for the issuance to Sprint L.P. of 4,102,941 shares of Series A
Convertible Preferred Stock, par value $.01 per share of Newco (the
"Convertible Preferred Stock") in connection with the merger of Newco Sub with
and into the Company (the "Merger"). Upon consummation of the Merger, the
Company will become a subsidiary of Newco and all of the outstanding shares of
Common Stock will be converted into an equal number of shares of common stock,
par value $.01 per share of Newco ("Newco Common Stock"), except for any
shares of Common Stock receivable upon the exercise of warrants or certain
other rights to acquire Common Stock which are not amended prior to the Merger
to become exercisable only for Newco Common Stock (the "Dilutable
Securities"). The Offer and the other transactions contemplated by the
Investment Agreement are conditioned upon the amendment of such Dilutable
Securities so that not more than 8% of the shares of Common Stock outstanding
immediately prior to the Closing will be subject to Dilutable Securities after
the Merger (the "Amendment Condition").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. The Purchaser will pay all fees and expenses of SBC
Warburg Dillon Read Inc. ("WDR"), which is acting as Dealer Manager (in such
capacity, the "Dealer Manager"), American Stock Transfer & Trust Company,
which is acting as the Depositary (the "Depositary"), and D. F. King & Co.,
Inc., which is acting as Information Agent (the "Information Agent"), in each
case incurred in connection with the Offer. See Section 16.
The Board of Directors of the Company (the "Board of Directors") has, by
unanimous vote of all Directors, approved the Offer and the other transactions
described in this Offer to Purchase and determined that the terms of the Offer
and such other transactions, taken together, are fair to, and in the best
interests of, the stockholders of the Company and recommends that all
stockholders of the Company accept the Offer and tender their Shares pursuant
to the Offer.
The Company has retained Deutsche, Morgan Grenfell Inc. ("DMG") as its
financial adviser. DMG rendered an opinion to the Board of Directors that, as
of the date of such opinion, the Offer, the sale of Convertible Preferred
Stock and the Merger, when taken together, are fair from a financial point of
view to the holders of the Common Stock.
Consummation of the Offer is conditioned upon (1) there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in Section
1) 1,250,000 Shares (the "Minimum Tender Condition"), and (2) the
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Amendment Condition and the other conditions to the obligations of the
Purchaser, Sprint L.P., Newco, Newco Sub, and the Company to consummate the
transactions contemplated by the Investment Agreement (other than the
acceptance for payment of Shares pursuant to the Offer) having been satisfied
or waived (collectively, the "Investment Agreement Conditions"), including the
expiration or termination of all waiting periods imposed upon consummation of
the Offer and the other transactions contemplated by the Investment Agreement
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the regulations thereunder (the "HSR Act") and the absence of any action taken
or instituted by the Department of Justice, the Federal Trade Commission or by
any other governmental entity to delay or otherwise enjoin the transactions
contemplated by the Investment Agreement (the "HSR Condition"). See Sections 1
and 14.
THE INVESTMENT AGREEMENT
The following summary of the Investment Agreement is qualified in its
entirety by the express terms of such agreement, which is included as an
exhibit to the Purchaser's Tender Offer Statement on Schedule 14D-1.
The Investment Agreement provides, among other things, that subject to the
terms and conditions set forth therein, immediately following the consummation
of the Offer, (i) the Merger will be effected and the issued and outstanding
Shares will be converted into shares of Newco Common Stock; (ii) Sprint L.P.
will acquire 4,102,941 shares of Convertible Preferred Stock, in exchange for
(A) an aggregate cash consideration of $23,750,000, (B) the assignment to
Newco of 100% of the Sprint Internet Passport SM Subscribers ("SIP
Subscribers"), of which there were approximately 130,000 as of the date of
execution of the Investment Agreement, and (C) Sprint L.P. having entered into
a network agreement whereby Newco and the Company will utilize Sprint L.P.'s
long-distance network under specified terms and conditions (the issuance of
such Convertible Preferred Stock, "Convertible Preferred Stock Issuance", and
the consideration described in (A), (B) and (C), collectively, the
"Convertible Preferred Stock Consideration"); and (iii) Sprint will provide
Newco and the Company, as co-borrowers, with up to $25 million of convertible
senior debt financing on or after the Closing (as defined below), with such
amount to increase by $25 million on each of the first, second and third
anniversaries of the Closing Date (as defined below) for a total of up to $100
million of such financing at the end of such period (the "Convertible Debt
Financing"), such indebtedness to be evidenced by one or more Convertible
Senior Promissory Note(s) (the "Convertible Notes") and to be subject to the
terms and conditions of a Credit Agreement dated as of February 10, 1998 among
the Purchaser, Newco and the Company (the "Credit Agreement"). The closing of
the Merger, the Convertible Preferred Stock Issuance and the other
transactions described herein which will occur concurrently with the Merger is
referred to as the "Closing" and the date on which the Closing occurs is
referred to as the "Closing Date."
Consummation of the transactions (other than the Offer) contemplated by the
Investment Agreement is conditioned upon the Purchaser having accepted for
payment the Shares to be purchased pursuant to the Offer (the "Offer
Condition") and the satisfaction of the HSR Condition, as well as the other
conditions described in Section 14. For purposes of the Offer, the Purchaser
will be deemed to have accepted for payment, and thereby purchased, Shares
properly tendered and not withdrawn as, if and when the Purchaser gives oral
or written notice to the Depositary of the Purchaser's acceptance of such
shares (the time of giving such notice is the "Offer Acceptance Time" and the
date on which such notice is given is the "Offer Acceptance Date"). If the
Shares have been accepted for payment pursuant to the Offer, the Offer
Acceptance Time will immediately precede the Closing and the Offer Acceptance
Date will occur on the same date as the Closing Date.
In order to induce Sprint and Sprint L.P. to enter into the Investment
Agreement and perform the transactions contemplated thereby, certain members
of management and other stockholders (the "Granting Stockholders") have
entered into an Agreement to Vote and Tender Stock dated February 10, 1998
("Agreement to Vote and Tender Stock"). That agreement obligates the Granting
Stockholders to tender all of the 3,989,114 Shares (representing 35.3% of the
outstanding Shares) which they own into the Offer, and to vote those Shares in
favor of (i) the Merger, (ii) the Convertible Preferred Stock Issuance, the
issuance of the Convertible Notes and the Newco Common Stock issuable upon
conversion thereof, (iii) the other transactions contemplated by the
Investment Agreement, and (iv) any related matter that must be approved by the
holders of Common Stock or Newco Common Stock in order for the transactions
contemplated by the Investment Agreement to be
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consummated (the matters referred to in (i), (ii), (iii) and (iv) are referred
to collectively as the "Company Stockholder Vote Matters"). In order to ensure
that the agreement to vote set forth in the Agreement to Vote and Tender Stock
will be fulfilled, each of the Granting Stockholders granted to the Purchaser
an Irrevocable Proxy, coupled with an interest, to vote in favor of the
Company Stockholder Vote Matters (the "Irrevocable Proxies"). The Granting
Stockholders are Sky Dayton, Chairman of the Board of the Company, 1,500,000
Shares; Kevin M. O'Donnell, a Director of the Company, 944,614 Shares; Storie
Partners, L.P., 521,892 Shares; Gregory Abbott, 427,212 Shares; Robert S.
London, 392,032 Shares; and George Abbott, 203,364 Shares.
In addition, certain other stockholders (the "Voting Stockholders") have
entered into an Agreement to Vote Stock dated February 10, 1998 ("Agreement to
Vote Stock") which obligates them to vote all of their 2,950,382 Shares
(representing 26.1% of the outstanding Shares) in favor of the Company
Stockholder Vote Matters, but did not grant any irrevocable proxies
thereunder. The Voting Stockholders are Quantum Industrial Partners LDC,
1,456,480 Shares; Reed Slatkin, a Director of the Company (through Reed
Slatkin & Associates), 1,042,473 Shares; Sidney Azeez, a Director of the
Company, 236,884 Shares; and George Soros, 214,545 Shares.
The number of Shares obligated to be tendered and/or voted pursuant to these
agreements will ensure approval of the Company Stockholder Vote Matters,
satisfaction of the Minimum Tender Condition, and consummation of the
transactions contemplated by the Investment Agreement, unless the Investment
Agreement Conditions have not been satisfied or waived on or prior to the
Offer Acceptance Time as described in Section 12.
The Company has informed the Purchaser that as of February 13, 1998, there
were 11,301,915 Shares issued and outstanding. Upon consummation of the Offer,
the Purchaser will own approximately 11.1% of such total number of issued and
outstanding Shares, which will be converted into the same number of shares of
Newco Common Stock pursuant to the Merger. The Company has also informed the
Purchaser that as of February 13, 1998, there were 1,901,969 Shares reserved
for issuance upon the exercise of outstanding employee stock options ("Stock
Options"), 391,515 Shares reserved for issuance pursuant to the Company's
Convertible Note issued to UUNET Technologies, Inc. ("UUNET Note") and 887,647
Shares reserved for issuance upon the exercise of outstanding warrants
("Warrants"). Based upon the conversion price in effect on the Closing Date,
the Convertible Preferred Stock would be convertible into 3,533,411 shares of
Newco Common Stock, provided that the Convertible Preferred Stock may not be
converted prior to the first anniversary of the Closing Date. Based on these
figures, immediately after consummation of the Offer, the Merger and the other
transactions contemplated by the Investment Agreement, the Purchaser would own
approximately 26.6% of the total number of issued and outstanding shares of
Newco Common Stock on a fully diluted basis (that is, assuming that (i) the
UUNET Note has been converted into shares of Newco Common Stock, (ii) the
Convertible Preferred Stock is converted into Newco Common Stock, and (iii)
that all outstanding Warrants and Stock Options have been exercised). However,
the Convertible Preferred Stock will pay dividends thereon for the first five
years in the form of increases in its Liquidation Value ("Liquidation
Accretion Dividends"), at a per annum rate of 3% of the Liquidation Value,
which will accrue and compound quarterly in arrears, but which will accelerate
in the event of a Business Combination (as defined in Section 12) or an
optional redemption by Newco. At the Closing, the Liquidation Value will be
the average of the closing price per share of Newco Common Stock for the 30
trading days prior to the Closing Date. Increases in the Liquidation Value
will have the effect of increasing the number of shares of Newco Common Stock
which the Purchaser will receive upon conversion of the Convertible Preferred
Stock. Assuming that the Convertible Preferred Stock is held by the Purchaser
for the initial five year period, or the Liquidation Accretion Dividends are
accelerated, the Purchaser will be entitled to receive 4,102,941 shares of
Newco Common Stock upon conversion thereof, subject to applicable antidilution
provisions. If the fully diluted number of Shares, as calculated above, were
the same at that time, the Purchaser would then own approximately 28.8% of the
total number of issued and outstanding shares of Newco Common Stock on that
basis.
Advances of funds under the Credit Agreement will be evidenced by
Convertible Notes, which are convertible into Newco Common Stock. The
Conversion Price per share at which the Convertible Notes may be converted
into Newco Common Stock is 130% of the average of the closing prices for Newco
Common Stock for the 30 trading days immediately preceding the applicable
advance of funds under the Credit Agreement. Because the number of shares
receivable upon conversion of the Convertible Notes is dependent upon future
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trading prices for Newco Common Stock, and because the amount of advances
under the Credit Agreement is within Newco's discretion (provided it is in
compliance with applicable Credit Agreement conditions), it is not possible to
predict the extent to which, if any, the Purchaser's fully diluted ownership
would increase in the event that advances are made under the Credit Agreement.
Simultaneously with the execution of the Investment Agreement, the following
agreements were executed and delivered by the parties thereto: (i) an
Agreement and Plan of Merger dated as of February 10, 1998 among Newco, Newco
Sub and the Company, setting forth, inter alia, the terms and conditions of
the Merger of Newco Sub into the Company (the "Agreement and Plan of Merger"),
(ii) the Agreement to Vote and Tender Stock, (iii) the Agreement to Vote
Stock, (iv) the Credit Agreement, (v) a Governance Agreement dated as of
February 10, 1998, between the Purchaser, Sprint L.P., the Company and Newco,
whereby certain terms and conditions are established concerning the corporate
governance of Newco, the acquisition and disposition of equity securities of
Newco by the Purchaser and its affiliates, and the rights of the Newco Board
of Directors with respect to acquisition proposals and business combinations
(the "Governance Agreement"), (vi) a Marketing and Distribution Agreement
dated as of February 10, 1998 among the Purchaser, Sprint L.P., Newco and the
Company, whereby the Purchaser, Sprint L.P., Newco and the Company agree to
provide certain cooperation and support to each other in specified marketing
matters and Sprint L.P. grants Newco the right to utilize certain distribution
channels of Sprint L.P. and a license to use Sprint L.P.'s brand in the
business of the Company (the "Marketing Agreement"), (vii) a Network Services
Agreement dated as of February 10, 1998, between Sprint L.P., Newco and the
Company, which grants Newco and the Company the right to use a minimum and
maximum number of ports on Sprint L.P.'s long-distance network, along with
pricing and other terms set forth therein (the "Network Agreement"), (viii) a
Registration Rights Agreement dated as of February 10, 1998, between the
Purchaser, Sprint L.P. and Newco establishing the rights of the Purchaser and
its affiliates with respect to public offerings and sales of equity securities
of Newco and to obtain registration thereof under federal and state securities
laws (the "Registration Rights Agreement"), and (ix) a Stockholders Agreement
dated as of February 10, 1998, between the Purchaser and certain stockholders
of the Company which provides for certain rights and obligations with respect
to such stockholders' voting and disposition of equity securities of Newco in
connection with an offer by the Purchaser to acquire the remaining equity
securities of Newco (the "Stockholders Agreement"). The agreements referred to
in (i), (iv), (v), (vi), (vii), (viii) and (ix) will not become effective
until the Closing and then only if the Offer is consummated and the Investment
Agreement Conditions are satisfied or waived on or prior to the Closing. The
Agreement and Plan of Merger, the Agreement to Vote and Tender Stock, the
Agreement to Vote Stock, the Credit Agreement, the Governance Agreement, the
Marketing Agreement, the Network Agreement, the Registration Rights Agreement
and the Stockholders Agreement are referred to as the "Ancillary Agreements."
The Investment Agreement and the Ancillary Agreements are more fully described
in Section 12.
Certain Federal income tax consequences of the sale of Shares pursuant to
the Offer are described in Section 5.
Following the consummation of the Offer, the Convertible Preferred Stock
Issuance, the Merger, and the other transactions contemplated by the
Investment Agreement, Newco will become a public company subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Company will be its subsidiary.
Application will be made for Newco Common Stock to trade under the ticker
symbol "ELNK" on the Nasdaq National Market of the National Association of
Securities Dealers Automated Quotation System after such transactions and it
is expected that the Shares (after they are converted into shares of Newco
Common Stock) will continue to trade thereon.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer, the Purchaser
will accept for payment and pay for 1,250,000 Shares validly tendered prior to
the Expiration Date and not theretofore withdrawn in accordance
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with Section 3. The term "Expiration Date" means 12:00 Midnight, New York City
time, on Friday, March 20, 1998, unless and until the Purchaser shall have
extended the period of time during which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by the Purchaser, shall expire. The Investment Agreement
provides that the Offer may not be consummated prior to March 20, 1998 and
that the Expiration Date may not be extended beyond June 15, 1998, without, in
each case, the prior written consent of the Company.
The Company will prepare and file with the Securities and Exchange
Commission (the "Commission") a proxy statement (the "Proxy Statement")
relating to a special meeting of the Company's stockholders (the "Special
Meeting") to be held to obtain stockholder approval of the Merger, the
Convertible Preferred Stock Issuance, the issuance of Convertible Notes and
the issuance of Newco Common Stock upon conversion of the Convertible
Preferred Stock and the Convertible Notes and the other Company Stockholder
Vote Matters in order to satisfy the requirements of Section 251 of the
Delaware General Corporation Law (the "DGCL") and Rule 4460 of the National
Association of Securities Dealers, Inc. The Newco Common Stock to be issued
pursuant to the Merger will be registered under the Securities Act of 1933, as
amended (the "Securities Act"), on Form S-4 (the "S-4 Registration
Statement"). A combined Proxy Statement and Prospectus forming Part I of the
S-4 Registration Statement will be mailed to the stockholders of the Company
at least 20 business days prior to the Special Meeting. Among the conditions
included within the Investment Agreement Conditions are the requirements that
the S-4 Registration has become effective under the Securities Act and that
the holders of Common Stock have approved the Company Stockholder Vote
Matters. In view of the time needed to accomplish the foregoing, the Purchaser
anticipates that it may be necessary to extend the period of time during which
the Offer is open beyond March 20, 1998 but not later than June 15, 1998.
If more than 1,250,000 Shares are validly tendered prior to the Expiration
Date and not withdrawn, the Purchaser will, upon the terms and subject to the
conditions of the Offer, accept such Shares for payment on a pro rata basis,
with adjustments to avoid purchases of fractional Shares, based upon the
number of Shares validly tendered prior to the Expiration Date and not
withdrawn.
Because of the difficulty of determining precisely the number of Shares
validly tendered and not withdrawn, if proration is required, the Purchaser
would not expect to announce the final results of proration until
approximately three Nasdaq National Market trading days after the Expiration
Date. The Purchaser will announce the preliminary results of proration by
press release as promptly as practicable after the Expiration Date. Holders of
Shares may obtain such preliminary information from the Depositary or the
Information Agent, and also may be able to obtain such preliminary information
from their brokers.
The Investment Agreement provides that the terms of the Offer may not be
amended or modified without the prior consent of the Company; provided,
however, that without the consent of the Company, the Purchaser may extend the
Offer (i) if at the scheduled expiration date of the Offer any of the
conditions to the Purchaser's obligation to accept for payment, and pay for,
Shares shall not have been satisfied or waived, until such time as such
conditions are satisfied or waived, (ii) for any period required by any rule,
regulation, interpretation or position of the Commission applicable to the
Offer and (iii) for any reason on one occasion for an aggregate period of not
more than five business days beyond the latest expiration date that would
otherwise be permitted under the terms of the Investment Agreement as
described in this sentence, but in any case, not beyond June 15, 1998. As used
in this Offer to Purchase, "business day" has the meaning set forth in Rule
14d-1 under the Exchange Act.
Subject to the terms of the Investment Agreement and the applicable rules
and regulations of the Commission, the Purchaser expressly reserves the right
(but shall not be obligated), in its sole discretion, at any time and from
time to time, to (i) extend the period of time during which the Offer is open,
and thereby delay acceptance for payment of and the payment for any Shares, by
giving oral or written notice of such extension to the Depositary and (ii)
amend the Offer in any other respect by giving oral or written notice of such
amendment to the Depositary. THE PURCHASER SHALL NOT HAVE ANY OBLIGATION TO
PAY INTEREST ON THE PURCHASE PRICE FOR TENDERED SHARES IF THE OFFER IS
EXTENDED FOR ANY REASON.
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If by 12:00 Midnight, New York City time, on Friday, March 20, 1998 (or any
other date or time then set as the Expiration Date) any or all conditions to
the Offer have not been satisfied or waived, the Purchaser reserves the right
(but shall not be obligated), subject to the terms and conditions contained in
the Investment Agreement and to the applicable rules and regulations of the
Commission, to (i) waive all the unsatisfied conditions and, subject to
complying with the terms of the Investment Agreement and the applicable rules
and regulations of the Commission, accept for payment and pay for 1,250,000
Shares validly tendered prior to the Expiration Date and not theretofore
withdrawn, (ii) extend the Offer to a date not later than June 15, 1998 and,
subject to the right of stockholders to withdraw Shares until the Expiration
Date, retain the Shares that have been tendered during the period or periods
for which the Offer is extended or (iii) amend the Offer.
Subject to the provisions of the Investment Agreement described above, there
can be no assurance that the Purchaser will exercise its right to extend the
Offer. Any extension, waiver, amendment or termination will be followed as
promptly as practicable by public announcement. In the case of an extension,
Rule 14e-1(d) under the Exchange Act requires that the announcement be issued
no later than 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that any material change in the information published, sent or
given to stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service.
If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of or payment for Shares or is unable to pay for shares pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may retain tendered Shares on behalf of the
Purchaser, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to withdrawal rights as described in Section 3.
However, the ability of the Purchaser to delay the payment for Shares that the
Purchaser has accepted for payment is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including, with the Company's consent, a waiver of the Minimum Tender
Condition), the Purchaser will disseminate additional tender offer materials
and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and
14e-1(d) under the Exchange Act. With respect to a change in price or a change
in the percentage of securities sought other than an increase in the number of
Shares sought of two percent or less of the total number of outstanding
shares, a minimum period of 10 business days is generally required to allow
for adequate dissemination to stockholders. The minimum period during which
the Offer must remain open following material changes in the terms of the
Offer or information concerning the Offer, other than a change in price or
such a change in the percentage of securities sought, will depend upon the
facts and circumstances then existing, including the relative materiality of
the changed terms or information.
Consummation of the Offer is conditioned upon satisfaction or waiver of the
Minimum Tender Condition, the Investment Agreement Conditions and the HSR
Condition, as well as the satisfaction or waiver of the other conditions
described in Section 14. Subject to the terms and conditions contained in the
Investment Agreement, the Purchaser reserves the right (but shall not be
obligated) to waive any or all such conditions. However, if the Purchaser
waives or amends the Minimum Tender Condition (which action may not be taken
under the Investment Agreement without the Company's consent) during the last
five business days during which the Offer is open, the Purchaser will be
required to extend the Expiration Date so that the Offer will remain open for
at least five business days after the announcement of such waiver or amendment
is first published, sent or given to holders of Shares and may also be
required to extend the Offer if other conditions are waived, depending upon
the materiality of the waiver.
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The Company has provided the Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the Offer to
holders of the Shares. This Offer to Purchase, the related Letter of
Transmittal and other relevant materials will be mailed by the Purchaser to
record holders of Shares and will be furnished by the Purchaser to brokers,
dealers, commercial banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the stockholder lists or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
2. PROCEDURE FOR TENDERING SHARES
VALID TENDER
For a stockholder validly to tender Shares pursuant to the Offer, either (i)
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees (or, in the case of a book-
entry transfer, an Agent's Message (as defined below)) and any other documents
required by the Letter of Transmittal must be received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date and either certificates for tendered Shares must
be received by the Depositary at one of such addresses prior to the Expiration
Date or such Shares must be delivered pursuant to the procedure for book-entry
transfer set forth below and a Book-Entry Confirmation (as defined below) must
be received with respect to such Shares by the Depositary prior to the
Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedure set forth below.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company (the "Book-Entry Transfer Facility,") for purposes of
the Offer within two business days after the date of this Offer to Purchase.
Any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Shares by causing the Book-
Entry Transfer Facility to transfer such Shares into the Depositary's account
in accordance with the Book-Entry Transfer Facility's procedures for such
transfer. However, although delivery of Shares may be effected through book-
entry transfer, the properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees (or, in the
case of a book-entry transfer, an Agent's Message) and any other required
documents, must, in any case, be transmitted to, and received by, the
Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase prior to the Expiration Date, or the tendering stockholder must
comply with the guaranteed delivery procedure described below. DELIVERY OF
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-
ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
The confirmation of a book-entry transfer of Shares into the Depositary's
account at a Book-Entry Transfer Facility as described above is referred to
herein as a "Book-Entry Confirmation." The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility to, and received by,
the Depositary and forming a part of the Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the participant in the Book-Entry Transfer Facility tendering the Shares
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that the Purchaser may enforce such agreement
against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES
WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED AND
PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE TIMELY DELIVERY.
SIGNATURE GUARANTEES
No signature guarantee is required on the Letter of Transmittal if (1) the
Letter of Transmittal is signed by the registered holder of the Shares (which
term, for purposes of this Section, includes any participant in the
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Book-Entry Transfer Facility's system whose name appears on a security
position listing as the owner of the Shares) tendered therewith, and such
registered holder has not completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" on the Letter
of Transmittal or (2) such Shares are tendered for the account of a member
firm of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office, branch or agency in the United States (an "Eligible
Institution"). In all other cases, all signatures on the Letters of
Transmittal must be guaranteed by an Eligible Institution. See Instructions 1
and 5 to the Letter of Transmittal. If the certificates for Shares are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made or certificates for Shares not
tendered or not accepted for payment are to be issued to a person other than
the registered holder of the certificates surrendered, the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holders or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as aforesaid. See Instruction 5 to the Letter of
Transmittal.
GUARANTEED DELIVERY
If a stockholder desires to tender Shares pursuant to the Offer and such
stockholder's certificates for Shares are not immediately available, the
procedure for book-entry transfer cannot be completed on a timely basis or
time will not permit all required documents to reach the Depositary prior to
the Expiration Date, such stockholder's tender may be properly effected if all
the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided by the Purchaser is received by the
Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees (or, in the
case of book-entry transfer, an Agent's Message) and any other documents
required by the Letter of Transmittal, are received by the Depositary
within three Nasdaq National Market trading days after the date of
execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for (or a timely Book-Entry
Confirmation with respect to) such Shares, (ii) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and (iii) any other documents required by the Letter of Transmittal.
Accordingly, tendering stockholders may be paid at different times depending
upon when certificates for Shares or Book-Entry Confirmations are actually
received by the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON
THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF
ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described above
will constitute a binding agreement between the tendering stockholder and the
Purchaser upon the terms and subject to the conditions of the Offer.
CONVERTIBLE SECURITIES, OPTIONS AND WARRANTS
The Purchaser is not offering to purchase the UUNET Note, any other
convertible securities, the Stock Options, the Warrants or any other options,
warrants or rights to purchase Common Stock, and neither the Purchaser nor the
Company is establishing any special arrangements to facilitate conversions,
exchanges or
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exercises in connection with the Offer. Holders of the UUNET Note, Stock
Options or Warrants who wish to tender Shares in the Offer must first convert
such Note or exercise such Stock Options or Warrants, in each case in
accordance with the terms and provisions thereof, and then tender the Shares
received upon such conversion or exercise pursuant to the Offer. Holders of
the UUNET Note, Stock Options or Warrants who convert such Note or exercise
such Stock Options or Warrants will not have the right to revoke an effective
conversion or exercise, and contingent conversions or exercises will not be
valid. To the extent any such securities are converted into Shares, and the
resulting Shares are tendered but are not purchased pursuant to the Offer
(whether because the Offer is terminated or withdrawn, or by reason of
proration or otherwise), the holders of the instruments so converted will have
lost all rights as a holder of such note, options or warrants. Holders of the
UUNET Note, Stock Options and Warrants who wish to tender Shares issuable
pursuant to such securities are responsible for converting or exercising such
securities in sufficient time that such Shares can be delivered to the
Depositary in a timely manner as required by the Offer. NEITHER THE COMPANY
NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY HOLDER OF THE UUNET
NOTE, STOCK OPTIONS OR WARRANTS AS TO WHETHER TO CONVERT ANY OR ALL SUCH NOTES
OR EXERCISE ANY OR ALL SUCH STOCK OPTIONS OR WARRANTS, AS THE CASE MAY BE.
APPOINTMENT
By executing a Letter of Transmittal as set forth above, the tendering
stockholder will irrevocably appoint the designees of the Purchaser as such
stockholder's attorneys-in-fact and proxies in the manner set forth in the
Letter of Transmittal, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by
such stockholder and accepted for payment by the Purchaser and with respect to
any and all other Shares or other securities or rights issued or issuable in
respect of such Shares on or after February 10, 1998. All such proxies shall
be considered coupled with an interest in such Shares. Such appointment will
be effective when, and only to the extent that, the Purchaser accepts for
payment Shares tendered by such stockholder as provided herein. Upon such
acceptance for payment, all prior powers of attorney and proxies given by such
stockholder with respect to such Shares or other securities or rights will,
without further action, be revoked and no subsequent powers of attorney and
proxies may be given (and, if given, will not be deemed effective). The
designees of the Purchaser will thereby be empowered to exercise all voting
and other rights with respect to such Shares or other securities or rights in
respect of any annual, special or adjourned meeting of the Company's
stockholders, or otherwise, as they in their sole discretion deem proper. The
Purchaser reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon the Purchaser's acceptance for payment of
such Shares, the Purchaser must be able to exercise full voting and other
rights with respect to such Shares and other securities or rights, including
voting at any meeting of stockholders then scheduled.
DETERMINATION OF VALIDITY
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any tender of Shares will be determined by the
Purchaser in its sole discretion, which determination will be final and
binding. The Purchaser reserves the absolute right to reject any or all
tenders determined by it not to be in proper form or the acceptance for
payment of or payment for which may, in the opinion of the Purchaser's
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any defect or irregularity in any tender with respect to any particular
Shares, whether or not similar defects or irregularities are waived in the
case of other Shares. No tender of Shares will be deemed to have been validly
made until all defects or irregularities relating thereto have been cured or
waived. None of the Purchaser, the Depositary, the Information Agent, the
Dealer Manager or any other person will be under any duty to give notification
of any defects or irregularities in tenders or incur any liability for failure
to give any such notification. The Purchaser's interpretation of the terms and
conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
BACKUP WITHHOLDING
In order to avoid "backup withholding" of Federal income tax on payments of
cash pursuant to the Offer, a stockholder surrendering Shares in the Offer
must provide the Depositary with such stockholder's correct
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Taxpayer Identification Number ("TIN") on a Substitute Form W-9 and, unless an
exemption applies, must certify under penalties of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding of
Federal income tax. Certain stockholders (including, among others, all
corporations and certain foreign individuals and entities) are not subject to
backup withholding. If a stockholder does not provide its correct TIN or fails
to provide the required certification on Substitute Form W-9 to the
Depositary, the Internal Revenue Service (the "IRS") may impose a penalty on
such stockholder and payment of cash to such stockholder pursuant to the Offer
may be subject to backup withholding of 31%. All stockholders surrendering
Shares pursuant to the Offer should complete and sign the main signature form
and the Substitute Form W-9 included as part of the Letter of Transmittal to
provide the information and certification necessary to avoid backup
withholding (unless an applicable exemption exists and is proved in a manner
satisfactory to the Purchaser and the Depositary). Foreign individual
stockholders and certain foreign entity stockholders must complete and sign
the main signature form and a Form W-8 (Certificate of Foreign Status), a copy
of which may be obtained from the Depositary, in order to avoid backup
withholding. See Instruction 9 to the Letter of Transmittal. For other Federal
income tax consequences, see Section 5.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant
to the procedures set forth below at any time prior to the Expiration Date
and, unless theretofore accepted for payment and paid for by the Purchaser
pursuant to the Offer, may also be withdrawn at any time after April 20, 1998.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must
specify the name of the person having tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder of the
Shares to be withdrawn, if different from the name of the person who tendered
the Shares. If certificates for Shares have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted
to the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signatures on the notice of withdrawal must be guaranteed by
an Eligible Institution. If Shares have been tendered pursuant to the
procedures for book-entry transfers as set forth in Section 2 hereof, any
notice of withdrawal must also specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with the Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for any purposes of
the Offer. However, withdrawn Shares may be retendered by again following one
of the procedures described in Section 2 at any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, which determination will be final and binding. None of the
Purchaser, the Depositary, the Information Agent, the Dealer Manager or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for
1,250,000 Shares validly tendered prior to the Expiration Date and not
properly withdrawn in accordance with Section 3 promptly after the Expiration
Date. Any determination concerning the satisfaction of such terms and
conditions will be within the sole discretion of the Purchaser, and such
determination will be final and binding on all tendering stockholders. See
Sections 1 and 14. The Purchaser expressly reserves the right, in its sole
discretion, to delay acceptance for payment of or payment for Shares in order
to comply in whole or in part
10
<PAGE>
with any applicable law, including, without limitation, the HSR Act. Any such
delays will be effected in compliance with Rule 14e-1(c) under the Exchange
Act (relating to the Purchaser's obligation to pay for or return tendered
Shares promptly after the termination or withdrawal of the Offer). In all
cases, payment for Shares accepted for payment pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates for such
Shares (or timely Book-Entry Confirmation of a book-entry transfer of such
Shares as described in Section 2), (ii) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees (or, in the case of book entry transfer, an Agent's Message), and
(iii) any other documents required by the Letter of Transmittal. The per Share
consideration paid to any stockholder pursuant to the Offer will be the
highest per Share consideration paid to any other stockholder pursuant to the
Offer.
The Purchaser will file promptly a Notification and Report Form with respect
to the Offer and the other transactions contemplated by the Investment
Agreement under the HSR Act. The waiting period under the HSR Act with respect
to the Offer will expire at 11:59 p.m., New York City time, on the 15th day
after the date such form is filed and the waiting period with respect to the
other transactions contemplated by the Investment Agreement will expire at
11:59 p.m., New York City time, on the 30th day after the date such form is
filed by both the Purchaser and the Company, in each case unless early
termination of the waiting period is granted. In addition, the Antitrust
Division of the Department of Justice (the "Antitrust Division") or the
Federal Trade Commission (the "FTC") may extend such waiting periods by
requesting additional information or documentary material from the Purchaser
or, in the case of the waiting period applicable to the other transactions
contemplated by the Investment Agreement, the Company. If such a request is
made with respect to the Offer, the waiting period related to the Offer will
expire at 11:59 p.m., New York City time, on the 10th day after substantial
compliance by the Purchaser with such request. If such a request is made with
respect to the other transactions contemplated by the Investment Agreement,
the waiting period related to such other transactions will expire at 11:59
p.m. New York City time, on the 20th day after substantial compliance with
such request by each party to whom such a request is made. It is expected that
the Offer will not be consummated until the waiting periods under the HSR Act
with respect to both the Offer and the other transactions contemplated by the
Investment Agreement have expired or have been terminated. See Section 15
hereof for additional information concerning the HSR Act and the applicability
of antitrust laws to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to the Purchaser and
not withdrawn as, if and when the Purchaser gives oral or written notice to
the Depositary of the Purchaser's acceptance for payment of such Shares.
Payment for Shares accepted for payment pursuant to the Offer will be made by
deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering stockholders for the purpose of receiving payment from the
Purchaser and transmitting payment to tendering stockholders. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE
PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY
IN MAKING SUCH PAYMENT.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange
Act, which requires that a tender offeror pay the consideration offered or
return the tendered securities promptly after the termination or withdrawal of
a tender offer), the Depositary may, nevertheless, on behalf of the Purchaser,
retain tendered Shares, and such Shares may not be withdrawn except to the
extent tendering stockholders are entitled to exercise, and duly exercise,
withdrawal rights as described in Section 3.
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender, proration or otherwise, certificates for any such Shares will
be returned, without expense to the tendering stockholder (or, in the case of
Shares delivered by book-entry transfer of such Shares into the Depositary's
account at the Book-Entry Transfer Facility pursuant to the procedure set
forth in Section 2, such Shares will be credited to an account maintained at
the appropriate Book-Entry Transfer Facility), as promptly as practicable
after the expiration or termination of the Offer.
11
<PAGE>
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to one or more subsidiaries of the Purchaser, the right
to purchase Shares tendered pursuant to the Offer, but any such transfer or
assignment will not relieve the Purchaser of its obligations under the Offer
and will in no way prejudice the rights of tendering stockholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Sales of Shares pursuant to the Offer will be taxable transactions for
Federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be taxable transactions under applicable
state, local, foreign and other tax laws. For Federal income tax purposes, a
tendering stockholder will generally recognize gain or loss equal to the
difference between the amount of cash received by the stockholder pursuant to
the Offer and the aggregate tax basis in the Shares tendered by the
stockholder and purchased pursuant to the Offer. Gain or loss should be
calculated separately for each block of Shares tendered and purchased pursuant
to the Offer.
If tendered Shares are held by a tendering stockholder as capital assets,
gain or loss recognized by the tendering stockholder will be capital gain or
loss, which will be long-term capital gain or loss if the tendering
stockholder's holding period for the Shares exceeds one year and will be
short-term capital gain or loss if the holding period for the Shares is one
year or less. Under present law, long-term capital gains recognized by a
tendering individual stockholder will generally be taxed at a maximum Federal
marginal tax rate of 39.6% if Shares were held by the stockholder for 12
months or less, at a maximum Federal marginal tax rate of 28% if the Shares
were held by the stockholder for between 12 and 18 months and a maximum
Federal marginal tax rate of 20% if the shares were held by the stockholder
for over 18 months, and long-term capital gains recognized by a tendering
corporate stockholder will generally be taxed at a maximum federal marginal
tax rate of 35%.
A stockholder (other than certain exempt stockholders including, among
others, all corporations and certain foreign individuals and entities) that
tenders Shares may be subject to 31% backup withholding unless the stockholder
provides its TIN and certifies that such number is correct (or properly
certifies that it is awaiting a TIN) and certifies that such stockholder is
not subject to backup withholding. A stockholder that does not furnish its
correct TIN may be subject to a penalty imposed by the IRS. Each stockholder
should complete and sign the Substitute W-9 included as part of the Letter of
Transmittal so as to provide the information and certification necessary to
avoid backup withholding.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments made to such stockholder. Backup withholding is
not an additional tax. Rather, the amount of the backup withholding can be
credited against the Federal income tax liability of the person subject to the
backup withholding, provided that the required information is given to the
IRS. If backup withholding results in an overpayment of tax, a refund can be
obtained by the stockholder from the IRS. See Section 2 for instructions to
avoid backup withholding.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES
RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS
COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL
TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT
APPLY TO A HOLDER OF SHARES IN LIGHT OF ITS INDIVIDUAL CIRCUMSTANCES.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE OFFER.
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES
The Shares are traded in the over-the-counter market and prices are quoted
on the Nasdaq National Market under the symbol "ELNK." The following table
sets forth, for each of the periods indicated, the high and low
12
<PAGE>
last reported sales prices per Share as reported by the Nasdaq National Market
and the Dow Jones News Retrieval Service.
<TABLE>
<CAPTION>
SALES PRICE
--------------
HIGH LOW
------ -------
<S> <C> <C>
1997
First Quarter (from the date of the Company's initial
public offering, January 22, 1997)..................... $20.25 $10.125
Second Quarter.......................................... 13.50 8.625
Third Quarter........................................... 19.50 10.25
Fourth Quarter.......................................... 25.75 16.00
1998
First Quarter (through February 17, 1998)............... 48.00 25.125
</TABLE>
On February 10, 1998, the last full day of trading before the public
announcement of the execution of the Investment Agreement, the reported
closing sale price of the Shares on the Nasdaq National Market was $38.625 per
Share. On February 17, 1998 the last full day of trading before the
commencement of the Offer, the reported closing sale price of the Shares on
the Nasdaq National Market was $44.375 per Share. STOCKHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
According to the Company, it has never declared a cash dividend in respect
of the Shares.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, STOCK QUOTATION AND
EXCHANGE ACT REGISTRATION
The purchase of Shares pursuant to the Offer will likely reduce the number
of Shares that might otherwise trade publicly. However, it is expected that a
significant percentage of the outstanding Shares will continue to be held by
persons other than the Purchaser and its affiliates, and the Purchaser does
not believe that its purchase of 1,250,000 Shares pursuant to the Offer is
likely to result in the Company's failure to meet the requirements of the
National Association of Securities Dealers, Inc. for continued inclusion in
the Nasdaq National Market or in the Shares becoming eligible for
deregistration under the Exchange Act or should have a material adverse effect
on the liquidity and market value of the remaining Shares held by the public.
The Merger will have no effect on the number of shares traded publicly.
The Shares are currently registered under the Exchange Act and the Newco
Common Stock will be registered thereunder after the Merger.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to
extend credit on the collateral of the Shares. Following the Offer, the Newco
Common Stock will be "margin securities."
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company is a Delaware corporation with its principal executive offices
at 3100 New York Drive, Pasadena, California 91107. According to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the
"Company Form 10-K"), the Company's principal line of business is to serve as
an Internet Service Provider ("ISP") that provides its customers access to the
Internet and information, assistance and services designed to introduce
customers to the Internet and ensure that they have a satisfying Internet
experience. The Company also provides information to its users through an
extensive World Wide Website and bi-monthly printed newsletters to customers.
In addition, the Company offers business services, including business
Websites, high-speed ISDN communications capability and frame relay
connectivity, and consumer services such as multiplayer Internet games and the
EarthLink online store.
13
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is certain selected financial information with respect to
the Company derived from the information contained in the Company's Form 10-K
for the year ended December 31, 1996, as well as the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, each of which is
incorporated by reference herein. More comprehensive financial information is
included in such reports and other documents filed by the Company with the
Commission, and the following summary is qualified in its entirety by
reference to such reports and such other documents and all the financial
information (including any related notes) contained therein. Such reports and
other documents should be available for inspection and copies thereof should
be obtainable in the manner set forth below under "Available Information."
EARTHLINK NETWORK, INC.
SELECTED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------
1997 1996 1995 1994(1)
------------- ---------------- -------- -------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues............. $ 55,167 $ 32,503 $ 3,028 $ 111
Loss from operations....... (22,276) (30,258) (6,018) (148)
Net loss................... (23,327) (31,149) (6,120) (148)
Net loss per share......... (2.43) (4.50) (1.25) (0.04)
<CAPTION>
AT DECEMBER 31,
AT SEPTEMBER 30, -----------------
1997 1996 1995
---------------- -------- -------
<S> <C> <C> <C> <C>
Balance sheet data:
Total current assets..................... $ 23,559 $ 9,073 $2,253
Total assets............................. 48,106 27,119 4,874
Total current liabilities................ 28,242 28,279 4,229
Long-term debt........................... 7,851 6,088 355
Total Stockholders' equity............... 12,013 (21,261) 290
</TABLE>
- --------
(1) Inception (May 26, 1994) through December 31, 1994
The Company announced its unaudited results of operations for the year ended
December 31, 1997 in a press release dated February 11, 1998, which reflected
revenues, net loss and net loss per share of $79.1 million, ($29.9 million)
and ($2.99), respectively.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Exchange Act
and, in accordance therewith, is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information as of particular dates concerning the Company's
directors and officers, their remuneration, stock options granted to them, the
principal holders of the Company's securities and any material interest of
such persons in transactions with the Company is required to be disclosed in
proxy statements distributed to the Company's stockholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located in Room 1400, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies should be obtainable, by mail, upon payment of the
Commission's customary charges, by writing to the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
information should also be on file at the Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006. The Commission maintains an Internet web
site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the Commission. The
address for that site is http://www.sec.gov.
14
<PAGE>
Except as otherwise stated in this Offer to Purchase, the information
concerning the Company contained herein has been taken from or based upon
publicly available documents on file with the Commission and other publicly
available information. Although the Purchaser does not have any knowledge that
any such information is untrue, the Purchaser does not take any responsibility
for the accuracy or completeness of such information or for any failure by the
Company to disclose events that may have occurred and may affect the
significance or accuracy of any such information.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser is a Kansas corporation with its principal executive offices
at 2330 Shawnee Mission Parkway, Westwood, Kansas 66205. Sprint is a
diversified telecommunications holding company providing domestic and
international voice, video and data communications through its subsidiaries.
Sprint has two major business divisions: local telephone operations and long-
distance operations. Complementary businesses include distribution of
telecommunications equipment and telephone directory publishing. Sprint
operates local exchange telephone systems serving more than 7 million access
lines in 19 states.
Sprint is a 40% partner in Sprint Spectrum Holding Company, L.P. ("Sprint
PCS"), a partnership with Tele-Communications, Inc., Comcast Corporation and
Cox Communications, Inc. Sprint PCS is building the nation's first single
technology, 100% digital, state-of-the-art wireless network to provide
personal communication services ("PCS") across the United States. Sprint is
also a partner in Global One, a joint venture with Deutsche Telekom Ag ("DT")
and France Telecom ("FT") to provide seamless global telecommunications
services to business, residential and carrier markets worldwide. Sprint is a
one-third partner in Global One's operating group serving Europe (excluding
France and Germany), and is a 50% partner in Global One's operating group for
the worldwide activities outside the United States and Europe.
Sprint's principal emerging businesses include consumer Internet access
services, competitive local exchange carrier ("CLEC") services, international
development activities (outside the scope of Global One), provision of PCS in
markets with licenses controlled by Sprint, and integration, management and
support services for computer networks (Paranet).
If the Offer is consummated, Sprint L.P. will assign its SIP Subscribers at
the Closing to the Company, together with certain other consideration, in
exchange for the acquisition of 4,102,941 shares of Convertible Preferred
Stock.
Additional information concerning Sprint and its subsidiaries is contained
in Sprint's Annual Report on Form 10-K for the year ended December 31, 1996
and its Quarterly Reports on Form 10-Q for the periods ended March 31 and June
30 and September 30, 1997.
The name, business address, present principal occupation or employment,
five-year employment history and citizenship of each of the directors and
executive officers of the Purchaser are set forth in Schedule I hereto.
SUMMARY FINANCIAL INFORMATION
Set forth below is certain selected financial information with respect to
the Purchaser and its consolidated subsidiaries derived from the information
contained in the Purchaser's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as well as the Company's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1997, each of which is incorporated by
reference herein. More comprehensive financial information is included in such
reports and other documents filed by the Purchaser with the Commission, and
the following summary is qualified in its entirety by reference to such
reports and other documents and all the financial information (including any
related notes) contained therein. Such reports and other documents may be
inspected at the Commission's office, and copies thereof may be obtained upon
payment of the Commission's customary charges, in the manner set forth in
Section 8.
15
<PAGE>
SPRINT CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------------
1997 1996 1995 1994(1)
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Statement of Income Data:
Net operating revenues........... $11,059.2 $14,044.7 $12,765.1 $11,986.6
Operating Income................. 1,840.9 2,267.2 1,834.3 1,690.7
Net Income....................... 757.6 1,183.8 395.3 890.7
Earnings per share of common
stock........................... 1.74 2.78 1.12 2.55
</TABLE>
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
SEPTEMBER 30, -------------------
1997 1996 1995
------------- --------- ---------
<S> <C> <C> <C>
Balance sheet data:
Total current assets....................... $ 3,686.7 $ 4,352.8 $ 3,619.4
Total assets............................... 17,621.7 16,953.0 15,195.9
Total current liabilities.................. 3,476.5 3,314.2 5,142.1
Long-term debt............................. 2,851.2 2,981.5 3,253.0
Common Stock and other shareholder's
equity.................................... 8,915.3 8,519.9 4,642.6
</TABLE>
Sprint announced its unaudited results of operations for the year ended
December 31, 1997 in a press release dated February 3, 1998 which reflected
revenues, net income and income per share (on a diluted basis) of $14.87
billion, $952.5 million and $2.18, respectively.
Except as described in this Offer to Purchase, (i) none of the Purchaser
nor, to the best knowledge of the Purchaser, any of the persons listed in
Schedule I or any majority-owned subsidiary of the Purchaser, or any of the
persons so listed, beneficially owns any equity security of the Company, and
(ii) none of the Purchaser nor, to the best knowledge of the Purchaser, any of
the other persons referred to above, or any of the respective directors,
executive officers or subsidiaries of any of the foregoing, has effected any
transaction in any security of the Company during the past 60 days.
Except as described in this Offer to Purchase, (i) there have not been any
contacts, transactions or negotiations between the Purchaser, any of its
subsidiaries or, to the best knowledge of the Purchaser, any of the persons
listed in Schedule I, on the one hand, and the Company or any of its
directors, officers or affiliates, on the other hand, that are required to be
disclosed pursuant to the rules and regulations of the Commission, and (ii)
none of the Purchaser or, to the best knowledge of the Purchaser, any of the
persons listed in Schedule I has any contact, arrangement, understanding or
relationship with any person with respect to any securities of the Company.
Except as described in this Offer to Purchase, during the last five years,
none of the Purchaser or, to the best knowledge of the Purchaser, any of the
persons listed in Schedule I (i) has been convicted in a criminal proceeding
(excluding traffic violations and similar misdemeanors) or (ii) was a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, Federal or state securities laws or finding any
violation of such laws.
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase Shares
pursuant to the Offer is $56,250,000. Fees and expenses related to the Offer
for the Depositary, the Information Agent, and printing are estimated to be
approximately $175,000. Aggregate fees and expenses of $2,000,000 for the
Dealer Manager and other investment banking and legal services for the
transactions contemplated by the Investment Agreement were not separately
allocated among the constituent transactions such as the Offer. The Purchaser
plans to obtain all funds needed for the Offer from working capital.
16
<PAGE>
11. CONTACTS WITH THE COMPANY; BACKGROUND OF THE OFFER
Sprint has been advised by the Company that during August, September and
October of 1997, the Company's senior management analyzed the Company's
strategic position in the Internet industry and its prospects for continuing
and accelerating the growth of its business and achieving critical mass in its
subscriber base and greater scale in its operations. In light of this
analysis, management discussed with the Company's Board of Directors (on both
a formal and an informal basis) an array of strategic alternatives designed to
enhance the Company's strategic, operational, financial, marketing and
distribution capabilities.
Sprint has been further advised that, at a regular meeting of the Board of
Directors of the Company held on October 29, 1997, the Board conducted an
open-ended discussion of these alternatives, which included (i) a proposed
strategic alliance with Sprint; (ii) an underwritten equity offering or other
financing transactions; (iii) a significant infusion of equity capital by a
financial investor, the proceeds of which would be used by the Company to make
strategic acquisitions; (iv) a significant equity investment in the Company
by, and/or a joint venture involving the Company with, one or more Regional
Bell Operating Companies; and (v) either alone or in combination with certain
of the foregoing, the making of a business combination proposal to one or more
other providers of Internet services. At the conclusion of this discussion,
the Board did not recommend that any particular alternative be pursued to the
exclusion of others, but rather directed that management take further steps to
explore the availability of various options (without committing the Company to
any alternative without further action of the Board) and periodically report
to the Board on the results of such initiatives. The Board also authorized
senior management and the Company's financial advisor, DMG, to make selective
inquiries to determine whether certain firms in the telecommunications
industry would have any interest in a potential joint venture, strategic
alliance or minority investment relationship with the Company. The Board also
instructed management and DMG not to foreclose the possibility of a business
combination involving the Company, although it believed that the better
approach, in terms of enhancing the Company's long-term value, was to solicit
a strategic alliance or minority investment. Ultimately, no proposals to
effect a business combination emerged. As a result of management's exploratory
initiatives, based on the strategic, operational and financial considerations
described below and Sprint's dynamic and prompt expression of interest in
pursuing a strategic alliance with the Company, the Board determined that
focusing primarily on the Sprint alternative was most likely to produce the
best transaction reasonably available.
During early October, 1997, with the permission of Garry Betty, President
and Chief Executive Officer of the Company, Sidney Azeez, one of the Company's
directors, contacted Carl Peterson, General Manager, President and CEO of the
Kansas City Chiefs, inquiring whether he was acquainted with William T. Esrey,
Chairman and Chief Executive Officer of Sprint Corporation. After learning
that Mr. Peterson and Mr. Esrey were acquaintances, Mr. Betty requested that
Mr. Peterson arrange an introduction so the Company could explore whether
Sprint would have any interest in discussing the possibility of a strategic
alliance or other relationship. Mr. Peterson contacted Sprint and suggested a
meeting during which the companies could discuss their respective businesses
and the possible benefits of a strategic or other relationship.
Theodore H. Schell, Senior Vice President Strategic Planning & Corporate
Development, phoned Mr. Betty on October 8, 1997 to express Sprint's interest
in exploratory discussions and to arrange for a visit by a Sprint
representative to the Company's headquarters in Pasadena, California. On
October 10, 1997, Chuck Chakravarty, Manager Corporate Development, visited
the Company's headquarters in Pasadena, California and had discussions with
Mr. Betty and other members of the Company's management. The discussions
focused on the operational and financial aspects of the Company.
On October 29, 1997, Sprint and the Company executed a reciprocal
confidentiality agreement in which they agreed to maintain the confidentiality
of nonpublic information concerning their businesses. On October 31, 1997, Mr.
Schell, Timothy S. Sutton, Vice President Strategic Planning & Corporate
Development and James Dodd, Vice President Internet Access Services met with
Mr. Peterson, Sky Dayton, Chairman of the Board of the Company, and Mr. Betty
in Kansas City to obtain a strategic overview of the Company's business.
Following that discussion, the participants concluded that there were several
areas of shared perspective with regard to the
17
<PAGE>
importance of expanded scale in the Internet access business, the
technological evolution of the Internet, and business philosophies regarding
quality of customer service and operations.
In early November, 1997, Mr. Sutton and Mr. Betty had phone conversations
confirming the desire of both parties to engage in further exploration of a
strategic or other relationship. On November 19, 1997, Mr. Sutton, Mr. Dodd
and certain other officers and employees of Sprint met in Pasadena with Mr.
Dayton, Mr. Betty and certain other officers and employees of the Company, and
a representative of DMG, the Company's financial advisor. The Company's
representatives presented a high-level overview of the Company's business from
an operational, financial and strategic perspective. The participants then
engaged in a high-level discussion of possible alternatives for a strategic or
other relationship between Sprint and the Company. Sprint's representatives
discussed the factors of importance to Sprint in assessing a potential
relationship with the Company. These factors included: continued reliance on
the Sprint brand (either alone or co-branded with the Company's brand);
marketing rights to the Internet product; utilization of Sprint's network
services; and the financial implications of the nature and amount of the
investment requisite to scaling up to achieve critical mass and profitability.
Each party expressed the lack of a desire to consider a business combination
or similar type of transaction with the other party at the time. However, each
party expressed an interest in Sprint acquiring a minority equity interest in
the Company if a structure could be developed that would be acceptable from a
strategic, operational and financial point of view.
Additional meetings were held in Pasadena on November 21 and 22, 1997 among
officers and employees of Sprint and the Company to continue discussions of
the strategic, financial and operational characteristics of a strategic
relationship between Sprint and the Company with respect to their Internet
businesses. The possible marketing opportunities and synergies of such an
alliance were also explored. These meetings were followed by several telephone
calls between officers of Sprint and the Company with regard to these matters.
A meeting was held in Pasadena on December 4, 1997 which was attended by
Messrs. Esrey, Schell, Sutton, Dodd, Dayton, Betty and certain other officers
and employees of the Company at which the possible components of a strategic
relationship were discussed. These discussions focused on strategic and
operational matters, including co-branding the Internet access service,
accessing Sprint's marketing and distribution channels, the nature of any
minority investment capital Sprint might make available to the Company and the
opportunity by which Sprint might acquire the equity securities of the Company
not already owned by Sprint and its affiliates at some point in the future.
Further meetings were held in Pasadena on December 11 and 12, 1997 among
Messrs. Sutton, Betty and Dayton, internal Sprint counsel, outside counsel to
the Company, and the financial advisers of Sprint and the Company. These
discussions focused on the valuation of Sprint's in-kind contributions,
including Sprint Internet Passport subscribers, the Sprint brand, access to
the Sprint network and access to the Sprint marketing channels. The
discussions also focused on the terms and structure for a minority investment
by Sprint in the Company, the terms of any credit arrangements Sprint might
provide, governance rights, and the timing and possible approaches under which
Sprint would be permitted in the future to seek to acquire the remaining
equity securities of the Company.
Further meetings were held in Pasadena on December 19 and 20, 1997 to
discuss a proposed preliminary term sheet prepared by Sprint. The term sheet
contemplated that Sprint would acquire a minority interest in the Company
through a cash tender offer. It also contemplated that in exchange for the
contribution of the Sprint Internet Passport subscribers and favorable terms
for access to the Sprint L.P. network, Sprint L.P. would receive a newly
created series of convertible preferred stock from the Company. The parties
also discussed a marketing agreement whereby the parties would jointly brand
their Internet products and Sprint would make its marketing channels available
to the Company with certain exclusivity and sales commitments.
Also involved in the negotiations were terms of a standstill arrangement
which would preclude further acquisitions of the Company's equity securities
by Sprint, except in limited situations designed to ensure the receipt of fair
value by all stockholders in the event Sprint acquired additional equity
securities above agreed upon thresholds. The parties also discussed
convertible debt financing of up to $100,000,000. There were also
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discussions of limited governance rights, stock registration rights,
limitations on the Company soliciting acquisition proposals (subject to the
Board's fiduciary obligations) and other customary rights of a financial
investor. Throughout these and subsequent meetings, considerable negotiations
took place regarding all strategic, operational, financial and governance
aspects of the proposed transactions.
These proposals, counter proposals and revisions were reflected in numerous
further discussion drafts of possible terms which were circulated between
Sprint and the Company and their respective financial and legal advisers.
Conference and telephone calls were held in the latter part of December 1997
and in early January 1998 among various members of management and the
financial and legal advisers to Sprint and the Company to discuss and refine
these proposals. Various members of management and employees of Sprint and the
Company visited Sprint's facilities in Reston, Virginia on December 30, 1997
in an attempt to reach a common view on applicable network economics, network
technologies and engineering set ups.
Meetings among various members of management and the financial and legal
advisers to Sprint and the Company were held during the evening of January 12,
1998 in Kansas City and during the following day to continue negotiation of
the terms of the transactions. Based on these negotiations, the parties agreed
to proceed immediately with the preparation of drafts of definitive agreements
to cover the matters encompassed by the Investment Agreement and Ancillary
Agreements. Numerous conference calls took place after January 12, 1998 to
divide drafting responsibilities, establish schedules and address issues
arising as part of the documentation effort. Prior to January 27, 1998,
initial drafts of most of the documents (and comments on most initial drafts)
were exchanged.
Negotiating sessions were held in Kansas City from January 27 through
February 1, 1998. Negotiations continued thereafter via numerous conference
calls and exchanges of drafts and comments through February 10, 1998, in an
effort to reach agreement on the matters encompassed by the Investment
Agreement and the Ancillary Agreements. Some of the negotiations between legal
counsel for Sprint and the Company occurred in person between February 6 and
February 10, 1998.
An overview of the possible transaction with the Company and related issues
were discussed at Sprint's Board of Directors meeting on December 9, 1997. A
meeting of Sprint's Board of Directors was held on February 10, 1998 and the
execution, delivery and performance of the Investment Agreement, the Ancillary
Agreements and the transactions contemplated thereby were approved.
An overview of the possible transaction and related issues were discussed at
the Company's Board of Directors meeting on January 11, 1998. At a special
meeting held on January 20, 1998, senior management provided the Board with a
report on the status of the negotiations with Sprint and developments with
respect to other potential strategic alternatives. Draft agreements were first
presented to the Company's Board of Directors at a regular meeting held on
February 2, 1998. A special meeting of the Company's Board of Directors was
held on February 10, 1998 and the execution, delivery and performance of the
Investment Agreement, the Ancillary Agreements and the transactions
contemplated thereby were approved.
Following approval by the Board of Directors of Sprint and the Company, the
Investment Agreement and the Ancillary Agreements were executed and delivered
after the close of financial markets in the United States on February 10,
1998. The Offer and the other transactions contemplated by these agreements
were publicly announced before the financial markets in the United States
opened on February 11, 1998.
12. PURPOSE OF THE OFFER; THE INVESTMENT AGREEMENT; ANCILLARY AGREEMENTS
GENERAL
Sprint and the Company have determined to enter into a strategic alliance to
provide Internet access services and related services on a collaborative
basis. The purpose of the Offer and the related investments being made by
Sprint pursuant to the Investment Agreement is to benefit from the enhanced
capabilities for growth and financial and strategic success by joining forces
with the Company. Immediately after the consummation of the
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Offer, the following transactions will take place pursuant to the Investment
Agreement at the Closing: (i) Sprint will purchase 4,102,941 shares of
Convertible Preferred Stock in exchange for (A) an aggregate cash
consideration of $23,750,000, (B) the assignment to Newco of 100% of the SIP
Subscribers, and (C) Sprint L.P. having entered into the Network Agreement
whereby Newco and the Company will utilize Sprint L.P.'s long-distance network
under specified terms and conditions (the consideration referred to in clauses
(A), (B) and (C) is referred to herein as the "Convertible Preferred Stock
Consideration"), (ii) pursuant to the Marketing Agreement, Newco and the
Company will begin to use Sprint and Sprint L.P. distribution channels and
sell certain Sprint L.P. products under specified terms and conditions,
including the commitment of Sprint to obtain 150,000 subscribers per year for
the Company, and (iii) Sprint will provide Newco and the Company, as co-
borrowers, with up to $25 million of Convertible Debt Financing on or after
the Closing, with such amount to increase by $25 million on each of the first,
second and third anniversary of the Closing Date for a total of $100 million
of such financing at the end of such period, such indebtedness to be evidenced
by one or more Convertible Notes which will be convertible into Newco Common
Stock.
Sprint, Sprint L.P. and Newco have entered into a Governance Agreement which
will become effective at the Closing. The Governance Agreement establishes
certain terms and conditions with respect to the corporate governance of
Newco, the acquisition and disposition of equity securities of Newco by Sprint
and its affiliates (including Sprint's rights, under certain circumstances
described therein, to offer to purchase the outstanding shares of Newco Common
Stock not already owned by Sprint and its affiliates), and the rights of the
Board of Directors of Newco to entertain acquisition proposals and business
combinations. Sprint, Sprint L.P. and certain stockholders of the Company have
also entered into a Stockholders' Agreement which will become effective at the
Closing and which requires such stockholders to support certain offers by
Sprint, whether by vote or tender, under the circumstances described in such
agreement.
Also, concurrently with the Closing of these transactions, other than the
Offer, Newco Sub will merge into the Company and the holders of Common Stock
will receive, in exchange for their shares of Common Stock, an equal number of
shares of Newco Common Stock.
THE INVESTMENT AGREEMENT
THE OFFER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE INVESTMENT AGREEMENT
Pursuant to the Investment Agreement, Sprint has commenced the Offer. See
Section 1 for a summary of the material terms of the Investment Agreement
relating to the Offer.
The obligations of Sprint, Sprint L.P., Newco, Newco Sub and the Company to
consummate the transactions contemplated to occur at the Closing other than
the Offer are subject to the satisfaction of the condition that Sprint shall
have accepted for payment shares of Common Stock pursuant to the Offer in
accordance with this Agreement. The conditions to the consummation of the
Offer are described in Section 14.
THE MERGER
Immediately following the consummation of the Offer, the Company, Newco and
Newco Sub will effect the Merger whereby Newco Sub, a wholly-owned subsidiary
of Newco, will merge with and into the Company. All of the then issued and
outstanding Shares of Common Stock, including the Shares acquired by the
Purchaser in the Offer, will be converted into an equal number of shares of
Newco Common Stock in the Merger. Upon consummation of Merger, the Company
will be a subsidiary of Newco. Pursuant to the Merger, the Certificate of
Incorporation and Bylaws of Newco Sub will become the Certificate of
Incorporation and Bylaws of the surviving corporation and the Certificate of
Incorporation and Bylaws of Newco will take effect as the constitutive
documents of the corporation whose stock is registered pursuant to the
Exchange Act. The Certificate of Incorporation and Bylaws of Newco are
substantially similar to the Certificate of Incorporation and Bylaws of the
Company, except that the number of authorized shares of Preferred Stock was
increased from 10 million to 25 million and that the scope of indemnification
of officers and directors was increased consistent with the
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Delaware General Corporation Law (the "DGCL"). Also, the directors and
officers of the Company will become the directors and officers of Newco until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with Newco's
Certificate of Incorporation and Bylaws, except that the two directors elected
by the holders of the Convertible Preferred Stock of Newco will be elected
immediately following the Closing.
While the Merger is subject to the approval of the stockholders of the
Company, the votes to be cast pursuant to the Agreement to Vote and Tender
Stock and the Agreement to Vote Stock will ensure approval of the Merger. The
Merger will create a holding company structure which may provide certain
advantages if the scope of the Company's business expands in the future as
well as facilitating the economic efficiency of the strategic relationship
with Sprint.
THE ISSUANCE OF CONVERTIBLE PREFERRED STOCK
Concurrently with the Merger, Sprint L.P. will receive 4,102,941 shares of
Convertible Preferred Stock in exchange for the Convertible Preferred Stock
Consideration. Such consideration consists of (i) $23,750,000 of cash, (ii)
Sprint L.P. contributing the SIP Subscribers to Newco, and (iii) Sprint L.P.,
the Company and Newco entering into the Network Agreement.
The Convertible Preferred Stock will be initially convertible into 3,533,411
Shares of Newco Common Stock at the Closing. Based on these figures,
immediately after consummation of the Offer, the Merger and the other
transactions contemplated by the Investment Agreement, the Purchaser would own
approximately 26.6% of the total number of issued and outstanding shares of
Newco Common Stock on a fully diluted basis (that is, assuming that the UUNET
Note has been converted into Shares and that all outstanding Warrants and
Stock Options have been exercised, including the Convertible Preferred Stock).
However, the Convertible Preferred Stock will pay dividends thereon for the
first five years in the form of increases in its Liquidation Value, at a per
annum rate of 3% of the Liquidation Value), which will accrue and compound
quarterly in arrears, but which will accelerate in the event of a Business
Combination (as defined in this Section 12) or an optional redemption of the
Convertible Preferred Stock by Newco. At the Closing, the Liquidation Value
will be the average of the closing price per share of Newco Common Stock for
the thirty (30) trading days prior to the Closing Date. Increases in the
Liquidation Value will have the effect of increasing the number of shares of
Newco Common Stock which the Purchaser will receive upon conversion of the
Convertible Preferred Stock. Assuming that the Convertible Preferred Stock is
held by the Purchaser for the initial five year period, or the Liquidation
Accretion Dividends are accelerated, the Purchaser will be entitled to receive
4,102,941 shares of Newco Common Stock upon conversion thereof. If the fully
diluted number of Shares, as calculated above, were the same at that time, the
Purchaser would then own approximately 28.8% of the total number of issued and
outstanding shares of Newco Common Stock on that basis.
Cash dividends at such rate are payable after five years from the Closing
Date when declared by the Board of Directors of Newco out of funds legally
available therefor and such dividends accumulate if not declared and paid.
After the twentieth anniversary of the Closing Date, such cumulative cash
dividends accrue at the rate per annum of 8% of the Liquidation Value, which
rate increases annually by 200 basis points up to an maximum rate of 12% per
annum. Holders of Convertible Preferred Stock are entitled to a liquidation
preference upon any voluntary or involuntary liquidation, dissolution or
winding up of Newco (" Liquidation Event") in an amount per share equal to the
sum of (i) the average closing price per share of Common Stock for the thirty
(30) trading days preceding the Closing Date, (ii) the amount of all
Liquidation Accretion Dividends that have been paid (including an amount equal
to a prorated dividend for the period from the latest Dividend Accrued Date
through the date of the Liquidation Event), and (iii) all accumulations of
accrued but unpaid cash dividends (such sum is referred to as the Liquidation
Value). Each share of Convertible Preferred Stock initially converts into less
than one share of Newco Common Stock, subject to antidilution adjustments, but
increases to a one-for-one conversion (subject to certain antidilution
adjustments) over a five-year period.
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At Newco's option, the shares of Convertible Preferred Stock are redeemable
after the third anniversary of the Closing Date at a redemption price
initially of 103% of the Liquidation Value and decreasing to 100% of
Liquidation Value by Newco's 2004 fiscal year. The holders of Convertible
Preferred Stock may elect two directors to the Board of Directors of Newco for
so long as they hold 20% or more of Newco's fully diluted shares outstanding
(subject to adjustment for certain dilutive events) and one director for so
long as they hold 10% of such outstanding shares (subject to adjustment for
certain dilutive events). Otherwise, the Convertible Preferred Stock is non-
voting except in the limited circumstances when required under the DGCL.
SIP SUBSCRIBERS
Pursuant to the Investment Agreement, concurrently with the Merger, Sprint
L.P. will contribute to Newco all of its SIP Subscribers which at the time of
the execution of the Investment Agreement was approximately 130,000 SIP
Subscribers. Thereafter, the SIP Subscribers shall be subscribers of Newco,
together with all rights under customer contracts and relationships related
thereto. The Investment Agreement provides that if the final number of paid
SIP Subscribers at Closing is less than 130,000, then Sprint L.P. will forfeit
to Newco a number of shares of Convertible Preferred Stock equal to the
product of (i) five, multiplied by (ii) 130,000 less the final number of paid
SIP Subscribers.
MARKETING AGREEMENT
Concurrently with the Merger, the Marketing Agreement among Sprint, Sprint
L.P., Newco and the Company will become effective, whereby certain cooperation
and support will be provided to each other in specified marketing matters and
Sprint L.P. will grant to Newco and the Company the right to utilize certain
distribution channels of Sprint. Sprint will also license the use of its brand
to Newco and the Company, and Newco and the Company will agree to use such
brand in conjunction with the Company's brand in the business of the Company,
subject to specified terms and conditions. The Marketing Agreement applies
only to the parties' activities in the 48 contiguous states of the United
States (the "Territory").
Pursuant to the Marketing Agreement, Sprint has appointed Newco and its
controlled affiliates as agents to sell Sprint's long distance services and
certain other telecommunications services as are agreed to by the parties. In
addition, Newco has appointed Sprint and its subsidiaries as agents to sell
Internet-related services offered by Newco and its controlled affiliates. The
Marketing Agreement provides for a joint marketing committee.
The Marketing Agreement also contains certain exclusivity arrangements. The
Marketing Agreement restricts Sprint and its controlled affiliates from
promoting, advertising, marketing, co-branding, packaging, bundling,
developing, offering or selling, or entering into any express or tacit
agreement to permit its name to be used in connection with, a set of Internet-
related products and services (whether as a series of individual products and
services or as an integrated grouping or package of products and services)
that is the same as or substantially similar to the Company's core Internet
service package (the "Core Internet Application Set"), as in effect from time
to time, other than as offered by Newco and its controlled affiliates. Sprint
and its controlled affiliates further agree that they will not bid on, acquire
or directly or indirectly own, manage, operate, join, control or finance, or
participate in the management, operation, control or financing of, any
provider of any set of Internet-related products and services that is the same
as or substantially similar to the Core Internet Application Set (as in effect
from time to time). The Marketing Agreement specifies that these exclusivity
restrictions do not restrict Sprint and its controlled affiliates from (i)
appointing one or more other Internet service providers ("ISP's") as Sprint's
agents for the sale of its branded long distance services and
telecommunications services so long as the Internet-related services provided
by such ISP are not billed on an integrated basis with any services provided
by Sprint, (ii) providing Internet service packages that are designed
primarily for large corporate accounts and offering enhanced features that are
not included in the Core Internet Application Set and (iii) offering or
selling individual components that are included in the Core Internet
Application Set so long as the Company has a first right of refusal to provide
Sprint with such elements or components.
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Newco and its controlled affiliates are restricted from promoting,
advertising, marketing, co-branding, bundling, developing, offering or selling
any long distance services or telecommunications services that are the same as
or substantially similar to the long distance services or telecommunications
services offered by Sprint and its controlled affiliates, other than as
offered by Sprint and its controlled affiliates. Newco and its controlled
affiliates are further prohibited from bidding on, acquiring or directly or
indirectly owning, managing, operating, joining, controlling or financing, or
participating in the management, operation, control or financing of, or acting
as an agent or representative for, or entering into any express or tacit
agreement to permit its name to be used in connection with, or permit its
Internet services to be marketed, sold or distributed by, any "Material
Provider" of long distance services or telecommunication services other than
Sprint and its controlled affiliates. A business or entity is deemed to be a
"Material Provider" of long distance services or telecommunications services
if such business or entity (together with its affiliates) derives from the
sale of long distance services and certain telecommunications services (i)
more than 5% of its gross revenues in any fiscal year or (ii) more than $25
million of gross revenues in any fiscal year. The exclusivity restrictions
will restrict Newco and its controlled affiliates with respect to PCS and
cellular services only if Sprint PCS enters into sales agency relationships
with Newco and its controlled affiliates on the terms set forth in the
Marketing Agreement. Newco and its controlled affiliates are not prohibited
from (i) continuing to offer a co-branded Core Internet Application Set under
currently existing agreements (subject to certain restrictions), (ii) offering
Internet telephony services under certain circumstances, provided that Sprint
has the first right to provide that service at such time as it has developed
an Internet telephony product and (iii) selling ATM and frame relay
telecommunications services of a third party for the sole purpose of providing
access to the public Internet.
Sprint and its controlled affiliates will seek to generate customers for the
Company's Core Internet Application Set through Sprint's customer base and its
third party marketing channels. The Company will pay Sprint varying amounts
for each customer generated by Sprint. In addition, Sprint is obligated to pay
varying shortfall amounts if Sprint fails to generate a minimum number of new
subscribers per year for the Core Internet Application Set in any year during
the five-year period commencing September 1, 1998. Newco and its controlled
affiliates will seek to generate customers for Sprint's long distance and
other telecommunications services from the users of its Core Internet
Application Set. Newco and its controlled affiliates will be entitled to
payment from Sprint of a market rate commission based on the monthly revenue
generated from such customers.
The Company and Sprint have agreed to negotiate a billing and collection
agreement for integrated billing services for Sprint's long distance and
telecommunications services and the Company's Internet services. The Company
will also cooperate with Sprint in developing Internet-related developments
and enhancements that are requested by Sprint.
Sprint and the Company have agreed to use the "EarthLink-Sprint" co-brand in
all of Sprint's marketing, advertising and other similar material relating to
or referencing any of the Company's Internet services and in all of the
Company's marketing, advertising and other similar material used to promote
and offer for sale or otherwise relating to its Internet services and/or
Sprint's long distance services and telecommunications services. Each party
has extended to the other a non-exclusive, royalty-free, non-transferable
license to use its brand in the Territory to the extent described above.
The Marketing Agreement has a 10-year term and may be extended by either
party for an additional five years. The Agreement is subject to early
termination upon the occurrence of certain events, including (i) a change of
control of Sprint or Newco, (ii) a business combination between Sprint and an
entity engaged in a business that is competitive with the Company's Core
Internet Application Set, (iii) the termination of the Governance Agreement
under certain circumstances and (iv) a material breach by either party that is
not cured after notice. Upon termination of the Marketing Agreement under the
circumstances described in clause (ii) above, Sprint will be required to pay a
termination fee to the Company, which will equal $60 million if such
termination occurs during the first two years following the Merger, dropping
to $36 million on the day following the second anniversary of the Merger and
thereafter declining on a daily pro rata basis to zero on and after the fifth
anniversary of the Merger. In case of such termination, Sprint must also pay
an additional fee (up to a maximum of $17.5 million, but declining to zero
after five years) to compensate the Company for the loss of customers that
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would have been generated for the Company through Sprint's marketing channels.
The termination fee described above represents the sole amount that will be
payable by either party upon a termination of the Marketing Agreement, except
for payment obligations accrued prior to termination and damages from the
party's breach of the Marketing Agreement.
NETWORK AGREEMENT
Concurrently with the Merger, the Network Agreement between and among Sprint
L.P., Newco and the Company will become effective, whereby Sprint L.P. agrees
to provide, and Newco and the Company agree to utilize, certain dial-up
Internet access Ports ("Ports") for use by the Company's Internet dial-up
access customers. The Network Agreement provides for the provision of a
minimum number of Ports together with the option for the Company to order an
additional quantity of Ports over the initial minimum term of four years.
The Network Agreement sets forth the schedule for implementation of service
in locations and in such quantities as agreed to by the parties. The Network
Agreement also specifies the rates and charges for the use of the Ports during
the initial term and a process for negotiating continued use of the Ports
beyond the initial term. The Network Agreement describes the performance
parameters associated with the Ports and allocates responsibilities for
network and customer support activities between the parties. In addition, the
Network Agreement specifies other commercial terms customarily found in
network service agreements, such as payment terms, force majeure and governing
law.
CONVERTIBLE DEBT FINANCING
Concurrently with the Merger, the Credit Agreement will become effective.
Sprint will initially provide up to $25 million in debt financing to be
evidenced by the Convertible Notes. Each year after the Closing Date, the
aggregate amount that Sprint is obligated to advance is increased by $25
million to a maximum of $100 million on a cumulative basis. The Convertible
Notes are convertible into shares of Newco Common Stock at a conversion price
of 130% of the average market price (i.e., the closing sale price over a 30
trading day period) at the time a particular Convertible Note is issued to
evidence an advance under the Credit Agreement. The Convertible Notes bear
interest at a rate equal to 6% per annum.
Sprint's obligation to make advances under the Credit Agreement terminates
upon the earlier of (i) the fifth anniversary of the Closing Date, (ii)
acceleration of the indebtedness evidenced by the Convertible Notes upon an
Event of Default (as defined below), (iii) consummation of a Business
Combination (as defined below), or (iv) termination of the Marketing Agreement
pursuant to certain provisions thereof. An Event of Default shall occur if (i)
there is a breach or there are breaches of any of the representations or
warranties unless such breach or breaches would not in the aggregate have a
Material Adverse Effect on Newco, the Company and their subsidiaries, taken as
a whole, (ii) nonpayment of principal or interest within fourteen (14) days
after the same becomes due, (iii) a breach of certain financial and other
covenants, and in certain cases, a failure to cure such breach within the
applicable cure period, (iv) a default by Newco or the Company in any
agreement or agreements under which indebtedness in excess of $5 million was
created, or the occurrence of any other event or existence of any condition,
the effect of any of which causes, or permits the holder of such indebtedness
to cause, such indebtedness to become due prior to its stated maturity, or any
such indebtedness shall be declared due and payable prior to the stated
maturity thereof, (v) Newco or the Company files for relief under bankruptcy,
receivership, or similar laws, or fails to contest any involuntary petition in
bankruptcy filed with regard to Newco or the Company, (vi) any condemnation of
a substantial portion of the property of Newco or the Company, or (vii) Newco
or the Company fails within thirty (30) days to pay, bond or otherwise
discharge any judgments or orders for the payment of money in excess of $1
million; which are not stayed on appeal or otherwise contested in good faith.
"Material Adverse Effect" is defined to mean any change or effect having a
material adverse effect (or any development as to which there is a substantial
likelihood, insofar as can be foreseen, that would have such an effect) on the
business, properties, assets, condition (financial or otherwise), or results
of operations of the Company, Newco, Newco Sub, Sprint, Sprint L.P. and
Sprint's subsidiaries, as the case may be.
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ACQUISITION PROPOSALS
The Investment Agreement provides that prior to the Closing the Company will
not, nor will it authorize or permit any officer, director or employee, or any
investment banker, attorney or other advisor or representative, of the Company
or any of its subsidiaries to (i) solicit or initiate, or encourage the
submission of, any Acquisition Proposal or (ii) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or take any other action to expedite any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to,
any Acquisition Proposal. However, to the extent required by the fiduciary
obligations of the Board of Directors of the Company, as determined in good
faith by the Board of Directors based on the advice of outside counsel, the
Company may, (A) in response to an unsolicited request therefor, furnish
information with respect to the Company to any person pursuant to a customary
confidentiality agreement and discuss such information with such person, (B)
upon receipt by the Company of an Acquisition Proposal, following delivery to
the Purchaser of the required notice, participate in negotiations regarding
such Acquisition Proposal and (C) modify or withdraw its recommendation that
the stockholders of the Company accept the Offer or its recommendation to such
stockholders that they vote in favor of the transactions contemplated by the
Investment Agreement. Neither the Company nor its Board of Directors may,
under any circumstances, (A) terminate the Investment Agreement or any of the
Ancillary Agreements or withdraw its approval of such agreements, or (B)
approve or authorize the solicitation, initiation or encouragement of
additional Acquisition Proposals.
In addition to the obligations of the Company set forth in the preceding
paragraph, the Investment Agreement provides that the Company shall promptly
advise the Purchaser of the existence of any request for information or of any
takeover proposal, or any inquiry with respect to, or which could lead to, any
Acquisition Proposal.
The Investment Agreement further provides that the Company shall not take
any action that would enhance the ability of any other person proposing a
takeover proposal to obtain the approval of the Company's stockholders or
otherwise consummate such Acquisition Proposal without also taking a
comparable action that would similarly enhance the ability of the Purchaser to
obtain any necessary approval of the Company's stockholders of, and otherwise
to consummate, the transactions contemplated in the Investment Agreement and
the Ancillary Agreements or an alternative transaction initiated by the
Purchaser and concurrently withdrawing any impediments thereto that do not
similarly impede such other person.
The Investment Agreement provides that nothing contained therein shall
prohibit the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2 promulgated under the Exchange Act.
TRANSACTION COSTS
The Investment Agreement provides that all fees and expenses incurred in
connection with the Offer, the Investment Agreement and the transactions
contemplated thereby and the Ancillary Agreements shall be paid by the party
incurring such fees or expenses, whether or not the Offer or other
transactions contemplated by the Investment Agreement are consummated.
However, one-half of the reasonable out-of-pocket expenses incurred by the
Company in preparing the Proxy Statement and the S-4 Registration Statement,
printing and mailing the Proxy Statement, the Commission filing fees for the
S-4 Registration Statement and in holding the special meeting of Company
stockholders to approve the Merger shall be paid by the Purchaser.
CONDUCT OF BUSINESS BY THE COMPANY
The Investment Agreement provides that during the period from the date of
the Investment Agreement to the Closing Date, the Company shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as theretofore conducted and, to the extent consistent therewith, use
all reasonable efforts to preserve intact its current business organizations,
keep available the services of its current officers and other employees and
preserve its relationships with customers, suppliers, licensors, licensees,
distributors, joint
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ventures and others having business dealings with it except to the extent that
the failure to do so would not have a Material Adverse Effect on the Company.
In addition, during the period from the date of the Investment Agreement to
the Closing Date, the Company shall not, without first consulting with the
Purchaser take certain material actions relating to, among other matters,
dividends, acquisitions, dispositions, capital issuances or changes in capital
structure, research and development agreements, incurrence of indebtedness,
capital expenditures and satisfaction of claims.
TERMINATION OF THE INVESTMENT AGREEMENT
The Investment Agreement may be terminated at any time prior to the Closing
Date (i) by mutual written consent of the parties thereto, (ii) by any of the
parties if the Offer has not been consummated on or before June 15, 1998,
(iii) by the Purchaser and Sprint L.P. if any of the conditions to the
obligations of the Purchaser and Sprint L.P. with respect to Offering shall
have become incapable of fulfillment, and shall not have been waived by the
Purchaser, or (iv) by the Company, Newco and Newco Sub if any of the
conditions precedent to Sprint's right to consummate the Offer shall have
become incapable of fulfillment and shall not have been waived by the Company,
Newco and Newco Sub.
REPRESENTATIONS AND WARRANTIES
The Investment Agreement contains various customary representations and
warranties made by the parties thereto which will not survive the Closing
except for survival thereof for 24 months in the case of fraud or willful
material breaches of such representations and warranties.
THE GOVERNANCE AGREEMENT
GENERAL
In connection with the Investment Agreement, Sprint, Sprint L.P., Newco and
the Company entered into the Governance Agreement, which will take effect upon
the Closing. The Governance Agreement establishes certain terms and conditions
concerning the corporate governance of Newco, the acquisition and disposition
of equity securities of Newco ("Equity Securities") by Sprint, Sprint L.P. and
any of their respective affiliates (collectively, "Affiliated Equity
Holders"), the rights of Sprint to make offers to purchase all of the
outstanding securities of Newco not owned by Affiliated Equity Holders and the
rights of the Board of Directors of Newco to receive and entertain offers to
effect "Business Combinations" (as defined below), all as more particularly
described in the Governance Agreement. The following summary is qualified in
its entirety by the express terms of the Governance Agreement, which has been
filed with the Commission as an exhibit to the Purchaser's Tender Offer
Statement on Schedule 14D-1.
CORPORATE GOVERNANCE
The Governance Agreement establishes that the fundamental policies and
strategic direction of Newco, the Company and any significant subsidiary of
Newco will be determined by their respective Boards of Directors. Consistent
with the voting rights granted to the holders of Convertible Preferred Stock,
the Governance Agreement provides for two individuals to be designated as
"Investor Directors." Similarly, following conversion of the Convertible
Preferred Stock into Newco Common Stock, Newco and the Company are obliged to
elect the individuals designated as "Investor Directors" to their respective
Boards of Directors. In addition, the Governance Agreement permits one
Investor Director to participate on any Strategic Business Planning Committee,
Finance Committee or other significant committee of the Board of Directors of
Newco, the Company or any significant subsidiary, to the extent those
committees exist. If there is no such committee, the Governance Agreement
allows Sprint a reasonable opportunity to review and discuss Newco's strategic
and business plans and financing plans with the management of Newco prior to
the submission of any such plan to the Board of Directors, and to receive
advance copies of information and materials to be provided to the Board of
Directors with respect to such matters. Notwithstanding the foregoing, no
Investor Director is entitled to participate on any
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committee of the Board of Directors of Newco, the Company or any significant
subsidiary created for the purpose of considering a Business Combination or
any matter related thereto (including a "Sprint Offer" or a "Qualified Offer,"
as described in more detail below), or to participate in the Board's
deliberations with respect to any of the foregoing. Consistent with the terms
of the Convertible Preferred Stock, Sprint is entitled to two Investor
Directors for so long as it holds 20% or more of Newco's fully diluted shares
outstanding (subject to adjustment for certain dilutive events, the "Higher
Threshold"), and one Investor Director for so long as it holds 10% or more of
Newco's fully diluted shares outstanding (subject to adjustment for certain
dilutive events, the "Lower Threshold").
At such time as the Convertible Preferred Stock has been converted into
Newco Common Stock, the Governance Agreement obligates Newco to use its best
efforts to solicit from its stockholders proxies in favor of Sprint's Investor
Director nominees. The Governance Agreement also obligates the Affiliated
Equity Holders to vote in favor of any other nominee or director selected by
the Board of Newco in accordance with the agreement. The voting obligations of
Affiliated Equity Holders under the Governance Agreement are supported by an
"Irrevocable Proxy" granted by Sprint and Sprint L.P. to Newco and the
Company. See "--Irrevocable Proxies."
For so long as "Sprint's Percentage Interest" (a term that measures Sprint's
equity stake in Newco, including its ownership of both Newco Common Stock and
Convertible Preferred Stock, as a percentage of Newco's fully-diluted stock
outstanding) is greater than the Lower Threshold, Newco is prohibited from
taking or authorizing certain actions without the concurrence of all Investor
Directors serving in such capacity at that time. These actions include (i) the
execution or performance of any "Discriminatory Transaction" (as defined
below); (ii) the issuance of any class or series of stock of Newco that
provides for voting rights in excess of one vote per share; (iii) certain
events involving the dissolution or liquidation of Newco or any subsidiary
thereof, or the commencement by or with respect to Newco or any subsidiary
thereof of certain bankruptcy or bankruptcy-related events or proceedings;
(iv) the conduct by Newco or any significant subsidiary of business
substantially outside its current general field of enterprise; or (v) the
issuance by Newco of "Transaction Securities" (Equity Securities of Newco
issued in connection with joint ventures, strategic alliances, acquisitions,
mergers and other business combination transactions) representing (A) in any
twelve-month period, in one or more transactions, 50% or more of the number of
shares of Newco Common Stock outstanding prior to giving effect to such
issuances, or (B) in any one transaction, 35% or more of the number of shares
of Newco Common Stock outstanding prior to giving effect to such issuance.
The term "Discriminatory Transaction" is defined in the Governance Agreement
as any transaction or corporate action that would (i) impose limitations on
the legal rights of any Affiliated Equity Holder as a stockholder of Newco,
(ii) deny any benefit to any Affiliated Equity Holder, proportionately as a
holder of any class of voting Equity Securities, that is made available to
other holders, or (iii) otherwise materially adversely discriminate against
any Affiliated Equity Holders as stockholders of Newco. However, excepted from
the definition of Discriminatory Transactions are various transactions,
including (A) the adoption and implementation by Newco of a Stockholders'
Rights Plan, (B) the adoption and implementation by Newco of a classified
Board of Directors, (C) a Business Combination if in that transaction (x)
neither the Liquidation Value nor the Conversion Price of the Convertible
Preferred Stock is changed, and (y) upon consummation of such transaction, the
holders of Convertible Preferred Stock are offered the right to receive
consideration at the same times, in the same amount and the same form per
share as all other holders of Newco Common Stock, (D) any transaction having a
discriminatory effect against any Affiliated Equity Holder that occurs as a
result of a material breach or violation by any such holder of the Governance
Agreement, and (E) the execution by Newco, the Company or any significant
subsidiary of a definitive agreement with respect to a Business Combination,
if such agreement meets certain requirements set forth in the Governance
Agreement. See "--Purchases of Additional Equity Securities; Business
Combinations."
EQUITY PURCHASES FROM THE COMPANY; SUBSCRIPTION RIGHTS
So long as Sprint's Percentage Interest is greater than an amount defined as
the "Top-Up Threshold" (20%, subject to adjustment for certain dilutive events
and for Newco's incurrence of indebtedness under the
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Convertible Debt Financing), the Affiliated Equity Holders have certain anti-
dilution and subscription rights set forth in Article III of the Governance
Agreement. In addition to their rights to subscribe for stock of Newco
directly from Newco, Sprint may effect its rights under Article III by making
purchases of Equity Securities at any time from any person other than Newco as
long as, after giving effect to such purchases, Sprint's Percentage Interest
is less than or equal to the "Pro Rata Share," a formula that limits the
maximum equity stake in Newco that the Affiliated Equity Holders may have. The
Pro Rata Share, which adjusts only upon the incurrence of indebtedness by
Newco under the Convertible Debt Financing, has been established, as of the
date of the Governance Agreement, at an amount equal to .278.
Upon proposing to issue "New Securities" (other than New Securities that are
"Transaction Securities"), if Sprint's Percentage Interest is greater than the
Top-Up Threshold, Newco must provide Sprint written notice of its intent to
effect such issuance at least five business days prior to the date on which
the meeting of the Board is to be held to authorize such issuance. For a
period of ten business days after Sprint's receipt of such notice, Sprint has
the right to purchase the Pro Rata Share of such issuance and, if it does so,
the Equity Securities offered pursuant to such notice shall be issued and sold
to Sprint by Newco at the same times and on the same terms and conditions as
the New Securities are issued and sold to third parties. If for any reason the
issuance of such New Securities to third parties is not consummated, Sprint's
right to purchase its Pro Rata Share of such issuance shall lapse.
As noted above, Sprint's general subscription rights do not apply to the
issuance of Transaction Securities. However, if Newco determines that Sprint's
Percentage Interest has decreased by .05 or more as a result of issuances of
Transaction Securities, Newco must notify Sprint of such event. In addition,
not later than the second anniversary of Sprint's receipt of that notice (the
"Window Period"), Newco is obligated to make written offers (each, a "Primary
Share Offer") to Sprint to purchase, in the aggregate, a number of shares
sufficient to enable Sprint to bring Sprint's Percentage Interest up to the
amount in effect prior to the issuances of Transaction Securities. The number
of shares Newco is obligated to offer pursuant to such provision is defined in
the Governance Agreement as the "Available Top-Up Shares" and the aggregate
number of Available Top-Up Shares resulting from all issuances of Transaction
Securities is defined as the "Aggregate Number of Top-Up Shares." Sprint may
accept a Primary Share Offer within five business days of its receipt thereof,
and the offer is to be made at a purchase price equal to an average stock
price for Newco Common Stock for the ten trading days prior to the date of
such issuance, less the underwriting discount applied in the most recent
underwritten offering of Newco Common Stock.
If Newco determines that Sprint's Percentage Interest has decreased by .10
or more solely as a result of the issuance of Transaction Securities (after
giving effect to any and all Primary Share Offers), the Window Period shall be
accelerated such that Newco shall be obligated to make one or more Primary
Share Offers with respect to not less than the Aggregate Number of Top-Up
Shares, as then calculated, at the earlier of (i) the expiration of the Window
Period, as determined above, or (ii) six months after the date Sprint receives
notice to that effect from Newco. Notwithstanding anything else in the
Governance Agreement to the contrary, in no event is Newco obligated to make
Sprint a Primary Share Offer that, after giving effect to such transaction,
would cause Sprint's Percentage Interest to exceed the Pro Rata Share.
In addition, with respect to a purchase of New Securities pursuant to
Article III of the Governance Agreement, Sprint may, at its option, purchase
New Securities in the form of "Alternative Securities" convertible into the
applicable number of shares of Newco Common Stock. "Alternative Security" is
defined as a new series of Preferred Stock having terms that are structured
and priced in the same manner as the Convertible Preferred Stock. Such terms
are determined, if applicable, by reference to the average stock price for a
share of Newco Common Stock for the 30 trading days prior to the date of
issuance of such Alternative Securities. Sprint's purchase of New Securities
in the form of Alternative Securities are limited (i) to not more than 75% of
any issuance of New Securities from the Closing to the second anniversary
thereof, (ii) to not more than 66.67% of any issuance of New Securities after
the second anniversary of the Closing until the third anniversary thereof
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and (iii) after the third anniversary, Newco is not obligated to issue any New
Securities in the form of Alternative Securities.
STANDSTILL PROVISIONS
The Governance Agreement sets forth certain "Standstill Provisions"
applicable to Affiliated Equity Holders. These Standstill Provisions are
summarized below. See "--Effectiveness; Termination; Survival" for additional
information concerning the survival of the Standstill Provisions following
termination of the Governance Agreement.
Except for purchases of shares and related activities by Sprint otherwise
permitted under the Governance Agreement, the Affiliated Equity Holders may
not, directly or indirectly, (i) acquire, offer to acquire or agree to acquire
any Equity Securities, or any equity securities of any subsidiary of Newco, or
material assets of Newco or any subsidiary or division of Newco; (ii) make or
participate in any "solicitation" of proxies or otherwise seek to influence
any person with respect to the voting of any voting Equity Securities of
Newco; (iii) make any public announcement with respect to, or submit a
proposal for, or offer to effect any purchase of any significant portion of
the assets of Newco or any subsidiary or division of Newco, any tender or
exchange offer for any Equity Securities of Newco, or a merger, consolidation
or other extraordinary transaction involving Newco or any of its Equity
Securities; (iv) form, join or in any way participate in a "group" as defined
in Rule 13d-5(b) under the Exchange Act; or (v) request Newco or any of its
representatives to amend or waive any provision of the foregoing.
In addition, the Affiliated Equity Holders may not, directly or indirectly,
sell, transfer or otherwise dispose of any Equity Securities except (i)
pursuant to a registered underwritten public offering in accordance with the
Registration Rights Agreement, (ii) in accordance with Rule 144 under the
Securities Act, (iii) to any direct or indirect subsidiary of Sprint and (iv)
in a transaction effected in accordance with the so-called "Section 4(1 1/2)"
exemption under the Securities Act. In addition, notwithstanding the
foregoing, none of the Affiliated Equity Holders may sell, transfer or
otherwise dispose of any equity interest in any Equity Securities to any
purchaser or group of purchasers if, after giving effect to such sale, such
purchaser or group of purchasers would, to Sprint's knowledge, own, or have
the right to acquire, 5% or more of the Equity Securities then outstanding,
except to any person that is not obligated (or would not, by virtue of such
purchase, reasonably be anticipated to be obligated) to file a Schedule 13D
with the Commission pursuant to each of paragraphs (b) and (e) of Rule 13d-1
under the Exchange Act.
PURCHASES OF ADDITIONAL EQUITY SECURITIES; BUSINESS COMBINATIONS
Following the 39-month anniversary of Closing and prior to the 63-month
anniversary of Closing (the "Right to Offer Period"), Sprint shall have the
right to make a "Sprint Offer," by offering to purchase all (but not less than
all) of the outstanding Equity Securities that it does not already own at a
price per share equal to the per share price determined by dividing the "Fair
Private Market Value" by the total number of shares of Newco Common Stock
outstanding on a fully-diluted basis. The "Fair Private Market Value" is
defined as the aggregate private market equity value (including control
premium) that an unrelated third party would pay if it were to acquire all of
Newco's outstanding Equity Securities (including Equity Securities held by
Affiliated Equity Holders) in an arm's length transaction, assuming (i) that
all credible buyers are given an equal opportunity by Newco to make and
effectuate an Acquisition Proposal with respect to Newco, (ii) the absence of
any commercial relations between Newco and the Company, on the one hand, and
Sprint and its affiliates, on the other hand, and (iii) the absence of any
ownership stake in Newco by Affiliated Equity Holders. The Fair Private Market
Value is to be determined as follows.
The respective Boards of Newco and Sprint shall negotiate the amount of the
Fair Private Market Value to be paid pursuant to the Sprint Offer. In the
event the two parties are unable to agree on this amount, within 30 days after
submission of the Sprint Offer to the Board, the parties shall agree to be
bound to the valuation arrived at pursuant to the following formula: (i) two
appraisals shall be made by recognized investment banks, one
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selected by each of Sprint and Newco (the "Initial Values"), (ii) if the lower
of the Initial Values is more than 10% less than the higher, a third
independent valuation will be made by an investment bank jointly selected by
Newco and Sprint (the "Independent Valuation"); otherwise, the Fair Private
Market Value shall be the average of the Initial Values; and (iii) if the
Independent Valuation is greater or less than the average of the Initial
Values by more than 5%, the Fair Private Market Value shall be deemed to equal
the average of the two closest valuations. If the Independent Valuation does
not differ by such amount, it shall be the Fair Private Market Value.
A Sprint Offer shall not be subject to any financing contingency, and shall
be reflected in a form of definitive agreement that Sprint is prepared to
execute. The conditions to consummation of the Sprint Offer and the
representations and warranties set forth therein shall be reasonable and
customary for transactions in which a similarly situated stockholder offers to
purchase all of the Equity Security not held by such stockholder or its
affiliates.
The Board of Directors of Newco shall have a one-time right, exercisable
within 14 days after receipt of the Sprint Offer, to postpone the making of
that offer for nine months. Upon exercise of such right, Sprint is obligated
to withdraw the Sprint Offer for a period of nine months, provided that (i)
the Right to Offer Period shall be extended to the 72-month anniversary of
Closing and (ii) the exercise by Newco of its postponement right shall not
limit Sprint's right to respond to a "Third-Party Offer" as set forth below.
In addition, upon the determination of the amount of the Fair Private Market
Value, Sprint shall be obligated to commence and effectuate the Sprint Offer,
provided that Sprint shall have a one-time right, exercisable within 14 days
after receipt of the determination of Fair Private Market Value, to determine
not to proceed to make such Sprint Offer. There are, however, certain
limitations on Sprint's exercise of this "Walk-Away Right." If Sprint does not
exercise such right, the Board of Directors of Newco shall, unless an
"Intervening Offer" (as defined below) is then outstanding, (i) support the
Sprint Offer by approving and recommending it to Newco's stockholders and (ii)
cause Newco to take all steps reasonable and necessary to facilitate
consummation of such Sprint Offer. However, at such time as a "Third-Party
Offer" shall constitute an Intervening Offer, Sprint shall be released from
its obligation to commence and effectuate the Sprint Offer, and Newco shall be
released from its obligation to support and facilitate consummation of the
Sprint Offer. If the Intervening Offer is undertaken in the form of a tender
offer, at the consummation of such tender offer, the offeror shall have an
option to purchase from all Affiliated Equity Holders, at the tender offer
price, in the aggregate, a "Specified Number of Equity Securities" (a number
of Equity Securities owned by Affiliated Equity Holders equal to the
proportion of Equity Securities held by unaffiliated equity holders and
tendered into or voted for a competing Business Combination), less the number
of Equity Securities that have already been tendered to such offeror. In
addition, if the Intervening Offer (or a related matter) must be approved by
the stockholders of Newco in order for such offer to be effectuated, the
Affiliated Equity Holders are obligated to cast in favor of the Intervening
Offer (and such related matters) such number of votes as is equal to the
Specified Number of Equity Securities, provided that the Business Combination
does not constitute a Discriminatory Transaction. Affiliated Equity Holders
are not entitled to exercise rights of appraisal with respect to any Business
Combination effected in connection with an Intervening Offer.
The Governance Agreement defines an Intervening Offer as an offer for
aggregate consideration reasonably determined in good faith by the Board of
Newco to be in excess of the aggregate consideration proposed to be paid by
Sprint in a Sprint Offer or a "Qualified Offer" by Sprint (as defined below),
as applicable. The conditions to consummation of an Intervening Offer and the
representations, warranties and covenants set forth in the Intervening Offer
shall be customary for a transaction of that type.
THIRD-PARTY OFFERS
Newco is obligated to provide Sprint with prompt written notice of its
receipt of a bona fide, written offer to effect a Business Combination from a
third party ("Offer"). Upon receipt of such Offer, the Board is to determine
whether it intends to recommend that offer to the stockholders (a "Recommended
Third-Party Offer")
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or that such offer is not in the best interests of Newco's stockholders, in
which event it intends not to recommend such offer to the stockholders (a
"Non-Recommended Third-Party Offer" and, together with a Recommended Third-
Party Offer, a "Third-Party Offer").
For a period of ten days following the giving of notice of receipt of an
Offer, Newco may not enter into a definitive agreement with respect to that
Offer. Sprint has an option to make a "Qualified Offer" with respect to either
(i) an Offer that is a Recommended Third-Party Offer or (ii) an Offer that is
a Non-Recommended Third-Party Offer if the Board of Sprint reasonably
determines that the conditions to the Non-Recommended Third-Party Offer are
reasonably likely to be satisfied and the Offer consummated. A "Qualified
Offer" is defined as an offer made by an Affiliated Equity Holder to acquire
all of the Equity Securities not already owned by the Affiliated Equity
Holders at a price per share in excess of the equivalent per share price set
forth in a Third-Party Offer or an Intervening Offer, as the case may be. A
Qualified Offer shall be reflected in a form of definitive agreement that
Sprint is prepared to execute, and the conditions to consummation of such
offer and the representations, warranties and covenants set forth in it shall
be customary for transactions in which a similarly situated stockholder offers
to purchase all of the Equity Securities not held by such stockholder and may
not, in any event, be more onerous in any material respect than those set
forth in the Third-Party Offer or the Intervening Offer, as the case may be.
Newco may not adopt any takeover defenses, enter into any agreement or take
any other action in connection with a Recommended Third-Party Offer that would
materially impair Sprint's ability to make and consummate a Qualified Offer or
materially increase Sprint's cost of consummating a Qualified Offer. However,
notwithstanding the foregoing, Newco is permitted to enter into a definitive
agreement with respect to a Recommended Third-Party Offer that provides for a
termination fee not to exceed 3% of the consideration to be received per share
of Newco Common Stock multiplied by the number of shares of Newco Common Stock
outstanding on a fully diluted basis (less the number of shares beneficially
owned by the offering party), plus customary fees and expenses. Nevertheless,
the definitive agreement with respect to such Recommended Third-Party Offer
must provide that such fees and expenses shall not be payable if Sprint makes
a Qualified Offer within 72 hours of the first public announcement of such
Recommended Third-Party Offer.
If Sprint has the option to make a Qualified Offer and does so more than
five days prior to the date of a stockholders' meeting held to consider a
Third-Party Offer or an Intervening Offer, the Board of Directors shall,
unless an Intervening Offer is then outstanding, support the Qualified Offer
by approving and recommending it to Newco's stockholders and cause Newco to
take all steps reasonable and necessary to facilitate consummation of the
Qualified Offer. However, at such time as a Third-Party Offer made subsequent
to a Qualified Offer shall constitute an Intervening Offer, Newco's
obligations to support and facilitate a Qualified Offer shall terminate and
Newco shall be free to consider and act upon such Intervening Offer. Sprint is
nonetheless entitled, at any time prior to consummation of the Intervening
Offer, to make another Qualified Offer, and in such event, the most recent
Third-Party Offer shall cease to constitute an Intervening Offer.
If a Recommended Third-Party Offer or an Intervening Offer is undertaken in
the form of a tender offer, at the consummation of such tender offer, the
offeror shall have an option, to purchase from all Affiliated Equity Holders,
at the tender offer price, in the aggregate, a Specified Number of Equity
Securities, less the number of Equity Securities that have already been
tendered to such offeror. In addition, if a Recommended Third-Party Offer or
an Intervening Offer, as the case may be (or a related matter) must be
approved by the stockholders of Newco in order for such offer to be
effectuated, the Affiliated Equity Holders are obligated to cast in favor of
such offer (and such related matter) such number of votes as is equal to the
Specified Number of Equity Securities, provided that the Business Combination
does not constitute a Discriminatory Transaction. Affiliated Equity Holders
are not entitled to exercise rights of appraisal with respect to any Business
Combination effected in connection with a Recommended Third-Party Offer or
Intervening Offer.
The Governance Agreement defines "Business Combination" to mean a
transaction, undertaken in any form whatsoever, involving (i) the purchase or
acquisition of Equity Securities if the consummation of such transaction would
result in the purchaser beneficially owning 35% or more of the Equity
Securities outstanding,
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or (ii) a merger, consolidation, combination or other extraordinary
transaction with respect to Newco in which, upon consummation thereof, the
shareholders or owners of the other entity that is a party thereto, or the
controlling persons thereof, would acquire beneficial ownership of 50% or more
of the Equity Securities outstanding. The term Business Combination includes a
"Significant Sale," which means the sale of assets of Newco or any subsidiary
or the sale of capital stock of any subsidiary by Newco, in any such case, for
which the consideration proposed to be paid in such transaction represents 35%
or more of the market capitalization of Newco on the date that Newco agrees to
such sale.
SOLICITATION OF OFFERS
From the Closing Date until the earlier of the 27-month anniversary of such
date or the termination of the Governance Agreement in accordance with its
terms, Newco may not, directly or indirectly, (i) solicit or initiate, or
encourage the submission of, any "Acquisition Proposal" (as defined below), or
(ii) participate in any discussions or negotiations regarding, or take any
action that may reasonably be expected to lead to any Acquisition Proposal.
However, to the extent required by the fiduciary obligations of the Board of
Directors, as determined in good faith by the Board based on the advice of
outside counsel, Newco may (A) furnish information in response to any
unsolicited requests therefor and discuss such information, (B) upon receipt
by Newco of an Acquisition Proposal, following delivery to Sprint of notice
thereof, participate in negotiations regarding such Acquisition Proposal and
(C) enter into an agreement respecting such Acquisition Proposal or any
related agreements or take any other action ancillary thereto.
After the 27-month anniversary of the Closing Date until the 39-month
anniversary thereof or the termination of the Governance Agreement in
accordance with its terms, Newco may not, directly or indirectly, take any of
the actions identified in the prior paragraph except through an investment
banking firm formally engaged by Newco for such purpose; provided, that, 30
days prior to so engaging such investment banking firm for that purpose, Newco
shall notify Sprint of its intention to effect such engagement, and Sprint
shall be permitted to prepare and make a Sprint Offer for so long as such
investment banking firm remains engaged by Newco for that specific purpose.
Subject to the terms and conditions of the Sprint Offer and unless an
Intervening Offer is then outstanding, Sprint is entitled to pursue any such
Sprint Offer for so long as necessary to permit it to be consummated. Newco is
obligated to furnish Sprint with copies of all information provided by Newco
to such investment banking firm at the time such information is provided to
such firm, subject to Sprint entering into a customary confidentiality
agreement with respect to that information.
The Board of Directors of Newco is obligated to (i) promptly notify Sprint
in writing of (A) its receipt of an Acquisition Proposal, (B) any inquiries or
discussions that may reasonably be expected to lead to an Acquisition
Proposal, (C) the execution by Newco of a confidentiality agreement with
respect to an Acquisition Proposal or (D) the furnishing of any confidential
information in contemplation of an Acquisition Proposal, whether or not
pursuant to a confidentiality agreement; (ii) describe the terms and
conditions of any Acquisition Proposal in reasonable detail; (iii) provide to
Sprint copies of any definitive agreements with respect to any Acquisition
Proposal and any confidentiality agreements with respect thereto; and (iv)
subject to Sprint's obligation to hold such information in strict confidence,
make available to Sprint all information made available to the party making
the Acquisition Proposal at the same time it is provided to such party.
An "Acquisition Proposal" means any proposal for a tender or exchange offer,
a merger, consolidation, share exchange or other business combination, in
which Newco is a constituent party to such transaction, or a sale of
securities (other than Transaction Securities), recapitalization, liquidation,
dissolution or similar transaction involving Newco, or any proposal or offer
to acquire in any manner, directly or indirectly, a material equity interest
in, or a material amount of voting securities (with the acquisition of
beneficial ownership of 20% or more of the voting Equity Securities being
deemed to be material for this purpose) or assets of, Newco. In addition, a
"Material Sale," defined as any proposal involving the sale of assets of Newco
or any subsidiary or the sale of capital stock of any subsidiary, in any such
case, for which the consideration proposed to be paid in such transaction
represents 20% or more of the market capitalization on the date that Newco
receives such proposal, is also defined as an Acquisition Proposal.
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Subject to certain exceptions, Newco is obligated under the Governance
Agreement not to take any action or omit to take any action that would result
in (i) any Affiliated Equity Holder being deemed an "Acquiring Person" or
similar designation under any Stockholders' Rights Plan, (ii) any Affiliated
Equity Holder being prejudiced under any applicable state takeover statute,
including Section 203 of the DGCL, or (iii) otherwise causing any takeover
defense to materially impair or obstruct, or prevent (either legally or
financially) the exercise by any Affiliated Equity Holder of rights granted
under Article IV of the Governance Agreement.
STOCKHOLDERS' AGREEMENT
In connection with the Investment Agreement, Sprint and certain principal
stockholders of the Company (the "Stockholders") entered into the
Stockholders' Agreement, which will become effective at Closing. The
Stockholders' Agreement obligates the Stockholders to support the obligations
of Newco under the Governance Agreement by (i) voting all of the "Covered
Shares" (as defined in the Stockholders' Agreement) in favor of a Sprint Offer
or a Qualified Offer and (ii) tendering all of the Covered Shares into a
tender offer initiated by Sprint to effect a Sprint Offer or a Qualified
Offer, unless, in each case, an Intervening Offer is then outstanding. The
term "Covered Shares" includes Shares, shares of Newco Common Stock received
in the Merger and other Equity Securities. However, it does not include shares
of Newco Common Stock or other Equity Securities subsequently sold by the
Stockholders in accordance with the terms of the Stockholders Agreement. The
name and number of Covered Shares held by each Stockholder is as follows: Sky
Dayton, Chairman of the Board of Directors of the Company, 1,500,000 Shares;
Quantum Industrial Partners LDC, 1,456,480 Shares; Reed Slatkin, a Director of
the Company, 1,042,473 Shares; Kevin M. O'Donnell, a Director of the Company,
944,614 Shares; Sidney Azeez, a Director of the Company, 236,884 Shares; and
George Soros, 214,545 Shares.
IRREVOCABLE PROXIES
In order to provide for enforcement of the various provisions of the
Governance Agreement requiring the Affiliated Equity Holders to vote voting
Equity Securities in a certain manner, Sprint and Sprint L.P. have provided an
Irrevocable Proxy to the Company and Newco.
EFFECTIVENESS; TERMINATION; SURVIVAL
The Governance Agreement becomes effective at the Closing. Thereafter, the
Governance Agreement terminates at the earliest of the following to occur: (i)
the termination of the Investment Agreement in accordance with its terms; (ii)
such time as Sprint's percentage interest is greater than 90% or less than the
Lower Threshold; (iii) the expiration of the Right to Offer Period; (iv) the
first date on which any Person or group as defined in Rule 13d-5(b) of the
Exchange Act is determined (A) to beneficially own or control more than 35% of
the Equity Securities outstanding by virtue of the acquisition of such
securities pursuant to a Third-Party Offer if the rights granted and process
contemplated by Article IV of the Governance Agreement have been effected in
accordance with the terms thereof or (B) to beneficially own or control 50% or
more of the voting Equity Securities outstanding; (v) upon the termination of
the Marketing Agreement in accordance with certain of its provisions; or (vi)
upon the exercise of registration rights (demand or incidental) by any
"Holder" of "Registrable Securities" under the Registration Rights Agreement.
Notwithstanding the termination of the Governance Agreement, until the sixth
anniversary of the Closing Date and thereafter for as long as Sprint's
percentage interest is greater than the Lower Threshold, Sprint shall still be
subject to the Standstill Provisions. In addition, for so long as Sprint's
Percentage Interest remains greater than the Lower Threshold, Sprint shall
still have certain governance and anti-dilution rights under the Governance
Agreement. In such event, the Standstill Provisions and such other provisions
(as well as any definitional provisions with respect to the foregoing) shall
remain in full force and effect until such time as Sprint's Percentage
Interest is lower than the Lower Threshold; provided, however, that during any
period in which the Standstill Provisions survive, Sprint and its affiliates
may directly approach the Board of Newco in order to make an offer to effect a
Business Combination.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
The Purchaser and Newco have entered into the Registration Rights Agreement
with respect to Newco Common Stock held by the Purchaser. Under the
Registration Rights Agreement, the Purchaser has the right (the "Demand
Registration Right") to at any time require Newco to file up to four
registration statements under the Securities Act to effect the registration of
Newco Common Stock held by Purchaser. This right may be exercised after 27
months following the Closing Date, but only once every nine months. Expenses
relating to the exercise of the Demand Registration Right will generally be
payable by Newco.
Under the Registration Rights Agreement, the Purchaser also has the right
(the "Incidental Registration Right"), with respect to any underwritten
offerings, including registered offerings, of Newco Common Stock for cash
proposed by Newco, to require Newco to include Newco Common Stock of the
Purchaser in such offering and registration, if applicable after 27 months
following the Closing Date. Incremental expenses relating to exercises of the
Incidental Registration Right will generally be payable by Newco.
In other respects, the Registration Rights Agreement contains terms that are
customary to registration rights agreements of its type.
OTHER MATTERS
Except as otherwise described in this Offer to Purchase, the Purchaser has
no current plans or proposals that would relate to, or result in, any
extraordinary corporate transaction involving Newco or the Company, such as a
merger, reorganization or liquidation involving Newco or the Company, a sale
or transfer of a material amount of assets of Newco or the Company, any change
in Newco's or the Company's capitalization or dividend policy or any other
material change in Newco's business, corporate structure or personnel. Any
plans or proposals relating thereto would be subject to the terms of the
Governance Agreement, the Stockholders Agreement and the other Ancillary
Agreements, as applicable. Subject to the provisions of the Investment
Agreement and the Governance Agreement, the Purchaser and its affiliates
reserve the right to purchase, following consummation or termination of the
Offer, additional Shares from Newco, in the open market or otherwise. Any
additional purchases of Newco Common Stock could be at a price greater or less
than the price to be paid for the Shares in the Offer.
13. DIVIDENDS AND DISTRIBUTIONS
During the period from the date of the Investment Agreement to the Closing
Date for the transactions contemplated by that agreement, the Company is not
permitted by the Investment Agreement to (i) declare or pay dividends or
making other distributions in respect of its capital stock, (ii) split,
combine or reclassify its capital stock, (iii) purchase, redeem or otherwise
acquire any of its capital stock, or (iv) issue or sell any of its capital
stock, convertible securities or warrants or other rights to acquire its
capital stock, without the prior written consent of Sprint and Sprint L.P..
14. CERTAIN CONDITIONS OF THE OFFER
The Investment Agreement sets forth the following conditions which must be
satisfied before Sprint shall have an obligation, or be permitted, to
consummate the Offer, which conditions can only be waived by the agreement of
Sprint, Sprint L.P., the Company, Newco and Newco Sub:
(i) the HSR Condition;
(ii) all other authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Federal, state, local or foreign government or any court of competent
jurisdiction; administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental
Entity"), the failure to obtain which would have a Material Adverse Effect
on Sprint, Sprint L.P. and their respective subsidiaries, the Company, or
Newco and Newco Sub, in each case, taken as a whole, shall have been filed,
occurred or been obtained;
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<PAGE>
(iii) an S-4 Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceeding
seeking a stop order;
(iv) there shall not be threatened or pending by any Governmental Entity
any action, suit, arbitration, inquiry, proceeding or investigation
("Action"), which has a reasonable likelihood of success, and there shall
not be pending by any other person any Action which has a substantial
likelihood of success (A) seeking to restrain or prohibit the acquisition
by Sprint of any shares of Common Stock or any Convertible Notes or the
acquisition by Sprint L.P. of any shares of Convertible Preferred Stock,
the making or consummation of the Offer or the performance by any of the
parties to the Investment Agreement of any of the other transactions
contemplated by this Agreement or any of the Ancillary Agreements, or
seeking to obtain from the Company, Newco, Sprint or Sprint L.P. any
damages that are material in relation to Sprint, Newco, the Company and
their respective subsidiaries taken as a whole, (B) seeking to impose
limitations on the ability of Sprint or Sprint L.P. to acquire or hold, or
exercise full rights of ownership of, any shares of Common Stock accepted
or payment by Sprint pursuant to the Offer or any shares of Convertible
Preferred Stock, any Convertible Notes or any Common Stock received upon
conversion of either thereof, including, without limitation, the right to
vote such Common Stock, Newco Common Stock and Convertible Preferred Stock
on all matters properly presented to the stockholders of the Company, or
Newco, as the case may be, (C) seeking to prohibit any party from
exercising any of its material rights under the Investment Agreement or any
Ancillary Agreements, or (D) seeking to prohibit or limit the ownership or
operation by any party or its respective subsidiaries of a material portion
of the business or assets of such party on a consolidated basis, or to
compel any party to dispose of or hold separate any material portion of the
business or assets of such party on a consolidated basis, as a result of
the Offer or any of the other transactions contemplated by the Investment
Agreement or the Ancillary Agreements;
(v) no statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order
enacted, entered, promulgated, enforced or issued by any Governmental
Entity or other legal restraint or prohibition preventing the transactions
contemplated by the Investment Agreement or by the Ancillary Agreements to
occur by the Closing shall be in effect;
(vi) the holders of Common Stock shall have approved the Company
Stockholder Vote Matters; and
(vii) the Investment Agreement shall not have terminated in accordance
with its terms prior to the Expiration Date.
The obligation of Sprint to consummate the Offer is conditioned upon the
satisfaction of the following conditions, which conditions may be waived by
Sprint and Sprint L.P.:
(i) (A) The Board of Directors of the Company or Newco shall not have
withdrawn or modified in a manner adverse to Sprint or Sprint L.P. its
approval of the Offer or the other transactions contemplated by the
Investment Agreement or the Ancillary Agreements, or approved any
Acquisition Proposal or approved the solicitation of additional Acquisition
Proposals, (B) the Company shall not have entered into any agreement with
respect to any Acquisition Proposal, or (C) the Board of Directors of the
Company or Newco or any committee thereof shall not have resolved to take
any of the foregoing actions referred to in (A) or (B) above. "Acquisition
Proposal" is defined in the Investment Agreement to mean any proposal for a
tender or exchange offer, a merger, consolidation or other business
combination, recapitalization, liquidation, dissolution or similar
transaction involving a party to the Investment Agreement or any proposal
or offer to acquire in any manner, directly or indirectly, a material
equity interest in, or a material amount of voting securities (with the
acquisition of beneficial ownership of 15% or more of such Party's voting
securities being deemed to be material for this purpose) or assets of, such
Party, other than the transactions contemplated by the Investment Agreement
and the Ancillary Agreements;
(ii) Each of the Company, Newco and Newco Sub shall have executed and
delivered to Sprint and Sprint L.P., as the case may be, each Ancillary
Agreement to which it is a party and each Ancillary Agreement shall be in
full force and effect and all of the terms and conditions of each such
Ancillary Agreement shall be satisfied in all material respects;
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<PAGE>
(iii) The representations and warranties of the Company, Newco and Newco
Sub set forth in the Investment Agreement shall be true and correct (A) as
of the date referred to in any representation or warranty that addresses a
matter as of a particular date, or (B) as to all other representations and
warranties, as of February 10, 1998 and as of the Offer Acceptance Time;
unless, in either the case of clause (A) or (B), the inaccuracies under
such representations and warranties, would not, individually or in the
aggregate, (x) have a Material Adverse Effect on the Company or Newco, (y)
materially impair the ability of the Company, Newco and Newco Sub to enter
into and perform the Investment Agreement or any Ancillary Agreement to
which any of them is a party and their respective obligations thereunder,
or (z) materially reduce Sprint's expected ownership interest in Newco by
virtue of material inaccuracies in the representations and warranties
regarding the capitalization of the Company, in each case without giving
effect to any supplement to any schedule to the Investment Agreement or to
any Ancillary Agreement and Sprint and Sprint L.P. shall also have each
received a separate certificate to such effect dated the Offer Acceptance
Date and executed by the chief executive officer and chief financial
officer of each of the Company, Newco and Newco Sub;
(iv) Each of the Company, Newco and Newco Sub shall have performed in all
material respects all of the respective obligations and covenants required
to be performed or complied with by them under the Investment Agreement and
each of the Ancillary Agreements at or prior to the time of the Closing;
(v) Sprint shall have received the legal opinion of Hunton & Williams,
dated as of the Closing Date, counsel to Newco, Newco Sub, and the Company
in form and substance reasonably satisfactory to Sprint and Sprint L.P.;
and
(vi) There shall not be any warrants to purchase Common Stock or other
Dilutable Securities of the Company outstanding on the Closing Date which
could be exercised on the Closing Date (assuming the expiration of any
applicable vesting periods or the satisfaction of any other conditions to
conversion, exchange, exercise or issuance) into a number of shares of
Common Stock which, in the aggregate, would constitute more than 8% of the
shares of Common Stock outstanding immediately prior to the Closing, which,
upon or after the Merger will be convertible into or exchangeable for or
give the right to acquire Common Stock or other voting securities of the
Company, and the Company shall have provided copies of all amendments or
other modifications of any Warrants and other Dilutable Securities obtained
by the Company.
Sprint may not accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Sprint's obligation to pay for or return tendered shares of
Common Stock after the termination or withdrawal of the Offer), pay for any
shares of Common Stock tendered pursuant to the Offer unless the following
conditions are satisfied on or prior to the Offer Acceptance Time, which
conditions may be waived by Newco, Newco Sub and the Company:
(i) (A) The Board of Directors of Sprint, and the Board of Directors of
the General Partners of Sprint L.P. shall not have withdrawn or modified in
a manner adverse to Newco or the Company their approval of the Offer or the
other transactions contemplated by the Investment Agreement or the
Ancillary Agreements, or approved any Acquisition Proposal or approved the
solicitation of additional Acquisition Proposals, (B) Sprint shall not have
entered into any agreement with respect to any Acquisition Proposal, or (C)
the Board of Directors of Sprint, or the Board of Directors of the General
Partner of Sprint L.P., or any committee thereof shall not have resolved to
take any of the foregoing actions referred to in (A) or (B) above, and
Sprint and Sprint L.P. shall have executed and delivered to the Company,
Newco and Newco Sub, as the case may be, and performed each Ancillary
Agreement to which it is a party. Each Ancillary Agreement shall be in full
force and effect and all of the terms and conditions of each such Ancillary
Agreement shall be satisfied in all material respects;
(ii) The representations and warranties of Sprint and Sprint L.P. shall
be true and correct (A) as of the date referred to in any representation or
warranty that addresses a matter as of a particular date, or (B) as to all
other representations and warranties, as of the date of this Agreement and
as of the Offer Acceptance Time; unless, in either the case of clause (A)
or (B), the inaccuracies under such representations and
36
<PAGE>
warranties, would not, individually or in the aggregate, (x) have a
Material Adverse Effect on Sprint or Sprint L.P., or (y) materially impair
the ability of Sprint and Sprint L.P. to enter into and perform the
Investment Agreement or any Ancillary Agreement to which any of them is a
Party and their respective obligations thereunder, in each case without
giving effect to any supplement to any schedule to the Investment Agreement
or to any Ancillary Agreement (provided, however, that any supplement must
be objected to before the earlier of the Offer Acceptance Time or 10
Business Days from the date of delivery thereof). The Company, Newco, and
Newco Sub shall have each received a separate certificate to such effect
dated the Offer Acceptance Date and executed by a duly authorized executive
officer of each of Sprint and Sprint L.P., in each case without giving
effect to any supplement to any Schedule to the Investment Agreement or to
any Ancillary Agreement;
(iii) Sprint shall have performed or complied in all material respects
with all obligations and covenants required by the Investment Agreement and
each of the Ancillary Agreements to be performed or complied with by Sprint
by the time of the Closing;
(iv) The Company, Newco and Newco Sub shall have received the legal
opinion of Stinson, Mag & Fizzell, P.C., counsel to Sprint and Sprint L.P.,
dated as of the Closing Date, in form and substance reasonably satisfactory
to Newco and the Company; and
(v) Sprint shall not have entered into an agreement providing for a
transaction contemplated by an Acquisition Proposal, nor shall it have
consummated any such transaction, nor shall Sprint have received any
Acquisition Proposal (i) recommended by the Board of Directors of Sprint,
or (ii) if not so recommended, which the Board of Directors of the Company
reasonably determines in good faith upon consultation with its outside
financial advisors is reasonably likely to be consummated.
15. CERTAIN LEGAL MATTERS
Based on a review of publicly available filings made by the Company with the
Commission and other publicly available information concerning the Company and
discussions by representatives of the Purchaser with representatives of the
Company, the Purchaser is not aware of any license or regulatory permit that
appears to be material to the business of the Company, taken as a whole, that
might be adversely affected by the Purchaser's acquisition of Shares as
contemplated herein or of any approval or other action, except as otherwise
described in this Section 15, by any Governmental Entity that would be
required for the acquisition or ownership of Shares by the Purchaser as
contemplated herein. Should any such approval or other action be required, the
Purchaser currently contemplates that such approval or other action will be
sought, except as described below under "State Takeover Laws". There can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that failure to obtain
any such approval or other action might not result in consequences adverse to
the Company's business or that certain parts of the Company's business might
not have to be disposed of if such approvals were not obtained or such other
actions were not taken or in order to obtain any such approval or other
action. If certain types of adverse action are taken with respect to the
matters discussed below, the Purchaser could decline to accept for payment or
pay for any Shares tendered. See Section 14 for certain conditions to the
Offer.
STATE TAKEOVER LAWS
A number of states throughout the United States have enacted takeover
statutes that purport, in varying degrees, to be applicable to attempts to
acquire securities of corporations that are incorporated or have assets,
stockholders, executive offices or places of business in such states. In Edgar
v. MITE Corp., the Supreme Court of the United States held that the Illinois
Business Takeover Act, which involved state securities laws that made the
takeover of certain corporations more difficult, imposed a substantial burden
on interstate commerce and therefore was unconstitutional. In CTS Corp. v.
Dynamics Corp. of America, however, the Supreme Court of the United States
held that a state may, as a matter of corporate law and, in particular, those
laws concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders, provided that such laws were
applicable only under certain conditions.
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Section 203 of the DGCL limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined as any
beneficial owner of 15% or more of the outstanding voting stock of the
corporation) unless, among other things, the corporation's board of directors
has given its prior approval to either the business combination or the
transaction which resulted in the stockholder becoming an "interested
stockholder." The Company's Board of Directors has approved the Investment
Agreement, the Ancillary Agreements, the transactions contemplated by the
Investment Agreement and the Ancillary Agreements and the Purchaser's
acquisition of Shares pursuant to the Offer and, therefore, Section 203 of the
DGCL is inapplicable to the Offer or the other transactions contemplated by
the Investment Agreement.
Based on information supplied by the Company, the Purchaser does not believe
that any other state takeover statutes purport to apply to the Offer or the
other transactions contemplated by the Investment Agreement. The Purchaser has
not currently complied with any state takeover statute or regulation. The
Purchaser reserves the right to challenge the applicability or validity of any
state law purportedly applicable to the Offer and nothing in this Offer to
Purchase or any action taken in connection with the Offer is intended as a
waiver of such right. If it is asserted that any state takeover statute is
applicable to the Offer, the Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state
authorities, and the Purchaser might be unable to accept for payment or pay
for Shares tendered pursuant to the Offer, or be delayed in consummating the
Offer. In such case, the Purchaser may not be obliged to accept for payment or
pay for any Shares tendered pursuant to the Offer.
ANTITRUST
The Purchaser will promptly file after the date hereof a Notification and
Report Form with respect to the Offer and the other transactions contemplated
by the Investment Agreement under the HSR Act. The waiting period under the
HSR Act with respect to the Offer will expire at 11:59 p.m., New York City
time, on the 15th day after the date such form is filed and the waiting period
with respect to the other transactions contemplated by the Investment
Agreement will expire at 11:59 p.m., New York City time, on the 30th day after
the date such form is filed by both the Purchaser and the Company, in each
case unless early termination of the waiting period is granted. In addition,
the Antitrust Division or the FTC may extend such waiting periods by
requesting additional information or documentary material from the Purchaser
and, in the case of the waiting period applicable to the other transactions
contemplated by the Investment Agreement, the Company. If such a request is
made with respect to the Offer, the waiting period related to the Offer will
expire at 11:59 p.m., New York City time, on the 10th day after substantial
compliance by the Purchaser with such request. If such a request is made with
respect to the other transactions contemplated by the Investment Agreement,
the waiting period related to such other transactions will expire at 11:59
p.m., New York City time, on the 20th day after both parties have
substantially complied with such request by each party to whom such a request
is made. Because the other transactions contemplated by the Investment
Agreement are to occur immediately following the Offer, it is expected that
the Offer will not be consummated until the waiting periods under the HSR Act
with respect to both the Offer and the other transactions contemplated by the
Investment Agreement have expired or have been terminated. With respect to
each acquisition, the Antitrust Division or the FTC may issue only one request
for additional information. In practice, complying with a request for
additional information or material can take a significant amount of time. In
addition, if the Antitrust Division or the FTC raises substantive issues in
connection with a proposed transaction, the parties may engage in negotiations
with the relevant governmental agency concerning possible means of addressing
those issues and may agree to delay consummation of the transaction while such
negotiations continue. Expiration or termination of applicable waiting periods
under the HSR Act is a condition to the Purchaser's obligation to accept for
payment and pay for Shares tendered pursuant to the Offer.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed investment
in the Company. At any time before or after the Purchaser's purchase of Shares
pursuant to the Offer, the Antitrust Division or FTC could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares
38
<PAGE>
pursuant to the Offer or the other transactions contemplated by the Investment
Agreement or seeking the divestiture of Shares acquired by the Purchaser or
the divestiture of substantial assets of the Purchaser or its subsidiaries, or
the Company or its subsidiaries. Private parties may also bring legal action
under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such a challenge is made, of the results thereof.
16. FEES AND EXPENSES
As compensation for services rendered in connection with the Purchaser's
investment in the Company and the Offer, the Purchaser has agreed to pay SBC
Warburg Dillon Read Inc. fees of $1.5 million, of which $100,000 is being paid
in connection with their retention and $1.4 million is payable upon Closing.
In addition, the Purchaser has agreed to indemnify SBC Warburg Dillon Read
Inc. and certain related persons and entities against certain liabilities
(excluding those arising under the Securities Act or the Exchange Act) and
expenses.
The Purchaser has retained D.F. King & Co., Inc. to act as the Information
Agent and American Stock Transfer & Trust Company to serve as the Depositary
in connection with the Offer. The Information Agent and the Depositary each
will receive reasonable and customary compensation for their services, be
reimbursed for certain reasonable out-of-pocket expenses and be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the Federal securities laws.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person (other than the Dealer Manager and the Information Agent) in
connection with the solicitation of tenders of Shares pursuant to the offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by
the Purchaser upon request for customary mailing and handling expenses
incurred by them in forwarding material to their customers.
For further information on fees and expenses related to the transactions
contemplated by the Investment Agreement, see Section 10.
17. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. None of the Purchaser, Sprint L.P., the Company, Newco or
Newco Sub is aware of any jurisdiction in which the making of the Offer or the
tender of Shares in connection therewith would not be in compliance with the
laws of such jurisdiction. To the extent the Purchaser, the Company, Newco or
Newco Sub becomes aware of any state law that would limit the class of
offerees in the Offer, the Purchaser will amend the Offer and, depending on
the time of such amendment, if any, will extend the Offer to provide adequate
dissemination of such information to holders of Shares prior to the expiration
of the Offer. In any jurisdiction the securities, blue sky or other laws of
which require the Offer to be made by a licensed broker or dealer, the Offer
is being made on behalf of the Purchaser by the Dealer Manager or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED HEREIN OR IN THE
LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the Commission a Tender Offer Statement on
Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, furnishing
certain additional information with respect to the Offer. In addition, the
Company has filed with the Commission a Solicitation/Recommendation Statement
on Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, setting forth
its recommendation with respect to the offer and the reasons for such
recommendation and furnishing certain additional related information. Such
Schedules and any amendments thereto, including exhibits, should be available
for inspection and copies should be obtainable in the manner set forth in
Sections 8 and 9 (except that they will not be available at the regional
offices of the Commission).
Sprint Corporation
February 18, 1998
39
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
THE PURCHASER
DIRECTORS AND EXECUTIVE OFFICER OF THE PURCHASER
The name, business address, present principal occupation or employment, five-
year employment history and citizenship of each of the directors and executive
officers of the Purchaser are set forth below. Unless otherwise indicated
below, each occupation set forth opposite an individual's name refers to
employment with the Purchaser.
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Mr. William T. Esrey USA Chairman and Chief Executive Officer; Director of
Sprint Corporation Duke Energy Corporation, The Equitable Life
2330 Shawnee Mission Assurance Society of the United States, Everen
Parkway Capital Corporation, and General Mills, Inc. Mr.
Westwood, KS 66205 Esrey has been Chairman of Sprint since 1990 and
Chief Executive Officer since 1985. Director of
Sprint since 1985; Chairman of the Executive
Committee.
Mr. Ronald T. LeMay USA President and Chief Operating Officer; Director of
Sprint Corporation Ceridian Corporation, Imation Corporation, and
2330 Shawnee Mission Yellow Corporation. Mr. LeMay has served as
Parkway President and Chief Operating Officer of Sprint
Westwood, KS 66205 since February of 1996 except for the period from
July 1997 to October 1997 when he served as
Chairman and Chief Executive Officer of Waste
Management, Inc., a provider of comprehensive
waste management services. Mr. LeMay was Chief
Executive Officer of Sprint Spectrum from March
1995 until February 1996. Mr. LeMay was President
and Chief Operating Officer--Long Distance
Division of Sprint from 1989 until March of 1995.
Director of Sprint from 1993 until July 1997 and
re-elected in December 1997.
Mr. Michael B. Fuller USA President--Local Telecommunications Division,
Sprint Corporation since 1996. Mr. Fuller was President of United
2330 Shawnee Mission Telephone--Midwest Group, an operating group of
Parkway subsidiaries of Sprint from 1990 until 1996.
Westwood, KS 66205
Ms. Patti S. Manuel USA President and Chief Operating Officer--Long
Sprint Corporation Distance Division. Ms. Manuel was elected as
2330 Shawnee Mission President and Chief Operating Officer--Long
Parkway Distance Division in February 1998. She was also
Westwood, KS 66205 elected as President and Chief Operating Officer
of Sprint L.P. in February 1998. She had served as
President of Sprint Business, a division of Sprint
L.P., since May 1997. From 1994 to 1997, she was
President of Sales and Marketing for Sprint
Business. She was named President of Marketing for
Sprint Business in 1993.
Mr. Kevin E. Brauer USA President--National Integrated Services Division
Sprint Corporation since October 1997; served as Senior Vice
2330 Shawnee Mission President since June 1997; from 1992 to 1997, was
Parkway President of Sprint L.P.'s Business Service Group.
Westwood, KS 66205
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Mr. J. Richard Devlin USA Executive Vice President--Law and External Affairs
Sprint Corporation since 1989.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Arthur B. Krause USA Executive Vice President--Chief Financial Officer
Sprint Corporation since 1988.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Gene M. Betts USA Senior Vice President since 1990.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. John R. Hoffman USA Senior Vice President--External Affairs since
Sprint Corporation 1990.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. John P. Meyer USA Senior Vice President and Controller since 1993.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Theodore H. Schell USA Senior Vice President--Strategic Planning and
Sprint Corporation Corporate Development since 1990.
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Ms. M. Jeannine USA Senior Vice President and Treasurer since 1990.
Strandjord
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. I. Benjamin Watson USA Senior Vice President--Human Resources since 1993.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. Don A. Jensen USA Vice President and Secretary since 1975.
Sprint Corporation
2330 Shawnee Mission
Parkway
Westwood, KS 66205
Mr. DuBose Ausley USA Chairman of Ausley & McMullen, a law firm,
Ausley & McMullen, P.A. Tallahassee, Florida; Director of Capital City
P.O. Box 391 Bank Group, Inc., Tampa Electric Co., Inc. and
Tallahassee, FL 32302 TECO Energy, Inc. Prior to becoming Chairman of
Ausley & McMullen in 1996, Mr. Ausley was Chairman
of Macfarlane, Ausley, Ferguson & McMullen since
1994 and, prior to that he was President of
Ausley, McMullen, McGehee, Carothers & Proctor,
P.A. for more than five years. Mr. Ausley has also
been Chairman of the Capital City Bank Group, Inc.
for more than five years. Director of Sprint since
1993.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Mr. Warren L. Batts USA Chairman and Chief Executive Officer of Tupperware
Suite 214 Corporation, a diversified consumer products
One Northfield Plaza company, Orlando, Florida. Mr. Batts is also
Northfield, IL 60093 Chairman of Premark International, Inc., a
diversified consumer products company, Deerfield,
Illinois, Director of The Allstate Corporation,
Cooper Industries, Inc. and Sears, Roebuck &
Company. Mr. Batts has been Chairman of Premark
International, Inc. since 1986 and Chairman and
Chief Executive Officer of Tupperware Corporation
since its spin-off from Premark International,
Inc. in 1996. Director of Sprint since 1982;
Chairman of the Audit Committee, Member of the
Executive Committee.
Mr. Michel Bon France Chairman and Chief Executive Officer of France
France Telecom Telecom, a telecommunications company, Paris,
6 place d'Alleray France. Mr. Bon became Chairman of France Telecom
75505 Paris Cedex 15 in September of 1995. He served as head of
France France's national job-placement agency from 1993
to 1995, and, prior to that as Chairman and Chief
Executive Officer of Carrefour, France's largest
retailer, for more than five years. Director of
Sprint since 1996.
Dr. Ruth M. Davis USA President and Chief Executive Officer of The
The Pymatuning Group, Pymatuning Group, Inc., a technology management
Inc. services company, Alexandria, Virginia; Director
Suite 570-4900 Seminary of Air Products and Chemicals, Inc., BTG, Inc.,
Rd. Consolidated Edison Company of New York, Inc.,
Alexandria, VA 22311 Ceridian Corporation, Premark International, Inc.,
Principal Financial Group, Tupperware Corporation
and Varian Associates, Inc. Dr. Davis has been
President and Chief Executive Officer of The
Pymatuning Group, Inc. for more than five years.
Director of Sprint since 1981; Member of the Audit
Committee.
Mr. Irvine O. Hockaday, USA President and Chief Executive Officer of Hallmark
Jr. Cards, Inc., manufacturer of greeting cards,
Hallmark Cards, Inc. Kansas City, Missouri. Director of Dow Jones,
P.O. Box 419580 Inc., Ford Motor Company and UtiliCorp United. Mr.
Kansas City, MO 64141- Hockaday has been President and Chief Executive
6508 Officer of Hallmark Cards, Inc. since 1985.
Director of Sprint since June of 1997; Member of
the Audit Committee.
Mr. Harold S. Hook USA Retired Chairman and Chief Executive Officer of
American General American General Corporation, a financial services
Corporation holding corporation, Houston, Texas, Director of
Wortham Tower Chase Manhattan Bank, Chase Manhattan Corporation,
2727 Allen Parkway, Cooper Industries, Inc. and Duke Energy
Suite W16-01 Corporation. Mr. Hook was Chairman of American
Houston, TX 77019-2125 General Corporation from 1978 to 1997 and Chief
Executive Officer from 1978 to 1996. Director of
Sprint since 1982; Member of the Organization,
Compensation and Nominating Committee.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS POSITION WITH THE PURCHASER, PRINCIPAL OCCUPATION
ADDRESS CITIZENSHIP OR EMPLOYMENT; 5-YEAR EMPLOYMENT HISTORY
- ----------------- ----------- --------------------------------------------------
<S> <C> <C>
Ms. Linda Koch Lorimer USA Vice President and Secretary of the University,
Yale University Yale University, New Haven, Connecticut; Director
P.O. Box 208230 of McGraw-Hill, Inc. Prior to becoming Vice
New Haven, CT 06520 President and Secretary of Yale University in
1993, Ms. Lorimer was President of Randolph-Macon
Woman's College for more than six years. Director
of Sprint since 1993; Member of the Organization,
Compensation and Nominating Committee.
Mr. Charles B. Rice USA Chairman and Chief Executive Officer of Barnett
NationsBank Banks, Inc., a bank holding company, Jacksonville,
P.O. Box 40789 Florida; Director of CSX Corporation. Mr. Rice has
Jacksonville, FL been Chairman and Chief Executive Officer of
32203-0789 Barnett Banks, Inc. for more than five years.
Director of Sprint since 1975; Member of the
Organization, Compensation and Nominating
Committee and the Executive Committee.
Dr. Ron Sommer Germany Chairman of the Board of Management of Deutsche
Deutsche Telekom AG Telekom AG, a telecommunications company, Bonn,
Friedrich-Ebert-Allee Germany. Prior to becoming Chairman of Deutsche
140 Telekom AG in May of 1995, Mr. Sommer was
53113 Bonn President and Chief Operating Officer of Sony
Germany Corporation of America beginning in 1990, and in
1993, he took over the management of Sony Europe
in the same function. Director of Sprint since
1996; Member of the Organization, Compensation and
Nominating Committee.
Mr. Stewart Turley USA Chairman of Eckerd Corporation, a diversified
Suite 201 retailer, Clearwater, Florida; Director of Barnett
1465 South Fort Harrison Banks, Inc. and Springs Industries, Inc. Mr.
Avenue Turley has been Chairman of Eckerd Corporation for
Clearwater, FL 33756 more than five years. Director of Sprint since
1980; Chairman of the Organization, Compensation
and Nominating Committee, member of the Executive
Committee.
</TABLE>
S-4
<PAGE>
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, commercial bank, trust company
or other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
American Stock Transfer & Trust Company
By Mail, Hand or Overnight By Facsimile Transmission:
Delivery: (718) 234-5001
40 Wall Street Confirm Receipt of Facsimile
46th Floor by Telephone:
New York, NY 10005 (718) 921-8200
----------------
Questions and requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery
may be directed to the Information Agent or the Dealer Manager at their
respective telephone numbers and locations listed below. You may also contact
your broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
1-(800)-859-8515
or
Call Collect (212) 209-5550
The Dealer Manager for the Offer is:
SBC WARBURG DILLON READ INC.
535 Madison Avenue
New York, New York 10022
(212) 906-7530
<PAGE>
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
of
EARTHLINK NETWORK, INC.
at
$45.00 NET PER SHARE
Pursuant to the Offer to Purchase Dated February 18, 1998
by
SPRINT CORPORATION
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, MARCH 20, 1998, UNLESS THE OFFER
IS EXTENDED.
The Depositary for the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By Mail, Hand or Overnight Delivery: By Facsimile Transmission:
40 Wall Street (718) 234-5001
46th FloorNew York, NY 10005 Confirm Receipt of Facsimile by
Telephone:
(718) 921-8200
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
THIS LETTER OF TRANSMITTAL MUST BE SIGNED IN THE APPROPRIATE SPACE PROVIDED
THEREFOR AND THE SUBSTITUTE FORM W-9 SET FORTH BELOW MUST BE COMPLETED.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used either if certificates for Shares
(as defined below) are to be forwarded herewith or, unless an Agent's Message
(as defined in Section 2 of the Offer to Purchase) is utilized, if delivery of
Shares is to be made by book-entry transfer to an account maintained by the
Depositary at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in Section 2 of the Offer to
Purchase. Stockholders whose certificates for Shares are not immediately
available or who cannot deliver either the certificates for, or a Book-Entry
Confirmation (as defined in Section 2 of the Offer to Purchase) with respect
to, their Shares and all other documents required hereby to the Depositary
prior to the Expiration Date (as defined in Section 1 of the Offer to
Purchase) must tender their Shares according to the guaranteed delivery
procedures set forth in Section 2 of the Offer to Purchase. See Instruction 2.
Delivery of documents to the Book-Entry Transfer Facility in accordance with
the Book-Entry Transfer Facility's procedures does not constitute delivery to
the Depositary.
<PAGE>
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY
TRANSFER FACILITY, AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY, AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s): ____________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution that Guaranteed Delivery: ______________________________
[_] Check here if Delivered by Book-Entry Transfer
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
DESCRIPTION OF SHARES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
NAME(S) AND ADDRESSES(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARES TENDERED
APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- -----------------------------------------------------------------------------------------------
</TABLE>
TOTAL NUMBER
OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
- -------------------------------------------------------------------------------
*Need not be completed by stockholders tendering by book-entry transfer.
**Unless otherwise indicated, it will be assumed that all Shares being
delivered to the Depositary are being tendered.
See Instruction 4.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS.
Ladies and Gentlemen:
The undersigned hereby tenders to Sprint Corporation, a Kansas corporation
(the "Purchaser"), the above described shares of Common Stock, par value $.01
per share (the "Shares"), of EarthLink Network, Inc., a Delaware corporation
(the "Company"), pursuant to the Purchaser's offer to purchase 1,250,000
Shares at the purchase price of $45.00 per Share, net to the tendering
stockholder in cash, in accordance with the terms and conditions set forth in
the Offer to Purchase dated February 18, 1998 (the "Offer to Purchase"), and
this Letter of Transmittal (which, together with any amendments or supplements
thereto or hereto, collectively constitute the "Offer"), receipt of which is
hereby acknowledged.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms and subject to the conditions
of the Offer (including, if the Offer is extended or amended, the terms or
conditions of any such extension or amendment), the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Purchaser all right, title
and interest in and to all the Shares that are being tendered hereby (and any
and all other Shares or other securities or rights issued or issuable in
respect thereof on or after February 18, 1998) and irrevocably constitutes and
appoints the Depositary the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares (and any such other Shares or
securities or rights), with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), to (a)
deliver certificates for such Shares (and any such other Shares or securities
or rights) or transfer ownership of such Shares (and any such other Shares or
securities or rights) on the account books maintained by the Book-Entry
Transfer Facility, together in either such case with all accompanying
evidences of transfer and authenticity to, or upon the order of, the Purchaser
upon receipt by the Depositary, as the undersigned's agent, of the purchase
price (which price may be adjusted, if appropriate, as provided in the Offer
to Purchase), (b) present such Shares (and any such other Shares or securities
or rights) for transfer on the books of the Company and (c) receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Shares (and any such other Shares or securities or rights), all in accordance
with the terms of the Offer.
The undersigned hereby irrevocably appoint the designees of the Purchaser as
the attorneys-in-fact and proxies of the undersigned, each with full power of
substitution, to vote at any meeting of the Company's stockholders (whether
annual or special and whether or not an adjourned meeting) or otherwise in
such manner as each such attorney and proxy or his substitute shall in his
sole discretion deem proper, to execute any written consent concerning any
matter as each such attorney and proxy or his substitute shall in his sole
discretion deem proper, and to otherwise act as each such attorney and proxy
or his substitute shall in his sole discretion deem proper, with respect to
all the Shares tendered hereby (and any and all other Shares or securities or
rights issued or issuable in respect thereof on or after February 18, 1998)
that have been accepted for payment by the Purchaser prior to the time any
such action is taken and with respect to which the undersigned is entitled to
vote. This appointment is effective when, and only to the extent that, the
Purchaser accepts for payment such Shares as provided in the Offer to
Purchase. This power of attorney and proxy is coupled with an interest in the
Company and in the Shares and is irrevocable and is granted in consideration
of the acceptance for payment of such Shares in accordance with the terms of
the Offer. Such acceptance for payment shall, without further action, revoke
all prior powers of attorney and proxies given by the undersigned at any time
with respect to such Shares (and any such other Shares or other securities or
rights) and no subsequent powers of attorney or proxies may be given (and, if
given, will be deemed not to be effective) by the undersigned with respect
thereto.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby (and any and all other Shares or other securities or rights issued or
issuable in respect thereof on or after February 18, 1998), the tender of the
Shares tendered hereby complies with Rule 14e-4 under the Securities and
Exchange Act of 1934, as amended, and that, when the tendered Shares are
accepted for payment by the Purchaser, the Purchaser will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, claims,
charges and encumbrances. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Depositary or the Purchaser to
be necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby (and any and all such other Shares or other securities
or rights).
All authority conferred or agreed to be conferred pursuant to this Letter of
Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and any obligation of the undersigned hereunder
shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 2 of the Offer to Purchase and in
the instructions hereto will constitute a binding agreement between the
undersigned and the Purchaser upon the terms and subject to the conditions of
the Offer.
The undersigned understands that if more than 1,250,000 Shares are validly
tendered prior to the expiration of the Offer and not validly withdrawn in
accordance with Section 3 of the Offer to Purchase, Shares so tendered and not
validly withdrawn shall be accepted for payment on a pro rata basis, with
adjustments to avoid purchases of fractional Shares, based upon the number of
Shares validly tendered and not withdrawn by the Expiration Date.
<PAGE>
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or any certificates for
Shares not tendered or accepted for payment in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price and/or any certificates for
Shares not tendered or accepted for payment (and accompanying documents, as
appropriate) to the address shown below the undersigned's signature. In the
event that both the Special Delivery Instructions and the Special Payment
Instructions are completed, please issue the check for the purchase price
and/or any certificates for Shares not tendered or accepted for payment in the
name of, and deliver such check and/or such certificates (and accompany
documents, as appropriate) to the person or persons so indicated. Stockholders
delivering Shares by book-entry transfer may request that any Shares not
accepted for payment be returned by crediting such account maintained at the
Book-Entry Transfer Facility as such stockholder may designate by making an
appropriate entry under "Special Payment Instructions." The undersigned
recognizes that the Purchaser has no obligation pursuant to the Special
Payment Instructions to transfer any Shares from the name of the registered
holder thereof if the Purchaser does not accept for payment any of the Shares
so tendered.
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if
certificates for Shares not
tendered or not accepted for
payment and/or the check for the
purchase price of Shares accepted
for payment are to be issued in the
name of someone other than the
undersigned, or if Shares delivered
by book-entry that are not accepted
for payment are to be returned by
credit to an account maintained at
the Book-Entry Transfer Facility
other than the account designated
above.
Issue check and/or certificate to:
Name _______________________________
(Please Print)
Address ____________________________
------------------------------------
(Include Zip Code)
Tax Identification or Social
Security Number (Also Complete
Substitute Form W-9 below):
------------------------------------
[_]Credit unpurchased Shares
delivered by book-entry transfer
to the Book-Entry Transfer
Facility account set forth
below.
Account Number: _________________
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if
certificates for Shares not
tendered or not accepted for
payment and/or the check for the
purchase price of Shares accepted
for payment are to be sent to
someone other than the undersigned
or to the undersigned at an address
other than that indicated above.
Mail check and/or certificate to:
Name: ______________________________
(Please Print)
Address: ___________________________
(Include Zip Code)
<PAGE>
SIGN HERE
(Also complete Substitute Form W-9 Below)
X ______________________________________________________________________________
X ______________________________________________________________________________
(Signature(s) of Stockholder(s))
Dated: , 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on the
certificate(s) for the Shares or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, agents, officers of corporations or others acting
in a fiduciary or representative capacity, please see Instruction 5.)
Name(s): _______________________________________________________________________
- --------------------------------------------------------------------------------
(Please Print)
Capacity (Full Title): _________________________________________________________
Address: _______________________________________________________________________
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number: ________________________________________________
Taxpayer Identification or Social Security Number: _____________________________
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature: __________________________________________________________
Name: __________________________________________________________________________
(Please Print)
Title: _________________________________________________________________________
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number: ________________________________________________
Dated: , 1998
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a member firm
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office, branch or agency in the United States (an "Eligible
Institution"). No signature guarantee is required on this Letter of
Transmittal if (a) this Letter of Transmittal is signed by the registered
holder(s) of the Shares (which term, for purposes of this document, shall
include any participant in the Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of the Shares) tendered herewith,
and such holder(s) has not completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" or (b) such
Shares are tendered for the account of an Eligible Institution. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be completed by stockholders either if certificates are to
be forwarded herewith or, unless an Agent's Message (as defined in Section 2
of the Offer to Purchase) is utilized, if delivery of Shares is to be made
pursuant to the procedures for delivery by book-entry transfer set forth in
Section 2 of the Offer to Purchase. For a stockholder validly to tender Shares
pursuant to the Offer, either (a) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), together with any required
signature guarantees (or, in connection with book-entry transfer, an Agent's
Message), and any other documents required by this Letter of Transmittal must
be received by the Depositary at one of its addresses set forth herein prior
to the Expiration Date and either certificates for tendered Shares must be
received by the Depositary at one of such addresses prior to the Expiration
Date or Shares must be delivered pursuant to the procedures for book-entry
transfer set forth herein and a Book-Entry Confirmation (as defined in Section
2 of the Offer to Purchase) must be received with respect to such Shares by
the Depositary prior to the Expiration Date or (b) the tendering stockholder
must comply with the guaranteed delivery procedures set forth below and in
Section 2 of the Offer to Purchase.
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer prior to the
Expiration Date may tender their Shares by properly completing and duly
executing the Notice of Guaranteed Delivery pursuant to the guaranteed
delivery procedure set forth in Section 2 of the Offer to Purchase. Pursuant
to such procedure, (a) such tender must be made by or through an Eligible
Institution, (b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser, must be
received by the Depositary prior to the Expiration Date and (c) the
certificates for all physically delivered Shares or a Book-Entry Confirmation
with respect to all tendered Shares, together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees (or, in connection with a book-entry transfer, an Agent's
Message), and any other documents required by this Letter of Transmittal must
be received by the Depositary within three Nasdaq National Market System
trading days after the date of execution of the Notice of Guaranteed Delivery,
all as provided in Section 2 of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR
SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-
ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
STOCKHOLDER. EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 2, THE DELIVERY
WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY
IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED AND PROPERLY INSURED
IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. All tendering stockholders, by execution
of this Letter of Transmittal (or facsimile thereof), waive any right to
receive any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares evidenced by any certificate submitted
are to be tendered, fill in the number of Shares which are to be tendered in
the box entitled "Number of Shares Tendered." In such case, new certificate(s)
for the remainder of the Shares that were evidenced by the old certificate(s)
will be sent to you, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the expiration of the
Offer. All Shares represented by certificates delivered to the Depositary will
be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
<PAGE>
If this Letter of Transmittal or any certificates or stock powers are signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of
a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
When this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to or
certificates for Shares not tendered or purchased are to be issued to a person
other than the registered owner(s). In such case, the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered owner or owners appear on the
certificates. Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Shares listed, the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appear on the certificates.
Signatures on such certificates or stock powers must be guaranteed by an
Eligible Institution.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchaser will pay or cause to be paid any stock transfer taxes with respect
to the transfer and sale of Shares to it or its order pursuant to the Offer.
If payment of the purchase price is to be made to, or if certificates for
Shares not tendered or purchased are to be registered in the name of, any
person other than the registered holder, or if tendered certificates are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder or such person) payable on account of the transfer to
such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or exemption therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in
the name of, and/or certificates for Shares not properly tendered or not
accepted for payment are to be returned to, a person other than the signer of
this Letter of Transmittal or if a check is to be sent and/or such
certificates are to be returned to someone other than the signer of this
Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed. Any
stockholder(s) delivering Shares by book-entry transfer may request that
Shares not accepted for payment be credited to such account maintained at the
Book-Entry Transfer Facility as such stockholder(s) may designate hereon. If
no such instructions are given, such Shares will be returned by crediting the
account at the Book-Entry Transfer Facility designated above.
8. WAIVER OF CONDITIONS. Subject to the terms of the Offer, the Purchaser
reserves the right to waive any of those specified conditions of the Offer
which by their terms may be waived by Purchaser, in whole or in part, at any
time and from time to time in the Purchaser's sole discretion, in the case of
any Shares tendered.
9. SUBSTITUTE FORM W-9. Each tendering stockholder must provide the
Depositary with the stockholder's correct Taxpayer Identification Number
("TIN") (i.e., social security number or employer identification number) on
the Substitute Form W-9 set forth below and, unless an exemption applies, must
certify under penalties of perjury that such TIN is correct and that such
stockholder is not subject to backup withholding of Federal income tax. If a
tendering stockholder is subject to backup withholding, the stockholder must
cross out item (2) of the Certification box of the Substitute Form W-9.
Failure to provide the information on the Substitute Form W-9 to the
Depositary may subject the tendering stockholder to 31% Federal income tax
withholding on the payment of the purchase price. In addition, if the
stockholder does not provide such stockholder's correct TIN, the Internal
Revenue Service (the "IRS") may impose a $50 penalty on such stockholder.
Certain stockholders (generally including, among others, corporations and
certain foreign individuals and entities) are not subject to backup
withholding. Foreign individual stockholders and certain foreign entity
stockholders must submit a Form W-8 (Certificate of Foreign Status) to the
Depositary in order to avoid backup withholding. A Form W-8 may be obtained
from the Depositary. Other exempt stockholders should furnish their TIN, write
"Exempt" on the face of the Substitute Form W-9 below and sign, date and
return the Substitute Form W-9 to the Depositary. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9"
for additional instructions.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% of any payments made to such stockholder. Backup withholding
is not an additional income tax. Rather, the amount of backup withholding can
be credited against the Federal income tax liability of the person subject to
backup withholding, provided that the required information is given to the
IRS. If backup withholding results in an overpayment of tax, a refund can be
obtained by the stockholder from the IRS.
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
stockholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% on all payments made prior to the time a properly certified TIN
is provided to the Depository. However, such amounts will be refunded to such
stockholder if a TIN is provided to the Depository within 60 days.
The stockholder is required to give the Depositary the TIN (i.e., social
security number or employer identification number) of the record owner of the
Shares. If the Shares are held in more than one name or are not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
<PAGE>
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary. The stockholder will then be instructed as to
the steps that must be taken in order to replace the certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost or destroyed certificates have been followed.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
may be directed to, or additional copies of the Offer to Purchase and this
Letter of Transmittal may be obtained from, the Information Agent or the
Dealer Manager at their respective addresses set forth below or from your
broker, dealer, commercial bank or trust company.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF, WITH ANY
REQUIRED SIGNATURE GUARANTEES, TOGETHER WITH CERTIFICATES FOR, OR A BOOK-ENTRY
TRANSFER CONFIRMATION WITH RESPECT TO, TENDERED SHARES AND ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION DATE.
<PAGE>
PAYER'S NAME: [NAME OF DEPOSITARY]
- -------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN IN THE
BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
(2) I am not subject to backup withholding because: (a)
I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding
as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am
no longer subject to backup withholding.
INTERNAL REVENUE SERVICE ----------------
Social Security
Number
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION OR
NUMBER ("TIN")
----------------
Employer
Identification
Number
CERTIFICATION INSTRUCTIONS--You must cross out item
(2) above if you have been notified by the IRS that
you are currently subject to backup withholding
because of underreporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you are subject to backup withholding,
you received another notification from the IRS that
you are no longer subject to backup withholding, do
not cross out such item (2).
PART 2--Certificates--Under penalties of perjury, I certify
that:
(1) The number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number
to be issued to me) and
-----------------------------------------------------------
-----------------------------------------------------------
SIGNATURE __________________________________ PART 3--
DATE _______________________________________
Awaiting
TIN ^ [_]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9:
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number to the Depositary by the time of payment, 31% of all
reportable payments made to me will be withheld, but that such amounts will
be refunded to me if I then provide the Depositary a Taxpayer
Identification Number within sixty (60) days.
Signature: _________________________________________________________________
Date:_______________________________________________________________________
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Letter of Transmittal and all other tender offer materials may
be directed to the Information Agent or the Dealer Manager, as set forth below,
and copies will be furnished promptly at the Purchaser's expense.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
1-800-859-8515
or
Call Collect (212) 269-5550
The Dealer Manager for the Offer is:
SBC WARBURG DILLON READ INC.
535 Madison Avenue
New York, New York 10022
(212) 906-7530
<PAGE>
LOGO
[LOGO OF EARTHLINK NETWORK APPEARS HERE]
February 18, 1998
To Our Stockholders:
I am very pleased to share with you the highlights of a strategic alliance
with Sprint Corporation ("Sprint"), which I believe dramatically improves
EarthLink's ability to capitalize on its strengths and realize its potential.
The structure of this transaction permits the Company to retain its
independence and entrepreneurial spirit, while providing the strategic and
financial resources to fuel its continued growth.
The basic terms of the transaction are as follows. On February 10, 1998, the
Company, Sprint, Sprint Communications Company L.P. (an affiliate of Sprint),
Dolphin, Inc., an entity created by the Company ("Newco"), and Dolphin Sub,
Inc., a wholly-owned subsidiary of Newco, entered into an Investment Agreement
(the "Investment Agreement"). Pursuant to the Investment Agreement, Sprint is
making a tender offer to purchase 1,250,000 shares of Common Stock of the
Company, for an aggregate cash consideration of $56,250,000, at a price per
share of Common Stock of $45 net to each seller in cash (the "Offer").
Consummation of the Offer and the other transactions contemplated by the
Investment Agreement is subject to certain conditions, as more fully described
in the enclosed Offer to Purchase made by Sprint (the "Offer to Purchase"). We
urge you to read the Offer to Purchase carefully before making your decision
whether to tender your shares pursuant to the Offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE TRANSACTIONS
CONTEMPLATED BY THE INVESTMENT AGREEMENT, INCLUDING THE OFFER, ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS, AND HAS APPROVED
SUCH TRANSACTIONS. THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF
THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the following factors:
(a) The opportunity for each stockholder of the Company to receive cash for
approximately 11% of the total number of shares of Common Stock held by each
stockholder;
(b) The fact that the $45 per share price of the Offer represented a premium
of approximately 32.4% over the last reported sales price of a share of Common
Stock on The Nasdaq National Market of $34.00 per share on February 9, 1998
(the last full trading date prior to the Board's approval of the Offer), and a
premium of approximately 53.7% over the average of the last reported sales
prices of a share of Common Stock on The Nasdaq National Market for the 30
trading days preceding February 10, 1998;
(c) The Board of Directors' thorough evaluation of a variety of other
potential strategic alternatives and analysis of the viability of and risks
associated with such alternatives. In particular, the Board of Directors
placed great value on the overall strategic importance of a potential
relationship with Sprint, including (i) the value of creating an EarthLink-
Sprint brand for Internet access and related services, (ii) the potential
commercial impact
<PAGE>
of having access to Sprint's nationwide marketing channels, with a commitment
from Sprint to deliver not less than 150,000 net subscribers per year, (iii)
the addition to the Company's business of approximately 130,000 "Sprint
Internet Passport" subscribers immediately upon consummation of the
transactions contemplated by the Investment Agreement, which would result in
the Company having more than 600,000 subscribers in the aggregate at closing,
(iv) favorable terms for access to Sprint's network pursuant to a network
agreement, which diversifies the Company's operational risk by giving it
another credible provider of Internet backbone services, and (v) the
availability of additional capital through $100 million of convertible debt
financing from Sprint and Sprint L.P.'s purchase of 4,102,941 shares of
Series A Convertible Preferred Stock of Newco in exchange for $23.75 million
(in addition to the contribution by Sprint L.P. of its "Sprint Internet
Passport" subscribers and access to its network on favorable terms);
(d) The opinion of Deutsche Morgan Grenfell Inc., the Company's financial
advisor, that the Offer and certain related transactions contemplated by the
Investment Agreement, when taken together, are fair, from a financial point of
view, to holders of Common Stock of the Company;
(e) The terms of the Governance Agreement entered into in connection with
the Investment Agreement, which allow Newco to remain an independent public
company and which provide Newco and its stockholders with alternative paths to
the realization of a control premium in a subsequent business combination
transaction with either Sprint or a third party, including (i) the right of
Sprint to make an offer to purchase all of the remaining equity securities of
Newco not already owned by Sprint and its affiliates at the "Fair Private
Market Value" of Newco (a term that, by definition, contemplates an
appropriate control premium in the context of a competitive environment for
that premium), and (ii) Newco's right to receive and, in certain
circumstances, pursue and solicit, third-party offers to effect business
combinations;
(f) The competitive environment in the Internet industry and the perceived
beneficial effect of the strategic alliance on the Company's relationships
with its employees and customers; and
(g) The probability that the Offer and the other transactions contemplated
by the Investment Agreement will be consummated, given the achievable nature
of the conditions to consummation of the Offer.
The consummation of various transactions contemplated by the Investment
Agreement is subject to certain conditions described in the Offer to Purchase,
including the approval of the stockholders of the Company. The Company's
stockholders will receive, at least 20 business days prior to the date of the
special meeting of stockholders to consider such matters, a Proxy Statement
that will further describe these transactions and the various other agreements
entered into by the Company in connection with the Investment Agreement.
I strongly believe that the series of transactions described in the Offer to
Purchase are in the best interests of the Company. To demonstrate their
personal commitment to the transaction, which is shared by members of
management and the Board and certain significant stockholders, Sky Dayton, the
Company's Chairman, and certain other significant stockholders identified in
the Offer to Purchase have entered into agreements to tender their shares into
the Offer and/or to vote their shares in favor of the related transactions.
These stockholders unhesitatingly acceded to Sprint's request for this
expression of support because this is clearly the right transaction at the
right time for our Company.
On behalf of the Board, we appreciate your continued support of the Company
and your careful consideration of the Offer.
On behalf of the Board of Directors,
LOGO
/s/ Charles G. Betty
Charles G. Betty
President and Chief Executive
Officer
<PAGE>
Exhibit (a)(4)
February 10, 1997
Board of Directors
EarthLink Network, Inc.
3100 New York Drive
Pasadena, CA 91107
Members of the Board:
We understand that Dolphin Sub, Inc. ("Newco Sub"), a wholly-owned
subsidiary of Dolphin, Inc. ("Newco"), EarthLink Network, Inc. ("EarthLink" or
the "Company"), Sprint Corporation ("Sprint"), and its indirect subsidiary
Sprint Communications Company L.P. ("Sprint L.P."), propose to enter into an
Investment Agreement, dated as of the date hereof (the "Investment Agreement"),
which provides, among other things, for the commencement by Sprint of a tender
offer (the "Offer") to purchase 1,250,000 shares of common stock, par value
$0.01 per share, of the Company (the "Common Stock") for an aggregate cash
consideration of $56,250,000 and at a price per share of Common Stock of $45 net
to the seller in cash (such shares representing approximately 11% of the shares
of Common Stock outstanding on the date hereof). Unless otherwise defined
herein, capitalized terms used herein shall have the meanings ascribed thereto
in the Investment Agreement.
Immediately following the closing of the Offer (the "Closing"), Sprint
L.P. will purchase 4,102,941 shares of Series A Convertible Preferred Stock, par
value $.01 per share, of Newco (the "Convertible Preferred Stock"), in exchange
for (i) aggregate cash consideration of $23,750,000, (ii) the assignment to
Newco of 100% of the SIP Subscribers, and (iii) entering into a network
agreement whereby Newco and the Company will utilize Sprint's long-distance
network under specified terms and conditions. The assets listed in Clauses (ii)
and (iii) of the preceding sentence are herein referred to as the "Contribution
Assets".
We also understand that the closing of the purchase and sale of the
Convertible Preferred Stock shall take place immediately following the closing
of the Offer and concurrently with the merger of Newco Sub into the Company (the
"Merger") and the conversion of each share of Common Stock into one share of
Newco common stock, par value $.01 per share, pursuant to the Merger. The
Offer, the sale of the Convertible Preferred Stock and the Merger are
collectively referred to herein as the "Transactions". The terms and conditions
of the Transactions are more fully set forth in the Investment Agreement.
We further understand that Newco Sub, Newco, the Company, Sprint and
Sprint L.P., as applicable, have entered into certain other agreements including
the Certificate of Designation, the Governance Agreement, the Master Assignment,
the Marketing Agreement, the Network Services Agreement, the Registration Rights
Agreement, the Credit Agreement, the Stockholders Agreement, the Agreement and
Plan of Merger, the Agreement to Vote and the Agreement to Vote and Tender
(collectively, the "Ancillary Agreements") and that stockholders owning more
than 1,250,000 shares of the Common Stock have agreed to tender their shares to
Sprint in connection with the Offer pursuant to the Agreement to Vote and Tender
(the "Tendering Stockholders"). As a result, no stockholder of EarthLink other
than the Tendering Stockholders is required to tender shares of the Common Stock
in order for the Offer to be completed.
<PAGE>
EarthLink Network, Inc.
February 10, 1997
Page 2
You have asked for our opinion as to whether the Transactions, when
taken together, are fair from a financial point of view to the holders of the
Common Stock.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information concerning Sprint and the Company, respectively;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections relating to the Company
prepared by the management of the Company;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the
Company;
(v) discussed the financial value of the Contribution Assets with the
management of the Company and the nature of the Contribution Assets
with the management of Sprint;
(vi) analyzed the pro forma impact of the Transactions on the revenue,
operating cash flow, consolidated capitalization and other financial
ratios of the Company;
(vii) reviewed the reported prices and trading activity for the Common
Stock;
(viii) compared the financial performance of the Common Stock and the
prices and trading activity of the Common Stock with that of certain
other comparable publicly-traded companies and their securities;
(ix) compared the results of operations of the Company with that of
certain companies which we deemed to be reasonably similar to the
Company;
(x) reviewed the financial terms, to the extent publicly available, of
certain comparable transactions
(xi) discussed, with the management of the Company, the strategic
rationale and certain other benefits to the Company of the
Transactions;
(xii) participated in discussions and negotiations among representatives
of the Company and Sprint and their financial and legal advisors;
(xiii) reviewed the Investment Agreement and the Ancillary Agreements; and
(xiv) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have also relied upon, without independent verification, the
assessment by the Company's management of the strategic and other benefits
expected to be derived from the Transactions. We have not made any independent
valuation or appraisal of the assets, liabilities or
<PAGE>
EarthLink Network, Inc.
February 10, 1997
Page 3
technology of the Company, or of the Contribution Assets, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on the
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof. We have also taken into account that
because the Tendering Stockholders, who collectively own more than 1,250,000
shares of the outstanding Common Stock, have agreed to facilitate the
transaction by tendering their shares to Sprint in connection with the Offer,
such that the Offer will be consummated regardless of whether any other
stockholders of the Company elect to tender their shares into the Offer.
In the course of our assignment in connection with the Transactions we
have had discussions (and are aware that management of the Company has had
discussions) with several parties concerning a possible transaction, business
combination, or strategic alliance including all or any part of the Company.
We have acted as financial advisor to the Board of Directors of the
Company in connection with this transaction and will receive a fee for our
services. In addition, in the ordinary course of our business, we may actively
trade the securities and loans of both the Company and Sprint for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities and loans.
It is understood that this letter is for the information of the Board
of Directors of the Company only and may not be used for any other purpose
without our prior written consent, except that this opinion may be included in
its entirety in any documents filed by the Company with the Securities and
Exchange Commission with respect to the Transactions. In addition, we express
no recommendation or opinion to the holders of the Common Stock as to whether or
not to tender shares of Common Stock pursuant to the Offer or as to how the
stockholders of the Company should vote at the stockholders' meeting to be held
in connection with the Transactions.
Based on and subject to the foregoing, we are of the opinion on the
date hereof that the Transactions, when taken together, are fair from a
financial point of view to the holders of the Common Stock.
Very truly yours,
DEUTSCHE MORGAN GRENFELL INC.
By: /s/ Ethan Topper
-----------------------------
Ethan Topper
Managing Director
By: /s/ Bill Brady
-----------------------------
Bill Brady
Managing Director
<PAGE>
EXHIBIT (a)(5)
FOR IMMEDIATE RELEASE
- ---------------------
EARTHLINK AND SPRINT ANNOUNCE STRATEGIC ALLIANCE
------------------------------------------------
EARTHLINK-SPRINT ALLIANCE STRENGTHENS EARTHLINK
AND GIVES SPRINT A FIRM FOOTHOLD IN THE INTERNET MARKET
UNIFIED SERVICE ENABLES BOTH COMPANIES TO RAPIDLY EXPAND INTERNET MARKET SHARE
PASADENA, CALIF., February 11, 1998 - EarthLink Network, Inc. (NASDAQ:
ELNK) and Sprint Corporation (NYSE:FON) announced today a long-term strategic
alliance that creates one of the industry's most powerful Internet access
services. EarthLink and Sprint will create a single, unified Internet service
that will have the potential to reach millions of new customers while both
companies achieve prominent positions in the Internet services market. It is the
strategic intent of both companies for EarthLink to remain an independent
company with the flexibility to pursue its strategic objectives. As part of the
alliance, Sprint agrees to make a minority investment in EarthLink. The two
companies will establish a broad business relationship, which includes the
contribution of selected assets and significant commercial commitments.
EarthLink will obtain Sprint's Internet Passport customer base,
approximately $24 million in cash, $100 million in convertible debt financing,
access to Sprint's branded marketing and distribution channels, a five-year
commitment from Sprint to deliver a minimum of 150,000 new customers annually
and preferred access to Sprint's world-class data network.
In exchange, Sprint will receive 4.1 million shares of convertible
preferred stock in EarthLink. In addition, Sprint will initiate a tender offer
to purchase 1.25 million shares of EarthLink common stock at $45 per share. The
sum of common and preferred shares Sprint receives at the time of closing will
represent a 10 percent voting interest and approximately a 30 percent economic
interest in
<PAGE>
2-2-2 EarthLink and Sprint Announce Strategic Alliance
- ------------------------------------------------------
EarthLink. Sprint will also secure two seats on EarthLink's board of directors,
one of which will be occupied by William T. Esrey, chairman and chief executive
officer of Sprint.
The alliance between EarthLink and Sprint allows both companies to
balance their financial and strategic interests as well as capitalize on each
other's key strengths. The alliance preserves EarthLink's independence and
entrepreneurial spirit and provides Sprint with a significant enhancement to its
strategic investment in the Internet market. It also enables EarthLink to
immediately expand its member base by 25 percent to approximately 600,000
members, leverage the resources and equity of the Sprint brand, and accelerate
its future growth.
The alliance enables Sprint to continue to build its brand recognition
in the Internet market and deliver Internet access services to its large
telecommunications customer base, while focusing on the marketing and networking
capabilities that are its strongest asset.
"EarthLink has always delivered the easiest, most friendly and useful
Internet access service available," said Sky Dayton, founder and chairman of
EarthLink Network. "The EarthLink-Sprint alliance takes our company to the next
level. The alliance pairs EarthLink with one of the most powerful brands in the
world, helping us bring our services to millions of potential new members in the
coming years."
Added Esrey, "This alliance strengthens Sprint's position in the
Internet access industry, teaming Sprint with a nimble, growth-oriented company
that shares our commitment to fast, reliable, responsive products and
technologies. Through this agreement, we are able to enhance our Internet
offering while continuing to deliver the highest quality service."
The unified EarthLink-Sprint Internet service, sharing both companies'
brands, will be promoted through various EarthLink and Sprint marketing
channels. Sprint's marketing channels include outlets like airlines, cable
companies, colleges/universities, financial institutions and retail outlets such
as Radio Shack, in addition to sponsorships like the NFL, Rolling Stones and the
U.S. Ski Team. The EarthLink-Sprint service will also be bundled with various
existing Sprint consumer and small business products and services.
"It's a great marriage," said Charles (Garry) Betty, president and chief
executive officer of EarthLink. "This alliance with Sprint enables us to
strengthen our brand, immediately expand our member base by 25 percent to
approximately 600,000, increase our marketing efforts and lock in a low-cost
network commitment. Now EarthLink is even better positioned to aggressively
grow our business. The alliance puts the power of Sprint's marketing and sales
channels behind EarthLink, expanding our reach deeper into the mass market of
consumers and businesses which have yet to get on the Internet."
<PAGE>
3-3-3 EarthLink and Sprint Announce Strategic Alliance
- ------------------------------------------------------
"Sprint has been relentless in its focus on delivering high-performance
products and services over one of the fastest, most advanced networks in the
world," said Gary Forsee, president and chief operating officer, Sprint Long
Distance Division. "The alliance with EarthLink enables us to efficiently
provide a host of high-quality Internet services to Sprint customers, while
building our brand equity and market share in the Internet."
THE DEAL - A SNAPSHOT
- --------------------
The terms of the deal involve many components:
1) Sprint will purchase approximately 30 percent minority stake in
EarthLink, as follows:
. Sprint will initiate a tender offer for 1.25 million EarthLink
common shares at $45 per share;
. Sprint will receive 4.1 million shares of convertible
preferred stock directly from EarthLink; and
. Sprint will secure status as the exclusive telecommunications
provider promoted in EarthLink's channels.
2) In exchange for 4.1 million preferred shares and the right to
tender for 1.25 million common shares, Sprint will provide
EarthLink with:
. All of Sprint's approximately 130,000 Internet Passport
subscribers;
. A five-year commercial agreement for Sprint to promote
EarthLink through its marketing channels, including
commitments to generate a minimum of 150,000 new EarthLink
members annually;
. A four-year network contract allowing EarthLink to utilize
Sprint's world-class data IP network at favorable prices;
. Approximately $24 million in cash;
. A $100 million line of credit in the form of convertible debt
for EarthLink's use, available incrementally over the first
three years; and
. Agency status to bundle Sprint's telecommunications services
with EarthLink services.
3) The parties have entered into a governance agreement that sets
forth the rights and restrictions governing the corporate
relationship between EarthLink and Sprint.
EarthLink will manage the operations, customer service, technical
support and product development for the unified Internet service. EarthLink and
Sprint will work together on marketing, sales and product development. By
sharing the use of their best assets, EarthLink and Sprint will each focus on
their core businesses, enhancing their combined prospects for growth and
success.
EXPANDED SERVICES
- -----------------
Customers are the biggest winners in this alliance. EarthLink's existing
members gain access to another high-speed, reliable dial-up access network which
will support x2 technology nationwide. EarthLink expands its local access POPs
to more than 1,200 - more than any other Internet or online service provider.
EarthLink also becomes the only ISP to support both x2 and k56flex nationwide
<PAGE>
4-4-4 EarthLink and Sprint Announce Strategic Alliance
- ------------------------------------------------------
through more than 500 56k POPs. In addition, as a full-service communications
provider, the alliance enables Sprint to offer integrated billing and multiple
communications services to EarthLink's customers. EarthLink also bolsters its
financial position, ensuring it will continue to have the resources to scale up
while providing excellent service.
Through the unified offering, Sprint's Internet Passport customers will
have access to an expanded set of services. These service features include a
Personal Start Page (TM), a 6 MB free homepage, options to purchase extra email
boxes, vanity domains and low-cost Web sites, access from more than 1,200 POPs
which support both k56flex and x2 technologies, and continued exceptional
technical support.
Deutsche Morgan Grenfell served as EarthLink's sole advisor for this
transaction.
ABOUT SPRINT
- ------------
Sprint is a global communications company at the forefront in
integrating long distance, local and wireless communications services, and one
of the world's largest carriers of Internet traffic. Sprint built and operates
the United State's only nationwide all-digital, fiber-optic network and is the
leader in advanced data communications services. Sprint has $14 billion in
annual revenues and serves more than 16 million business and residential
customers.
ABOUT EARTHLINK NETWORK
- -----------------------
EarthLink Network is the world's largest independent Internet service
provider. Through a full range of innovative access and hosting services, the
company makes the Internet relevant and productive to hundreds of thousands of
individuals and businesses every day. Headquartered in Pasadena, EarthLink
provides local access to thousands of communities from more than 1,110 POPs in
North America and 42 internationally. Additional service and pricing information
is available by calling (800)395-8425 and through EarthLink's Web site at
http://www.earthlink.net.
Sprint Internet Passport is a service mark of Sprint Communications Company. All
other brand and product names are trademarks and/or service marks of their
respective companies.
This release contains forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations or beliefs and are
subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. In particular, careful consideration should be given to cautionary
statements made in each Companies' reports filed with the Securities and
Exchange Commission.
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EXHIBIT (c)(9)
AGREEMENT AND PLAN OF MERGER
AMONG EARTHLINK NETWORK, INC.,
A DELAWARE CORPORATION
DOLPHIN, INC.,
A DELAWARE CORPORATION, AND
DOLPHIN SUB, INC.,
A DELAWARE CORPORATION
THIS AGREEMENT AND PLAN OF MERGER DATED AS OF FEBRUARY 10, 1998 (THE
"AGREEMENT") IS AMONG EARTHLINK NETWORK, INC., A DELAWARE CORPORATION
("EARTHLINK"), DOLPHIN, INC., A DELAWARE CORPORATION ("NEWCO"), AND DOLPHIN SUB
INC., A DELAWARE CORPORATION AND A WHOLLY-OWNED SUBSIDIARY OF DOLPHIN ("NEWCO
SUB"). EARTHLINK AND NEWCO SUB ARE SOMETIMES REFERRED TO HEREIN AS THE
"CONSTITUENT CORPORATIONS."
R E C I T A L S
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A. EarthLink is a corporation duly organized and existing under the laws
of the State of Delaware and has an authorized capital of sixty million
(60,000,000) shares, fifty million (50,000,000) of which are designated as
common stock, $.01 par value per share (the "EarthLink Common Stock"), and ten
million (10,000,000) of which are designated as preferred stock, $.01 par value
per share.
B. Newco is a corporation duly organized and existing under the laws of
the State of Delaware and has an authorized capital of seventy-five million
(75,000,000) shares, fifty million (50,000,000) of which are designated as
common stock, $.01 par value per share (the "Newco Common Stock"), and twenty-
five million (25,000,000) of which are designated as preferred stock, $.01 par
value per share (the "Newco Preferred Stock"). As of February 10, 1998, ten
(10) shares of Newco Common Stock were issued and outstanding (the "Newco
Subscription Shares") and no shares of Newco Preferred Stock were issued and
outstanding.
C. Newco Sub is a corporation duly organized and existing under the laws
of the State of Delaware and has an authorized capital of sixty million
(60,000,000) shares, fifty million (50,000,000) of which are designated as
common stock, $.01 par value per share (the "Newco Sub Common Stock"), and ten
million (10,000,000) of which are designated as preferred stock, $.01 par value
per share. As of February 10, 1998, ten (10) shares of Newco Sub Common Stock
were issued and outstanding, all of which were held by Newco.
D. The Boards of Directors of EarthLink and Newco Sub have determined that
it is advisable and in the best interests of EarthLink and Newco Sub,
respectively, that Newco Sub merge with and into EarthLink upon the terms and
conditions herein provided.
E. The Boards of Directors of each of EarthLink, Newco and Newco Sub have
approved this Agreement and the transactions contemplated hereby and directed
that this Agreement be executed by the respective undersigned officers of each
of those corporations.
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F. The Boards of Directors of EarthLink and Newco Sub have directed that
this Agreement be submitted to a vote of their respective stockholders with the
recommendation that such stockholders approve the Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, EarthLink, Newco and Newco Sub hereby agree, subject to the terms
and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement and the
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Delaware General Corporation Law, Newco Sub shall be merged with and into
EarthLink (the "Merger"), the separate existence of Newco Sub shall cease and
EarthLink shall be, and is herein sometimes referred to as, the "Surviving
Corporation," and the name of the Surviving Corporation shall be EarthLink
Operations, Inc. Upon the Effective Date of the Merger (as defined below),
Newco shall file a change of name amendment to its Certificate of Incorporation,
whereby it shall assume the name "EarthLink Network, Inc."
1.2 Filing and Effectiveness. The Merger shall become effective when the
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following actions shall have been completed:
(a) This Agreement and Merger shall have been adopted and approved by the
stockholders of each of the Constituent Corporations in accordance with the
requirements of the Delaware General Corporation Law; and
(b) An executed Certificate of Merger or an executed counterpart of this
Agreement meeting the requirements of the Delaware General Corporation Law shall
have been filed with the Secretary of State of the State of Delaware.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Time of the Merger."
1.3 Effect of the Merger. Upon the Effective Time of the Merger, the
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separate existence of Newco Sub shall cease and EarthLink, as the Surviving
Corporation, (i) shall continue to possess all of its assets, rights, powers and
property as constituted immediately prior to the Effective Time of the Merger,
(ii) shall be subject to all actions previously taken by its and Newco Sub's
Board of Directors, (iii) shall succeed, without other transfer, to all of the
assets, rights, powers and property of Newco Sub in the manner more fully set
forth in Section 259 of the Delaware General Corporation Law, (iv) shall
continue to be subject to all of the debts, liabilities and obligations of Newco
Sub in the same manner as if EarthLink had itself incurred them, all as more
fully provided under the applicable provisions of the Delaware General
Corporation Law.
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II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation of
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Newco Sub as in effect immediately prior to the Effective Time of the Merger
shall continue in full force and effect as the Certificate of Incorporation of
the Surviving Corporation until duly amended in accordance with the provisions
thereof and applicable law. The Certificate of Incorporation of Newco Sub is
attached hereto as Appendix A.
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2.2 Bylaws. The Bylaws of Newco Sub as in effect immediately prior to the
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Effective Time of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law. The Bylaws of Newco Sub are attached
hereto as Appendix B.
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2.3 Directors and Officers. The directors and officers of EarthLink
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immediately prior to the Effective Time of the Merger shall be the directors and
officers of each of Newco and the Surviving Corporation until their successors
shall have been duly elected and qualified or until as otherwise provided by
law, the Certificate of Incorporation or the Bylaws of Newco or of the Surviving
Corporation, respectively.
III. MANNER OF CONVERSION OF STOCK
3.1 Newco Sub Common Stock. Upon the Effective Time of the Merger, the
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shares of Newco Sub Common Stock issued and outstanding immediately prior
thereto shall, by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any other person, be converted into
and exchanged for such number of fully paid and nonassessable shares of common
stock of the Surviving Corporation as is equal to the number of shares of
EarthLink Common Stock outstanding at the Effective Time of the Merger.
3.2 EarthLink Common Stock. Upon the Effective Time of the Merger, each
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share of EarthLink Common Stock issued and outstanding immediately prior thereto
shall by virtue of the Merger and without any action by the Constituent
Corporations, the holder of such shares or any other person, be converted into
and exchanged for one fully paid and nonassessable share of Newco Common Stock.
3.3 Newco Subscription Shares. Upon the Effective Time of the Merger, the
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Newco Subscription Shares shall be canceled and thereafter held as treasury
stock of Newco.
3.4 EarthLink Options, Stock Purchase Rights and Convertible Securities.
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(a) Upon the Effective Time of the Merger, to the extent permitted by the
terms of such instruments as in effect at the Effective Time of the Merger,
Newco shall assume the obligations of EarthLink under any and all securities,
warrants, calls, rights to purchase, rights of first refusal, securities
convertible into or exchangeable for voting securities, commitments, agreements,
arrangements or undertakings of any kind to which EarthLink is a party or by
which it is bound obligating EarthLink to issue, deliver or sell or create, or
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cause to be issued, delivered or sold or created, additional shares of the
capital stock of or other voting securities or phantom stock or other
contractual rights the value of which is determined in whole or in part by the
value of any capital stock of EarthLink, or obligating EarthLink to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement, or undertaking (collectively, the "Dilutive
Securities") on the same terms and conditions as were in effect immediately
prior to the Merger; thereafter, each such Dilutive Security shall become,
subject to the provisions in paragraph (c) hereof, an option, right to purchase
or a security convertible into Newco Common Stock on the basis of one share of
Newco Common Stock for each one share of EarthLink Common Stock issuable
pursuant to any such Dilutive Security, on the same terms and conditions and at
an exercise price equal to the exercise price applicable to any such Dilutive
Security at the Effective Time of the Merger.
(b) A number of shares of Newco Common Stock shall be reserved for issuance
upon the exercise of options, stock purchase rights and convertible securities
equal to the number of shares of EarthLink Common Stock so reserved immediately
prior to the Effective Date of the Merger.
(c) The assumed Rights shall not entitle any holder thereof to a fractional
share upon exercise or conversion (unless the holder was entitled to a
fractional interest immediately prior to the Merger). In lieu thereof, any
fractional share interests to which a holder of an assumed Right (other than an
option issued pursuant to EarthLink's 1995 Stock Option Plan, as amended) would
otherwise be entitled upon exercise or conversion shall be aggregated (but only
with other similar Rights which have the same per share terms). To the extent
that after such aggregation the holder would still be entitled to a fractional
share with respect thereto upon exercise or conversion, the holder shall be
entitled, upon the exercise or conversion of all such assumed Rights pursuant to
their terms (as modified herein), to one full share of common stock in lieu of
such fractional share. With respect to each class of such similar Rights, no
holder will be entitled to more than one full share in lieu of a fractional
share upon exercise or conversion.
3.5 Stock Certificates.
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(a) Upon the Effective Time of the Merger, each outstanding
certificate theretofor representing shares of EarthLink Common Stock shall be
deemed for all purposes to represent the number of shares of Newco Common Stock
into which such shares of EarthLink Common Stock were converted in the Merger.
The registered owner of shares of EarthLink Common Stock on the books and
records of EarthLink shall be entitled, as of the Effective Time of the Merger,
to exercise any voting and other rights with respect to, and receive dividends
and other distributions upon, the shares of Newco Common Stock represented by
such outstanding certificate as provided above.
(b) Upon the Effective Time of the Merger, Newco, the sole stockholder
of Newco Sub, shall surrender the outstanding certificate representing shares of
Newco Sub to the Surviving Corporation in exchange for a certificate or
certificates representing the number of shares of common stock of the Surviving
Corporation into which the surrendered shares were converted as herein provided.
Such certificate for shares of common stock of the Surviving
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Corporation shall bear the same legends, if any, with respect to the
restrictions on transferability as the certificate of Newco Sub so converted and
given in exchange therefor, unless otherwise determined by the Board of
Directors of the Surviving Corporation in compliance with applicable laws.
IV. GENERAL
4.1 Assurances. From time to time, as and when required by the parties
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hereto or by their successors or assigns, there shall be executed and delivered
on behalf of the parties hereto such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other actions as
shall be appropriate or necessary in order to vest or perfect in or conform of
record or otherwise by the parties hereto the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of the parties hereto and otherwise to carry out the purposes of
this Agreement, and the officers and directors of the parties hereto are fully
authorized in the name and on behalf of such parties or otherwise to take any
and all such action and to execute and deliver any and all such deeds and other
instruments.
4.2 Abandonment. At any time before the Effective Time of the Merger,
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this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of any of EarthLink, Newco or Newco Sub,
notwithstanding the approval of this Agreement by the stockholders of EarthLink
or by the sole stockholder of Newco or Newco Sub.
4.3 Amendment. Subject to the Investment Agreement dated February 10,
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1998, by and among EarthLink, Newco, Newco Sub, Sprint Corporation and Sprint
Communications Company L.P., the Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretary of State of the
State of Delaware, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholders of either Constituent Corporation shall not:
(i) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or in conversion of all or any of
the shares of any class or series thereof of either of the Constituent
Corporations, (ii) alter or change any term of the Certificate of Incorporation
of the Surviving Corporation to be effected by the Merger, or (iii) alter or
change any of the terms and conditions of this Agreement if such alteration or
change would adversely affect the holders of any class or series of capital
stock of either of the Constituent Corporations.
4.4 Registered Office. The registered office of the Surviving Corporation
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in the State of Delaware is 1209 Orange Street, Wilmington, DE 19801 and The
Corporation Trust Company is the registered agent of the Surviving Corporation
at such address.
4.5 Agreement. Executed copies of this Agreement will be on file at the
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principal place of business of the Surviving Corporation at 3100 New York Drive,
Suite 201, Pasadena, California 91107, and copies thereof will be furnished to
any stockholder of either Constituent Corporation, upon request and without
cost.
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4.6 Governing Law. This Agreement shall in all respects be construed,
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interpreted and enforced in accordance with and governed by the laws of the
State of Delaware.
4.7 Counterparts. In order to facilitate the filing and recording of this
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Agreement, the same may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of EarthLink Network, Inc., a Delaware
corporation, Dolphin, Inc., a Delaware corporation, Dolphin Sub, Inc., a
Delaware corporation, and is hereby executed on behalf of each such corporations
and attested by their respective officers thereunto duly authorized.
EARTHLINK NETWORK, INC.
a Delaware corporation
By:_______________________________
Sky D. Dayton, Chairman
ATTEST:
___________________________
Kirsten Hansen, Secretary
DOLPHIN, INC.
a Delaware corporation
By:_______________________________
Sky D. Dayton, Chairman
ATTEST:
_______________________________
Kirsten Hansen, Secretary
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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DOLPHIN SUB, INC.
a Delaware corporation
By:_______________________________
Sky D. Dayton, Chairman
ATTEST:
_______________________________
Kirsten Hansen, Secretary
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